Kuper v. Quantum Chemicals Corp.

• Decision Date: 24 May 1994
• Docket Number: No. C-1-91-0918.,C-1-91-0918.
• Citation: 852 F. Supp. 1389
• Parties: Glenn KUPER, et al., Plaintiffs, v. QUANTUM CHEMICALS CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

852 F. Supp. 1389

Glenn KUPER, et al., Plaintiffs, v. QUANTUM CHEMICALS CORPORATION, et al., Defendants.

No. C-1-91-0918.

United States District Court, S.D. Ohio.

May 24, 1994.

Robert Blair Matusoff, Dayton, OH, Russell Allen Kelm, Schwartz Kelm Warren & Ramirez, Columbus, OH, for plaintiffs.

James Kaufman Lawrence, James Ralph Adams, Frost & Jacobs, Cincinnati, OH, for defendants.

ORDER

CARL B. RUBIN, District Judge.

This matter is before the Court for resolution of all remaining issues, based upon the trial briefs (Docs. 78, 81), the reply briefs (Docs. 85, 86), the proposed findings of fact and conclusions of law (Docs. 80, 83) and the stipulated record (see Docs. 74, 82) submitted by the parties.

Procedural History

Plaintiffs are former employees of the Emery Division "Emery" of Quantum Chemical Corporation "Quantum", who participated in employer-sponsored stock ownership plans before Quantum sold Emery to Henkel Corporation. On December 27, 1991, Plaintiffs filed a purported class action complaint asserting various federal and state law claims against Defendants. (Doc. 1). On May 7, 1992, Plaintiffs moved for certification of a class. (Doc. 9).

On August 27, 1992, the Court issued an order granting judgment against Plaintiffs and in favor of Defendants, on statute of limitations and other grounds, as to all claims set forth in Plaintiffs' complaint except those brought pursuant to the Employee Retirement Income Security Act ERISA, 29 U.S.C. § 1132(a)(1)(B). (Doc. 30). Plaintiffs' ERISA claims are based upon the uncontested and significant "diminution in value" of Plaintiffs' Quantum stock over an 18-month period when such stock was held in employer-sponsored plans.

On November 3, 1992, the Court denied Plaintiffs' motion for class certification, based in part upon a potential conflict of interest of designated class counsel. 145 F.R.D. 80. (Doc. 35). On February 17, 1993, Plaintiffs filed a notice substituting new trial counsel on their behalf. (Doc. 44). Plaintiffs thereafter filed a renewed motion for class certification. (Doc. 45). Following a hearing on April 2, 1993, and finding that the substitution of counsel had removed the former impediment, the Court certified the matter as a class action, defining the relevant class as follows:

All persons who are former salaried employees of Quantum Chemical Corporation's ("Quantum") Emery Division between the dates of December 28, 1988 and November 1, 1990, inclusive ("the Class Period"), and who participated in Quantum's Savings and Stock Ownership Plan and/or Quantum's Employee Stock Ownership Plan ("ESOP").

(Doc. 49, p. 4).

On February 17, 1993, Defendants filed a motion for summary judgment as to Plaintiffs' remaining ERISA claims. (Doc. 43). On July 21, 1993, the Court held that Plaintiffs possessed standing to pursue the ERISA claims. (Doc. 52). On October 27, 1993, however, after permitting Plaintiffs additional time to respond to Defendants' motion, the Court determined that Plaintiffs had failed to come forward with sufficient evidence to suggest that Quantum and its Board of Directors had acted in a fiduciary capacity with respect to the ESOP funds. 838 F.Supp. 342. Accordingly, the Court granted summary judgment in favor of those Defendants. (Doc. 67).

The Court nonetheless found that a genuine issue of material fact existed as to whether the individual trustees and/or benefits committee members responsible for administering the relevant plan had breached their fiduciary duties. Two of the committee members (Defendants Howard Burkhardt and F. Donald Brigham) were among five defendants dismissed by the Court on October 8, 1993, based upon Plaintiffs' failure to show cause why they had not received service of process in a timely manner. (See Doc. 61). As to the remaining plan fiduciaries who had been properly served — individual Defendants H. Weston Clarke, Jr. and Michael Iovenko — the Court denied summary judgment. (Doc. 67). The sole remaining issues before the Court thus involve Plaintiffs' ERISA claims against those Defendants.

The Parties' Claims

Plaintiffs argue that Defendants Clarke and Iovenko hereinafter, "Defendants" breached their fiduciary duties under ERISA when they failed, during the 18 months following Quantum's sale of Emery to Henkel, either to distribute the class members' ESOP interests or transfer them immediately into an appropriate Henkel Corporation trust fund, or to liquidate or diversify those ESOP interests to include investments other than Quantum stock. They further claim that Defendants breached their fiduciary duties by also failing to permit class members to exercise their annual diversification options pending transfer of the ESOP assets. In support of those arguments, Plaintiffs offer evidence of the uncontested and significant decline in the value of Quantum stock during the relevant time period, as well as deposition testimony and documents which purport to show that Defendants knew or should have discovered that Quantum stock values were likely to continue to drop, and thereby impair the class members' ESOP interests.

In response, Defendants first argue that they lacked authority to transfer, liquidate or diversify the class members' ESOP interests in Quantum stock, as the ESOP plan provisions specified that all ESOP funds were to be invested in Quantum stock. In addition, Defendants argue that even if they possessed discretion to otherwise invest the ESOP funds, their failure to so act did not constitute breach of fiduciary duty.

Findings of Fact

1. Plaintiffs Glenn Kuper and Cliff Jones and all plaintiff class members were salaried employees of Quantum Chemical Corporation's Emery Division between December 28, 1988 and November 1, 1990. During that time, they participated in Quantum's Savings and Stock Ownership Plan "the Plan", including Quantum's Employee Stock Ownership Plan "ESOP".

2. Defendant H. Weston Clarke, Jr. was at all relevant times Quantum's vice president of human resources. He also chaired the benefits committee that administered Quantum employee benefit plans, including the above-referenced Plan and ESOP. (Doc. 74, p. 7, ¶ 5).

3. Defendant Michael Iovenko served as one of three trustees of the Quantum ESOP from January 1988 to February 1990. (Doc. 74, p. 7. ¶ 6).

4. On January 28, 1988, Quantum's Board of Directors amended the company's existing Savings and Stock Ownership Plan to add an ESOP feature. The Plan thereafter consisted of two components. The first of those — known as the "Savings Plan" — was a self-directed 401-K plan, in which employees could contribute a portion of their income, up to 6 percent pretax, into any combination of three funds.¹ Participants in the Savings Plan were permitted to designate the percentage of their contribution to go to each fund, and to change their investment designation, including reassigning past benefits to a different fund. (Doc. 74, p. 7, ¶¶ 8-10).

The second component — the ESOP — consisted of (a) Quantum's matching contributions of Quantum stock, based upon each employee's 401-K contribution level, and (b) occasional ESOP bonuses contributed by Quantum's Board of Directors. Employees could not and did not contribute their own funds to the ESOP. (Doc. 74, p. 8, ¶ 11).

5. Section 5.01(a) of the Plan provides that the ESOP feature was "designed to be invested primarily in qualified" Quantum securities. (Joint Exhibit I, § 5.01(a)).

6. Eligible Quantum employees were offered an opportunity to participate in the ESOP pursuant to a prospectus dated February 8, 1988. Employees hired before April 1, 1988 were to be 100% vested in their ESOP funds. Employees hired on or after that date were to become 100% vested after completing two years of service. The Plan provided that vested plan participants would not forfeit their ESOP benefits upon leaving Quantum's employ. (Doc. 74, p. 8, ¶¶ 12-14).

7. Plaintiffs Kuper and Jones received the original Quantum ESOP prospectus in or about February 1988. (Doc. 74, p. 8, ¶ 8). Both participated in both the ESOP and 401-K components of the Plan.

8. Beginning in 1988 and throughout their participation in the 401-K Savings Plan, Plaintiffs Kuper and Jones elected to be and remained 100% vested in the Quantum stock fund portion of that Plan. (Doc. 74, p. 12, ¶ 38).

9. In accordance with the Plan documents, Quantum's Board of Directors appointed a benefits committee of not less than three members to administer the Plan. The Board of Directors also appointed separate trustees for the ESOP component of the Plan. (Doc. 74, p. 9, ¶¶ 16, 20-21).

10. Defendants Clarke and Iovenko acted in those respective capacities during the times at issue herein. (Doc. 74, pp. 7, 9, ¶¶ 5-6, 21).

11. The benefits committee prepared minutes of its periodic meetings from April 1989 to November 1990. The ESOP trustees prepared minutes of their periodic meetings from April 1989 to February 1990.

12. On December 27, 1988, Quantum's Board of Directors approved and announced a $50.00 per share special cash dividend that would be paid to each record shareholder as of January 7, 1989, as part of a recapitalization plan. (Doc. 74, p. 10, ¶ 28).

13. On or about March 11, 1989, Quantum entered into an "Asset Sale Agreement" to sell its Emery Division to Henkel Corporation, effective April 17, 1989. In connection with that agreement, Henkel also executed an "Employment Agreement" in which it agreed to continue the employment of existing Emery employees under comparable terms and conditions. As part of the Employment Agreement, Henkel also agreed to accept from Quantum a trust-to-trust transfer of the employee benefit plan assets, including Savings Plan and ESOP funds, of those Quantum salaried employees who continued employment with Henkel after the sale. (Doc. 74, pp. 11-12, ¶¶ 30-31, 33).

14. The trust-to-trust transfer agreement was a nonfiduciary business decision.

15. In accordance with the Employment Agreement, ...