Halldorson v. Wilmington Trust Retirement & Institutional Services Co.

182 F. Supp. 3d 531, 62 Employee Benefits Cas. (BNA) 1206, 2016 U.S. Dist. LEXIS 55704, 2016 WL 1643862
CourtDistrict Court, E.D. Virginia
DecidedApril 22, 2016
DocketNo. 1:15-cv-1494 (LMB/IDD)
StatusPublished
Cited by2 cases

This text of 182 F. Supp. 3d 531 (Halldorson v. Wilmington Trust Retirement & Institutional Services Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Halldorson v. Wilmington Trust Retirement & Institutional Services Co., 182 F. Supp. 3d 531, 62 Employee Benefits Cas. (BNA) 1206, 2016 U.S. Dist. LEXIS 55704, 2016 WL 1643862 (E.D. Va. 2016).

Opinion

MEMORANDUM OPINION

Leonie M. Brinkema, United States District Judge

After hearing oral argument on several motions,1 the Court granted defendant Wilmington Trust Retirement and Institutional Services Company’s (‘Wilmington” or “defendant”) Motion for Summary Judgment [Dkt. No. 25],2 alter concluding [533]*533that plaintiff Andrew Halldorson (“Hall-dorson” or “plaintiff’) is barred from pursuing this civil action because of a Separation Agreement and General Release (“Release”) he signed in 2015. This Memorandum Opinion explains in more detail the reasons for that decision.

I. BACKGROUND

This action arises out of plaintiffs allegations that defendant engaged in transactions prohibited by the Employee Retirement Income Security Act of 1974 (“ERISA”). From February 9, 2009 to August 18, 2015, plaintiff was a Senior Director of Business Development for Triple Canopy, Inc., a subsidiary of Constellis Group, Inc. (“Constellis”). Def.’s Mem. in Supp. Of Its Mot. for Summ. J. [hereinafter Def.’s Br.], Def.’s Statement of Facts [Dkt. No. 26] ¶¶ 1-2, Jan. 27, 2016 (“Def.’s SOF”); Pl.’s Opp’n to Def.’s Mot. for Summ. J. [hereinafter PL’s Opp’n], PL’s Disputed Facts [Dkt. No. 31] ¶¶ 1-2, Feb. 11, 2016. As an employee, he participated in the Constellis Employee Stock Ownership Plan (“the ESOP”). First Am. Compl. [Dkt. No. 14] ¶ 2, Dec. 28, 2015 (“Am. Compl.”).3 Plaintiff brings this action on behalf of similarly situated participants in the ESOP, arguing that Wilmington’s decision to have the ESOP acquire shares of Constellis resulted in losses suffered by the ESOP and -violated various ERISA provisions. Id. ¶ 1.

In 2013, Constellis ' established the ESOP, a retirement plan governed by ERISA, and hired defendant to act as the Trustee for the- ESOP. Id. ¶¶ 3-8; see also Def.’s SOF ¶ 4; PL’s Statement of Disputed Facts ¶ 4. The ESOP was established and governed by two documents, the Constellis Employee Stock Ownership Plan (“Plan Document”) and the Constellis Employee Stock Ownership Trust (“Trust Document”). See Def.’s Mot. to Dismiss, Ex. 1, Decl. of Jennifer Matz, Ex. 1, Constellis Employee Stock Ownership Plan [Dkt. No. 20-2], Jan. 14, 2016 (“Plan Document”); Def.’s Mot. to Dismiss, Ex. 1, Decl. of Jennifer Matz, Ex. 2, Constellis Employee Stock Ownership Trust [Dkt. No. 20-3], Jan. 14, 2016 (“Trust Document”). Defendant acted as “a directed trustee, which means that the trustee invests the assets of the Plan as instructed by the Administrator or by an investment manager (if appointed).” Def.’s Br., Ex. A, Decl. of Amy Muhlendorf [hereinafter Muhlendorf Decl.], Ex. 2, Summary Plan Description [Dkt. No. 26-1] 1, Jan. 27, 2016 (“Plan Description”); see also Def.’s SOF ¶ 5; PL’s Statement of Disputed Facts ¶ 5. Constel-lis acted as the Administrator of the ESOP and therefore was vested with various powers, including “the administrative discretion necessary to resolve issues with respect to an employee’s eligibility for benefits.” Id. The ESOP was a defined contribution plan designed primarily to invest in Constellis stock. PL’s Opp’n, PL’s Statement of Undisputed Material Facts [Dkt. No. 31] ¶¶ 1, 4, Feb. 11, 2016; Def.’s Reply, Wilmington Trust’s Response to Facts Asserted by Pl. [Dkt. No. 36] ¶¶ 1-8, Feb. 17, 2016. As a defined contribution plan, its participants could “contribute up to a specified amount to individual accounts” and receive “whatever the account has accumulated through contributions and earnings” at the time of retirement. Howell v. Motorola, Inc., 633 F.3d 552, 556 (7th Cir.2011).

[534]*534Plaintiff alleges that on December 19, 2013, defendant caused the ESOP to purchase 47,586.54847 shares of Constellis stock from the four S-Corporation shareholders of Constellis or their trusts (“Sellers”). Am.' Compl. ¶¶10, .12. The ESOP paid $4,235 per share, resulting in a total purchase price of $201,529,033. Id. ¶¶ 12-13. The purchase, in effect, resulted in the ESOP acquiring all of the Constellis common stock from entities that the plaintiff alleges were “parties in interest” as defined by ERISA § 3(14), 29 U.S.C. § 1002(14).4 Id. ¶ 11-12. As part of this transaction, defendant caused the ESOP to take a loan of $ 152,335,331 from the Sellers, and Constellis guaranteed that debt. Id. ¶¶ 14-15.

Roughly seven months later, on July 25, 2014, Constellis Holdings, Inc. (“Constellis Holdings”) acquired Constellis “for an enterprise value of $119,685,124.” Id. ¶ 16. To complete this purchase, Constellis Holdings paid $20,000,000 in cash and assumed $99,685,124 in loans to the Sellers.5 Id. On that date, the ESOP was converted to a profit sharing plan, Def.’s Br., Muhlendorf Decl. [Dkt. No. 26-1] ¶7, Jan. 27, 2016, which plaintiff contends resulted in the ESOP participants becoming vested in their Participants’ Accounts. See Pl.’s Statement of Undisputed Material Facts ¶¶ 22-24.

Plaintiff asserts that the sale of Constel-lis to Constellis Holdings, when compared to the E SOP’s purchase of Constellis stock seven months earlier, reflects a 40% de,-cline in Constellis’ value,6 that this “massive decline in the value of Constellis in just seven months cannot plausibly be explained by anything other than a deficient valuation of Constellis [by Wilmington] on behalf of the ESOP as part of the ESOP transaction,” and that the “arm’s length transaction” in July 2014 “is more indicative of the true value of Constellis on December 19, 2013 than a valuation performed under the supervision and direction of the Sellers’ handpicked trustee.” Am. Compl. ¶¶ 18, 22, 29.

As further support for his claim that Wilmington overvalued Constellis when making the ESOP transaction, plaintiff alleges that Constellis stock “underperformed similarly-sized U.S. companies” and other companies involved in the “defense, homeland security, and space” industries between July 1, 2013 and June 30, 2014, and that defendant failed to consider that “[i]n the years preceding the ESOP Transaction -the McClean [sic] 'Group had consistently valued Constellis at 30-40% less” than what the ESOP paid in 2013 and that more than “50% of Constellis’ annual profits came from a single, extremely lucrative government contract,” which was due to expire approximately two years after the stock purchase and had “little prospect of ... being renewed” or replaced by a similar contract. Id. ¶¶ 23-27.

Based on these allegations, plaintiffs one-count amended complaint claims that defendant engaged in prohibited transactions forbidden by ERISA § 406(a)-(b), 29 U.S.C, § 1106(a)-(b). Specifically, the [535]*535amended complaint alleges that defendant, as a plan fiduciary: (1) caused the ESOP to borrow money from the Sellers, who were parties in interest, in violation of ERISA § 406(a)(1)(B), 29 U.S.C. § 1106(a)(1)(B); (2) caused the ESOP to engage in a sale or exchange of Constellis stock with the Sellers,. in violation of ERISA § 406(a)(1)(A), 29 U.S.C. § 1106

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182 F. Supp. 3d 531, 62 Employee Benefits Cas. (BNA) 1206, 2016 U.S. Dist. LEXIS 55704, 2016 WL 1643862, Counsel Stack Legal Research, https://law.counselstack.com/opinion/halldorson-v-wilmington-trust-retirement-institutional-services-co-vaed-2016.