United States District Court, E.D. Virginia, Alexandria Division
ANDREW HALLDORSON, On behalf of the Constellis Employee Stock Ownership Plan, and on behalf of a class of all other persons similarly situated, and TIM P. BRUNDLE, Plaintiffs,
WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY, Defendant.
Leonie M. Brinkema, United States District Judge
After hearing oral argument on several motions,  the Court granted defendant Wilmington Trust Retirement and Institutional Services Company's ("Wilmington" or "defendant") Motion for Summary Judgment [Dkt. No. 25],  after concluding that plaintiff Andrew Halldorson ("Halldorson" 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.
This action arises out of plaintiff s 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."). 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.
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, Deck 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 U 5; Pl.'s Statement of Disputed Facts K 5. Constellis 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).
Plaintiff 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, 033.14 ¶ 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). Id. 111-12. 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. hi 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 Constellis to Constellis Holdings, when compared to the ESOP's purchase of Constellis stock seven months earlier, reflects a 40% decline in Constellis' value,  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. Comply 18, 22, 29.
As farther 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 amended 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(a)(1)(A); (3) "caus[ed] the ESOP to acquire Constellis securities and transact with the Sellers, " in violation of ERISA § 406(a)(1)(E), 29 U.S.C. § 1106(a)(1)(E); (4) "acted for the benefit of the Sellers in a transaction in which the Sellers were adverse to the ESOP, " in violation of ERISA § 406(b)(2), 29 U.S.C. § 1106(b)(2); and (5) "received payment from Constellis and/or the Sellers for serving as the Trustee .. . with respect to the ESOP transaction, " in violation of ERISA § 406(b)(3), 29 U.S.C. § 1106(b)(3). Am. Compl. ¶¶ 38-45.
Plaintiff filed his complaint pursuant to ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), which permits an ESOP plan participant to bring a suit for relief under ERISA § 409, 29 U.S.C. § 1109 against a plan fiduciary "who breaches any of the responsibilities, obligations, or duties imposed" by ERISA. ERISA § 409(a), 29 U.S.C. § 1109(a). Such a fiduciary is "personally liable" for "any losses to the [ESOP]" that resulted from a fiduciary breach and is also subject to other relief, including equitable relief deemed appropriate by the court. Id, Plaintiff claims that defendant caused the ESOP to lose approximately $81, 000, 000 by engaging in the purportedly prohibited transactions. Am. Compl. ¶ 49. He seeks an order requiring defendant to make up this loss to the ESOP and to "restore any profits" it has gained "through [its] use of [the ESOP's] assets." Am. Compl., Prayer for Relief [Dkt. No. 14] ¶ D, Dec. 28, 2015.
Plaintiff also seeks a declaratory judgment that Wilmington "caused the ESOP to engage in prohibited transactions" and an injunction barring defendant "from further violations of ERISA and its fiduciary duties" and ordering defendant "to adopt [better] policies and procedures." Id. ¶¶ A-C. Lastly, plaintiff seeks an award of "reasonable attorneys' fees and costs of suit, " disgorgement of any fees received by defendant as Trustee, prejudgment interest, an order that defendant "distribute all assets . .. held by the ESOP or any successor trust, " and an order certifying this action as a class action. Id. ¶¶ F-J.
Defendant filed a motion to dismiss plaintiffs amended complaint, arguing that the complaint fails to state a claim upon which relief may be granted. Def.'s Mot. to Dismiss 1. Less than two weeks after filing that motion and several months before the discovery deadline, defendant filed a motion for summary judgment. Def.'s Mot. for Summ. J. [Dkt. No. 25], Jan. 27, 2016. Although discovery has not yet closed, the summary judgment motion raised a dispositive issue for which discovery was not needed. That motion is based on the uncontested fact that on August 27, 2015, plaintiff signed a Release, in exchange for severance pay and "other benefits to which he would not otherwise have been entitled." Def.'s Statement of Facts ¶ 6; Pl.'s Statement of Disputed Facts ¶ 6. The Release stated that it was to be governed by and subject to interpretation under Virginia law "without respect to conflicts of law." Def.'s Br., Muhlendorf Deck, Ex. 1, Separation Agreement and General Release [Dkt. No. 26-1] § 17, Jan. 27, 2016 ('"Release"). Section Three of the Release provided that plaintiff would receive eight weeks of severance pay as well as "outplacement services, " and further provided that plaintiff "acknowledges and agrees that he/she is not entitled to any additional compensation or benefits from the Company (including without limitation any . . . benefits under any Company plan .. .) other than set forth in this Section." Id § 3. In Section Four, plaintiff agreed, in consideration of those severance benefits, "to waive, release, and forever discharge the Company, its parents, subsidiaries, affiliates (including all entities that are direct and indirect subsidiaries of Constellis Holdings, LLC) and each such entity's owners, trustees, officers, directors, attorneys, agents, employees, stockholders . . . from any and all claims, known or unknown . .. that Employee may have relating to or arising out of his/her employment." hi § 4. The agreement explicitly stated that this release of claims included claims under ERISA. Id.
Section Five provided that plaintiff "acknowledges that he/she has been advised to consult with legal counsel, " that he "is familiar with the principle that a general release does not extend to [material] claims" that are unknown to the releaser when "executing the release, " and that he "agrees to expressly waive any rights he/she may have to that effect, " Id. § 5; however, Section Six excluded specific claims from plaintiffs Release, including claims with respect to any rights "to accrued and vested benefits under any pension or savings plan sponsored by the Company subject to the terms and conditions of such plans and applicable law." Id. § 6. The final section of the Release was a full integration clause, which provided that by signing the Release, plaintiff represented that "he/she has not relied on ...