On December 20, 2013, Wilmington Trust, N.A. (“Wilmington”), in its capacity as the Trustee of the Constellis Group, Inc. ESOP (the “Constellis ESOP”), approved the Constellis ESOP’s purchase of 90% of the outstanding shares of Constellis Group, Inc. (“Constellis”), a parent company for a private security firm, for $201.5 million (the “Transaction”). Stout Risius Ross, Inc. (“SRR”) served as Wilmington’s valuation advisor in connection with the Transaction.
On November 10, 2015, Tim Brundle, a former participant in the Constellis ESOP, filed a lawsuit against Wilmington in the Eastern District of Virginia that alleged that, among other things, Wilmington caused the Constellis ESOP to pay more than adequate consideration for Constellis’s stock. On March 13, 2017, Judge Leonie M. Brinkema awarded $29.77 million in damages to the Constellis ESOP.1 On March 22, 2019, the Fourth Circuit affirmed Judge Brinkema’s damages award.2
On March 23, 2021, the Court issued an Opinion and Order regarding SRR’s motion to dismiss filed in Wilmington Trust, N.A. v. Stout Risius Ross, Inc., a Southern District of New York case in which Wilmington filed state law claims against SRR for breach of contract, negligence, and contribution related to the Transaction.3
In its motion to dismiss, SRR contended that (i) Wilmington’s claims for breach of contract and negligence were barred by Delaware’s three-year statute of limitations; and (ii) Wilmington’s claim for contribution was preempted by ERISA or, in the alternate, did not meet the requirements under New York’s contribution statute.
The Court agreed that Wilmington’s claims for breach of contract and negligence were barred by Delaware’s statute of limitations. However, the Court held that Wilmington’s claim for contribution could proceed, because “ERISA does not bar Wilmington’s contribution claim against a non-fiduciary merely because the judgment for which Wilmington seeks recovery is based on an ERISA violation.” The case is pending.
Takeaways
- Although the Court dismissed Wilmington’s claims for breach of contract and negligence, it allowed Wilmington’s claim for contribution under state law to proceed.
- This is a novel ruling in that the Court rejected the argument that ERISA preempted state law claims relating to ERISA damages and has opened the door for an ESOP Trustee to seek recovery of damages for a breach of ERISA fiduciary responsibilities from a non-fiduciary advisor under state law.
1 Brundle ex. rel. Constellis Emp. Stock Ownership Plan v. Wilmington Tr. N.A., 241 F. Supp. 3d 610 (E.D. Va. 2017).
2 Brundle ex. rel. Constellis Emp. Stock Ownership Plan v. Wilmington Tr., N.A., 919 F.3d 763 (4th Cir. 2019).
3 Opinion & Order, Wilmington Tr., N.A. v. Stout Risius Ross, Inc., No. 1:20-cv-02505-LLS (S.D.N.Y. Mar. 23, 2021), ECF No. 35.
