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.

Class Action

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, Perfection Pet Foods, 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.

The Court held a hearing on Defendants’ second Motions to Dismiss three counts from the Amended Complaint on November 5, 2019. A decision on the Motions is pending.

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 one of the following persons:

Mary Bortscheller, Esq., mbortscheller@cohenmilstein.com
Tamara Haynes, Paralegal, thaynes@cohenmilstein.com
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