An ESOP Fable with a Drafting Tip

An interesting case was recently decided by the federal court in the Northern District of Alabama: Pension and Employee Stock Ownership Plan Administrative Committee of Community Bancshares, Inc. v. Patterson, CV-04-BE-00531-S 9 (N.D. Ala. Mar. 31, 2008). Community Bancshares, Inc. (Bancshares) sponsored an ESOP that purchased Bancshares stock in 1993 and 1998. Kennon Patterson, then the Chairman, CEO, and President of Bancshares, was also a member of the ESOP administrative committee. When Patterson was indicted for bank fraud, the ESOP committee and trustee sued for a declaratory judgment that (i) the damages sustained by the ESOP as a result of Patterson’s misconduct and fiduciary breach should be offset against the ESOP distribution otherwise due to Patterson, (ii) Patterson was not entitled to any payment from the ESOP, and (iii) the committee’s direction to the trustee to not pay Patterson was proper under the terms of the ESOP and ERISA.

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