572 F.3d 1067 (9th Cir. 2009), 08-17369, Johnson v. Couturier

Docket Nº:08-17369, 08-17373, 08-17375, 08-17631.
Citation:572 F.3d 1067
Opinion Judge:TALLMAN, Circuit Judge
Party Name:Gregory JOHNSON; William Rodwell; Edward Rangel; Kelly Morrell, Plaintiffs-Appellees, v. Clair R. COUTURIER, Jr., Defendant, and Darleen Stanton, Plaintiff, Roorda Piquet & Bessee, Inc., Non-party appearing witness, Witness, David R. Johanson; Noll Manufacturing Company Employee Stock Ownership Plan and Trust; Pensco, Inc.; Johanson Berenson LLP; t
Attorney:Theodore M. Becker (argued), Thomas M. Peterson, Joseph E. Floren, and Elizabeth A. Frohlich, Morgan, Lewis & Bockius LLP, for appellant Clair R. Couturier, Jr. Christopher J. Rillo, Lars C. Golumbic, and Dipal A. Shah, Groom Law Group Chartered, for appellant David R. Johanson. Gary D. Greenwald...
Judge Panel:Before: PROCTER HUG, JR., HAWKINS, and RICHARD C. TALLMAN, Circuit Judges.
Case Date:July 27, 2009
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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572 F.3d 1067 (9th Cir. 2009)

Gregory JOHNSON; William Rodwell; Edward Rangel; Kelly Morrell, Plaintiffs-Appellees,

and

Darleen Stanton, Plaintiff,

Roorda Piquet & Bessee, Inc., Non-party appearing witness, Witness,

v.

Clair R. COUTURIER, Jr., Defendant,

David R. Johanson; Noll Manufacturing Company Employee Stock Ownership Plan and Trust; Pensco, Inc.; Johanson Berenson LLP; the Employee Ownership Holding Corporation, Employee Stock Ownership Plan; N & N.W. Manufacturing Holding Company, Inc.; Noll Manufacturing Company, Defendants,

and

Robert E. Eddy, Defendant-Appellant.

Gregory Johnson; William Rodwell; Edward Rangel; Kelly Morrell, Plaintiffs-Appellees,

and

Darleen Stanton, Plaintiff,

Roorda Piquet & Bessee, Inc., Non-party appearing witness, Witness,

v.

Clair R. Couturier, Jr., Defendant,

Robert E. Eddy; Noll Manufacturing Company Employee Stock Ownership Plan and Trust; Pensco, Inc.; Johanson Berenson LLP; the Employee Ownership Holding Corporation, Employee Stock Ownership Plan; N & N.W. Manufacturing Holding Company, Inc.; Noll Manufacturing Company, Defendants,

and

David R. Johanson, Defendant-Appellant.

Gregory Johnson; William Rodwell; Edward Rangel; Kelly Morrell, Plaintiffs-Appellees,

and

Darleen Stanton, Plaintiff,

Roorda Piquet & Bessee, Inc., Non-party appearing witness, Witness,

v.

Clair R. Couturier, Jr., Defendant-Appellant,

and

Robert E. Eddy; David R. Johanson; Noll Manufacturing Company Employee Stock Ownership Plan and Trust; Pensco, Inc.; Johanson Berenson LLP; the Employee Ownership Holding Corporation, Employee Stock Ownership Plan; N & N.W. Manufacturing Holding Company, Inc.; Noll Manufacturing Company, Defendants.

Gregory Johnson; William Rodwell; Edward Rangel; Kelly Morrell, Plaintiffs-Appellees,

and

Darleen Stanton, Plaintiff,

Roorda Piquet & Bessee, Inc., Non-party appearing witness, Witness,

v.

Clair R. Couturier, Jr., Defendant-Appellant,

and

Robert E. Eddy; David R. Johanson; Noll Manufacturing Company Employee Stock Ownership Plan and Trust; Pensco, Inc.; Johanson Berenson LLP; the Employee Ownership Holding Corporation, Employee Stock Ownership Plan; N & N.W. Manufacturing Holding Company, Inc.; Noll Manufacturing Company, Defendants.

Nos. 08-17369, 08-17373, 08-17375, 08-17631.

United States Court of Appeals, Ninth Circuit

July 27, 2009

Argued and Submitted May 7, 2009.

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Theodore M. Becker (argued), Thomas M. Peterson, Joseph E. Floren, and Elizabeth A. Frohlich, Morgan, Lewis & Bockius LLP, for appellant Clair R. Couturier, Jr.

Christopher J. Rillo, Lars C. Golumbic, and Dipal A. Shah, Groom Law Group Chartered, for appellant David R. Johanson.

Gary D. Greenwald (argued), Ron Kilgard, and Gary A. Gotto, Keller Rohrback, PLC, and Terence J. Devine, Devine, Markovits & Snyder, LLP, for the appellees.

Carol A. De Deo, Deputy Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, Plan Benefits Security Division, Elizabeth Hopkins (argued), Counsel for Appellate and Special Litigation, and Robyn M. Swanson, Trial Attorney, U.S. Department of Labor, for the Secretary of Labor as amicus curiae supporting appellees.

Appeal from the United States District Court for the Eastern District of California, Ralph R. Beistline, District Judge, Presiding. D.C. No. 2:05-cv-02046-RRB-GGH.

Before: PROCTER HUG, JR., HAWKINS, and RICHARD C. TALLMAN, Circuit Judges.

TALLMAN, Circuit Judge

In his capacity as president of Noll Manufacturing Company (" Noll" ) and its successors, Clair R. Couturier, Jr., together with his fellow directors, diverted almost $35 million of corporate assets-at least a third of the corporation's value, even in Couturier's own estimation-to his own possession through the buyout of deferred compensation agreements. Plaintiffs, all of whom are participants in Noll's employee stock ownership plan (" ESOP" ), filed suit against Couturier and two other directors alleging, inter alia, breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 (" ERISA" ). This case requires us to consider whether the district court abused its discretion when it enjoined advancement of defense costs and froze Couturier's assets. We conclude that the district court did not abuse its discretion, but remand to allow the district court, in the first instance, to set the terms and conditions of a surety bond sufficient to secure Couturier and the other defendants against any harm that might wrongfully befall them as a result of the issuance of each injunction.

I

A

Noll, a closely held corporation founded in 1942, manufactured and sold galvanized sheet metal products. Through restructuring, Noll was succeeded first by N & N.W. Holding Company (" N & NW" ) in 2001, and then by The Employee Ownership Holding Company (" TEOHC" ) in 2004.

Noll's founder, who died in 1980, established the ESOP in 1977 to give the company's employees an opportunity to share in its success. His will reflects an intent that the ESOP own the entire company. However, for reasons we cannot discern from the record, the ESOP did not acquire full ownership of Noll until 2001.

Clair R. Couturier, Jr., became President of Noll in 1999. Noll's Board of Directors designated Couturier the sole trustee for the ESOP as of April 24, 2001. Attorney David R. Johanson, who had previously represented the ESOP in connection with its leveraged purchase of all remaining Noll stock, was appointed a Noll director on June 20, 2001, joining Couturier and Noll's general counsel on the Board. However, after the transfer of ownership to N & N.W. later that year,

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Couturier and Johanson remained as the sole directors.

This litigation traces its genesis to the sizeable deferred compensation awarded to Couturier during his tenure as president of Noll and its successors. Prior to 2001, retired Noll executives were entitled to continue receiving 75 percent of their base salary, with an adjustment made every three years, under a Compensation Continuation Agreement (" CCA" ). In 2001, however, Johanson drafted three documents that tied deferred executive compensation to company value: (1) an Equity Incentive Plan (" EIP" ) establishing an incentive stock option plan for key management personnel; (2) an Incentive Stock Option Agreement (" ISO" ) granting Couturier 80,000 shares at a strike price of $34; 1 and (3) a Value Enhancement Incentive Plan (" VEIP" ) creating additional synthetic equity. At the time these plans were enacted, one director reportedly opined that this " is not too good" for the ESOP; they were nonetheless approved by the Board on June 13, 2001.2

After the reorganization of Noll under N & NW, Johanson and Couturier, remaining as the sole directors, orchestrated additional incentive agreements in February 2002. The 2002 EIP allowed for issuance of up to 110,000 shares, with no more than 93,500 shares being awarded to a single grantee. The 2002 ISO again granted to Couturier 80,000 shares at a strike price of $34 per share. The 2002 VEIP created additional synthetic equity for Couturier. Couturier and Johanson also increased Couturier's monthly CCA stipend by about 33 percent and enacted a Supplemental Executive Retirement Plan providing additional deferred compensation.3

The advent of 2003 heralded further expansion of Couturier's compensation. That year, Couturier and Johanson approved a retroactive annual cash bonus to Couturier equaling ten percent of the dollar amount of external debt repaid on certain loans. Some of these loans were refinanced later that same year. N & N.W. then purchased a $5.5 million home (" the Palm Desert home" ) and a $325,000 private golf club membership in Palm Desert, California, for Couturier's personal use.

After unsuccessful negotiations with Alliance Holdings, Inc. for the acquisition of N & NW-during which the value of Couturier's interest in the company became a point of contention-Couturier and Johanson appointed Couturier's financial advisor, Robert E. Eddy, as Special Trustee to the ESOP. Eddy's role was to evaluate proposed transactions involving N & N.W. and the ESOP, including monetization of Couturier's financial interest in N & NW. Couturier and Johanson ultimately opted to merge N & N.W. into TEOHC, which Johanson had incorporated in Delaware on December 15, 2003. As the incorporator, Johanson appointed himself, Couturier, Eddy, and accountant James Roorda as directors. Pursuant to a new plan, the ESOP was now to be administered by Trustees appointed by the TEOHC Board

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of Directors; the Board members appointed themselves as Trustees.

On July 20, 2004, pursuant to the merger transaction, Couturier received over $26 million in cash, title to the Palm Desert home, a Bentley automobile valued at $200,000, and various other benefits in exchange for his deferred compensation interests. The parties value this buyout package at $34.8 million.4 Accordingly, Couturier's overall compensation package equals about 65 percent of TEOHC's assets as of June 2004, and about 80 percent of N & NW's assets as of each of the prior two years. The package also exceeded by more than two-fold N & NW's 2002 stock market value.

B

On October 11, 2005, several former and current Noll employees (collectively, " Plaintiffs" ), all of whom are ESOP participants, filed suit against Couturier, Johanson, and Eddy (collectively, " Defendants" ) in the United States District Court for the Eastern District of California...

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