Wawa workers near settlement

Attorneys are seeking court approval of a $21.6 million payment to settle allegations over company stock.

Attorneys representing former Wawa employees are seeking court approval of a $21.6 million payment to settle allegations that the company improperly divested participants in an Employee Stock Ownership Plan beginning in 2015, robbing them of future dividends of highly valuable private Wawa stock.

The proposed settlement, which is pending in the U.S. District Court for the Eastern District of Pennsylvania,

would provide an additional $500 per-share payment to approximately 10,000 class members who say they were forced to liquidate their shares under 2014 and 2015 amendments to the plan.

The class consists of ESOP participants who had account balances of more than $5,000 when they terminated employment and whose accounts were liquidated on or after September 12, 2015, and on or before December 31, 2019.

Four class representatives would also each receive $25,000 payments and counsel representing the class may apply for up to 20 percent of the settlement amount, as well as up to $175,000 for costs associated with bringing suit, under the plan submitted to the court July 9.

The proposal comes on the heels of a similar $25 million settlement reached in 2018 that benefitted approximately 1,260 former Wawa employees. Those employees are excluded from the class that would be served under this proposal.

The complaint in the current case alleges Wawa forced ESOP participants to sell their shares back to the company at undervalued prices following a conversion from a C-Corporation to an SCorporation. The valuations conducted by an outside firm allegedly failed to take several pricing factors into account, including Wawa’s new tax status following that conversion and marketability of the private shares, which are not traded on an exchange.

The complaint additionally claims Wawa told ESOP members that the shares were needed to accommodate new hires, when there were tens of thousands of shares available for that purpose and the stock that former employees cashed in were retired anyway.

Prior to the 2015 buyout, the complaint notes the ESOP held approximately 44.1% of Wawa while the Wood family owned approximately 47.2 percent. The Wood family ownership had increased to 50.2 percent by 2018 as a result of continued liquidation of the class members’ shares, according to the complaint. The ESOP’s stock holdings as of October 13, 2017, were valued at more than $1.7 billion and constituted 41 percent of Wawa as of the complaint’s filing.

Wawa stock prices between December 2009 and April 2018 more

than quadrupled, according to the complaint, from $2,296 to $10,419. Wawa stock was valued at $7,381 in September 2015, when the divestitures began, according to the complaint.

The proposed settlement notes that a potential recovery was higher — up to $77 million for the fair market value claims asserted by the class and up to $120 million for two subclasses who say they should have been able to hold onto their Wawa stock until age 68 — but the plaintiffs faced various obstacles in litigation, including a risk that the Third Circuit Court of Appeals could reverse the district court’s class certification order at least in part and the potential that the court might side with the defendants on share valuation issues.

A joint statement put out by attorneys from Feinberg, Jackson, Worthman & Wasow LLP and Block & Leviton LLP, representing the plaintiffs, and Morgan, Lewis & Bockius LLP, representing the defendants, indicates the settlement proceeds will be allocated pursuant to a court-approved formula to the ESOP accounts of participants whose Wawa stock was sold in 2016, 2017, 2018 and 2019.

Class members will receive formal notice about the details of the settlement and how to receive proceeds, and will be given an opportunity to comment, according to the release.

Attorneys representing the plaintiffs said in the release that it constituted a “fair and reasonable resolution of the claims,” while attorneys for Wawa indicated they reached the settlement “to prevent further legal costs, disruptions and uncertainty caused by the case.”

The proposed settlement resolves all pending claims on the class members with no admission of wrongdoing or further liability, according to the release.