Armstrong Deference Confirmed for ESOP Sale Decisions Absent Conflict; Market Deal Price Anchors Fair-Market-Value and Damages

1. Introduction

Bruce Rush v. GreatBanc Trust Company (7th Cir. July 17, 2026) arises from the 2016 sale of Segerdahl Corporation, a direct-mail printing company wholly owned by an employee stock ownership plan (ESOP). Bruce Rush, an ESOP participant and Segerdahl executive, sued the ESOP trustee (GreatBanc Trust Company) and several company leaders/directors, alleging that they breached ERISA fiduciary duties and engaged in prohibited transactions by approving a sale to a private equity buyer (ICV) for less than “fair” value.

After a three-week bench trial, the district court entered judgment for defendants on all claims. The Seventh Circuit affirmed, addressing: (i) the standard of judicial review of fiduciary sale decisions, (ii) alleged breaches of the duties of prudence and loyalty in running and approving an ESOP-company sale process, (iii) prohibited-transaction theories tied to management’s post-sale equity and retention, and (iv) damages proof and fair-market-value methodology.

2. Summary of the Opinion

  • Standard of review: The court reaffirmed that under Armstrong v. LaSalle Bank National Ass'n, discretionary ERISA fiduciary decisions receive deferential judicial review (abuse-of-discretion flavor) absent a conflict of interest; this is not limited to situations requiring fiduciaries to balance different groups of participants.
  • No fiduciary breach proven: On clear-error review of the trial findings, the court upheld the determinations that defendants did not imprudently or disloyally (a) prioritize financial buyers, (b) continue negotiating after ICV lowered its offer, (c) disclose a prior valuation during diligence, (d) “leak” that ICV was the only bidder, or (e) rubber-stamp the deal without trustee scrutiny.
  • No prohibited transaction shown: The court rejected theories that would make post-sale executive equity rollover or retention effectively per se unlawful under ERISA § 1106, and it sustained findings that Schneider lacked intent to injure the ESOP.
  • Damages not proven: The court upheld the rejection of a damages model that relied on a “hypothetical buyer” rather than market evidence; the negotiated sale price was treated as the best approximation of fair market value on this record.

3. Analysis

A. Precedents Cited (and How They Shaped the Decision)

1) Appellate posture and deference to trial factfinding

The court framed the appeal through the lens of bench-trial review: legal conclusions are reviewed de novo, while factual findings are reviewed for clear error under PNC Bank, Nat'l Ass'n v. Boytor. It then emphasized the “high hurdle” created by Anderson v. Bessemer City and the Seventh Circuit’s own formulations in Estrada-Martinez v. Lynch and Baz v. Patterson: the appellate role is not to reweigh evidence but to confirm that findings are plausible and supported by record inferences.

That framing mattered because Rush’s challenges largely sought a redo of credibility calls and competing inferences about bidder strategy, negotiation dynamics, and motives. The court repeatedly invoked credibility deference—also reinforced by Cooper v. Harris—to uphold the district court’s acceptance of defense explanations over plaintiff’s alternatives.

2) ERISA fiduciary duties and the trust-law baseline

For the substantive duties, the court relied on Appvion, Inc. Ret. Sav. & Emp. Stock Ownership Plan by & through Lyon v. Buth to identify the duties of prudence and loyalty, and it anchored loyalty language in the Supreme Court’s recent formulation in Cunningham v. Cornell Univ.. This established that “maximizing sale price” is not the only phrasing of loyalty; rather, the duty is to act solely in participants’ interests, dealing fairly and honestly to ensure the plan receives what it is entitled to.

On the standard of review, the decision is built on trust-law principles invoked in Firestone Tire & Rubber Co. v. Bruch, which cited Cent. States, Se. & Sw. Areas Pension Fund v. Cent. Transp., Inc.. The Seventh Circuit then tied that trust-law tradition to its own precedent, including Morton v. Smith, and plan-document discretion analysis under Johnson v. Allsteel, Inc..

The key doctrinal move is the court’s rejection of Rush’s attempt to narrow Armstrong v. LaSalle Bank National Ass'n: the Seventh Circuit treated Armstrong’s deference as generally applicable to discretionary fiduciary decisionmaking when conflicts are absent (or not proven), not as a niche rule only for internal participant tradeoffs.

3) Reliance on advisors and what “investigation” requires

Rush argued that reliance on independent advisors cannot “whitewash” an imprudent process, citing Donovan v. Bierwirth. The Seventh Circuit agreed with the principle but found it inapplicable on these facts because the trustee did more than outsource judgment.

The court treated Keach v. U.S. Tr. Co. as the operative synthesis: a trustee may rely on experts if it investigates qualifications, supplies complete information, and reasonably justifies reliance under the circumstances—drawing the quoted standard from Howard v. Shay. Adams v. Thiokol Corp. reinforced that input from independent firms can support prudence. The trustee’s committee meeting, questioning, and written report were treated as the “careful and impartial investigation” that Donovan contemplates.

4) Prohibited transactions: rejecting wooden literalism

For ERISA § 1106(a), the district court applied Leigh v. Engle, requiring evidence that the challenged use of plan assets was intended to benefit a party in interest at the plan’s expense. Rush attacked the “intent” component, but the Seventh Circuit aligned Leigh with its more recent warning against literal overbreadth.

The court relied heavily on Albert v. Oshkosh Corp., which rejected a reading of § 1106(a)(1) that would transform ordinary plan operations into per se violations and yield “absurd results.” That logic was extended here: a rule that makes trustee approval unlawful whenever management rolls equity into the post-sale company would collide with common M&A expectations and could decrease sale prices for ESOP participants.

5) Adequate consideration defense and fair market value

Even assuming a prohibited-transaction hook, the court highlighted ERISA’s statutory defense for ESOP sales for “adequate consideration” under 29 U.S.C. § 1108(e)(1), as discussed in Cunningham v. Cornell Univ. It then applied the Seventh Circuit’s ESOP-specific articulation in Fish v. GreatBanc Tr. Co.: adequate consideration has (i) a substantive fair-market-value component and (ii) a procedural good-faith valuation component.

On damages and valuation, the court invoked the measure of loss in Harzewski v. Guidant Corp. and the analogous formulation in Brundle ex rel. Constellis Emp. Stock Ownership Plan v. Wilmington Tr., N.A.. It reviewed fair-market-value determinations for clear error under Eyler v. Comm'r and treated real-market pricing as powerful evidence under Balcor Real Est. Holdings, Inc. v. Walentas-Phoenix Corp..

6) Waiver and issue preservation

The court enforced waiver rules: undeveloped arguments are waived under R.R. Maint. & Indus. Health & Welfare Fund v. Mahoney, and arguments raised only in a reply brief are waived under Bradley v. Vill. of Univ. Park. This narrowed the live issues and underscores the court’s procedural rigor in complex ERISA trials.

B. Legal Reasoning

1) The opinion’s core procedural holding: deference applies broadly to discretionary fiduciary sale decisions

Rush’s principal legal gambit was to recharacterize the case as warranting “plenary” review because all ESOP participants shared the same objective (maximizing sale price). The Seventh Circuit declined. It treated the trustee’s sale-approval judgment as discretionary trust administration and therefore presumptively entitled to deferential review when conflict is not shown. It reinforced that plan documents granting “sole and absolute discretion” also cue deference under Johnson v. Allsteel, Inc..

Practically, this meant Rush could not win by arguing that defendants made debatable choices; he had to show choices outside a range of reasonable fiduciary judgment or tainted by conflict. Coupled with clear-error review of trial findings, that became a decisive barrier.

2) The opinion’s core substantive holding: process and market reality defeated breach theories

The court affirmed findings that defendants acted reasonably in a deteriorating performance environment and that the process—financial buyer auction, hardball negotiation after the bid drop, use of valuation and legal diligence, trustee committee review—supported the conclusion that the $265 million price was the best obtainable under the circumstances.

Notably, the court treated several of Rush’s arguments as hindsight disagreements (e.g., disclosure of a valuation, excluding strategic buyers, or not extracting more value for tax and litigation contingencies). Without compelling record evidence that these choices caused a lower price, or that prudent fiduciaries would not have made them, the court deferred to the trial judge’s plausible explanations and credibility calls.

3) Prohibited transaction reasoning: rejecting a per se bar on post-sale executive equity

On § 1106(b), the court held that evidence supported the finding that Schneider’s retention and equity rollover were buyer-driven and standard in private equity deals—not proof of self-dealing adverse to the ESOP. On § 1106(a), the court rejected a reading that would automatically outlaw trustee approval whenever management takes post-sale equity, emphasizing Albert v. Oshkosh Corp. and ERISA’s purpose: rules should not predictably depress ESOP sale outcomes.

4) Damages reasoning: fair market value required market support, not merely an expert’s constructed buyer

The court sustained rejection of the plaintiff’s expert model because it did not establish that a real buyer would have paid the higher value. The court treated the arm’s-length price, reached after diligence and negotiation, as a superior indicator of fair market value on this record. It also upheld findings that purported additional value drivers (sale-leaseback, 338(h)(10) election, Wolf Road fraud settlement) were considered, presented, or reasonably treated as uncertain/speculative—so their alleged “missing value” was not proven.

C. Impact

1) Standard-of-review clarification in ESOP sale litigation

The opinion strengthens defendants’ ability to invoke Armstrong v. LaSalle Bank National Ass'n beyond the participant-balancing context. Litigants in the Seventh Circuit should expect courts to treat discretionary ESOP sale decisions as trust-administration judgments entitled to deference absent conflict proof, rather than as decisions triggering de novo “best price” scrutiny.

2) Prohibited-transaction claims tied to executive rollover equity face a higher bar

By extending Albert v. Oshkosh Corp.’s anti-literalism to management’s post-sale equity rollover, the opinion makes it harder to plead or prove that such commonplace deal terms, standing alone, transform an ESOP sale into a prohibited transaction. Plaintiffs will likely need deal-specific evidence of adverse intent, distortion, or non-market pricing, not merely the existence of rollover equity or retention incentives.

3) Damages and valuation: “hypothetical buyer” models are vulnerable without market corroboration

The court’s endorsement of negotiated market price as “better approximation” of fair market value (especially where an auction-like process occurred and diligence was performed) will influence how experts build damages cases: models must connect valuation outputs to credible evidence of willing buyers at the asserted price, not just financial-theory constructs.

4. Complex Concepts Simplified

  • ESOP: A retirement plan that holds employer stock for employees; when the ESOP owns 100% of the company, an ESOP sale is effectively the employees’ retirement plan selling the company.
  • Duty of prudence (29 U.S.C. § 1104(a)(1)(B)): Use appropriate care, skill, and diligence—often judged by the quality of the process (information gathered, advisors used, reasoning documented).
  • Duty of loyalty (29 U.S.C. § 1104(a)(1)(A)): Act solely in participants’ interests; avoid self-interested conduct that harms the plan.
  • Prohibited transactions (29 U.S.C. § 1106): Certain dealings with “parties in interest” or self-dealing are barred to prevent insiders from using plan assets for improper benefit.
  • Adequate consideration (29 U.S.C. § 1108(e)(1)): A defense in ESOP sale cases requiring (i) a fair-market-value price and (ii) a good-faith valuation process; articulated in this circuit by Fish v. GreatBanc Tr. Co..
  • Fair market value: Commonly, what a willing buyer would pay a willing seller in the real market; the court credited the negotiated deal price as strong evidence of this.
  • EBITDA / EBITDA multiple: A profitability metric used in valuing companies; buyers often pay a multiple of EBITDA. (The opinion referenced EBITDA’s definition via Kuebler v. Vectren Corp..)
  • Earnout: A contingent post-closing payment dependent on performance targets; here, rejected in favor of a higher all-cash price.
  • 338(h)(10) election: A tax election that can change how a transaction is treated for tax purposes and potentially affect value; the court accepted findings that it was discussed and any incremental value was uncertain and disputed.
  • Sale-leaseback: Selling real estate and leasing it back to free cash or alter balance-sheet debt; here, the buyer did not value it as plaintiff claimed after diligence.
  • SARs (stock appreciation rights): Compensation tied to stock price gains; the court noted SAR payouts aligned many managers’ financial incentives with a higher sale price.

5. Conclusion

Rush v. GreatBanc reinforces three practical ERISA litigation lessons in ESOP-sale disputes. First, the Seventh Circuit reads Armstrong v. LaSalle Bank National Ass'n broadly: absent proven conflicts, courts will defer to discretionary fiduciary sale decisions grounded in trust principles and plan-granted discretion. Second, prohibited-transaction theories cannot be pushed to “wooden literal” extremes that would make standard deal features—like executive retention and rollover equity—automatically unlawful, particularly in light of Albert v. Oshkosh Corp.. Third, damages require persuasive fair-market-value proof anchored to what real buyers would pay; expert valuations untethered from market evidence may fail even where a plaintiff plausibly believes the company “should have” sold for more.