Court adheres to earlier ESOP liability and damages rulings


Brundle v. Wilmington Trust N.A., 2017 U.S. Dist. LEXIS 97752 (June 23, 2017)(Brundle II)

In a controversial ESOP case that turned on the trustee’s oversight of the pretransaction valuation work, the defendant trustee recently filed a motion for reconsideration. It argued the court had committed errors related to its liability and damages findings. Although the court owned up to some mistakes, including a misunderstanding of the concept of beta, it ultimately stuck to its earlier decision.

The case involved a private security company that relied on government contracts. The owners sold their company stock by way of an unusual ESOP that allowed them to buy back equity in the company and in this way keep control of it. An independent trustee and valuation firm, both with extensive ESOP experience, represented the interests of the ESOP. The plan lasted only seven months, and the transaction eventually prompted an investigation by the Department of Labor (ongoing) and two individual lawsuits.

One of those suits survived. The court sided with the individual plaintiff, finding the trustee violated its duty to the ESOP when it failed to scrutinize the work product of the valuation firm and caused the ESOP to pay more than fair market value for the stock.

In its post-trial motion, the trustee claimed, among other things, that the court’s misinterpretation of beta compromised the court’s assessment of the valuation work. The court initially took beta to be a method “to assess the risk of [the company] relative to that of the industry overall.” The trustee’s motion pointed out that at trial three valuation experts had explained that beta measured the risk of a particular industry relative to the risk of the market as a whole, the trustee’s motion pointed out.

The court acknowledged it erred but linked this particular misunderstanding to testimony from one of the trustee’s key witnesses. The error, as well as a few others, in the final analysis was inconsequential, the court decided.

The trustee’s attack on the court’s damages determination was equally unsuccessful.

To find out more about the trustee’s challenge and the court’s reaction, click here


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