Former Churchill Mortgage employees moved one step closer to getting a $850,000 settlement approved by a federal court in Tennessee over claims that their employee retirement accounts were mismanaged.
The proposed settlement would dole out approximately $850 per class member and over $200,000 would be paid to attorneys representing plaintiffs.
If approved, the deal would resolve a certified class action lawsuit lodged in 2023, which accused Churchill Mortgage's CEO, Mike Hardwick, and others associated with the company's employee stock ownership plan of using annual dividends made from company profits from 2013 to 2019 to financially prop up the company.
Members in the class action suit also claim that in 2020 their ESOP bought Churchill's stock from Hardwick for close to $74 million, which was nearly three times the fair value. The deal left the retirement plan and the company deeply in debt, while Hardwick walked away with a big profit, the suit alleged.
Both issues represent an alleged violation of the
Contingent on the approval of a Tennessee federal court, the plaintiffs will in turn agree to not refile similar litigations against defendants in the future.
Though the settlement received its first green light May 8, both parties will convene Sept. 17 for a hearing before a final order is issued. The class action, per estimates, has close to 300 members.
A legal document filed April 17 outlined that both parties had issues coming to a mutual understanding.
"Defendants vigorously denied all of the allegations, asserted affirmative defenses, and otherwise defended its actions with respect to the 2020 transaction and its fairness to the plan," the document filed in April said.
"Plaintiffs and defendants also strongly disagree on the proper measure of damages. That core dispute had not been resolved at the time the parties reached their Settlement, and the uncertainty put both parties at great risk," that same legal filing added.Litigation was kicked off in 2023 by three underwriters that launched litigation against Churchill Mortgage's CEO and individuals affiliated with the company's ESOP.
The filing from two years ago outlines that Hardwick in 2013 started "cashing out his equity in Churchill," via the creation of the ESOP for employees. Each year, $2.4 million in dividends was deposited into the plan, but in most years a significant portion of the dividends were used to offset corporate obligations, like ESOP contributions, instead of being used for the benefit of the plan and its participants.
In 2020, Hadwick sold his remaining equity in Churchill, amounting to 510,000 shares of common stock to the ESOP for $74 million.
"Each share of ESOP-held preferred stock had been valued at $52.25 as of December 31, 2019. But only a few months later, the plan paid Hardwick $145.90 per share of common stock in the 2020 Transaction," litigation read. "Thus, the plan paid Hardwick almost three times what Churchill preferred stock had been valued less than a year earlier."
"The 2020 transaction allowed Hardwick to unload his stake in Churchill above fair market value, for the reasons explained herein, and saddle the plan and Churchill with tens of millions of dollars of debt to finance the transaction," original litigation filed said.
It is uncertain how the three underwriters became privy to what was happening to their retirement accounts. The information was not disclosed in the three filings viewed.
Churchill Mortgage could not immediately be reached for comment.
