Appvion, Inc. Ret. Savings & Emp. Stock Ownership Plan v. Buth
| Decision Date | 27 July 2020 |
| Docket Number | Case No. 18-C-1861 |
| Court | U.S. District Court — Eastern District of Wisconsin |
| Parties | APPVION, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN, BY AND THROUGH Grant LYON in his capacity as the ESOP Administrative Committee of Appvion, Plaintiff, v. Douglas P. BUTH, et al., Defendants. |
Abigail M. Terhune, Ashley Williams Hale, Leo R. Beus, Lowell Richard Williams, Beus Gilbert McGroder PLLC, Phoenix, AZ, Frederick Perillo, Sara J. Geenen, The Previant Law Firm SC, Milwaukee, WI, for Plaintiff.
Amanda S. Amert, Craig C. Martin, Michael T. Graham, Willkie Farr & Gallagher LLP, Caroline L. Meneau, David Jimenez-Ekman, Jenner & Block LLP, Chicago, IL, Michael P. Richman, Steinhilber Swanson LLP, Madison, WI, Paul G. Swanson, Steinhilber Swanson LLP, Oshkosh, WI, for Defendants Douglas P. Buth, Gayle Buth, Paul J. Karch, Anne Karch, Mark Richards, Jeanne Richards, Tom Ferree, Carol J. Ferree, Rick Fantini, Debra L. Fantini, Dale Parker, Debrah Parker, Angela Tyczkowski, Mark Tyczkowski, Kerry Arent, Timothy Arent, Kent Willetts, Andrea Willetts, Susan Scherbel, Thomas Scherbel, Ronald Pace, Teresa Pace, Stephen Carter, Lisa L. Carter, Kathi Seifert, Andrew Reardon, Michele Reardon, Terry Murphy, Mary E. Murphy, Mark Suwyn, Patricia Suwyn, Kevin Gilligan, Angela Gilligan.
Frank W. Kowalkowski, Von Briesen & Roper SC, Green Bay, WI, Theodore M. Becker, McDermott Will & Emery LLP, Chicago, IL, for Defendants Louis Paone, Rosemary Paone, Houlihan Lokey Capital Inc., Houlihan Lokey Financial Advisors Inc.
Gabrielle L. Gould, Goodwin Procter LLP, New York, NY, James O. Fleckner, Goodwin Procter LLP, Boston, MA, Matthew L. Riffee, Goodwin Procter LLP, Washington, DC, T. Wickham Schmidt, T. Wickham Schmidt Esq, PSC, Green Bay, WI, for Defendant State Street Bank & Trust Company.
James O. Fleckner, Goodwin Procter LLP, Boston, MA, T. Wickham Schmidt, T. Wickham Schmidt Esq, PSC, Green Bay, WI, for Defendants Kelly Driscoll, Sydney Marzeotti, Stephen Marzeotti.
Brian P. Muething, Jacob D. Rhode, Michael L. Scheier, Keating Muething & Klekamp PLL, Cincinnati, OH, William P. McKinley, Menn Law Firm Ltd., Appleton, WI, for Defendant Argent Trust Company.
Barbara A. Smith, Jeffrey S. Russell, Bryan Cave Leighton Paisner LLP, St. Louis, MO, Sherry D. Coley, Davis & Kuelthau SC, Green Bay, WI, William Bard Brockman, Bryan Cave Leighton Paisner LLP, Atlanta, GA, for Defendants Reliance Trust Company, Howard Kaplan, Wendy Kaplan.
Barbara A. Smith, Jeffrey S. Russell, Bryan Cave Leighton Paisner LLP, St. Louis, MO, Brian P. Muething, Jacob D. Rhode, Michael L. Scheier, Keating Muething & Klekamp PLL, Cincinnati, OH, Sherry D. Coley, Davis & Kuelthau SC, Green Bay, WI, William Bard Brockman, Bryan Cave Leighton Paisner LLP, Atlanta, GA, William P. McKinley, Menn Law Firm Ltd., Appleton, WI, for Defendants Stephen Martin, Jane Doe Martin, David H. Williams, Jane Doe Williams.
Chelsea Ashbrook McCarthy, Richard R. Winter, Holland & Knight LLP, Chicago, IL, for Defendant Willamette Management Associates, Inc.
Andrew Salek-Raham, Kara Petteway Wheatley, Lars C. Golumbic, Meredith Kimelblatt, Groom Law Group Chartered, Washington, DC, Ross Townsend, Law Firm of Conway Olejniczak & Jerry SC, Green Bay, WI, for Defendants Scott D. Levine, Debora Levine, Aziz El-Tahch, Ayelish M. McGarvey, Robert Socol, Lynn Socol, Stout Risius Ross LLC.
Andrew Salek-Raham, Kara Petteway Wheatley, Meredith Kimelblatt, Groom Law Group Chartered, Washington, DC, for Defendant Stout Risius Ross Inc.
William C. Griesbach, United States District Judge In 2001, Appleton Papers, Inc., a Wisconsin-based paper products company, which was owned at that time by a French conglomerate, Arjo Wiggins Appleton (AWA), was sold as part of an Employee Stock Ownership Plan, or ESOP, to Paperweight Development Corp. (PDC) for $810 million. The purchase was funded by Appleton Paper employees’ $106 million contribution from their 401(k) retirement accounts. Under the terms of a newly amended Retirement Savings and Employee Stock Ownership Plan, the ESOP trustee used the employee contributions to purchase 100% of the shares of PDC's common stock. PDC, in turn used the funds from that purchase, together with other financing, to purchase Appleton Papers. Upon completion of the transaction, employees continued to make contributions of their retirement savings to purchase PDC stock, thereby increasing their equitable interest in Appleton Papers. Appleton Papers later changed its name to Appvion, Inc., the name used to refer to the company hereinafter. In October 2017, some 16 years later, Appvion filed for bankruptcy, making the stock of its parent company, PDC, worthless. This lawsuit followed.
Grant Lyon commenced this action in his capacity as the sole member of Appvion's Employee Stock Ownership Plan Administrative Committee (the ESOP Committee) on behalf of the Appvion, Inc. Retirement Savings and Employee Stock Ownership Plan (ESOP). The complaint asserts claims for violations of the Employee Retirement Income Security Act (ERISA), as well as federal securities fraud and various state law claims. It alleges that the defendants played various roles in fraudulently inducing Appvion's employees to adopt the ESOP as part of their retirement plan and then, over the following sixteen years, artificially inflating the value of stock owned by the ESOP, resulting in losses to the ESOP. Altogether, the Amended Complaint asserts 19 counts against 8 entities and 51 individuals, including their spouses. The defendants include 17 former officers and directors of Appvion, some of whom also served at various times over the years as members of the ESOP Committee; Houlihan Lokey Capital, Inc. (f/k/a Houlihan Lokey Howard & Zukin Capital, Inc.), and Houlihan Lokey Howard & Zukin Financial Advisors (collectively, Houlihan), who were engaged by PDC to advise PDC on the 2001 Transaction; Louis Paone, Houlihan's managing director in 2001; State Street Bank and Trust Company, a nationally chartered trust company which served as the trustee of the ESOP from 2001 until 2013; State Street employees Kelly Driscoll and Sydney Marzeotti (collectively, the State Street Defendants); Reliance Trust Company, which replaced State Street as the trustee for the ESOP in 2013; Argent Trust Company, N.A., which replaced Reliance as the trustee for the ESOP in 2014, Howard Kaplan, Stephen Martin, and David Williams (collectively, the Individual Trustee Defendants and, along with the State Street Defendants, Argent, and Reliance, the Trustee Defendants); Willamette Management Associates, Inc., which provided valuations of Appvion stock during the period from 2001 to 2004; Stout Risius Ross, Inc. and Stout Risius Ross, LLC (collectively, SRR), which provided Appvion stock valuations after 2004; Scott Levine, Aziz El-Tahch, and Robert Socol (collectively with SRR, the SRR Defendants); the spouses of each individually-named defendant; and yet to be identified defendants (Does 1–50, ABC Corporations 1–5, DEF Partnerships 1–5, GHI Limited Partnerships 1–5, and JKL Limited Liability Companies 1–5). The court has jurisdiction over the ERISA claims pursuant to 28 U.S.C. § 1331 and supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367.
On February 28, 2019, the defendants filed eight motions to dismiss. The court approved the parties’ stipulation to extend the briefing period, and briefing was not complete until June 20, 2019. Once the motions were fully briefed, the parties requested oral argument on the motions on July 26, 2019, and the court scheduled argument. The court's trial calendar twice postponed oral argument, resulting in the motions remaining undecided. On January 8, 2020, the court scheduled oral argument on the motions for April 2, 2020 but advised the parties on March 13, 2020 that the hearing scheduled for April 2, 2020 was removed from the court calendar in light of the COVID-19 pandemic. Although the court indicated an intent to issue a tentative ruling and allow the parties to comment in lieu of oral argument, having carefully considered the thorough briefing on the issues and the lengthy delay that has already occurred, the court has decided to issue its decision. For the reasons that follow, the motions to dismiss will be granted.
A motion to dismiss tests the sufficiency of the complaint to state a claim upon which relief can be granted. Gibson v. City of Chicago , 910 F.2d 1510, 1520 (7th Cir. 1990) ; see Fed. R. Civ. P. 12(b)(6). When reviewing a motion to dismiss under Rule 12(b)(6), the court must accept all well-pleaded factual allegations as true and draw all inferences in the light most favorable to the non-moving party. Gutierrez v. Peters , 111 F.3d 1364, 1368–69 (7th Cir. 1997) ; Mosley v. Klincar , 947 F.2d 1338, 1339 (7th Cir. 1991). Rule 8 mandates that a complaint need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The plaintiff's short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). While a plaintiff is not required to plead detailed factual allegations, it must plead "more than labels and conclusions." Id. A simple, "formulaic recitation of the elements of a cause of action will not do." Id. A claim is plausible on its face when "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
Fraud-based claims must meet a heightened pleading standard. Fed. R. Civ. P. 9(b). This heightened pleading standard requires plaintiffs to "provide the who, what, when, where, and how" of the alleged fraud. Borsellino v. Goldman...
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