Summary of the Lawsuit
This lawsuit, Zavala v. Kruse-Western Inc. et al., brought on behalf of participants and beneficiaries of the Western Milling Employee Stock Ownership Plan (“ESOP”), alleges numerous violations of the Employee Retirement Income Security Act (“ERISA”) in connection with the sale of Kruse-Western, Inc. to the ESOP for an inflated value, which caused a multi-million-dollar loss to the ESOP.
A federal class action was filed in the United States District Court for the Eastern District of California (1:19-cv-00239) on February 19, 2019. The Complaint alleges that Kruse-Western, Kevin Kruse and John and Jane Does 20-30 (collectively, “the Selling Shareholders”), and the ESOP’s Trustee, GreatBanc Trust Company, breached their fiduciary duties to the participants and engaged in prohibited transactions in connection with the creation and sale of the ESOP in 2015. Specifically, in November 2015, the Selling Shareholders sold 100% of the Kruse-Western, Inc. company stock to the newly-created Western Milling ESOP. Approximately two months later, that stock had dropped nearly 90% in value. The Complaint alleges that, among other things, the 2015 ESOP transaction failed to account for Kruse-Western, Inc.’s liabilities in connection with the recurring contamination of animal feed produced by Western Milling.
The lawsuit is brought on behalf of all participants and beneficiaries in the Western Milling (“Western Milling”) Employee Stock Ownership Plan (“ESOP”) from November 4, 2015 or any time thereafter who vested under the terms of the ESOP. The case arises out of the sale of 100% of the stock of Kruse-Western, Inc. to the Western Milling ESOP for approximately $244 million. Shortly after that sale, the value of that Kruse-Western stock dropped to just $26.6 million, based on public filings made by the ESOP. Plaintiff alleges that the ESOP paid more than fair market value for the Kruse-Western stock, and as a result, that the ESOP fiduciaries and parties to the ESOP transaction violated ERISA in a number of ways.
The Western Milling ESOP covers employees of Western Milling, OHK Transport LLC, OHK Logistics, LLC, and Winema Elevators, LLC. Excluded from the Class are Defendants and their immediate family, any fiduciary of the ESOP; the officers and directors of Kruse-Western (including any of its subsidiaries or affiliates), or of any entity in which a Defendant has a controlling interest; and legal representatives, successors, and assigns of any such excluded persons.
Status of the Litigation
Plaintiff filed his Complaint on February 19, 2019 in the United States District Court for the Eastern District of California. On April 15, 2019, Defendants filed a Motion to Dismiss the case, which was granted in part and denied in part by the Court in a July 26, 2019 order. In this order, the Court found that Plaintiff adequately alleged 1) that the ESOP Trustee, GreatBanc Trust Company, engaged in a prohibited transaction under ERISA when the ESOP paid more than fair market value to purchase Western Milling; 2) that GreatBanc breached the fiduciary duty it owed to the ESOP when it approved a purchase price for the ESOP that did not adequately reflect Western Milling’s earnings and revenue, given recurring monensin poisoning issues within the company; and 3) that the Kruse-Western Board of Directors failed to monitor the actions of its appointed ESOP Trustee, GreatBanc. The Court also allowed Plaintiff to file an Amended Complaint addressing the pleading deficiencies found in the first Complaint.
In accordance with the Court’s July 26 order, Plaintiff filed an Amended Complaint on August 16, 2019. Defendants filed Motions to Dismiss the Amended Complaint on August 30, 2019, seeking dismissal of three of the five Counts of the Amended Complaint. Also, on August 30, 2019, Defendants Kevin Kruse and GreatBanc Trust Company filed respective Answers and Affirmative Defenses to Plaintiff’s Amended Complaint. Defendants Kruse and GreatBanc subsequently amended their Answers and Affirmative Defenses on September 20, 2019. On September 24, 2019, the Board of Director Defendants filed an Answer and Affirmative Defenses to the Amended Complaint.
On December 13, 2021, the Court denied the Defendants’ Motion for Summary Judgment and denied in part their Second Motion to Dismiss.
On June 29, 2022, Plaintiff requested to file a Second Amended Complaint, which named additional Plaintiffs and Defendants, as well as newly-discovered claims. The case was reassigned judges on August 24, 2022.
On March 8, 2023, Plaintiffs filed their Second Amended Complaint against Defendants. A subset of the Defendants filed a Motion to Dismiss the Second Amended Complaint on April 13, 2023, which Plaintiffs responded to in opposition on May 10, 2023. On May 31, those Defendants filed a reply to Plaintiffs' opposition.
On June 5, two groups of Defendants filed additional Motions to Dismiss, which Plaintiffs responded in opposition to on July 24th. On August 21, Defendants filed replies to this opposition.
On July 25, 2023, the Court issued an Order saying that class certification discovery is stayed pending the resolution of the pending motions to dismiss filed by Defendants. So, the process by which the Parties exchange information and documents related to class certification isn't allowed right now, and it will not be allowed until the Court rules on Defendants' motions. Once those motions are resolved, the Court has ordered the Parties to meet to determine a proposed schedule for class certification discovery and briefing.
Whom to Contact for More Information
If you are a participant in the Western Milling ESOP, or if you have information which might assist us in the prosecution of these allegations, please contact:
Jacob Schutz, Associate (email)
Michelle C. Yau, Partner (email)
Jillian Pincus, Paralegal (email)
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W., Suite 500
Washington, D.C. 20005
Telephone: 888-240-0775 (Toll Free) or 202-408-4600