Brundle v. Wilmington Trust

Brundle v. Wilmington Trust ─ A federal judge in the Eastern District of Virginia ruled that Wilmington Trust N.A., the trustee for an Employee Stock Ownership Plan sponsored by Constellis Group, Inc., a Virginia-based private security firm, owes ESOP participants $30 million as result of a stock-purchase that violated the Employee Retirement Income Security Act of 1974 (ERISA).

Attorneys from Bailey & Glasser represented the employee participants of the ESOP. They filed suit claiming that Wilmington caused the ESOP to purchase $200 million-plus of Constellis stock at an inflated price, violating federal pension law and trustee duties. Less than a year later, Constellis was sold and the ESOP was dissolved.

United States District Court Judge, Leonie M. Brinkema ruled that, “the defendant [Wilmington] engaged in a prohibited transaction by failing to ensure that the ESOP paid no more than adequate consideration for the stock in Constellis and, as a result, damaged the ESOP by agreeing to overpay $29,773,250.00 for the stock.” Brinkema found Wilmington liable for $29.8 million in damages for overpaying for the company stock.

Bailey & Glasser partner Gregory Porter said, “The decision lays out important new guidance for ESOP trustees on many valuation issues. Two stand out. First, the court held that valuation firms and the trustees cannot blindly accept management projections but must scrutinize projections for consistency with past projections and evaluate the self-interest of managers making the projections.  Second, the court held that it was improper for the ESOP to pay a control premium when the selling shareholders retained control of the board of directors; instead, the ESOP should have received a discount for lack of control. Both are common problems in ESOP transactions.”

ESOP participants were represented by Gregory Porter, Brian Glasser, Ryan Jenny, Thanos Basdekis and Patrick Muench.

Case Documents

Frequently Asked Questions (FAQs)

1. Question: What happens next?

Answer:  The district court—the U.S. District Court for the Eastern District of Virginia, where the trial took place—still has some issues to resolve, such whether to unseal documents that were placed under seal as confidential in the litigation and the amounts of attorneys’ fees, litigation costs, and expenses to award. Then the Defendant and the Plaintiff will have the option of appealing to the U.S. Court of Appeals for the Fourth Circuit. In addition, reviews being conducted by the U.S. Department of Labor and the Internal Revenue Service may delay distribution of Constellis Employee Stock Ownership Plan assets. Ultimately, the amount awarded to the Plaintiff, on behalf of the Plan, following the conclusion of possible appeals and agency actions will be deposited into the trust of the Plan’s successor plan, the Constellis Profit Sharing Plan, and allocated among the participants’ individual accounts.

2. Q: Is the judgment of $29,773,250.00 in addition to the $20 million already put in the Plan?

A:  Yes.

3. Q: How will I be informed of my new balance in the Plan?

A:  That will be handled by the Plan. Your Plan statement after deposit of the final litigation award should reflect your new Plan balance.

4. Q: When can I get my money?

A:  We cannot give a precise date because it is uncertain when each of the remaining steps detailed in Q&A #1 above will be completed.

5. Will I have to make a claim?

The final award in this litigation will be deposited into the Plan’s trust account. You do not have to make a claim to the district court or to Plaintiff’s counsel. Distribution of Plan assets is governed by the terms of the Plan. Please refer to the Plan’s current summary plan description (SPD), the Plan’s governing document, and the Plan Administrator for further information.

This information may be subject to change as the litigation proceeds. The information is current as of March 24, 2017.