Churchill Holdings Settles ESOP Lawsuit

Churchill Mortgage Corp., a mortgage lender based in Brentwood, Tennessee, and its executives have reached a settlement agreement with former employees who alleged fiduciary breaches that harmed workers’ vested retirement assets in the company’s employee stock ownership plan.

Details of the settlement agreement, filed on January 28, are not yet explicitly stated in court filings. A mediation report included in the court docket indicates that the parties resolved all issues and will file a notice, stipulation or proposed order of dismissal by March 14.

In Arnold et al. v. Paredes et al., filed in May 2023 in the U.S. District Court for the Middle District of Tennessee, three former participants alleged that the company failed to ensure the ESOP received every cent from dividends held by the plan on preferred shares in the company acquired from 2013 through 2019 and that the plan bought remaining shares of Churchill for more than fair market value in a 2020 transaction.

The defendants also include Prudent Fiduciary Services LLC, an Employee Retirement Income Security Act consultant to the ESOP.

According to the lawsuit, in 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.”

Lawson Hardwick, a plan trustee and the president, CEO and a director at Churchill Mortgage, was accused of converting plan assets for his and the company’s own use and benefit.

In December 2020, Hardwick sold his remaining equity in Churchill—510,000 shares of common stock—to the plan for $74 million. According to the lawsuit, the transaction was financed through a note payable to Hardwick, which Churchill subsequently assumed from the plan.

“As a result of the prohibited stock transaction in 2020 … Hardwick received Plan assets in payments above fair market value for his Churchill stock,” and the defendants “thereby misused the Plan’s money to the benefit of Hardwick, and other plan-wide relief,” the plaintiffs argued.

The defendants filed motions in August 2023 to dismiss the suit for lack of standing and failure to state a claim, and while a dismissal of one breach of duty was granted by the court later that month, the remaining claims continued. The plaintiffs later filed a motion for class certification in August 2024, which was granted by the court. In November 2024, a joint motion to extend the trial date was denied. A class settlement was negotiated by January 28, 2025.

The plaintiffs in the case are represented by law firms including Herzfeld, Suetholz, Gastel, Leniski and Wall PLLC, and the defendants are represented by Groom Law Group and McDermott Will & Emery LLP.