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A class of employees from Constellis Group Inc. recently won a $29.8 million ERISA judgment, representing the difference between what employee stock ownership plan trustee let the ESOP pay for the private security firm and what a Virginia federal court ruled it was worth.

U.S. District Judge Leonie M. Brinkema ruled the ESOP overpaid by $29.8 million because the Wilmington Trust NA failed to probe deeply into the 2013 valuation from the trustee's appraisal firm and didn't ask why it pegged the company's value at tens of millions of dollars higher than another firm's calculation from earlier that year.

"Wilmington has not demonstrated that its reliance on the appraiser's report was 'reasonably justified' in light of all the circumstances because it has not shown that it thoroughly probed the gaps and internal inconsistencies in that report," Judge Brinkema said.

The owners of Constellis, which was founded in 2003 as Triple Canopy and later reorganized under its current name with Triple Canopy as a subsidiary, decided in 2013 to sell the company to an ESOP in order to generate liquidity and boost employees' benefits. Constellis hired Wilmington to act as trustee for the employees.

Basing its analysis on Constellis' performance and that of similar companies, the trustee's financial advisor placed Constellis' fair market value between $275 million and $330 million in November 2013, according to court documents. This was not the only analysis of Constellis' value ahead of the sale, however. In January 2013, a different appraisal firm estimated Constellis' value at about $165 million using a similar analysis. Despite knowing about the lower valuation and delving little into the mechanics of their own appraisal firm's analysis, Wilmington began ESOP negotiations using the higher SRR figure as its baseline.

That December, Wilmington negotiated a $201.5 million sale price. Just seven months after the ESOP was consummated, it was sold to Blackwater successor Academi LLC for $281.1 million. That figure included a $20 million payment to shareholders in the ESOP.

Shareholders filed a class action in November 2015 alleging Wilmington breached its duty to the ESOP by letting workers overpay for Constellis. In ruling for the employees, Judge Brinkema said Wilmington committed four major failings while serving as trustee: failing to consider the earlier valuation when negotiating the sale, relying on Constellis' own projections at face value, not investigating their appraiser's application of a 10% premium to certain multiples and not questioning the appraiser's decision to round certain numbers up.

"Although these failings independently might not be sufficient to conclude that Wilmington failed to meet its duty, cumulatively they demonstrate that Wilmington was not sufficiently engaged in the Constellis transaction, which was rushed to be completed by the end of 2013," the judge wrote.

The case is Tim P. Brundle et al. v. Wilmington Trust NA, case number 1:15-cv-01494, in the U.S. District Court for the Eastern District of Virginia.   This summary has been edited from a post at