The Employee Ownership Update
August 1, 2018
DOL and ASA File Briefs in ESOP Valuation CaseOn July 24, the U.S. Department of Labor (DOL) filed a friend-of-the-court brief in support of the plaintiffs in a suit against Wilmington Trust, the trustee of the ESOP at Constellis Group, Inc. The DOL's brief follows an earlier brief from the American Society of Appraisers (ASA). In the case, Brundle v. Wilmington Trust, the district court for Eastern Virginia ruled that Wilmington Trust was liable for an alleged $30 million overpayment by the ESOP for company shares in 2013. The case is now on appeal in the Fourth Circuit.
The DOL argued that Wilmington gave "uncritical deference" to the appraiser's opinion, violating its obligation to ensure the valuation was at fair market value. The DOL also argued that Wilmington was wrong to pay for control, despite the plan receiving 100% of company shares, because the ESOP trust had only one seat on the five-person board and did not have control in fact.
In its brief, the ASA addressed three issues: "(1) the Court's failure to apply the proper standard of review to the ESOP fiduciary's determination of adequate consideration, (2) the numerous flaws in the Court's damages assessment resulting from the adoption of flawed and incoherent appraisal analyses, and (3) clarification of the role independent appraisers fill in advising ESOP fiduciaries as to the proper valuation of company stock held by an ESOP."