650-730-9848 brian@sullivanco.net

In its recent Brundle opinion, the 4th Circuit Court of Appeals, in describing the major actors in the case, included a quote (not attributed) that the ESOP world was “a very incestuous community.” 

James F. Joyner (Integra Valuation Consulting LLC), an ESOP expert, called this description “unfortunate.” Joyner explains that, “because there are fewer than 10,000 ESOPs in the whole country, the ESOP professional community is understandably small. To navigate professionally within the ESOP world, one must have a solid knowledge of taxation, financial accounting, fiduciary standards, ERISA, finance, and valuation. There truly are few professionals who are good at this work, and those professionals are actively engaged in studying and in serving the ESOP community. All of us who are committed to serving ESOPs are vulnerable to attack or criticism that only comes through hindsight and ex post analysis. It is, therefore, disheartening when courts overlook the intense efforts the ESOP community puts into this work.”

We also heard from Dana Messina, who served as expert for the prevailing party, the plaintiff, in the Brundle case and also has served as an expert for the Department of Labor in numerous other ESOP cases. When asked about criticism from the ESOP community and others, including recently members of Congress, that the DOL has been too aggressive in its oversight of ESOPs, Messina responded:

The industry should embrace the actions by the DOL in Bruister, Bankers Trust and Brundle, the most recent ESOP valuation cases to go to verdict. In each of these cases, the actions of the trustees and valuation firms are largely indefensible. The trustees paid a just and heavy price for their willingness to approve transactions that were not exclusively for the benefit of the hard-working employees at each these companies. There is a fairly simple test. Would you want someone investing a bulk of your family’s retirement in the proposed deal in front of you, at the proposed price? If you did enough diligence and analysis to confidently say, “Yes, this is a good deal for the ESOP,“ I sincerely doubt you will find yourself in the crosshairs of the DOL.

I have had many candid conversations with some terrific ESOP valuation professionals regarding the facts involved in each of these cases. Universally, they tell me the courts got these cases right. Lastly, I’ve worked with the DOL on quite a few cases over many years and honestly have not seen them pursue a single case that I would categorize as a close call.

A digest of Brundle v. Wilmington Trust N.A., 2019 U.S. App. LEXIS 8504, 2019 WL 1287632, and the court’s opinion are available at BVLaw.