In a recent court decision (Perez v. First Bankers Tr. Servs., Inc., No. 3:12-cv-04450 (D.N.J. March 17, 2017), a district court ordered First Bankers Trust (FBT) to pay almost $9.5 million to the plaintiffs for failing to adequately protect the interest of ESOP participants by allowing the ESOP to overpay for the shares from the owners of SJP Services. SJP provides site development for residential construction in New Jersey. The ESOP paid $16 million to buy the company's shares in 2007 (a price at the low end of the valuation range). The company subsequently saw a significant decline in stock price during the housing recession.
The court questioned reliance on company projections about income and diversifying its concentrated customer base in light of what the court believed were inadequate representations about the likelihood of either happening, including that the appraisal relied heavily on using the company's best year (2006) as a key number in making its projections. The court concluded neither the appraiser nor FBT took adequate steps to find additional information beyond what management provided, nor to question the likelihood of strong results continuing. The court also questioned the valuation of the company's technology assets. The court also agreed with the plaintiff that FBT did not adequately document what it did.
The decision is one of the most detailed yet in assessing the appraisal process, but breaks no new ground on what standards to use, turning instead on competing views of what a reasonable appraiser would have determined given the facts available.