Tim Brundle v. Wilmington Trust, N.A.

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 17-1873

TIM P. BRUNDLE, on behalf of the Constellis Employee Stock Ownership Plan,

Plaintiff - Appellee,

and

ANDREW HALLDORSON, on behalf of the Constellis Employee Stock
Ownership Plan, and on behalf of a class of all other persons similarly situated,

Plaintiff,

v.

WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and
Institutional Services Company,

Defendant - Appellant.

-------------------------------------------

AMERICAN SOCIETY OF APPRAISERS,

Amicus Supporting Appellant,

SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR,

Amicus Supporting Appellee.

No. 17-2224

TIM P. BRUNDLE, on behalf of the Constellis Employee Stock Ownership Plan,
 Plaintiff - Appellant,

and

ANDREW HALLDORSON, on behalf of the Constellis Employee Stock
Ownership Plan, and on behalf of a class of all other persons similarly situated,

Plaintiff,

v.

WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and
Institutional Services Company,

Defendant - Appellee.

-------------------------------------------

SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR,

Amicus Supporting Appellant,

AMERICAN SOCIETY OF APPRAISERS,

Amicus Supporting Appellee.

No. 17-2323

TIM P. BRUNDLE, on behalf of the Constellis Employee Stock Ownership Plan,

Plaintiff - Appellee,

and

ANDREW HALLDORSON, on behalf of the Constellis Employee Stock
Ownership Plan, and on behalf of a class of all other persons similarly situated,

Plaintiff,

CONSTELLIS GROUP, INC.,

2
 Party-in-Interest,

v.

WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and
Institutional Services Company,

Defendant - Appellant.

-------------------------------------------

AMERICAN SOCIETY OF APPRAISERS,

Amicus Supporting Appellant,

SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR,

Amicus Supporting Appellee.

No. 17-2324

TIM P. BRUNDLE, on behalf of the Constellis Employee Stock Ownership Plan,

Plaintiff - Appellee,

and

ANDREW HALLDORSON, on behalf of the Constellis Employee Stock
Ownership Plan, and on behalf of a class of all other persons similarly situated,

Plaintiff,

v.

CONSTELLIS GROUP, INC.,

Party-in-Interest - Appellant,

and

3
WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and
Institutional Services Company,

Defendant.

No. 18-1029

TIM P. BRUNDLE, on behalf of the Constellis Employee Stock Ownership Plan,

Plaintiff - Appellant,

and

ANDREW HALLDORSON, on behalf of the Constellis Employee Stock
Ownership Plan, and on behalf of a class of all other persons similarly situated,

Plaintiff,

v.

WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and
Institutional Services Company,

Defendant - Appellee,

CONSTELLIS GROUP, INC.,

Party-in-Interest.

Appeals from the United States District Court for the Eastern District of Virginia, at
Alexandria. Leonie M. Brinkema, District Judge. (1:15-cv-01494-LMB-IDD)

Argued: December 11, 2018 Decided: March 21, 2019
Amended: March 22, 2019

Before GREGORY, Chief Judge, and MOTZ and FLOYD, Circuit Judges.

4
Affirmed by published opinion. Judge Motz wrote the opinion, in which Chief Judge
Gregory and Judge Floyd joined.

ARGUED: Carter Glasgow Phillips, SIDLEY AUSTIN LLP, Washington, D.C., for
Appellant/Cross-Appellee Wilmington Trust, N.A. Gregory Y. Porter, BAILEY &
GLASSER LLP, Washington, D.C., for Appellee/Cross-Appellant. Robin Springberg
Parry, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for Amicus
Secretary of Labor. ON BRIEF: James P. McElligott, Jr., Summer L. Speight,
Richmond, Virginia, Stephen W. Robinson, MCGUIRE WOODS LLP, Tysons, Virginia;
Jacqueline G. Cooper, Kurt A. Johnson, SIDLEY AUSTIN LLP, Washington, D.C., for
Appellant/Cross-Appellee Wilmington Trust, N.A. Edward Lee Isler, Micah E. Ticatch,
ISLER DARE, P.C., Vienna, Virginia, for Appellant Constellis Group, Inc. Tillman J.
Breckenridge, Ryan T. Jenny, BAILEY & GLASSER LLP, Washington, D.C., for
Appellee/Cross-Appellant. J. Christian Nemeth, Chicago, Illinois, Sophia A. Luby,
Washington, D.C.; Eliot T. Burriss, Erin Turley, Calli Turner, MCDERMOTT WILL &
EMERY LLP, Dallas, Texas, for Amicus American Society of Appraisers. Kate S.
O’Scannlain, Solicitor of Labor, G. William Scott, Associate Solicitor for Plan Benefits
Security, Thomas Tso, Counsel for Appellate and Special Litigation, UNITED STATES
DEPARTMENT OF LABOR, Washington, D.C., for Amicus Secretary of Labor.

5
DIANA GRIBBON MOTZ, Circuit Judge:

After owners of a closely held corporation sold the company to its Employee

Stock Ownership Plan (“ESOP”), a participant in the ESOP brought this action. The

participant contended that the trustee chosen for the ESOP by the corporation breached

its fiduciary duties to the ESOP and overpaid for the stock — improperly enriching the

corporation’s owners at the expense of its employees.

Following a multi-day bench trial, the district court issued detailed findings of fact

concluding that the trustee had indeed breached its fiduciary duties, causing the ESOP to

overpay for the corporation’s stock by $29,773,250. The court entered judgment for the

ESOP in that amount and awarded attorneys’ fees to the participant’s counsel. These

appeals and cross-appeals followed. As explained within, we affirm the careful findings

of the district court.

I.

To facilitate understanding of the issues here, we begin with the governing legal

principles and background facts that gave rise to this suit. The parties do not challenge

these principles or facts. All are more fully set forth in the comprehensive district court

opinions, upon which we rely throughout. See Brundle v. Wilmington Tr. N.A., 241

F. Supp. 3d 610 (E.D. Va. 2017) (“Brundle I”); Brundle v. Wilmington Tr. N.A., 258

F. Supp. 3d 647 (E.D. Va. 2017) (“Brundle II”).

6
 A.

The Employee Retirement Income Security Act of 1974 (ERISA) allows an

employer to create an ESOP, an employee pension plan that invests primarily in the

employer’s stock. The employer makes contributions to the plan that are used to

purchase stock in the employer’s company. Because — and only because — an ESOP

contribution qualifies as employee compensation, an employer can deduct the total value

of its ESOP contribution from its income tax liability as an ordinary business expense.

26 U.S.C. § 404; 26 C.F.R. § 1.404(a)–1(b). 1 In this way, an ESOP benefits both

employees and employers by providing deferred compensation to the former and a

valuable tax deduction to the latter.

ERISA imposes duties and obligations on all pension plan fiduciaries, including

those of ESOPs. These duties “ensure that employees will not be left empty-handed once

employers have guaranteed them certain benefits.” Lockheed Corp. v. Spink, 517 U.S.

882, 887 (1996). One such provision prohibits the fiduciary of any ERISA plan from

causing a “sale or exchange . . . of any property between the plan and a party in interest.”

29 U.S.C. § 1106(a)(1)(A). Absent a statutory exception, this provision would ban

ESOPs because their creation necessarily requires the ESOP to purchase stock from its

sponsoring employer, which is a party in interest. Congress, however, has carved out an

1
An employer’s contributions to an ESOP thus constitute a valuable form of
deferred compensation, rather than a gift to employees. See, e.g., Reich v. Hall Holding
Co., 990 F. Supp. 955, 961 (N.D. Ohio 1998), aff’d sub nom. Chao v. Hall Holding Co.,
285 F.3d 415 (6th Cir. 2002). Wilmington wisely does not suggest otherwise.

7
exception to this prohibition to permit the creation of an ESOP if the stock purchase

meets certain conditions. See 29 U.S.C. § 1108(e).

To protect employees from losing the value of their earned retirement savings, the

exception to the ERISA ban on party-in-interest transactions requires that an ESOP pay

no more than “adequate consideration” for the employer’s stock. Id. § 1108(e)(1). If an

employer’s “stock was not worth what the ESOP paid for it,” then the ESOP paid more

than adequate consideration and “the ESOP and its participants suffered a loss under

ERISA.” See Reich, 990 F. Supp. at 961.

ERISA does not define what constitutes “adequate consideration” under the

§ 1108(e) exception; the Department of Labor (DOL) has proposed, but never enacted,

regulations doing so. 2 Although courts look to these regulations for guidance, the focus

of the adequate-consideration inquiry rests on the conduct of a fiduciary, as judged by

ERISA’s “prudent man” standard of care. See Perez v. Bruister, 823 F.3d 250, 263 (5th

Cir. 2016); Henry III, 445 F.3d at 619; Chao, 285 F.3d at 437; Howard v. Shay, 100 F.3d

1484, 1489 (9th Cir. 1996).

Under this standard, “ESOP fiduciaries are subject to the duty of prudence just as

other ERISA fiduciaries are.” Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459,

2
These proposed regulations, to which courts look for guidance, provide that
“adequate” consideration must (1) reflect the stock’s “fair market value,” and (2) be “the
product of a determination made by the fiduciary in good faith.” Proposed Regulation
Relating to the Definition of Adequate Consideration, 53 Fed. Reg. 17,632, 17,633
(proposed May 17, 1988) (to be codified at 29 C.F.R. pt. 2510). “[I]n practice, the ‘fair
market value’ inquiry overlaps considerably with the ‘good faith’ inquiry.’” Henry v.
Champlain Enters., Inc., 445 F.3d 610, 618–19 (2d Cir. 2006) (Sotomayor, J.) (“Henry
III”) (collecting cases).

8
2467 (2014). Thus an ESOP fiduciary, like any other ERISA fiduciary, must “discharge

his duties . . . with the care, skill, prudence, and diligence under the circumstances then

prevailing that a prudent man acting in a like capacity and familiar with such matters

would use in the conduct of an enterprise of a like character and with like aims.” 29

U.S.C. § 1104(a)(1)(B).

Although these fiduciary duties “draw much of their content from the common law

of trusts . . . ERISA’s standards and procedural protections partly reflect a congressional

determination that the common law of trusts did not offer completely satisfactory

protection.” Tatum v. RJR Pension Inv. Comm., 761 F.3d 346, 357 (4th Cir. 2014)

(internal quotation marks omitted). Courts apply the “prudent man rule . . . bearing in

mind the special nature and purpose of employee benefit plans.” Id. (internal quotation

marks and alterations omitted). For this reason, “[t]he fiduciary obligations of the

trustees to the participants and beneficiaries [of an ERISA] plan are . . . the highest

known to the law.” Id. at 356 (alterations in original) (quoting Donovan v. Bierwith, 680

F.2d 263, 272 n.8 (2d Cir. 1982)).

Because an ESOP fiduciary that raises an affirmative defense under the § 1108(e)

exception seeks to avoid ERISA liability for an otherwise prohibited transaction, the

fiduciary bears the burden of proving by a preponderance of the evidence that the sale

was for adequate consideration. See Elmore v. Cone Mills Corp., 23 F.3d 855, 864 (4th

Cir. 1994) (en banc). “This burden is a heavy one.” Shay, 100 F.3d at 1488.

B.

With these principles in mind, we turn to the facts of this case.

9
 Since its inception, Constellis Group, Inc., the closely held parent company of a

group of private security subsidiaries, has offered some form of deferred compensation to

its employees, who are primarily retired members of the U.S. Armed Forces. Brundle I,

241 F. Supp. 3d at 614. After initially offering a stock option program, Constellis

replaced that program with a profit-sharing plan in 2010. Id. In mid-2013, looking for an

“exit strategy” after having twice tried and failed to effectuate a sale of the company, the

owners of Constellis (hereinafter “the Sellers”) 3 began exploring the possibility of

creating an ESOP to purchase Constellis. Id. at 615.

To that end, Constellis retained CSG International, an investment banking firm.

CSG reported that sale of Constellis to an ESOP would not only enable the Sellers to

liquidate their shares but would save them 23.8% in federal capital gains taxes. Id.

Although noting that an ESOP would also benefit employees, CSG emphasized that

selling Constellis to an ESOP provided the best option to optimize the Sellers’ after-tax

cash return. See, e.g., id. at 616 (noting that CSG reported to the Sellers that, having

“looked at every possible scenario,” it had not seen “any possible alternative that

produce[d] more after tax cash” than the proposed ESOP (internal quotation marks

omitted)).

CSG suggested that Constellis create what several trial witnesses characterized as

a “unique” ESOP structure to effectuate the sale. This unique structure would permit the

Sellers to retain de facto control of Constellis, even after the ESOP purchased all of the

3
Four individuals owned 77% of Constellis stock at the time of the sale at issue
here. See Brundle I, 241 F. Supp. 3d at 615.

10
company stock. Rather than sell 100% of their ownership interest to the ESOP, as is the

usual practice, the Sellers would sell 90% of their shares to the ESOP and then exchange

the remaining 10% for “equity-like” warrants. These warrants would entitle the Sellers to

buy back equity in Constellis from the ESOP at a designated price and guarantee the

Sellers a majority on the board of directors. Id. at 626.

To fund the ESOP’s purchase, Constellis would contribute 24% of the purchase

price and the ESOP would borrow the remainder from Constellis and the Sellers

themselves. Id. at 625. In late September 2013, Constellis decided to move forward with

CSG’s proposal to create this unique ESOP. Id. To maximize the Sellers’ tax savings,

Constellis had to complete the sale by the end of the calendar year. Id. at 622.

On the recommendation of CSG, Constellis engaged Wilmington Trust, N.A., to

serve as trustee for the ESOP. Id. at 616. In its role as trustee, Wilmington hired Stout

Risius Ross (SRR) to be the financial advisor on the ESOP’s purchase of Constellis. Id.

at 617. CSG, Wilmington, and SRR maintained significant long-term business

relationships, having worked together on more than twenty ESOP deals. Id. at 643

(calling “the ESOP world . . . a very incestuous community”) (internal quotation marks

omitted); id. at 617.

On November 12, 2013, SRR submitted a draft valuation of Constellis stock to

Wilmington (the “SRR Report”). The SRR Report concluded that the fair market value

for a single share of Constellis stock lay between $3,865 and $4,600 — resulting in a

rounded median price per share of $4,235. This placed the company’s worth, or its

“enterprise value,” within a range of $275 to $330 million. Id. at 620–21. On November

11
14, Wilmington met with analysts from SRR to discuss its report and valuation. At the

meeting’s conclusion, Wilmington set out to negotiate the ESOP’s purchase of Constellis

with authorization to offer a share price of $3,900 to $4,235. Id. at 622.

The next day, Wilmington submitted an opening bid on behalf of the ESOP for

$3,900 per share. Id. at 642. CSG, on behalf of Constellis, countered with $4,350 and

suggested to Wilmington that the ESOP and Constellis agree on a price first and then

adjust the terms of the agreement at a later date. Wilmington agreed and raised its own

bid to $4,100. CSG then countered with $4,250. By the end of the day, Wilmington and

CSG had settled on a share price of $4,235 — the very top of Wilmington’s authorized

negotiation range. The negotiations lasted little more than five hours.

The ESOP issued a tender offer for the shares on November 18 with a closing date

of December 20. The parties finalized the term sheet on November 22. Between the

conclusion of negotiations and the closing date for the transaction, SRR revised its

valuation of the draft enterprise range downward from $275–$330 million to $275–$325

million, but the per share purchase price remained $4,235. On December 19, after

meeting with SRR for half an hour to discuss SRR’s valuation, Wilmington approved the

purchase. Id. at 624. On December 20, the ESOP’s purchase of Constellis closed for a

per share price of $4,235. Id. at 625.

Subsequently, Tim P. Brundle, a former Constellis employee and ESOP

participant, brought this action contending that Wilmington caused the ESOP to enter

12
into a transaction prohibited under ERISA § 1106. 4 Brundle alleged that the $4,235 per

share paid by the ESOP for Constellis was too high and resulted in the ESOP overpaying

the Sellers for the stock. The district court initially held that the 2013 purchase of

Constellis by the ESOP constituted a prohibited transaction under § 1106(a)(1). Brundle

v. Wilmington Tr., N.A., 2016 WL 6542718, at *12 (E.D. Va. Nov. 3, 2016). Wilmington

conceded as much before the district court but raised the adequate-consideration

affirmative defense available under § 1108(e)(1). Id.

Following a bench trial, the district court issued meticulous factual findings and

concluded on the basis of those findings that Wilmington had not established the

§ 1108(e) affirmative defense. Rather, the court found that Wilmington had violated its

fiduciary duty to the ESOP. The district court concluded that Wilmington’s fiduciary

failures resulted in the ESOP overpaying for the Constellis stock by $29,773,250, and so

awarded that amount to the ESOP as damages. Brundle I, 241 F. Supp. 3d at 613.

Brundle then moved for attorneys’ fees. The court first ordered Wilmington to

pay attorneys’ fees pursuant to ERISA’s fee-shifting provision, 29 U.S.C. § 1132(g)(1),

in the amount of $1,819,631.11. Brundle II, 258 F. Supp. 3d at 663–69. It subsequently

awarded an additional $1.5 million in fees from the damages award.

4
Andrew Halldorson, another former Constellis employee and an ESOP
participant, filed the initial complaint against Wilmington. Halldorson later amended his
complaint to add Brundle as a named plaintiff. Both Halldorson and Brundle moved for
class certification, which the district court denied. Following a motion for summary
judgment by Wilmington, the district court dismissed Halldorson because of a release he
signed barring his suit against Wilmington. Halldorson appealed both his dismissal and
the denial of class certification but later withdrew his appeal of the class certification
issue. Brundle did not timely appeal the denial of class certification.

13
 On appeal, Wilmington challenges the court’s liability and damages

determinations and its award of $1.5 million in non-statutory attorneys’ fees. Brundle

cross-appeals, challenging as inadequate the same portion of the attorneys’ fees award.

II.

Wilmington initially and principally contends that the district court erred in

concluding that it violated ERISA. Following a bench trial, we review a district court’s

factual findings for clear error and its legal conclusions de novo. Nat’l Fed’n of the Blind

v. Lamone, 813 F.3d 494, 502 (4th Cir. 2016).

At the outset of both its principal brief and its oral argument, Wilmington

emphasized that there is no claim in this case that it acted in bad faith. But of course, an

ESOP participant seeking recovery from its fiduciary need not prove that the fiduciary

acted in bad faith. Rather, an ESOP fiduciary is liable to the plan participants if it

breached its fiduciary duties, i.e., failed to act “solely in the interest of the participants,”

with the care, skill, prudence, and diligence used by a “prudent man acting in a like

capacity.” 29 U.S.C. § 1104(a) (emphasis added). Thus our focus is not on

Wilmington’s motives (good or bad) but on whether it acted “solely in the interest” of the

plan participants, id., and “engaged in a reasoned decisionmaking process, consistent

with that of a prudent man in like capacity,” DiFelice v. U.S. Airways, Inc., 497 F.3d 410,

420 (4th Cir. 2007) (internal quotation marks omitted); accord Tatum, 761 F.3d at 356.

As the Fifth Circuit has put it, “a pure heart and an empty head are not enough.”

Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983).

14
 A.

The district court found that because Wilmington failed to prove by a

preponderance of the evidence that the ESOP’s purchase of Constellis was for adequate

consideration — and no more than adequate consideration — the transaction failed to

qualify for the § 1108(e) affirmative defense. 5 In challenging this holding, Wilmington

heavily relies on the valuation of Constellis stock submitted by its advisor, SRR.

Expert advice, like an advisor’s independent valuation, can of course serve as

evidence of prudence in the discharge of an ESOP trustee’s duties under § 1108(e). See

Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 300–01 (5th Cir. 2000). But such advice “is

not a magic wand that fiduciaries may simply wave over a transaction to ensure that their

responsibilities are fulfilled.” Cunningham, 716 F.2d at 1474. Rather, a plan trustee

must at least show that it (1) “investigate[d] the expert’s qualifications,” (2) “provide[d]

the expert with complete and accurate information,” and (3) “[made] certain that reliance

on the expert’s advice was reasonably justified under the circumstances.” Shay, 100 F.3d

at 1489. Because ERISA demands a high level of scrutiny from fiduciaries, a trustee

must prove that it considered these factors “and any others relevant under the particular

5
For this defense to apply, in addition to being for adequate consideration, (1) the
sale or exchange must be of “qualifying employer securities,” (2) the trustee cannot
charge a commission, and (3) the plan must qualify as “an eligible individual account
plan.” 29 U.S.C. § 1108(e).
All parties agree that the transaction here was for “qualifying employer securities.”
They further agree that Wilmington did not charge a commission, and they do not dispute
the district court’s finding that Wilmington’s fees were reasonable. See Brundle I, 241 F.
Supp. 3d at 617. The parties do contest, however, whether the ESOP qualifies as an
“eligible plan.” The district court did not reach this issue, nor do we.

15
circumstances it faced at the time of the decision,” and took care to avoid any identified

conflicts of interest. See Bruister, 823 F.3d at 263 (internal quotation marks omitted).

The district court properly recognized that the above legal principles guided its

inquiry. The court then issued extensive factual findings in support of its conclusion that

Wilmington had “not demonstrated that its reliance on SRR’s [valuation] report was

‘reasonably justified’ in light of all the circumstances because [Wilmington] ha[d] not

shown that it thoroughly probed the gaps and internal inconsistencies in that report.”

Brundle I, 241 F. Supp. 3d at 634.

The court found Wilmington’s decision-making process inadequate in four major

respects. Id. It explained that “[a]lthough these failings independently” might not be

dispositive, cumulatively they demonstrated that “Wilmington failed to meet its duty”

under ERISA, id., which, of course, includes the obligation to act “solely in the interest”

of plan participants, 29 U.S.C. § 1104(a). Wilmington challenges the district court’s

exhaustive findings of fact and conclusions of law as to each of the four designated

failures.

1.

First, Wilmington maintains the district court erred in finding fault with

Wilmington’s failure to investigate SRR’s omission from its report of another, much

lower, valuation of Constellis stock. That valuation, termed the “McLean Report” by the

parties, had been completed just months earlier by the McLean Group, an investment

bank that had regularly provided annual share valuations for Constellis. Brundle I, 241 F.

Supp. 3d at 619, 634–35.

16
 Wilmington’s trial witnesses contended that consideration of the McLean Report

“would not have been helpful because it was prepared with a different purpose in mind

— the valuation of a single share” for stock options, rather than the valuation of a

controlling interest for sale. Id. at 634–35. But the district court, relying on the

uncontradicted testimony of a “highly credible” neutral expert, found that the two reports

used “essentially the same methodology” despite being prepared for different purposes.

Id. at 635. Using that same methodology, the 2013 McLean Report estimated the per

share value of Constellis stock as $1,838.11, while SRR estimated its median per share

value as $4,235. Id. at 619.

Yet the SRR Report, which guided Wilmington as it evaluated the ESOP

transaction, did not even mention the McLean Report. And, although trial testimony

established that at least one Wilmington official knew of the McLean Report, no one

from Wilmington ever asked about it or questioned the vast discrepancy between two

valuations of the same company performed mere months apart. Id. at 634–35. The

district court concluded that a prudent fiduciary in Wilmington’s position would have

inquired as to SRR’s omission. This was particularly so given that Constellis officers

testified that the company’s business prospects had not dramatically changed in the

period between the two reports, and the SRR Report had referenced a different

“valuation” older than McLean’s. 6

6
Specifically, the SRR Report noted that in 2012 — a year before the McLean
Report’s publication — a private equity firm offered to buy Constellis for between $340
and $350 million. But rather than explain that the private equity firm then lowered its
(Continued)
17
 Relying on trial evidence, the district court concluded that even a cursory review

of the McLean Report would have raised questions as to whether the share valuation in

the SRR Report was too optimistic. The court did not find that the McLean Report

necessarily offered a more accurate picture of Constellis’s true value, but simply that a

reasonably prudent fiduciary would have asked more questions. The court found that the

answers to these questions were “precisely the kinds of information that Wilmington, as

trustee, should have sought and evaluated” when considering the valuation of Constellis

stock. Id. at 636. We see no reason to conclude otherwise.

2.

The second major fault identified by the district court concerned Wilmington’s

failure to adequately probe the reliability of financial projections prepared by Constellis

management and used by SRR. Id. at 636–38. The court found that “the record show[ed]

that there were several red flags indicating that these projections were inflated, which

Wilmington either ignored or downplayed.” Id. at 636. Wilmington offers both general

and specific challenges to this finding.

First, Wilmington argues that Constellis management’s financial projections were,

in fact, reliable and so required no probing. In support of this view, Wilmington contends

that because the McLean Report also utilized management’s financial projections to

offer to $275 million, see Brundle I, 241 F. Supp. 3d at 614–15, the report simply stated
that the deal fell through due to the buyer’s “inability to secure sufficient financing.”

18
arrive at its own valuation of Constellis — a valuation the court treated as relevant — the

court should have found the projections that the SRR Report used were also reliable.

But although both McLean and SRR relied on financial projections prepared by

Constellis management, they did not rely on the same financial projections. Id. at 638.

The projections that Constellis provided to SRR forecasted revenue over a much longer

time period, id. at 637–38, making them less accurate and less reliable. Further,

Constellis management specifically prepared this set of projections for the purposes of

SRR’s valuation in connection with the ESOP sale. This created a risk that Constellis

management might inflate its projections in response to incentives unique to the ESOP

sale. Id. at 636. In light of these distinctions, the district court’s differing assessments of

the two reports’ comparative reliability were not inherently contradictory.

At a more granular level, Wilmington maintains that each of the red flags that the

district court identified in Constellis’s financial projections are “non-existent.”

Wilmington Opening Br. 33–34, 38–39. Wilmington asserts largely factual, and

universally unpersuasive, arguments in support of this view.

Wilmington challenges the district court’s conclusion that Wilmington should

have been more critical of Constellis management’s financial projections because

management had a financial incentive to inflate the purchase price. The court found that

this initial red flag should have alerted Wilmington to probe the SRR valuation of

Constellis. The district court’s finding on this issue primarily rested on the prospect of

management receiving 5% of the purchase price in cash bonuses — a factual

determination well supported by the record. See Brundle I, 241 F. Supp. 3d at 636.

19
 The district court also identified as a red flag an ongoing government investigation

into accounting and record-keeping errors by Constellis, which the court concluded

“should have raised questions about the reliability of Constellis’[s] . . . projections.” Id.

Again, contrary to Wilmington’s suggestion, we see no basis for holding this finding

clearly erroneous. A government investigation into errors of this nature surely creates a

question as to the reliability of a company’s financial projections, which a reasonably

prudent fiduciary representing the buyers of the company should probe further. Cf.

Keach v. U.S. Tr. Co., 419 F.3d 626, 633–37 (7th Cir. 2005) (finding ESOP trustee met

fiduciary duty when it “analyzed exhaustively [the company’s] financials, had conducted

independent valuation analyses and had challenged the financial forecasts made by [the

company’s] management as too optimistic”).

Still another red flag to which Wilmington, in the district court’s view, did “not

adequately respond was the riskiness of Constellis’[s] contract concentration.” Brundle I,

241 F. Supp. 3d at 637. The district court believed that this risk called for Wilmington to

apply further scrutiny to the company’s financial projections. The court found, and

Wilmington does not dispute, that at the time of the ESOP sale, about 70% of Constellis’s

revenue depended on just two government contracts. Id. at 637. Yet Wilmington

adopted a valuation that assumed Constellis stock posed significantly less risk than the

stock market as a whole. Again relying on the trial testimony of a “neutral” and “highly

credible” third party expert, the court explained its conclusion that Constellis’s industry

peers — namely, government contractors — are certainly “no less risky than the market

as a whole.” Brundle II, 258 F. Supp. 3d at 663. And again, the record offers ample

20
support for this finding. See Brundle I, 241 F. Supp. 3d at 637; Brundle II, 258 F. Supp.

3d at 662–63. 7

Wilmington also maintains that the district court unfairly characterized

Constellis’s “multiple sets of projections” as a red flag. Wilmington claims that the

district court ignored the fact that SRR advised Wilmington that the market and

Constellis had changed throughout 2013. But the court adequately addressed this

argument, see Brundle I, 241 F. Supp. 3d at 635–36, and we defer to its factual finding

that the changes in the market and Constellis’s business prospects throughout 2013 did

not justify multiple sets of projections.

Last, Wilmington contends that we should reverse the district court due to its

initially erroneous understanding of the warranties Wilmington obtained to indemnify the

ESOP against the ongoing government investigation. At first, the court incorrectly found

7
The court acknowledged that it originally had misunderstood the definition of the
risk factor, called “beta,” that SRR used in its report. SRR chose a beta of 0.7, indicating
that Constellis stock was less risky than the average stock (set at a beta of 1.0). The court
had understood beta to measure the risk of Constellis stock relative to its industry peers,
but beta actually measures the risk of a company’s stock — or in the case of a privately
held company like Constellis, the risk of a company’s publicly traded industry peers —
relative to the stock market as a whole. Brundle II, 258 F. Supp. 3d at 658.
Upon consideration of Wilmington’s Rule 59 motion, the court stood by its
original conclusion that Wilmington had inappropriately chosen a beta indicating that
Constellis was less risky than other stocks. The court concluded that a neutral beta of 1.0
was more appropriate, noting that “[e]ven if government contracting business [in which
Constellis participates] does not fluctuate in correlation with the market, that does not
mean that government contracting is necessarily more stable.” Id. at 663. The court
noted that a Wilmington trial witness had acknowledged that “the government contracting
industry” is at times “less stable than the market as a whole.” Id. The court further relied
on the “most credible” neutral expert’s testimony that the public companies used by SRR
to measure beta were “not a good match for Constellis.” Id. We see no clear error in
these findings.

21
that only Constellis had indemnified the ESOP, thus creating an illusory form of

indemnification. But in denying Wilmington’s Rule 59 motion, the court candidly

addressed that error and acknowledged that, in fact, both Constellis and the Sellers had

indemnified the ESOP. Brundle II, 258 F. Supp. 3d at 656. Nonetheless, the court found

that its “corrected understanding [did] not alter [its] conclusions about . . . Wilmington’s

inadequate investigation into the soundness of Constellis’[s] financial projections.” Id.

The court explained that, “[e]ven omitting its erroneous view of the Sellers’ . . .

warranties,” Wilmington failed to rebut the many red flags discussed above, each of

which independently called for more robust due diligence by Wilmington. Id. at 656–57.

For the reasons we have explained above, we find no clear error in any of these findings

and so reject this final argument from Wilmington as to Constellis management’s

financial projections.

3.

The district court found that Wilmington’s third major failure in ensuring that its

reliance on the SRR valuation was reasonably justified occurred when it “did not

investigate the appropriateness of applying a 10% control premium” to Constellis stock

and “fail[ed] to discount the [valuation] for lack of control.” Brundle I, 241 F. Supp. 3d

at 638.

Purchasers will generally pay more for “rights associated with control of the

enterprise.” Estate of Godley v. Comm’r, 286 F.3d 210, 214 (4th Cir. 2002). We have

defined “control” as “an interest which allows the shareholder to unilaterally direct

corporate action, select management, decide the amount of distribution, rearrange the

22
corporation’s capital structure, and decide whether to liquidate, merge, or sell assets.” Id.

at 215 (internal quotation marks omitted).

The district court recognized that the ESOP had “powers beyond those of an

ordinary shareholder.” Brundle I, 241 F. Supp. 3d at 627 n.23. But the court nonetheless

found that the “ESOP essentially had no power to control Constellis” as a result of the

transaction’s unique structure. Id. at 638–39. Accordingly, the court concluded that

Wilmington erred in failing to investigate the SRR valuation, which not only failed to

discount the stock for lack of control, but even added a 10% control premium to the value

of the Constellis stock. The record supports both findings.

The Sellers retained the power to appoint a majority of the Constellis board, a key

indicator of control. See id. at 626. Further, the ESOP governing plan document and the

ESOP trust agreement each required Wilmington to vote its shares as the Constellis

board (not the ESOP) directed. See id. at 626–27. Wilmington maintains that the ESOP

could independently exercise its voting powers because the plan documents included a

clause nullifying any provision that violated ERISA. But Constellis’s general counsel

testified at trial that the ESOP could only contravene the plan documents and exercise its

independent voting authority by filing a lawsuit — the same limited relief available to a

minority shareholder. The district court thus concluded that Wilmington breached its

fiduciary obligation in failing to question SRR’s failure to discount for lack of control.

See id. at 639. Given the record evidence that the ESOP’s unique ownership structure

was intentionally designed to maintain the Sellers’ control over Constellis even after

selling their shares, the district court’s conclusion hardly constitutes clear error.

23
 Wilmington next contends that even if the ESOP lacked control, a 10% control

premium was justified by the fact that the ESOP owned 100% of Constellis shares and

obtained “elements of control.” Id. at 647. Wilmington argues that SRR reasonably

applied a “modest” 10% control premium given that market control premiums are often

between 35–40%. But in light of the limited rights provided to the ESOP, we cannot

conclude that the district court erred in finding that Wilmington should have done more

to challenge the use of any control premium. The SRR Report “devoted just one sentence

to articulating its decision,” yet Wilmington never asked SRR about its decision to apply

a control premium. Id. at 639. For an assumption that carried such weighty

consequences, we cannot say that the district court clearly erred in finding that a

reasonably prudent fiduciary would have probed the issue further.

4.

The final major fault that the district court identified in Wilmington’s reliance on

the SRR Report was Wilmington’s failure to probe why SRR consistently rounded the

valuation of Constellis stock upwards. This repeatedly increased the price the ESOP had

to pay for the stock. The district court concluded that because an ESOP fiduciary should

be concerned with achieving the lowest possible price for the ESOP, Wilmington ought

to have asked why SRR consistently engaged in the upward rounding to the ESOP’s

detriment. Id. at 639–40.

Wilmington devotes only a short footnote in its opening brief to this issue and fails

to address it at all in its reply brief. It thus appears to have forfeited an appellate

challenge to the court’s findings on this issue. See Wahi v. Charleston Area Med. Ctr.,

24
Inc., 562 F.3d 599, 607 (4th Cir. 2009) (finding argument raised only in a footnote in

appellant’s opening brief forfeited on appeal). Perhaps this is because the district court’s

finding is self-evidently correct. And, as the district court noted, Brundle I, 241 F. Supp.

3d at 640, this conclusion accords with those of other courts. For example, the Sixth

Circuit described a similar rounding practice as “extremely disconcerting” and noted that

this conduct, although not dispositive, was illustrative of lackluster due diligence

displayed throughout the transaction process. Chao, 285 F.3d at 433–34. So too here.

B.

Apart from Wilmington’s four major failures to scrutinize SRR’s report, the

district court also found that Wilmington’s conduct throughout the transaction provided

further evidence that Wilmington failed to act as a prudent fiduciary solely on behalf of

the ESOP participants. Although the court found that Wilmington’s actions on behalf of

the ESOP did not amount to bad faith, it recognized that “ERISA demand[ed] more to

excuse a fiduciary from liability.” Brundle I, 241 F. Supp. 3d at 643.

The district court found that Constellis’s principal motivation for creating the

ESOP was to further the Sellers’ interests, not the interests of the ESOP participant

buyers. Id. at 616. The sale of Constellis to the ESOP enabled the Sellers to cash out

their company stock, which they had tried and failed to accomplish several times, and to

reap substantial tax savings. Moreover, the ESOP’s unique structure enabled the Sellers

to avoid the downside risk of holding equity, yet profit from any upside, while also

retaining control over the company. The court found that Wilmington, in its role as the

25
ESOP’s fiduciary, simply ignored these motivations rather than investigating whether

they affected the ESOP’s legality under ERISA. Id. at 640–42.

The district court additionally found that making the Sellers’ interests paramount

shortened the transaction timeline and rushed Wilmington’s due diligence process and

price and terms negotiations. To maximize the after-tax benefits to the Sellers, the ESOP

sale had to conclude before the end of 2013. Accordingly, Wilmington and its agents

completed their due diligence, made pricing decisions, conducted negotiations, and

launched a tender offer in less than two months. Id. at 621–25. Wilmington employees

met to discuss the transaction only three times and met with Constellis management just

once. Id. at 642. All meetings lasted less than 90 minutes and several of Wilmington’s

team members were absent from each. Id. And the district court found that Wilmington

violated its own policy by repeatedly taking less than 48 hours between receiving a

valuation report and meeting to discuss it. Id. at 621, 625. The court concluded that this

type of conduct fell well short of the diligence expected of a prudent fiduciary. Id. at

643.

Finally, the court noted that “Wilmington’s lack of engagement and willingness to

negotiate so favorably with CSG may have been motivated by its significant business

relationship with CSG.” Id. The district court found that Wilmington, CSG, and SRR

maintained extensive and lucrative business relationships and that SRR was willing to

discuss its valuation strategies with CSG while negotiations were ongoing. Id. The

record offers ample support for all of these findings.

26
 C.

Wilmington also maintains that the district court erred in finding that the value of

Stock Appreciation Rights (SARs) issued in connection with the ESOP’s purchase of

Constellis should have been deducted from Constellis’s equity value for purposes of

SRR’s valuation. SARs are incentives that Constellis would have owed to management

had the company’s value reached a certain price by a particular date. Wilmington argues

the value of the SARs should not have been deducted from Constellis’s estimated value

because they were inchoate at the time of the sale. The district court disagreed and found

that, because Constellis intended for the SARs to be issued, their value should have been

deducted from Constellis’s equity value. Id. at 648.

Wilmington rehashes the same argument on appeal but fails to identify any

evidence that demonstrates the district court clearly erred in this factual determination.

Because we discern no such evidence, we reject this claim.

D.

In support of its final attack on the district court’s liability findings, Wilmington

relies on the ESOP’s subsequent sale of Constellis stock to ACADEMI LLC.

In early February 2014, less than two months after the ESOP transaction,

ACADEMI, a major competitor in the private security market, began talks with

Constellis management to acquire the company. Id. at 628. Initially, ACADEMI offered

to purchase Constellis at an enterprise value of $283.3 million, in a transaction that would

result in $10 million in cash going to the ESOP. Seeking a better offer on the ESOP’s

behalf, Wilmington entered into negotiations with Constellis, the Sellers, and

27
ACADEMI. Id. at 629. Wilmington’s efforts proved successful: the final transaction,

which closed on July 25, 2014, effectuated a sale of all the Constellis stock to ACADEMI

at an implied enterprise value of $288.3 million. Id. at 631. The final transaction paid

$20 million in cash to the ESOP — double the initial $10 million offer — as a result of

the Sellers’ agreeing to write off $33 million of the ESOP’s debt. Id. at 629.

Wilmington argues that the ACADEMI sale proves that the ESOP did not overpay

for Constellis seven months earlier. Relying on the first prong of DOL’s proposed

adequate-consideration regulations, Wilmington maintains that the ESOP paid “fair

market value” for the Constellis stock because ACADEMI’s purchase of Constellis stock

implied an enterprise value of $288.3 million, which was within SRR’s estimated range

of $275 to $330 million. Wilmington contends this purchase price is of particular

significance because in the intervening time Constellis assertedly suffered several

business setbacks that decreased its enterprise value. 8

This argument is unpersuasive for several reasons. The proposed DOL regulations

upon which Wilmington relies provide that a trustee can prove consideration is

“adequate” if it reflects the stock’s “fair market value” and is “the product of a

determination made by the fiduciary in good faith.” Proposed Regulation Relating to the

8
The district court carefully considered and described these setbacks in detail. See
Brundle I, 241 F. Supp. 3d at 627–28. Briefly, the State Department made a formal
demand for payment of $62.2 million as part of its audit of Constellis’s accounting and
record-keeping practices; Constellis was forced to reduce projected revenue from a
contract in Iraq by more than $100 million and push the remaining revenue further into
the future; its projected revenue from a contract in Kuwait decreased by tens of millions
of dollars; and it lost a $338 million contract in Germany it had expected to win. Id.

28
Definition of Adequate Consideration, 53 Fed. Reg. at 17,633. Of course, because the

DOL never enacted the proposed regulations, they are not binding. And, as we have

explained, courts look to the conduct of the trustee and whether it met its fiduciary

obligations, not to whether the trustee arrived at a “fair” value. But even if we were to

adopt the DOL’s proposed regulations, a trustee must satisfy both parts of the test to

benefit from the adequate consideration exception. See id. Assuming arguendo that the

purchase was for “fair market value,” we find no error in the district court’s findings that

Wilmington failed to prove that the share price was also “the product of a determination

made by the fiduciary in good faith.”

Furthermore, even if proving the ESOP paid “fair market value” sufficed to meet

the requirements of § 1108(e), the facts of the ACADEMI sale do not prove that the

ESOP paid only “fair market value” here. In fact, the district court found that the

opposite was true. The court found that because ACADEMI, a private security company

like Constellis, would benefit from synergies resulting from its purchase of Constellis, it

would have been willing to pay significantly more for Constellis than the ESOP. Thus,

that ACADEMI actually paid less for Constellis stock suggested a significantly lower fair

market value for the stock at the time of the ESOP purchase. Of course, Wilmington’s

experts disagreed with this synergies analysis, but the district court found the testimony

of other experts on this point more persuasive. Brundle I, 241 F. Supp. 3d at 640. The

record provides no basis to reject this finding. See Hendricks v. Cent. Reserve Life Ins.

Co., 39 F.3d 507, 513 (4th Cir. 1994) (“An appellate court should be especially reluctant

29
to set aside a finding based on the trial court’s evaluation of conflicting expert

testimony.”).

In sum, the district court found that the ACADEMI sale did not constitute a

meaningful comparator. Discounting the additional synergy value, the $33 million debt

write-off by the Sellers, and an expected tax refund from the sale, the court found the

ACADEMI purchase suggested that Constellis’s fair market value was closer to $200

million — almost $100 million less than the enterprise value implied by the ESOP

transaction. Thus, the court found, the ACADEMI sale could not support Wilmington’s

argument that the ESOP paid no more than adequate consideration for Constellis.

Brundle I, 241 F. Supp. 3d at 640. We see no clear error in this conclusion.

Additionally, we note that, despite paying more for Constellis stock, the ESOP did

not obtain nearly the level of control that ACADEMI acquired. While the ESOP

obtained only some elements of control, ACADEMI acquired absolute and uncontested

control. Had the district court applied the “standard” 35–40% control premium

Wilmington’s experts suggested was reasonable, Constellis’s fair market value would fall

somewhere between $145 million and $150 million, almost half the value of the stock

purchased by the ESOP only months earlier.

III.

Having rejected all of Wilmington’s challenges to the district court’s findings as to

its liability, we turn to the court’s damages award. The district court concluded that

Wilmington’s fiduciary failures inflated the price the ESOP paid for Constellis stock by

30
$29,773,250. “We review factual findings relating to the calculation of damages for clear

error.” Simms v. United States, 839 F.3d 364, 368 (4th Cir. 2016).

A.

To calculate the loss to an ESOP and compensate it for a fiduciary’s ERISA

violation, a court typically subtracts the stock’s fair market value, as determined by the

court, from the inflated price paid by the ESOP. See Bruister, 823 F.3d at 265 (collecting

cases). The district court precisely followed this approach. The court used as a baseline

the comprehensive damages estimate provided by Brundle’s expert — the only expert to

offer one. 9 The court then considered the flaws in this valuation raised by Wilmington

and made “appropriate adjustments based on the evidence adduced at trial and the

relative credibility of the experts.” Brundle I, 241 F. Supp. 3d at 645.

Brundle’s expert estimated Wilmington’s lack of due diligence had caused the

ESOP to overpay for the Constellis stock by almost $103,862,000. But the district court

did not accept this figure. Instead, it independently analyzed each of Wilmington’s

purported failings, considered the relevant trial testimony, and then awarded $29,773,250

— or less than a third of the expert’s estimation — as damages. Id. at 645–49. The

following chart summarizes the district court’s damages findings:

Error Difference between fair market value and
inflated price paid by ESOP (Damages)
Reliance on Management’s $4,325,000
Growth Projections
Use of .07 Beta $2,936,000

9
The Fifth Circuit held, in another ESOP case involving this same expert, that a
trial court “was entitled to credit” his valuation methodology. Bruister, 823 F.3d at 267.

31
 Inclusion of Control Premium $8,186,000
Failure to Include Lack of $9,715,250
Control Discount
Stock Appreciation Rights $1,611,000
Rounding $3,000,000
Total Damages $29,773,250

Wilmington did not provide the district court with an alternative damages

calculation or offer any evidence that the court could use to devise its own. At oral

argument before us, Wilmington conceded as much. Accordingly, it has forfeited its

challenge to the methodology used by the district court when calculating the damages

award. See Exxon Shipping Co. v. Baker, 554 U.S. 471, 487 n.6 (2008) (“[W]aiver and

forfeiture rules . . . ensure that parties can determine when an issue is out of the case, and

that litigation remains, to the extent possible, an orderly progression.”).

Moreover, Wilmington’s principal basis for urging reversal of the damages award

consists of a repetition of its challenge to the district court’s liability findings. Given our

affirmance of all the district court’s liability findings — that Wilmington failed to

adequately investigate and probe SRR as to the omission of the McLean Report, the use

of Constellis management’s growth projections, the 0.7 beta, the 10% control premium,

improper rounding up, and SARs — that challenge fails.

B.

Wilmington additionally contends that the district court erred in declining to offset

its damages calculation by the $20 million in cash that the ESOP received as a result of

the ACADEMI sale. According to Wilmington, “the district court’s failure to” do so

“resulted in a clear windfall for the ESOP.” Wilmington Opening Br. at 53. As the

32
district court ably explained, see Brundle II, 258 F. Supp. 3d at 660–62, this claim is

meritless.

ERISA expressly requires a fiduciary to “make good to [an ESOP] any losses”

resulting from a given breach of duty. 29 U.S.C. § 1109(a); cf. Restatement (Second) of

Trusts § 205 cmt. e (“If the trustee is authorized to purchase property for the trust, but in

breach of trust he pays more than he should pay, he is chargeable with the amount he paid

in excess of its value.”). Thus, in cases involving overpayment for ESOP assets, courts

generally compute restitution damages exactly as the district court did here: by deducting

the fair market value of the stock from the amount the ESOP actually paid.

Wilmington insists that the ESOP’s subsequent and unrelated sale of the stock to

ACADEMI requires a different result. This misapprehends the nature of the breach. If

Wilmington had breached its duty by purchasing Constellis stock at all, then a damages

award consisting of the purchase payments offset by any subsequent profits would indeed

return the participants to the pre-purchase status quo.

But Wilmington breached here by overpaying for the Constellis stock. Principles

of restitution therefore entitle the ESOP and its participants to compensation for the loss

from the overpayment. Any subsequent gains involving the stock, which the ESOP

would have obtained regardless of the overpayment, have no bearing on that loss. For

this very reason, courts have uniformly rejected analogous offsets to damage awards in

overpayment cases. See, e.g., Bruister, 823 F.3d at 270–71 (rejecting offset to account

for unpaid or forgiven ESOP debt and noting that “[e]very court to consider this

question” agreed); Henry v. U.S. Trust Co. of Cal., N.A., 569 F.3d 96, 98–100 (2d Cir.

33
2009) (“Henry V”) (“If an investor pays $100 for 20 shares of stock and later sells those

shares back to the original seller for $25, the result is not that the investor paid only $75

for the shares.”).

Even so, Wilmington asserts that the events in this case resulted in “pure gain” to

the ESOP, justifying a deviation from this rule. It claims the ESOP “made $20 million

for the nominal cost of carrying $200 million in non-recourse debt for a few months,”

because “[j]ust seven months” after the prohibited transaction, “the ESOP exchanged its

debt-burdened shares to ACADEMI for $20 million in cash.” Wilmington Opening Br.

at 55–56. We disagree. As a preliminary matter, the burden imposed in additional debt

from a $30 million overpayment is far from “nominal,” even for “just” seven months.

See Henry V, 569 F.3d at 99 n.4 (explaining “the obvious fact that the assumption of

indebtedness has immediate legal and economic consequences even before the borrower

begins to repay the debt”).

Moreover, if Wilmington seeks to portray the ACADEMI sale as an “exchange” in

which the ESOP’s pre-sale debt had no effect on its post-sale assets, this is both illogical

and untrue. Had the ESOP not initially overpaid for the stock by $30 million, it would

have shouldered tens of millions of dollars less in debt; in turn, it would presumably have

been tens of millions of dollars better off after being compensated for the stock in the

ACADEMI sale. Put differently, although the ESOP benefited despite the breach, it

would have benefited at least as much — but ended in a far better position — without the

breach. In fact, had the ESOP initially paid a fair (lower) value for the Constellis stock

34
and therefore carried less debt, it would have entered the ACADEMI negotiations in a

stronger bargaining position and may have profited further still.

Wilmington rejects this conclusion, stressing that the Sellers also agreed to write

off more than $30 million of the ESOP’s debt, which it describes as an “effective[]

reduc[tion]” of the 2013 purchase price. Wilmington Opening Br. at 56. But once again,

this independent act has no bearing on the ESOP’s loss.

Wilmington unpersuasively contends that Henry III supports its argument. That

case addressed very different facts. There, the Second Circuit held that — where sellers

fully and voluntarily repaid an ESOP after the IRS found overpayment, but before a court

entered a damages judgment — a duplicative recovery for the same overpayment might

“result in a windfall.” Henry III, 445 F.3d at 624. Wilmington does not even argue that

the Sellers’ write-off here was meant to remedy the ESOP’s overpayment. Nor could it:

unlike the midstream repayment in Henry, the write-off here occurred more than a year

prior to the initiation of any legal proceedings alleging Wilmington breached its fiduciary

duties. As Wilmington concedes, the write-off was part of a negotiated agreement to

close the ACADEMI sale, a deal wholly unrelated to the issues raised here. Again, it is

reasonable to assume that the ESOP would have negotiated equally favorable (if not more

favorable) terms had it paid a fair value in the first instance and thus entered the

ACADEMI discussions with substantially less debt.

In sum, we find no error in the district court’s damages award.

35
 IV.

Finally, we examine the district court’s award of attorneys’ fees. The court

awarded Brundle’s counsel $1,819,631.11 in statutory fees and an additional $1.5 million

in fees from the ESOP’s damages judgment. No party has presented a substantive

challenge regarding the award of attorneys’ fees under the fee shifting statute. 10 Brundle

challenges the $1.5 million in additional fees (payable from the damages awarded to the

ESOP) as too small; Wilmington and Constellis, as fiduciaries for the ESOP, challenge

the award as legally improper. We review that award for abuse of discretion, mindful

that our review “is sharply circumscribed, and a fee award must not be overturned unless

it is clearly wrong.” Berry v. Schulman, 807 F.3d 600, 617 (4th Cir. 2015) (internal

quotation marks omitted).

A.

We first consider Brundle’s claim that the district court abused its discretion by

not awarding his counsel, Bailey & Glasser, LLP (B&G), a total of $9.9 million in fees

under the firm’s one-third contingent fee agreement with Brundle himself. The district

court initially suggested that this arrangement was indeed controlling. See Brundle II,

258 F. Supp. 3d at 671–72. But the court held its fee decision in abeyance to consider the

10
Strangely, although Brundle does not challenge the statutory fee award, he does
summarily contend that he is entitled to $643,584.50 in expenses (the amount he
requested when seeking statutory fees in the district court). The district court denied his
request for expenses, explaining that it was insufficiently documented. See Brundle II,
258 F. Supp. 3d at 669. Before us, Brundle provides neither documentation nor
argument. Accordingly, to the extent he even appeals the denial of expenses, we affirm
the district court.

36
views of plan participants and ultimately based its award on equity rather than contract.

We can hardly find an abuse of discretion given that Brundle has no right to have the

ESOP fund his own fee agreement with B&G.

Brundle contends that 29 U.S.C. § 1132(a)(2) — which empowers ESOP

participants and beneficiaries to bring suit on behalf of an ESOP — additionally

authorizes him to enter into a legal services contract that binds the ESOP. Brundle

musters no caselaw to support his interpretation of the statute, and for good reason.

While § 1132(a)(2) provides Brundle the right to sue on behalf of the ESOP, neither it

nor any other statute authorizes him to unilaterally bind the ESOP to a contract or fee

agreement. For this very reason, the vast majority of suits on behalf of ERISA plans take

the form of class actions, in which counsel can seek fees only after a class has been

certified and class members have been given the opportunity to object or opt out. Though

B&G has a valid contingent fee agreement with Brundle, see Venegas v. Mitchell, 495

U.S. 82 (1990), it does not have a fee agreement with the ESOP.

As a result, only equity provides any possible basis for a fee award in addition to

the statutory fees awarded.

B.

After the district court received the views of some plan participants, it issued a

final judgment awarding B&G $1.5 million in “addition[]” to the $1.8 million in statutory

37
fees — not as a contractual right, but as “a partial common fund award.” 11 Wilmington

and Constellis assert that a trio of ERISA provisions precluded the court from awarding

any common fund recovery. Unlike most challenges to fee awards, we review de novo

questions regarding a court’s legal authority. See, e.g., Country Vintner of N.C., LLC v. E

& J. Gallo Winery, Inc., 718 F.3d 249, 254 (4th Cir. 2013).

First, Wilmington and Constellis contend that any common fund award here would

violate ERISA’s “anti-alienation” and “exclusive benefit” provisions. See 29 U.S.C.

§ 1056(d)(1) (providing that benefits under retirement plans cannot be “assigned or

alienated”); id. § 1103(c)(1) (directing all “assets of a plan” to be “held for the exclusive

purposes of providing benefits to participants in the plan and their beneficiaries and

defraying reasonable expenses of administering the plan”). But the district court properly

rejected this argument, concluding that because the plan administrator did not yet possess

the damages award — in other words, the court still had jurisdiction over the funds and

had not distributed them to the ESOP — it could not be considered a plan asset. Brundle

II, 258 F. Supp. 3d at 670. Of course, if the ESOP had received payment of the award,

those funds would have been subject to ERISA’s duties and protections. See Wilmington

11
The district court made clear, and the parties do not dispute, that “[i]n granting
both fee-shifting and contingent fee awards, . . . the contingent fee award must be offset
by the amount awarded under the fee-shifting provision.” Brundle II, 258 F. Supp. 3d at
672 & n.19. On appeal, Brundle seeks a total of approximately $9.9 million in fees plus
about $650,000 in purported expenses, which (when offset by the $1.8 million in
statutory fees paid by Wilmington) would entitle B&G to a net of approximately $8.8
million from the common fund. The district court instead awarded Brundle a net of only
$1.5 million in fees from the common fund, which it noted was in “addition[]” to the $1.8
million statutory fee-shifting award, for a total of $3.3 million in fees.

38
Shipping Co. v. New England Life Ins. Co., 496 F.3d 326, 333 (4th Cir. 2007). But where

a fund is still under the jurisdiction of the district court, the court may award fees from

that fund without running afoul of ERISA’s anti-alienation or exclusive benefit

requirements. See Kickham Hanley P.C. v. Kodak Ret. Income Plan, 558 F.3d 204, 213

(2d Cir. 2009); Lynn v. CSX Transp., Inc., 84 F.3d 970, 975 (7th Cir. 1996).

Next, Wilmington and Constellis argue that ERISA’s statutory fee-shifting

provision displaces the common fund doctrine. See 29 U.S.C. § 1132(g)(1) (authorizing

prevailing plaintiffs to recover reasonable attorneys’ fees from defendants). They urge us

to follow the Seventh Circuit in “limiting the common-fund approach to cases outside the

scope of a fee-shifting statute.” Pierce v. Visteon Corp., 791 F.3d 782, 787 (7th Cir.

2015); accord Haggart v. Woodley, 809 F.3d 1336, 1358–59 (Fed. Cir. 2016) (largely

adopting Pierce rule). 12

Several other circuits, however, have disagreed with this approach. See McKeage

v. TMBC, LLC, 847 F.3d 992, 1003 (8th Cir. 2017) (“[T]he presence of a fee-shifting

statute precludes a common fund award only when that result is required by the statutory

scheme involved.”); In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 941 (9th

Cir. 2011) (“The award of attorneys’ fees in a class action settlement is often justified by

[a] common fund or statutory fee-shifting[,] . . . and sometimes by both.”); Staton v.

12
Pierce is in some tension with prior Seventh Circuit cases holding, in the
context of settlements, that common fund recoveries are sometimes available even where
a case was brought under a statute with a fee-shifting provision. See Florin v.
Nationsbank of Georgia, N.A., 34 F.3d 560, 563–64 (7th Cir. 1994); Skelton v. Gen.
Motors Corp., 860 F.2d 250, 252–57 (7th Cir. 1988).

39
Boeing Co., 327 F.3d 938, 967–69 (9th Cir. 2003) (permitting common fund recovery

even where statutory fees may be available); Cty. of Suffolk v. Long Island Lighting Co.,

907 F.2d 1295, 1327 (2d Cir. 1990) (“In our view, fee-shifting statutes are generally not

intended to circumscribe the operation of the equitable fund doctrine.”).

To determine the proper course here, we consider the roots of the common fund

doctrine. The common fund principle derives from the equitable doctrines of quantum

meruit, Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885), and unjust

enrichment, Trustees v. Greenough, 105 U.S. 527, 532 (1881). It allows a court to award

“a reasonable attorney’s fee” to “a litigant or a lawyer who recovers a common fund for

the benefit of persons other than himself or his client . . . from the fund as a whole.”

Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). The rationale for the doctrine is

that when one benefits from a lawsuit without contributing to its costs, he has been

unjustly enriched at the successful litigant’s or lawyer’s expense. Mills v. Elec. Auto-Lite

Co., 396 U.S. 375, 392 (1970). Courts remedy this inequity by shifting a proportional

share of reasonable attorneys’ fees onto these unjustly enriched beneficiaries.

The Supreme Court has applied the “strong and uniform . . . background rule” of

the common fund doctrine “in a wide range of circumstances as part of [its] inherent

authority.” US Airways, Inc. v. McCutchen, 569 U.S. 88, 104 (2013) (collecting cases).

We agree with Brundle that it applies here. Scores of unnamed ESOP participants

benefited substantially from this lawsuit, while B&G bore the entirety of the costs and

risks. Equity thus demands that the enriched participants pay a proportional share of

reasonable attorneys’ fees.

40
 To be sure, courts often, but not invariably, award common fund fees when a

procedural obstacle, such as the terms of a settlement, bars statutory fees that are

otherwise available. 13 But it does not follow that all statutory fee provisions necessarily

displace the doctrine or render it superfluous. To the contrary: although both the

common fund doctrine and fee-shifting statutes facilitate suit by plaintiffs who may

otherwise lack the means to hire counsel, they operate in distinct ways and serve distinct

purposes.

A common fund recovery places the plaintiffs’ cost of litigation on the recovering

beneficiaries of a lawsuit, whereas a fee-shifting statute places this burden on the losing

party. Cf. Venegas, 495 U.S. at 90 (differentiating between “what the losing defendant

must pay” to the plaintiff as attorneys’ fees under a fee-shifting statute and “what the

prevailing plaintiff must pay his lawyer”). A fee-shifting statute thus creates an

exception to the “American rule” that “the prevailing litigant is ordinarily not entitled to

collect a reasonable attorneys’ fee from the loser.” Alyeska Pipeline Serv. Co. v.

Wilderness Soc., 421 U.S. 240, 247 (1975). In contrast, the common fund doctrine —

though often similarly described as an exception — better accords with the American rule

13
See, e.g., Skelton, 860 F.2d at 256 (affirming common fund award where “the
fee-shifting provision [did] not . . . apply to a fee determination in a case settled in a
common fund”); In re Fine Paper Antitrust Litig., 751 F.2d 562, 582–83 (3d Cir. 1984)
(affirming common fund award where settlement released defendants from statutorily
available fees). But see Reyes v. Bakery & Confectionary Union & Indus. Int’l Pension
Fund, 281 F. Supp. 3d 833, 850 (N.D. Cal. 2017) (“[C]lass counsel may be awarded fees
from the common fund in addition to any award under ERISA’s fee-shifting statute.”);
Humphrey v. United Way of Tex. Gulf Coast, 802 F. Supp. 2d 847, 859 (S.D. Tex. 2011)
(“The Court . . . has the power and discretion to award reasonable fees under both
[ERISA] and the common fund doctrine.”).

41
by holding the beneficiaries of a judgment or settlement responsible for compensating the

counsel who obtained the judgment or settlement for them. See Staton, 327 F.3d at 967.

Furthermore, the purpose of the common fund doctrine, unlike a fee-shifting

statute, is to avoid unjust enrichment. Thus, although a statutory fee award against a

defendant generally may not include a contingency enhancement, see City of Burlington

v. Dague, 505 U.S. 557, 565–67 (1992), courts routinely impose enhanced common fund

awards to compensate counsel for litigation risk at the expense of beneficiaries who did

not shoulder this risk, see, e.g., In re Wash. Pub. Power Supply Sys. Secs. Litig., 19 F.3d

1291, 1300 (9th Cir. 1994) (“There is nothing unfair about contingency enhancements in

common fund cases . . . .”); Florin, 34 F.3d at 564–65 (similarly holding that “the policy

considerations . . . that militate for forbidding risk multiples in statutory fee-shifting cases

have little force in common fund cases”).

From these distinctions, it follows that a “reasonable” fee payable by a defendant

to compensate the prevailing plaintiff’s counsel is not necessarily identical to a

“reasonable” fee owed by a recovering beneficiary to plaintiff’s counsel, particularly

where the contingency risk to plaintiff’s counsel is substantial. Cf. Venegas, 495 U.S. at

85, 90 (affirming $406,000 contractual fee, paid by prevailing plaintiff to his counsel, as

not “unreasonable” even though “reasonable” statutory fee, paid by losing defendants,

was only $117,000); McKeage, 847 F.3d at 1004 (emphasizing “a distinction between the

amount a losing party may be required to pay” under fee-shifting provision in settlement

“and the amount a class member should equitably be required to pay” under common

fund doctrine).

42
 Consequently, we find unpersuasive the Seventh Circuit’s reasoning in Pierce. In

limiting the common fund doctrine to cases “outside the scope of a fee-shifting statute,”

the Pierce court reasoned first and foremost that “[c]ommon-law doctrines yield to

statutes.” 791 F.3d at 787. But the Supreme Court has instructed that courts must

“presum[e] that Congress intended to retain the substance of the common law.”

Samantar v. Yousuf, 560 U.S. 305, 320 n.13 (2010). We recognize, of course, that

legislative displacement of the common law does not require “the same sort of evidence

of a clear and manifest congressional purpose demanded for preemption of state law.”

Am. Elec. Power Co., Inc. v. Connecticut, 564 U.S. 410, 423 (2011) (alterations and

internal quotation marks omitted). Even so, a statute that shifts a reasonable fee onto a

losing defendant does not, without more, “speak[] directly” to congressional intent to

displace recovery from a common fund. Id. at 424 (internal quotation marks omitted).

The Pierce court additionally emphasized that “fee-shifting statutes are designed

to ensure that the victims retain full compensation,” 791 F.3d at 787, a concern of

indisputable importance. The common fund doctrine, however, balances this critical

interest against the concern of unjust enrichment, which ERISA’s fee-shifting provision

does not purport to address.

Finally, echoing the Pierce court, Wilmington and Constellis stress that B&G was

entitled to, and received, a “reasonable” attorneys’ fee under statute. However, as we

have explained, what is “reasonable” as a fee from a losing defendant may well differ

from what is “reasonable” as a fee from an individual directly benefited by counsel’s

efforts. We particularly note that a “reasonable” fee under ERISA’s attorneys’ fee

43
provision (unlike a common fund award) precludes any compensation for contingency

risk. See Dague, 505 U.S. at 565–67. But, we have previously underscored, contingent

fees serve an important function in providing under-resourced litigants access to counsel

and the courts. In re Abrams & Abrams, P.A., 605 F.3d 238, 245–47 (4th Cir. 2010).

Conflating statutory attorneys’ fees with common fund recoveries would squarely

contravene this policy.

We therefore agree with the Second, Eighth, and Ninth Circuits that a statutory

fee-shifting provision (or an award of fees under such a provision) does not, as a matter

of law, automatically preclude an award under the common fund doctrine. Accordingly,

the district court retained discretion to award supplemental attorneys’ fees from the

common fund.

C.

Having established the district court’s authority to award supplemental fees, we

turn to Brundle’s contention that the court abused its discretion in awarding its counsel

too little from the common fund.

Before setting the amount of its common fund award, the district court fashioned

an ad hoc process analogous to class settlement procedures under Rule 23. Brundle II,

258 F. Supp. 3d at 671–72. The court ordered Brundle’s counsel, B&G, to engage in a

good faith effort to notify the approximately 1,800 former ESOP participants of its

proposed contingency fee award. After B&G did so, the court received 59 letters

objecting to a one-third contingency award. As a result of the objections, the court

decided to award B&G only $1.5 million as a supplemental fee payable from the

44
damages award, rather than granting counsel a full one-third ($9.9 million) of the ESOP’s

total damages recovery.

In reviewing the district court’s award, we note that Brundle had available a

procedural mechanism designed to carefully balance the interests of counsel, plaintiffs,

and other similarly situated beneficiaries from the start — namely, class certification

pursuant to Rule 23. To be fair, Brundle and another plaintiff, Halldorson, did initially

seek class certification, which the district court denied. But Brundle opted not to timely

appeal this denial. And although Halldorson initially sought our review, he later

withdrew his appeal. See supra n.4.

Had Brundle pursued class certification and prevailed, B&G could have secured

attorneys’ fees from the class as a whole. Although a properly certified class might not

have agreed to the same one-third contingency fee that Brundle did, the district court

might well have awarded a fee significantly higher than the firm’s ultimate recovery

here. 14

Brundle, represented by B&G, instead opted to forego Rule 23’s procedural

strictures — thus avoiding “the standards set for the protection of absent class members.”

Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 621 (1997). In light of this choice, the

district court’s decision to limit the common fund award was not inequitable, as

illustrated by the objections from some of the ESOP’s participants. Nearly 60 of the

14
See, e.g., Savani v. URS Prof’l Sols. LLC, 121 F. Supp. 3d 564, 574–75 (D.S.C.
2015) (approving fee award of 39.57% from common fund award in ERISA settlement
and collecting cases); In re Marsh ERISA Litig., 265 F.R.D. 128, 149 (S.D.N.Y. 2010)
(approving fee award of 33.33% from common fund award).

45
1,800 participants objected to the proposed common fund award, explaining that they had

never been informed of the case status, never agreed to B&G’s representation, and never

authorized the fund to pay a one-third fee. These process concerns would have been

avoided upfront had Brundle persisted in his pursuit of class certification. But because he

and his counsel abandoned Rule 23’s class-protective procedures, equity cuts against

awarding B&G the full one-third contingency fee.

The district court properly weighed B&G’s efforts on behalf of the ESOP —

including contingency risk — against the objections from ESOP participants to determine

a proper common fund award. Because we cannot say this balancing was clearly wrong,

see Berry, 807 F.3d at 617, we affirm the court’s fee award in full.

V.

For the foregoing reasons, the judgment of the district court is in all respects

AFFIRMED.

46