Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Wilmington Trust N.A. must pay $29.8 million to a terminated employee stock ownership plan for mishandling the purchase of the stock of government security contractor Constellis Group Inc. in 2013 ( Brundle v. Wilmington Trust, N.A , 2017 BL 77870, E.D. Va., No. 1:15-cv-01494, 3/13/17 ).
Wilmington, a subsidiary of M&T Bank Corp., rushed its evaluation of the Constellis ESOP, didn’t follow its own policies and failed to adequately vest the valuation of the company stock, Judge Leonie M. Brinkema of the U.S. District Court for the Eastern District of Virginia held March 13. The ESOP, by paying $201.5 million, paid more than adequate consideration to acquire Constellis stock, the judge said.
The company is liable for engaging in a transaction prohibited by the Employee Retirement Income Security Act, Brinkema said.
The multi-million dollar judgment is the latest outcome in a series of cases brought by participants alleging Wilmington mismanaged ESOP transactions, causing them millions of dollars in damages. Last week, Wilmington was accused of making ESOP participants pay more than $185 million for the stock of Texas oil transporter Martin Resource Management Corp. Wilmington was also sued in January over its role in a $98 million stock deal involving the ESOP of piping distributor ISCO Industries Inc.
An investigation by the Labor Department over the Constellis transaction is pending, according to court documents.
The ESOP participants, in their lawsuit, alleged that the $4,235 per share paid in 2013 wasn’t the fair market value of Constellis stock, resulting in the ESOP overpaying for the stock by $103.9 million, which they sought to recover for the plan.
Wilmington failed to assess a report that valuated the company by $100 million less than a year before, Brinkema said. It also failed to investigate the riskiness and reliability of company projections prepared by Constellis’ managers, he said.
The company failed to investigate the motivations of Constellis’ management for establishing an ESOP. Had Wilmington asked “any serious questions” about Constellis’ goals, they would have found that the sellers were more interested in the “ESOP as an exit strategy than as a benefits plan,” Brinkema said.
Wilmington’s failure to assure itself of Constellis’ intent is further evidence of its tendency to “rubber stamp whatever Constellis” put in front of it, thus violating its fiduciary duties, the judge said.
Bailey Glasser LLP represents the participants. McGuireWoods LLP and Odin Feldman & Pittleman PC represent Wilmington.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)