Foltz v. US News & World Report, Inc.
| Decision Date | 22 June 1987 |
| Docket Number | Civ. A. No. 84-0447,85-2195. |
| Citation | 663 F. Supp. 1494 |
| Court | U.S. District Court — District of Columbia |
| Parties | Charles S. FOLTZ, et al., Plaintiffs, v. U.S. NEWS & WORLD REPORT, INC., et al., Defendants. David B. RICHARDSON, et al., Plaintiffs, v. U.S. NEWS & WORLD REPORT, INC., et al., Defendants. |
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Alan Raywid, John D. Seiver, Margaret E. Haering, Susan P. Baxter, Cole, Raywid & Braverman, Washington, D.C., for plaintiffs in Charles S. Foltz, et al.
Joseph M. Butler, George A. Bangs, Bangs, McCullen, Butler, Foye & Simmons, Rapid City, S.D., E. Roger Frisch, Walsh & Frisch, New York City, Raoul L. Carroll, Hart, Carroll & Chavers, Washington, D.C., for plaintiffs in David B. Richardson, et al.
Leslie A. Nicholson, Jr., Hannah E.M. Lieberman, Thomas J. Catliota, Shaw, Pittman, Potts & Trowbridge, Washington, D.C., for defendants U.S. News and Madana Realty.
Richard J. Wertheimer, Hadrian Katz, Edward Wolf, Arnold & Porter, Washington, D.C., for defendants Directors.
Lawrence Latto, William Galeota, Patrick M. Hanlon, Julie M. Edmond, Shea & Gardner, Washington, D.C., for defendant Profit-Sharing Plan.
Willis B. Snell, Willard K. Tom, Steuart H. Tomsen, Sutherland, Asbill & Brennan, Washington, D.C., for defendant American Appraisal Associates, Inc.
Avis Black, Buchanan Ingersoll, Washington, D.C., for defendant-intervenor Save the Fund.
This memorandum opinion sets forth the Court's final ruling on the claims of former employee shareholders of U.S. News and World Report, Inc. ("U.S. News" or "Company") to proceeds from the sale of the corporation. The Company was purchased in 1984 by Mortimer Zuckerman, a Boston real estate developer, for a price of $176 million. Plaintiffs contend that during the period prior to the sale, when they were entitled to and did receive their share of the value of the Company's stock, the true worth of the stock was wrongfully concealed, that its appraised value was otherwise manipulated and miscalculated by defendants, and that they were deprived of the stock benefits and profit-sharing interests to which they were entitled. The litigation has been hotly contested. Serious and unsettled questions arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., are involved in this proceeding. While other legal issues are also presented under federal securities law, and the common law of fraud, breach of fiduciary duty, unjust enrichment and negligence, the questions arising under ERISA clearly predominate.
Throughout the course of the proceeding, counsel have ably briefed and argued in both their written memoranda and oral presentations the factual and legal issues involved. The questions presented for resolution have been fully considered. For the reasons set forth below in its factual findings and conclusions of law, entered pursuant to Fed.R.Civ.P. 52(a), the Court determines that plaintiffs have failed to support their claims, that judgment should be granted defendants on all counts, and the consolidated complaints dismissed.
This litigation involves two consolidated complaints brought against U.S. News and several other defendants. Charles S. Foltz and others are plaintiffs in the first; David B. Richardson and others are plaintiffs in the second. At all relevant times, the Company produced and published the weekly news magazine, U.S. News and World Report. The Company also operated book and newsletter divisions; they were not particularly profitable and are of no great consequence to these proceedings.
Foltz, conditionally certified as a class action, presents the claims of some 230 former U.S. News employees. See Foltz v. U.S. News & World Report, Inc., 106 F.R.D. 338 (D.D.C.1984). The class includes all persons who retired or were otherwise separated from employment with the Company during the eight-year period from 1974 through 1981, other than several former directors who have been specifically excluded upon a finding that their interests were not typical of the class. Mr. Foltz and seven other named plaintiffs are the designated representatives for the class period. The Richardson action is brought by former employees who retired or separated from U.S. News in 1982.1 During their employment, the plaintiffs in both actions participated in the U.S. News Profit-Sharing Plan ("Plan"). They were also beneficial owners of stock in the Company under its stock bonus plan. Upon retirement or separation, they liquidated their Plan accounts and redeemed their stock interests. In both actions, plaintiffs seek recovery of benefits they claim are owed them by virtue of an alleged undervaluation of the Company's stock during the class period.
Defendant U.S. News, organized at all relevant times under the corporate laws of the State of Delaware,2 is headquartered in the District of Columbia. Other named defendants are certain former directors of U.S. News;3 the Madana Realty Company ("Madana"), a wholly-owned U.S. News subsidiary; the U.S. News Profit-Sharing Plan, an employee benefit plan as defined by ERISA § 3(34), 29 U.S.C. § 1002(34); and American Appraisal Associates, Inc. ("American Appraisal"), an appraisal firm transacting business in the District and organized under the laws of the State of Delaware. American Appraisal performed the year-end appraisals of the U.S. News stock that are at issue here. A group designated as Save the Fund was allowed to intervene as defendants. The group includes currently employed or recently separated or retired U.S. News employees interested in preserving and eventually receiving that portion of the sale proceeds held back from distribution from the Plan by order of this Court.4
Over the three-year period during which these consolidated proceedings have been pending, discovery efforts have been thorough and extensive. Even so, many of the factual and legal issues originally presented were significantly narrowed by pretrial proceedings and motions for summary judgment.5 By agreement and consent of all counsel, issues of liability and damages were bifurcated for separate trial.
The claims remaining after entry of partial summary judgment in each case were considered in an extended bench trial. The matters remaining in Foltz included: (1) claims for benefits due and owing from the Plan, under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B);6 (2) claims for breach of fiduciary duty against U.S. News, the director-defendants and American Appraisal, under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);7 (3) claims against U.S. News, the director-defendants, and American Appraisal for violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5;8 (4) claims for common-law fraud against U.S. News, the director-defendants, and American Appraisal; and (5) claims for common-law breach of fiduciary duty, unjust enrichment, negligence and negligent misrepresentation against U.S. News and the director-defendants.
The matters remaining in Richardson included: (1) claims for benefits due against the Plan under ERISA § 502(a)(1)(B); and (2) claims against U.S. News and the director-defendants for negligence and negligent misrepresentation.
At the conclusion of plaintiffs' case-in-chief on the issue of liability, defendants filed motions for dismissal and judgment, pursuant to Fed.R.Civ.P. 41(b). In addition to opposing those motions, plaintiffs in the two actions filed motions to amend their complaints, under Fed.R.Civ.P. 15(b), on the theory that the facts actually litigated tended to support additional causes of action. The motion to amend the Foltz complaint was denied. The Richardson plaintiffs were granted leave to add section 502(a)(3) ERISA claims against the U.S. News defendants for their alleged failure to have the Plan's holdings of U.S. News Class A stock properly appraised.9 In an oral bench ruling, the Court granted in part defendants' motions, thus limiting the claims in both proceedings to those against the Plan for benefits due under ERISA § 502(a)(1)(B) and against U.S. News and the director-defendants for breach of fiduciary duty under section 502(a)(3) and for negligence. See Transcript of Proceedings, vol. 54 at 10,316-36.10 All claims against American Appraisal were dismissed. An extended discussion of the ruling is presented infra pp. 25 ff.
As discussed above, plaintiffs in the consolidated actions seek to recover retirement benefits allegedly owed them under the Company's profit-sharing and stock bonus plans. Because ERISA affords an aggrieved plaintiff a right of action against a covered plan, plaintiffs brought an action for unpaid benefits directly against the Plan. With respect to their bonus stock interests, however, they must and they do seek recovery of monies allegedly owed them from U.S. News itself.
In addition, plaintiffs charge that the director-defendants, in concert with American Appraisal, acted both deliberately and negligently to cause their retirement benefits to be undervalued. Accordingly, plaintiffs seek recovery in the alternative from those defendants.
In the discussion that follows, the Court presents, pursuant to Rule 52(a), Fed.R. Civ.P., the basic and controlling facts developed during the liability phase of the trial, including the relevant history and operation of U.S. News. It then turns to a legal analysis of the claims and contentions advanced by the parties.
History of U.S. News and World Report, Inc.
U.S. News & World Report, Inc. was formed on June 1, 1962 from the reorganization of the U.S. News Publishing Corporation ("U.S. News Publishing"), a Company established in 19...
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