A federal court in Arkansas granted summary judgment to defendants in Shipp v. Central States Manufacturing, Inc.,(2) a class action lawsuit challenging an ESOP’s releveraging transaction. Shipp is the first lawsuit to challenge releveraging transactions conceptually and one of many recent cases attacking sustainability decisions made by mature ESOP fiduciaries. Given the growing popularity of releveraging transactions as a tool to manage the repurchase obligation, this defense-side victory is a significant win for ESOP sponsors and trustees who have releveraged or plan to do so in the future.
The CSMI ESOP and 2020 Releveraging Transaction
Central States Manufacturing, Inc. (the “Company”) established its ESOP in 1991 and became 100% ESOP-owned in 2011. The Company historically met its repurchase obligation by re-deeming and retiring shares from departing participants, which gradually reduced the number of shares in circulation.
As the Company’s share count was shrinking, its equity value was rising. This combination caused the per-share value of the Company’s stock to grow at a faster rate than its equity value. Consequently, the value of ESOP participant accounts holding the most stock—typically those belonging to older, longer-tenured, higher-compensated employees near or in retirement—ballooned. By 2019, the Company projected that its skyrocketing repurchase obligation would subsume nearly all of its cash flows within five years, cause it to trip lender covenants, and threaten its continued viability.
To address this crisis, the Company and the ESOP’s trustee, GreatBanc Trust Company, entered into a releveraging transaction in December 2020. In short, the Company redeemed 2.2 million shares from former employees for $40 million ($18 per share) in August 2020, then sold them back to the ESOP in December 2020 for a $40 million promissory note ($18 per share) (the “Transaction”). The Transaction followed more than a year of due diligence during which the Company retained financial advisors to conduct repurchase obligation and sustainability studies, considered alternatives to releveraging, and modeled roughly a dozen different repurchase obligation scenarios.
Plaintiffs’ Allegations
In November 2023, three former ESOP participants sued the Company, its board of directors, individual members of the board and management, and GreatBanc on behalf of a putative class of all participants. At the time of the Transaction, the named plaintiffs were more senior, highly compensated employees with large account balances nearing retirement. They claimed that the Transaction violated the Employee Retirement Income Security Act of 1974 (“ERISA”) be-cause it diluted the value of the Central States stock held by the ESOP and its participants by $40 million.
The Court Grants Defendants Summary Judgment
After fact and expert discovery concluded, the defendants moved for summary judgment. They argued, among other things, that the decision to releverage was not an ERISA fiduciary act; that the ESOP’s trustee followed a prudent process in assessing the Transaction’s pricing and fairness to the ESOP; and that the Transaction actually benefited the ESOP and its participants. The Western District of Arkansas granted the defendants’ motion on March 30, 2026.(3) Its opinion contained two important holdings.
First, the court held that the decision to releverage was not an ERISA fiduciary decision. “[N]o reasonable jury,” the court held, “could find that the two-step releveraging transaction was any-thing but a corporate decision” outside of ERISA’s scope “made with the financial health of the company in mind.” Even if the plaintiffs were correct that the Transaction temporarily reduced the share price, the court held that “business decisions are not considered plan fiduciary decisions simply because they impact the plan in some respect.” Accordingly, the Company-side defendants could be subject only to ERISA’s limited duty to monitor GreatBanc.
Second, the court held that GreatBanc satisfied its ERISA duties of prudence and loyalty with respect to its role in the Transaction, which was limited to determining the price at which the ESOP would transact and whether the deal’s terms were fair to the ESOP. The court found that GreatBanc more than met ERISA’s requirements.
With respect to ERISA’s duty of prudence, the court held that GreatBanc’s fiduciary process “was objectively reasonable and prudent.” Among other things, GreatBanc participated in and closely reviewed the Company’s decision-making process; retained its own independent financial advisor; and negotiated favorable stock prices for the ESOP and its participants. As the court noted, the “[p]laintiffs’ disagreement with GreatBanc is less about the process than the fact that [the] Transaction happened at all.”
The court held that GreatBanc also satisfied ERISA’s duty of loyalty. In addition to securing favorable pricing, GreatBanc also considered the long-term interests of the ESOP as a whole, rather than the short-term interests of individual participants. As the court put it, “[t]he Trustee’s duty of loyalty is not to individual Plan Participants but to all Plan Participants or the Plan as a whole.” The plaintiffs, by comparison, were “all terminated or retired employees with large ESOP accounts” who were pursuing a theory that was “less about the Plan than about their individual stock portfolios.”
“Given these facts,” the court viewed the plaintiffs’ allegation that GreatBanc “merely rubber stamp[ed] the [T]ransaction” as “borderline frivolous” and granted summary judgment for all defendants.
Implications for ESOP Sponsors and Trustees
The court’s ruling in Shipp is significant for ESOP sponsors and trustees. Determining which strategies and tools to use to best manage a mature ESOP’s repurchase obligation involves difficult tradeoffs—all of which impact different participant populations in different ways. Shipp makes clear that ESOP sponsors are not subject to ERISA liability while making these decisions and provides a roadmap for ESOP trustees to follow in satisfying their fiduciary responsibilities. The court’s sound reasoning will hopefully deter plaintiffs’ firms from bringing future class action lawsuits challenging releveraging transactions.
(1) Lars and Andrew are Principals, and Larry is an Associate, at Groom Law Group, Chartered, which represented GreatBanc Trust Company in the Shipp case.
(2) No. 5:23-cv-05215, 2026 WL 868217 (W.D. Ark. Mar. 30, 2026).
(3) Because the court granted the defendants’ motion for summary judgment, it did not decide plaintiffs’ opposed motion for class certification or the defendants’ motion to exclude the plain-tiffs’ expert, Dana Messina.
