Richardson v. US News & World Report, Inc.
Decision Date | 07 July 1986 |
Docket Number | Civ. A. No. 85-2195. |
Citation | 639 F. Supp. 595 |
Court | U.S. District Court — District of Columbia |
Parties | David B. RICHARDSON, et al., Plaintiffs, v. U.S. NEWS & WORLD REPORT, INC., et al., Defendants. |
E. Roger Frisch, New York City, George A. Bangs and Joseph M. Butler, Rapid City, S.D., and Raoul L. Carroll, Washington, D.C., for plaintiffs.
Richard J. Leighton and Avis Black, Washington, D.C., for defendant-intervenor Save the Fund.
Leslie A. Nicholson, Jr., Hannah E.M. Lieberman, Thomas J. Catliota and Jonathan T. Cain, Washington, D.C., for U.S. News, Madana Realty.
Lawrence Latto, William Galeota and Julie Melamud, Shea & Gardner, Washington, D.C., for Profit-Sharing Plan.
Richard J. Wertheimer, Hadrian Katz and Edward Wolf, Washington, D.C., for Directors.
Willis B. Snell, Willard K. Tom, Steuart H. Tomsen and Eric N. Miller, Washington, D.C., for American Appraisal Associates, Inc.
On July 10, 1985, plaintiffs filed this action against their former employer, U.S. News & World Report, Inc. ("U.S. News" or "Company"), a weekly news magazine, as well as against eight of its former directors, the U.S. News Profit-Sharing Plan ("Plan"), and American Appraisal Associates, Inc. ("American Appraisal"), an independent appraisal firm. They charge that defendants collectively suppressed the value of the retirement benefits that they received upon separation from the Company through their participation in the Plan and through resale of shares of common stock issued them in connection with a stock bonus plan.
Plaintiffs1 are, with one exception,2 former employee-shareholders of U.S. News, who retired from U.S. News in 1982. Employees who had separated from the Company between 1974 and 1981 instituted a class action suit against these same defendants in February 1984, Charles S. Foltz, et al. v. U.S. News & World Report, Inc., et al., C.A. No. 84-0447. The two cases were consolidated for pretrial and trial by Order of March 3, 1986.
Currently before the Court are defendants' motions for summary judgment. For the reasons set forth below, the Court grants in part and denies in part those motions, as follows:
The facts leading up to the filing of Foltz, as well as the general background of this litigation, have been extensively treated elsewhere.3 A few of those facts, however, need to be restated, if only in barest outline.
Between the time of its reorganization in 1962 and its sale in 1984, U.S. News was an entirely employee-owned company. Pursuant to the Articles of Incorporation, employees were issued, under a stock bonus plan, shares of non-transferable common stock at regular intervals. In addition, employees received an undivided interest in the Profit-Sharing Plan, in accordance with a formula based upon salary and term of service. Upon separation, each employee was required to offer his bonus shares back to the Company for repurchase and was entitled to liquidate his Plan account.4
The price that a retiring employee received per share of bonus stock was based upon annual valuations conducted by American Appraisal, in accordance with Article Fifth (e) of the Articles of Incorporation. The per share value of the Company's stock also determined the value of each employee's interest in the Plan, whose major asset was a 50,000 share block of U.S. News stock.5 In arriving at a value for the Company as a whole, American Appraisal gave some consideration to U.S. News' extensive real estate holdings in the West End of Washington, D.C.
While the real estate did not always figure highly in the appraisal, by 1981 sufficient headway had been made in developing the U.S. News holdings that American Appraisal valued the real estate separately from the operating business of the magazine. In that year, a series of six joint venture agreements were entered into between U.S. News and Boston Properties, Inc., whereby U.S. News assigned its real estate holdings to Boston Properties, in exchange for a 50 percent equity interest in the joint ventures. As a result of the anticipated profitability of the joint ventures, the appraised value of the company's stock increased more than three-fold over its 1980 value of $152 per share.
In 1984, U.S. News, including its interest in the joint ventures, was sold to Mortimer Zuckerman, a real estate and publishing entrepreneur and principal of Boston Properties. The sale price of $176 million meant that current employees of U.S. News would receive approximately $2,800 per share for their interest in the Company. Plaintiffs, who received only $470 per share based upon the 1981 year-end appraisal, believe that the value of the stock had been previously suppressed, principally by a conservative treatment of the real estate and by a refusal to value the 50,000 share block held by the Plan on a control-premium basis. In addition, plaintiffs allege that U.S. News fraudulently withheld information concerning its real estate development plans, including a "secret" intent to sell the Company, from its employees and from American Appraisal and that U.S. News conspired with American Appraisal to arrive at a "negotiated" value for its stock.
Corresponding to these sets of facts, plaintiffs bring claims6 against U.S. News, the directors, and American Appraisal for securities fraud in 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, breach of fiduciary duty in violation of section 404(a) of ERISA, 29 U.S.C. § 1104(a),7 and for common-law fraud. Plaintiffs also bring against only U.S. News and its directors claims for common-law breach of fiduciary duty, unjust enrichment, and negligence. Against the Plan plaintiffs' claim is limited, as it must be, to an action for benefits due under section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B).
Defendants move for summary judgment on several grounds. All defendants charge that a number of the claims asserted are time-barred. U.S. News, the directors, and American Appraisal also urge the Court to hold that there is insufficient record evidence to support a rational inference of fraudulent conduct on which to premise a claim for securities or common-law fraud. Those defendants further argue that plaintiffs' ERISA claims against them will not withstand scrutiny, whether they are based upon intentional or negligent conduct. Finally, U.S. News and the directors contend that the claims for common-law breach of fiduciary duty and unjust enrichment, premised as they are upon defendants' alleged intentional conduct, must fail for the same reasons as the fraud claims, and that plaintiffs' negligence claim similarly is as factually barren as their ERISA claim.
In brief, plaintiffs' claims can be grouped together into two categories. The first category encompasses those claims premised upon negligent, imprudent, or arbitrary conduct: plaintiffs' claims under ERISA § 502(a)(1)(B) and, possibly8 § 502(a)(3), as well as their negligence claim. The second category includes those claims grounded in fraudulent or willful conduct: plaintiffs' claims for securities and common-law fraud, intentional breach of fiduciary under ERISA § 502(a)(3), common-law breach of fiduciary duty, and unjust enrichment.
The facts underlying claims in the first category speak to whether U.S. News and its directors provided American Appraisal with adequate information, whether American Appraisal properly conducted the appraisal, and whether American Appraisal's work was properly scrutinized by U.S. News. Facts suggested to support claims in the second category surround U.S. News' alleged withholding of information from its employees and from American Appraisal, particularly a "secret" intent to sell the company, and an alleged conspiracy between U.S. News and American Appraisal to arrive at a "negotiated" value for the magazine's stock. Keeping separate these two sets of facts, together with the corresponding categories of claims, aids greatly in an analysis of defendants' motions and of the record.
From the foregoing discussion, it appears that plaintiffs may actually have two causes of action, one for improperly calculated benefits, and one for wrongfully and willfully withheld benefits. The question rises to crucial importance in analyzing whether any of plaintiffs' claims are time-barred, or whether the statute of limitations must be tolled under the doctrine of fraudulent concealment as to some or all of them.
It is undisputed that the claims of some of the plaintiffs, as well as the securities claims of all of them, are outside the relevant limitations periods.9 To come, then, within the ambit of tolling doctrine, plaintiffs must demonstrate that (1) defendants engaged in some fraudulent or deceptive course of conduct that successfully concealed facts underlying their cause of action, and that (2) they were not on notice of those facts, despite (3) the exercise of due diligence. Hobson v. Wilson, 737 F.2d 1, 33-36 (D.C.Cir.1984), cert. denied sub nom. Brennan v. Hobson, ___ U.S. ___, 105 S.Ct. 1843, 85 L.Ed.2d 142 (1985).
The question that then arises is what constitutes plaintiffs' "cause of action." To impute...
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