In the fiercely litigated Brundle v. Wilmington Trust ESOP case, in which the district court concluded the ESOP trustee had caused the plan to overpay by almost $29.8 million, the trustee has appealed and outside interests have started to weigh in.
The case made waves because the independent trustee and valuation firm representing the plan’s interests had extensive ESOP experience. Also, in ruling on the trustee’s post-decision challenge, the district court conceded some valuation-related errors but found these did not change the outcome. As we reported here, the ASA recently filed an amicus brief with the 4th Circuit Court of Appeals in which the organization aligned itself squarely with the trustee and valuator. The brief rebukes the district court for favoring the “rough” and “after-the-fact opinion” of the plaintiff’s expert over the valuator’s “sound” contemporaneous analysis and value conclusions.
‘Strong interest’ in outcome: Now comes the Department of Labor’s amicus brief asking the 4th Circuit to uphold the district court’s ruling. The brief notes that, under the applicable law, “fiduciaries must make ‘good faith’ determinations of the fair market value when they purchase employer stock for the ESOP and may not blindly rely on valuation professionals they retain.” The DOL has a “strong interest in urging this Court” to reject the trustee’s arguments, which, if successful, “would undermine this well-established case law and diminish the fiduciary’s obligations.”
The brief alleges the trustee “rubber-stamped” an obviously problematic valuation and then expected the district court to defer to the appraiser’s judgment. However, case law holds “that merely hiring an adviser cannot insulate fiduciaries from consequences of their decisions.” The DOL brief says the court here “heard witnesses from both sides, including experts,” and, based on the controlling case law, “focus[ed] on whether the process the trustee used to determine fair market value is consistent with professional norms and its ERISA fiduciary obligations.”
Case law makes clear that hiring an appraiser does not lessen the court’s scrutiny “because an adviser’s opinion does not ‘whitewash’ a fiduciary’s own actions,” the brief says. Giving blind deference to the financial advisor’s opinion “eviscerates ERISA’s prohibitions in areas where strong incentives for abuse and great risk to participants exist,” the DOL brief says. It states that the district court “appropriately reviewed the trustee’s efforts” in this regard.
In terms of specifics, the brief contends the district court was correct in ruling the trustee should not have paid a 10% control premium after the court heard the evidence and found the ESOP did not receive “effective control of the company.” The court’s analysis on actual control “accords with a leading valuation text, which recognizes that the question of control is complex and requires fact-based analysis,” the DOL brief says.
Expect to hear more about this case.
Digests of Brundle v. Wilmington Trust N.A., 2017 U.S. Dist. LEXIS 35811, and Brundle v. Wilmington Trust N.A. (Brundle II), 2017 U.S. Dist. LEXIS 97752, and the court’s opinions, are available at BVLaw.