Skip to main content

You are here

Advertisement

ESOP Valuation Settlement Approved—With Fee Cuts

Litigation

A $5.5 million settlement struck in a case involving valuation in an Employee Stock Ownership Plan (ESOP) has been approved—with an interesting “adjustment.”

The suit (filed in 2019) arose out of a transaction in 2014 when Wilmington Trust, as trustee of the Nation Safe Drivers Employee Stock Ownership Plan (ESOP) purchased the shares of Nation Safe Drivers common stock from the Individual Defendants (Andrew Smith, Michael Smith and Frank Mennella). Plaintiff Kristina Fink (on behalf of herself and the class seeking relief in the case) alleged that Wilmington Trust violated ERISA in connection with the ESOP transaction by paying more than fair market value for the stock[i] and engaging in prohibited transactions pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). The suit also alleged that agreements by NSD to indemnify Wilmington Trust violated ERISA.

More specifically, the suit alleged that the trust paid between $12 million and $15 million more than what their valuation expert said their shares should have cost (640,000 shares at $342 million, according to the complaint). For its part, Wilmington Trust claimed denied the allegations that it didn’t undertake necessary due diligence, relied on an improper valuation and paid more than the fair market value of company stock.

The settlement announced in August called for a $5,500,000 cash settlement (there are approximately 294 participants in the class), along with a 30% “cut” for the plaintiff’s counsel ($1,650,000.00), as well as reimbursement of litigation expenses advanced of $51,730.12 and a $10,000 service award for plaintiff Fink “for the substantial time and effort she devoted to this class action.”

However, that “cut” was apparently more than Judge Colm F. Connolly of the U.S. District Court for the District of Delaware deemed appropriate. Instead, he indicated (Fink v. Wilmington Tr. Co., D. Del., No. 1:19-cv-01193, final judgment 12/6/21) he would approve the settlement if the plaintiff’s attorneys[ii] “cut” their fee to about $720,723—a figure he derived by applying a 1.7 multiplier to the lodestar (hourly) fees of $423,690[iii]). Oh, and he also approved (only) a $3,000 service award for named plaintiff Kristina Fink, down from the requested $10,000. The expenses cited—$51,730.12—were approved as submitted.


[i] Indeed, they accused Wilmington Trust of allowing Nation Safe employees to pay $342 million for company stock that was worth less than $30 million.

[ii] Plaintiff Fink was represented by Bailey & Glasser LLP and Feinberg Jackson Worthman & Wasow LLP.

[iii] It wasn’t the first use of multipliers in this arrangement. The settlement agreement detailed the hours spent and hourly rates of plaintiff’s counsel (and paralegals) as being some $423,690.00, noting that the “multiplier” of 3.9 is “comparable to what has been awarded in this Circuit and reasonable given the risks involved and the complexity of the case.” The settlement notes that approximately 600 hours of attorney and paralegal time were spent on the case.

Advertisement