ESOP Lawsuit Follows Sale to Private Equity Firm

A New Jersey-based graphite manufacturer is alleged to have failed to operate the employee stock ownership plan in the best interests of participants.

Two Asbury Carbons Inc. employees are suing the operators of the company’s stock ownership plan, claiming they harmed the assets of participants by approving a 2023 company sale to private equity firm Mill Rock Capital at a price below its true market value. The complaint alleges fiduciary breaches committed by the operators of the company stock ownership plan.

Plaintiffs Lance Miller and Larry Richardson brought four separate counts under the Employee Retirement Income Security Act, arguing that plan fiduciaries agreed to a flawed and rushed sale, harming participants’ retirement assets, the filing shows.

Get more!  Sign up for PLANSPONSOR newsletters.

“Defendants approved and facilitated this below-value sale in total disregard of their fiduciary duties under ERISA to act solely for the benefit of the Asbury ESOP participants and beneficiaries,” the complaint states. “Defendants also did not seek to obtain an independent opinion as to the fairness of the proposed sale price to Plan participants and beneficiaries, as they should have.”

The sale to Mill Rock Capital closed on March 24, according to the complaint.

The plaintiffs allege that the defendants are liable under ERISA for failing to provide in a timely manner a summary annual report—purportedly showing a higher value for the ESOP holdings—to the Asbury ESOP participants and beneficiaries for the fiscal year that ended June 30, 2022; for not requiring an independent valuation of the company prior to the sale, as mandated by the plan’s rules; and for failing to provide ballots for voting (as explicitly required by a May 2022 summary plan description) on whether the plan should sell all its company stock holdings to Mill Rock Capital, the complaint alleges.

Named defendants in the lawsuit are Asbury Carbons Inc.; Patrick Sook, CFO at Asbury Carbons; trustee for the Asbury ESOP Neil Brozen, a co-founder and president of Ventura Trust; and Asbury Carbons Inc. Employee Stock Ownership Plan, the court record shows.

The lawsuit is Lance Miller and Larry Richardson et al. v. Neil Brozen, Asbury Carbons Inc., Patrick Sook and Asbury Carbons Inc. Employee Stock Ownership Plan. The lawsuit was filed in U.S. District Court for the District of New Jersey.

Brozen was the target of a separate 2021 lawsuit brought by the Department of Labor, alleging that Ventura Trust, as a trustee of another company’s stock ownership plan, allowed the plan to be sold for less than its market value in violation of ERISA. The lawsuit is ongoing in U.S. District Court for the District of Texas.

Ventura Trust provides transactional and ongoing ESOP trustee services to such plans across the country and consulting services for internal trustees, the plaintiffs’ attorneys state.  

Brozen currently serves as a trustee for 145 ESOP companies in 29 states in industries such as construction, manufacturing, distribution and government contractors, the Asbury plaintiffs’ complaint states.

Requests for comment to Asbury Carbons and Ventura Trust on the lawsuit were not returned.

Plaintiffs Requests

The plaintiffs are seeking monetary relief, including attorneys’ fees and filing costs, along with status as a class action complaint. The plaintiffs asked that the class period for the suit apply  to all participants and beneficiaries, not including the defendants, in the Asbury Carbons Inc. Employee Stock Ownership Plan as of March 24, 2023.

‘Riddle’ at Center

Since the company’s founding in 1895 by Harry M. Riddle, Asbury Carbons has been majority owned by the Riddle family and operated as a family-owned manufacturer of graphite products, according to the complaint.

In 2021, the family determined to sell the company, which required the sale of all the family’s holdings of Asbury Carbons Stock and all the Asbury ESOP’s holdings of Asbury Carbons stock, the complaint states.

To sell the company, the retirement plan executive committee’s responsibility for investigating strategic options was terminated and reassigned by the board of directors to a newly formed Strategic Initiative Committee. The committee was charged only with facilitating the sale of the company, according to the complaint, and it hired Deloitte Corporate Finance to facilitate the sale.

“During the course of that due diligence process, Mill Rock Capital kept lowering their offers, citing deteriorating financial considerations in the financial markets generally,” the complaint states. “Defendants Brozen and Sook knew of these lowered offers. Also, during this due diligence process, members of the executive committee went to the board of directors of the company and advocated that, given the deterioration in financial markets in the second half of 2022, the company not be sold at that time.”

The Board of Directors rejected an effort to delay the sale, the plaintiffs’ attorneys wrote.

Once bids were received, finalists were narrowed down to two bidders, and Mill Rock Capital then provided a sweetened bid of more than $105 million, according to the complaint.

“Mill Rock Capital ultimately would only pay approximately $98 million to purchase all the shares held by the Riddle family and the Asbury ESOP,” the complaint alleges. “Despite their knowledge that the general financial markets were continuing to deteriorate, which directly impacted the price at which Mill Rock Capital was willing to buy the company, the sale was approved by the board and defendant Brozen, and with the complicity of the plan administrator defendants, all to effectuate the Riddle family’s determination to sell the company as quickly as was possible.”

Plaintiffs’ claims

Brozen and the plan administrators were responsible for providing the Summary Annual Reports following each fiscal year, which ends on June 30, to all ESOP participants and beneficiaries, reflecting their interests in the plan, according to the complaint.

The defendants did not provide a summary annual report to the ESOP participants and beneficiaries for the fiscal year that ended on June 30, 2022, and had not provided a report by January 2023, according to the complaint. 

To determine the value of the ESOP’s holdings as of June 30 each year, the defendants employed the services of the Schwartz Heslin Group, which provides advisory, investment banking and business valuation services. The defendants were also responsible for filing the annual Form 5500 with the Department of Labor, which reflected SHG’s valuations.

As of June 30, 2021, the annual statements provided by the defendants to Asbury ESOP participants and beneficiaries, which were based on SHG’s valuation of the Asbury ESOP’s holdings of company shares, stated the net asset value of the ESOP was $38,468,559.

In an April 14, 2022, letter by defendant Sook to retirement plan participants, he said he anticipated an increased value to be reflected in the annual statement.

“The shares of Asbury stock held in the ESOP were previously valued at $2,390 per share as of June 30, 2020, and $3,747 as of June 30, 2021,” Sook wrote. “Since then, the company’s performance has been strong, which will be reflected in your next ESOP statement.”

However, according to the complaint, “On March 29, 2023, Defendant Brozen wrote all Asbury ESOP participants and beneficiaries and advised them that the ESOP had sold its shareholdings and received sale proceeds of $18,371,347.01 for its 19.709 percent interest in the Company’s stock—representing a shocking 52% decline in the value of their retirement accounts from the June 30, 2021, valuation defendants had provided to them and a 42% decline in a December 30, 2021 interim valuation that defendants provided to them,” the complaint states. “Neither defendant Brozen nor the plan administrator Defendants have provided any explanation that would justify $18,371,347.01 as a fair valuation to sell all the Asbury ESOP’s holdings.”

The Court Record

The assets in the Asbury Carbons ESOP are unclear from the complaint. According to the most recent Form 5500, for the period ended June 30, 2022 and filed April 23, 2023, there were 205 participants in the plan.  

The Asbury Carbons ESOP Plan covers substantially all employees of the company and participating subsidiaries of Asbury Carbons Inc., namely Asbury Graphite Mills Inc.; Anthracite Industries Inc.; Asbury Graphite Inc. of California; Cummings-Moore Graphite Co.; Asbury Louisiana Inc.; and Asbury Graphite of North Carolina, according to the complaint. 

The plaintiffs are represented by Jeffrey Klafter of Klafter Lesser LLP, based in Port Chester, New York, and the law offices of Javerbaum Wurgaft Hicks Kahn Wikstrom & Sinins PC, based in New York City. The complaint did not include counsel for the defendants.