Fraudulent Inflation of Stock Price

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7^th Circuit Court of Appeals

Case Name: Appvion, Inc. Retirement Savings and Employee Stoc v. Douglas Buth

Case No.: 23-1073

Officials: Wood, St. Eve, and Lee, Circuit Judges.

Focus: Fraudulent Inflation of Stock Price

Appvion, Inc., a paper company based in Wisconsin was purchased by its employees through an Employee Stock Ownership Plan (ESOP) in 2001. Facing bankruptcy in 2017, Grant Lyon, representing the ESOP, filed a lawsuit against several individuals and entities, alleging that they artificially inflated Appvion’s value in 2001 and maintained this inflated value until the company’s bankruptcy. The district court dismissed most of the claims.

On appeal, the Seventh Circuit upheld the dismissal of certain claims while sending others back for further review. Claims pertaining to actions before November 26, 2012, were affirmed as time-barred under the Employee Retirement Income Security Act (ERISA). However, claims concerning actions after November 26, 2012, were reinstated as the plaintiff sufficiently argued that the defendants breached their fiduciary duties under ERISA by neglecting to ensure the accuracy of the company’s valuations. Additionally, claims alleging prohibited transactions and co-fiduciary liability were reinstated. State-law claims against the defendants remained dismissed, as the court determined they were preempted by ERISA.

Affirmed, Reversed and Remanded.

Decided 04/23/24

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