Montgomery et al v. Aetna Plywood, Incorp. et al
| Citation | 231 F.3d 399 |
| Decision Date | 26 October 2000 |
| Docket Number | Nos. 99-2364,99-2707,00-1033,s. 99-2364 |
| Parties | (7th Cir. 2000) Howard R. Montgomery, for himself and for all others similarly situated, for themselves and for Aetna Plywood, Inc. Profit Sharing Plan as successor to Aetna Plywood, Inc., Employee Stock Ownership Plan, Plaintiffs-Appellants, v. Aetna Plywood, Incorporated, et al., Defendants-Appellees. Clinton A. Krislov and Krislov & Associates, Ltd., Plaintiffs-Appellants, v. Aetna Plywood, Incorporated, et al., Defendants-Appellees |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 3193--William T. Hart, Judge. [Copyrighted Material Omitted]
[Copyrighted Material Omitted]
[Copyrighted Material Omitted] Before Bauer, Evans, and Williams, Circuit Judges.
This appeal arises out of a class action suit brought by Howard Montgomery on behalf of participants in Aetna Plywood's Employee Stock Ownership Plan ("ESOP") against Aetna Plywood and its directors, based on an allegation that Aetna Plywood had not adequately compensated the ESOP participants when the directors caused the ESOP to sell its shares back to the company. Eventually, the parties reached a pair of settlements. This appeal, however, does not involve, directly at least, the settlements or the underlying class action suit. Rather, it involves three ancillary matters the district court decided: the legality of an ownership restructuring plan Aetna Plywood proposed, the amount of the settlement fund that should be awarded to class counsel and the lead plaintiff, and the proper disposition of a subsequent state law action brought by class counsel to enforce a term in one of the parties' settlement agreements. With one minor exception, we affirm the district court's decisions on each of these matters.
Just before Aetna Plywood purchased the stock owned by its ESOP, the ESOP owned 95% of the company's outstanding shares. The remaining 5% was owned by Jeff Davis, who served as Aetna Plywood's chief executive officer, the chairman of its board of directors, and a member of the committee that managed its ESOP. Sometime in mid-1992, Davis, along with the other three individuals who served on both Aetna Plywood's board of directors and its ESOP committee, caused the ESOP to sell its shares of Aetna Plywood stock to the company. This transaction left Davis as the sole stockholder in Aetna Plywood.
Believing that Davis and Aetna Plywood's other directors had caused the ESOP to sell its shares of Aetna Plywood stock for too low a price, Howard Montgomery, a former Aetna Plywood employee and ESOP participant, filed, in May 1995, a class action suit on behalf of ESOP participants against Aetna Plywood and the directors who had approved the stock sale ("the Montgomery defendants"). The class complaint alleged that, by causing the ESOP to sell its shares at a below- market-value price, Aetna Plywood's directors had breached fiduciary duties placed on them by ERISA and Delaware corporate law.
The case eventually went to trial before the district court in June 1998. On the third day of the trial, two directors, both of whom were outside directors, entered into a settlement with the class. They agreed to pay the class $800,000 in exchange for a release from liability. At the conclusion of the trial, the district court found Aetna Plywood, Davis, and the other remaining defendant-director, John Francione ("the trial defendants"), liable for causing the ESOP to sell its interest in Aetna Plywood without ensuring that the ESOP received adequate consideration. The district court further found that the defendants had under- valued the ESOP's stock by $70 a share. After making adjustments for the settlement with the outside directors and prejudgment interest, the court arrived at a damages figure of $7,243,820.17.
Following the district court's decision, the trial defendants initiated negotiations with the class, fearing that the judgment entered against them would bankrupt Aetna Plywood. These negotiations proved fruitful and the parties reached a comprehensive settlement agreement. The trial defendants agreed that Aetna Plywood would pay the class $6.1 million cash, give the class 20% of the company's stock, and, if Aetna Plywood were to be sold within three years, turn over to the class 25% of the sale proceeds in excess of $6.1 million. Davis promised to relinquish his Aetna Plywood stock and to give up all control of and involvement in the company. He also agreed to relinquish his ownership interest in the company's headquarters, to forfeit any monies realized from the sale of his shares, and to forego any future remuneration from the company. Moreover, both Davis and Francione agreed to give up any recovery they might be entitled to as ESOP participants.
In exchange for these promises, the class agreed to release all claims asserted and assertable against the trial defendants and promised not to seek further assets from Davis. In addition, class counsel agreed to limit any attorneys' fee request to one-third of the settlement recovery plus reimbursements of costs and expenses not exceeding $500,000, and the defendants promised not to oppose a request within those bounds. The parties also agreed that Aetna Plywood would consult with class counsel regarding any sale or change of control transaction involving the company and that Aetna Plywood could submit any proposal in this regard, to which class counsel objected, to the court for approval. Finally, the parties provided that the district court would retain jurisdiction over the case to enforce the terms of the settlement agreement.
After carefully reviewing the mid- and post-trial settlements reached by the parties, the district court, in March 1999, approved both settlement agreements, finding each to be fair, reasonable, and adequate. In the same order, the district court took up class counsel's requests for attorneys' fees, costs, and an incentive award for the lead plaintiff. Although none of the Montgomery defendants challenged class counsel's requests, as the requests were within the bounds established by the settlement agreement, objections were received from class members. Primarily, these came from three Aetna Plywood managers, Larry Rassin, Keith Weller, and Jon Minnaert. The district court reviewed carefully both class counsel's requests and the objections submitted, as well as the numerous considerations relevant to determining an appropriate attorneys' fee, expense reimbursement, and incentive award. Based on this review, and using the percentage-of-recovery method for awarding attorneys' fees, the court awarded class counsel 25% of the net settlement recovery (amounting to $1,655,177.71), 25% of any future class recovery, and $279,289.15 in expense reimbursements. The court declined to award class counsel any portion of the stock promised to the class and refused to grant the lead plaintiff an incentive award. A subsequent order granted class counsel an additional $200,000 in expense reimbursements, but reaffirmed the district court's refusal to grant a reimbursement for computer-assisted legal research costs.
At the same time the district court was considering the fairness of the two settlements and the appropriateness of class counsel's requests for attorneys' fees, costs, and an incentive award, the parties also brought before the court an ownership restructuring plan proposed by Aetna Plywood. Pursuant to this plan, which was submitted to the district court in February 1999, Davis would relinquish his stock to Aetna Plywood in exchange for $1,000 and the company would give that stock (as well as the $1,000) to the class; then, Aetna Plywood would issue new stock representing 80% of the total number of outstanding shares; finally, Aetna Plywood would turn 29% of the company's stock over to its attorneys to pay for services rendered and would sell the remaining 51% to a group of managers (Rassin, Weller, Minnaert, and Scott Halden) for $4,000. The class objected to the plan on the ground that it did not maximize the value Aetna Plywood could have received for selling a controlling interest in the company. After briefing on the issues raised by the restructuring plan, the district court, in April 1999, gave its consent to the proposed restructuring.
Around this same time, class counsel discovered that Aetna Plywood had funded the objections Rassin, Weller, and Minnaert filed opposing class counsel's request for attorneys' fees. Believing this violated the parties' settlement agreement, class counsel filed suit against Aetna Plywood, Rassin, Weller, Minnaert, and Halden ("the Krislov defendants") in the Circuit Court of Cook County, Illinois, asserting a breach of contract claim. In response, the Krislov defendants removed the case to federal court and filed a motion to dismiss. Class counsel then filed a motion to remand the case to state court and, in the alternative, asked for leave to file an amended complaint. The district court denied the motion to remand, but granted class counsel leave to amend. Class counsel then added claims of aiding and abetting a breach of contract and intentional interference with a contractual relationship against the individual Krislov defendants. Following a second motion to dismiss, the district court, in December 1999, concluded that class counsel had failed to state a claim against the Krislov defendants and dismissed class counsel's suit.
In July 1999, the district court entered final judgment in the Montgomery class action suit, and in December 1999, did the same in the Krislov suit. Timely appeals were filed in both cases.
The first issue raised in these appeals concerns the district court's decision to allow Aetna Plywood to go forward with its...
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