Chesemore et al v. Alliance Holdings, Inc. et al
Filing
985
ORDER granting 921 Motion for Payment of Incentive Awards to the Class Representatives by Plaintiffs ; Granting 928 Motion for Attorney Fees by Plaintiffs ; Granting 934 Motion for Attorney Feesby Plaintiffs ; Granting 946 Motion for Final Approval of Settlement Agreement by Plaintiffs Carol Chesemore. Signed by District Judge William M. Conley on 9/4/2014. (voc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
CAROL CHESEMORE, DANIEL
DONKEL, THOMAS GIECK, MARTIN
ROBBINS, and NANETTE STOFLET, on
behalf of themselves, individually, and on
behalf of all others similarly situated,
Plaintiffs,
v.
OPINION AND ORDER
09-cv-413-wmc
ALLIANCE HOLDINGS, INC., DAVID B.
FENKELL, PAMELA KLUTE, JAMES
MASTRANGELO, STEPHEN W. PAGELOW,
JEFFREY A. SEEFELDT, TRACHTE
BUILDING SYSTEMS, INC. EMPLOYEE
STOCK OPTION PLAN, ALLIANCE HOLDINGS,
INC. EMPLOYEE STOCK OPTION PLAN,
A.H.I., INC., ALPHA INVESTMENT
CONSULTING GROUP, LLC, JOHN MICHAEL
MAIER, AH TRANSITION CORPORATION, and
KAREN FENKELL,
Defendants;
PAMELA KLUTE, JAMES MASTRANGELO,
and JEFFREY A. SEEFELDT,
Cross Claimants,
v.
ALLIANCE HOLDINGS, INC., and STEPHEN W.
PAGELOW,
Cross Defendants.
The court previously granted preliminary approval of six settlements based on
term sheets describing the essential elements of the settlements and approved a class
notice based on those terms. (2/18/14 Order (dkt. #889); 4/9/14 Order (dkt. #913);
Notice (dkt. #910-2).) There are now several motions before the court, which primarily
seek final approval of these class action settlements. On July 24, 2014, the court held a
fairness hearing on these settlements at which all parties appeared by counsel. While all
class members had been properly notified in advance of the basic terms of the various
settlements and petitions for attorneys’ fees -- as well as the date and time of the hearing
(at which some members of the class were present) -- none voiced an objection in writing
or orally.
The parties have now filed fully executed settlement agreements, which the court
will approve in this opinion and order. (Dkt. ##899, 960, 966, 984.) The court will
also address plaintiffs’ motions for (1) payment of incentive awards (dkt. #921); (2)
attorneys’ fees as part of the settlement (dkt. #928); and (3) attorneys’ fees and costs
pursuant to ERISA § 502(g)(1) against David Fenkell (dkt. #934).
In opposing
plaintiffs’ motion for attorneys’ and costs pursuant to ERISA § 502(g)(1), Fenkell raises
objections that extend beyond the attorneys’ fees issue. The Alliance defendants were
granted an opportunity to respond to his broader objections, which they now have, with
Fenkell filing a reply brief as well. The court will, therefore, address the various issues
raised by Fenkell and enter final judgment against him on all unsettled claims, essentially
bringing a close to all aspects of the case before this court save one. 1
1
The court previously appointed an independent fiduciary to complete a valuation of the
Alliance and AH Transition Corporation stock and PTE determinations. (Dkt. #969.)
As indicated in that order, the court will retain jurisdiction over enforcement of the
settlement, including over any objections by the independent fiduciary based on the PTE
determinations.
2
BACKGROUND
A. Overview of Settlement Agreements
The court previously granted plaintiffs’ motion for preliminary approval of
plaintiffs’ settlement with (1) the Alliance defendants (Alliance Holdings, Inc., A.H.I.,
Inc. and AH Transition Corporation); (2) the Trachte Trustee defendants (James
Mastrangelo, Jeffrey Seefeldt, Pamela Klute and Stephen Pagelow); 2 (3) the Trachte
defendants (Trachte Building Systems, Inc. and Trachte Building Systems, Inc. Employee
Stock Ownership Plan); (4) the Alpha defendants (Alpha Investment Consulting Group,
LLC and John Michael Maier); (5) defendants David and Karen Fenkell on claims
concerning the phantom stock proceeds; and (6) David Fenkell regarding claims against
Fenkell’s Alliance ESOP account. Plaintiffs’ remaining, unsettled substantive claims are
against defendant David Fenkell alone.
B. Plan of Allocation
The Plan of Allocation sets forth the cash and other remedies available to class
and subclass members. First, the “Gross Class Cash Settlement Fund” consists of (1)
$3.25 million paid pursuant to the Trachte Trustees Settlement, plus any earnings and
interest accrued thereon, and (b) the $150,000 paid to the escrow account pursuant to
the Alliance Settlement. Taxes, attorneys’ fees and costs, and any incentive awards will
be paid from this gross settlement fund. That fund will be distributed to authorized
2
For ease of reference, the court includes Pagelow in the collective descriptor “Trachte
Trustee defendants.”
3
members of the class who received any allocation to their Trachte ESOP account after
the August 29, 2007 (excluding certain individuals, e.g., individual defendants and other
fiduciaries). The “Net Class Cash Settlement Fund” will be allocated pro rata based on
those members’ units or shares of Trachte stock in the account, less any shares of such
stock that were received for Alliance or AH Transition stock in the 2007 Transaction.
The Plan of Allocation sets forth the settlement award to subclass members. That
settlement consists of both stock and cash. The Subclass Stock Settlement consists of
$5.5 million in shares of Alliance and AH Transition stock as valued by the independent
fiduciary appointed by the court. The “Gross Subclass Cash Settlement” consists of: (a)
$1.5 million, plus any earnings and interest, in the Alliance Escrow Account; (b)
$900,000, plus any earnings and interest, minus any payments by Trachte (including
payments by Trachte for attorneys’ fees and expenses) in the Fenkell Escrow Account; 3
and (c) $375,000, plus any earnings and interest accrued, from the Fenkell Alliance
ESOP Account Settlement. The stock and cash will be distributed to any member of the
Class whose Alliance ESOP account was transferred to the Trachte ESOP in the August
29, 2007, Transaction, excluding individual defendants and fiduciaries. The total value
of the Subclass Settlement will be allocated on a pro rata basis for each recognized claim
compared to the total of all recognized claims. The Plan also describes various categories
3
The Fenkells agree to deposit $1.8 million in an escrow account to resolve all claims
concerning the $2.896 million phantom stock option. The subclass and Trachte agree to
split the $1.8 million proceeds evenly, with the subclass receiving $900,000, plus
$270,000 toward attorneys’ fees from Trachte’s $900,000 allotment.
4
of claimants -- full immediate, partial immediate, installment and deferred -- based on
whether the claimant has reached the normal retirement age, as well as other criteria.
Finally, the Plan of Allocation provides for assigning a seller’s note with a market
value as of December 2013 of approximately $369,000 to the Trachte ESOP to be held
in trust as an asset of the Trachte ESOP for the exclusive benefit of the participants.
C. Notice Process
Pursuant to the court’s second order granting preliminary approval, on April 21,
2014, the settlement administrator retained by class counsel, Gilardi & Co., L.L.P., sent a
notice and questionnaire to 390 class and subclass members. Gilardi established a tollfree number for potential questions and a website containing documents and updates
related to the settlement. In addition, class counsel held two town hall meetings, lasting
approximately two hours each, at Trachte headquarters in Sun Prairie, Wisconsin. Those
unable to attend in person were provided an opportunity to participate electronically or
by telephone. Class counsel received and responded to a number of inquiries either in
person or by telephone or electronically. Through the date of the final approval hearing
on July 24, 2014, no objections have been received from class or subclass members.
OPINION
I. Final Approval of Class Action Settlements
The court may approve a proposed class action settlement only if it determines
that it is “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2). In making this
5
determination, the court considers various factors, including “the strength of plaintiffs’
case compared to the amount of defendants’ settlement offer, an assessment of the likely
complexity, length and expense of the litigation, an evaluation of the amount of
opposition to settlement among affected parties, the opinion of competent counsel, and
the stage of the proceedings and the amount of discovery completed at the time of
settlement.” Isby v. Bayh, 75 F.3d 1191, 1199 (7th Cir. 1996); see also Mirfasihi v. Fleet
Mortg. Corp., 450 F.3d 745, 748 (7th Cir. 2006) (listing “the probability of plaintiff
prevailing on its various claims, the expected costs of future litigation, and hints of
collusion” as factors for consideration).
This case presents a somewhat unique situation given that the settlements
occurred after a full trial and final decision on the merits of plaintiffs’ claims (except as to
a lone, remaining claim for phantom stock proceeds brought against defendant Karen
Fenkell) as well as a subsequent trial and final decision as to remedies (again except for
the claim against Karen Fenkell). At least with respect to a judgment from this court,
there is certainty, although questions and risks remain with respect to appeal and ability
to collect.
In light of this, the court’s primary focus is on whether the settlement is fair
and reasonable as compared to the “net expected gain.” In re Fort Wayne Telsat, Inc., 665
F.3d 816, 820 (7th Cir. 2011).
“The ‘expected gain’ is the gain if the judgment is
favorable, discounted (that is, multiplied) by the probability of a favorable judgment.”
Id.
Here, the court awarded a total of $17.2 million plus prejudgment interest, which
as explained below is valued at approximately $2 million (see infra p.19), to the class and
6
subclass as part of its remedies award plus an anticipated award of reasonable attorneys’
fees and costs pursuant to ERISA § 502(g)(1). The combined settlement contemplates
total payments of approximately $17.3 million, although approximately $5.5 million of
that consists of negotiated attorneys’ fees and costs, and class counsel seeks additional
fees from the common fund portion of the total settlement as described below. After fees
and costs, the class will, therefore, receive approximately $12 million in cash and stock,
or roughly 62% of the total remedies award, inclusive of prejudgment interest.
Given the limited, remaining risks before this court, this combined settlement
amount is arguably low, but discounting for the uncertainties of further complications,
delays and possible reversals on appeal and in ultimate collection, as well as considering
members’ understandable desire for closure and prompt payment, this settlement is more
than understandable. Indeed, it strikes the court as fair, reasonable and adequate.
Looking at the discrete settlements, each also appear fair, reasonable and adequate.
For example, the court ordered the Trachte Trustee defendants to restore $6.47 million
(plus prejudgment interest) to the Trachte ESOP, but the settlement provides for a $3.25
million in cash to the class to satisfy any claims against the Trustee defendants.
As
plaintiffs explain, the total insurance available to the Trustee defendants to satisfy claims
against them was $7 million, of which only $3.5 million remains after allowable
discounts for defense costs. Given the limited personal resources of those individuals, the
proportion of that settlement is certainly fair and reasonable. Similarly, the settlement
with David and Karen Fenkell to restore $1.8 million of the $2.896 million phantom
stock options also appears fair and reasonable.
7
Further evidence of the essential fairness of the overall settlement here is that
there were no objections filed to the proposed settlements, nor is there any sign of
collusion. If anything, the varied positions of not only plaintiffs against the defendants,
but amongst defendants, and the lengthy negotiations only after plaintiffs’ trial victories,
confirm these separate settlements were the product of hard fought, arms-length
negotiations.
While the issued class notice was based on provisions in the term sheets, rather
than the final, executed settlement agreements, the court finds that any differences
between the terms sheets and final agreements are not material, and the class notice
adequately described the settlement. See generally 2 MCLAUGHLIN
ON
CLASS ACTIONS §
6:17 (10th ed. 2013) (“The settlement notice does not need to describe every facet of the
settlement, or describe in exhaustive detail those features it does describe. It must
contain enough information about the settlement and its implications for participants to
enable class members to make an informed decision about whether to be heard
concerning the settlement or, if allowed, to opt-out.”) (citing cases).
Finally, in his opposition to plaintiffs’ motion for attorneys’ fees pursuant to
ERISA § 502(g)(1), Fenkell attempts to raise what amounts to a back-door (and certainly
self-serving) objection to the settlement between plaintiffs and the Alliance defendants.
Fenkell argues that any assignment of plaintiffs’ unsettled claims against Fenkell to the
Alliance defendants as part of the settlement will violate ERISA because it would be “the
equivalent of a contribution to Alliance.” (Fenkell’s Opp’n to Pls.’ Mot. for Atty’s Fees
(dkt. #938) 27.)
Putting aside the issue of whether Fenkell is correct that ERISA
8
prohibits contribution between co-defendants, 4 Fenkell lacks standing as a non-settling
party to raise an objection to the settlement agreement between plaintiffs and the
Alliance defendants unless he can show he would face “plain legal prejudice” as a result of
the agreement. Agretti v. ANR Freight Sys., Inc., 982 F.2d 242, 248 (7th Cir. 1992). A
“settlement which does not prevent the later assertion of a non-settling party’s claims,
although it may force a second lawsuit against the dismissed parties,” does not constitute
legal prejudice. Id. at 247. Here, whether ERISA permits contribution -- not to mention
whether the Alliance defendants stepping in the shoes of plaintiffs in executing a
judgment against Fenkell can be characterized properly as “contribution” -- are issues
that need not be decided by this court to find that the settlement between plaintiffs and
the Alliance defendants is fair and reasonable. Indeed, to the extent any assignment of
unsettled claims may prove to be worth less than the Alliance defendants are paying as a
matter of law or fact is a bonus to the plaintiff class, not a reason for this court to
disapprove it.
II. Incentive Fees for Class Representatives
Also before the court is plaintiffs’ motion for payment of incentive awards to the
five class representatives. (Dkt. #921.) Specifically, plaintiffs seek an award of $25,000
4
A cursory review of the case law suggests that this issue is far from settled.
9
to Nanette Stoflet, and $10,000 each to Carol Chesemore, Martin Robbins, Thomas
Gierck and Daniel Dockel. (Id. at 13.) 5
Incentive awards for class representatives are fairly common. See In re Synthroid
Mktg. Litig., 264 F.3d 712, 722-23 (7th Cir. 2001) (describing purpose of incentive
awards as “induc[ing] individuals to become named representatives”).
In deciding
whether an incentive award is appropriate and what the amount should be, courts may
consider “the actions the plaintiff has taken to protect the interest of the class, the degree
to which the class has benefited from those actions, and the amount of time and effort
the plaintiff expended in pursuing the litigation.” Cook v. Niedert, 142 F.3d 1004, 1016
(7th Cir. 1998).
As detailed in plaintiffs’ brief, here, the class representatives (1) initiated the
lawsuit by contacting plaintiffs’ counsel after the 2007 town hall meeting describing the
transaction at issue; (2) took on the risk of ERISA’s fee-shifting statute in filing the
lawsuit; (3) risked retaliation as current employees at least at the time the lawsuit was
filed (with the exception of plaintiff Donkel); (4) participated in discovery efforts,
including, their own depositions and attending depositions of other witnesses; (5) served
as witnesses or attended the two trials; and (6) participated in numerous settlement
5
The class notice disclosed that class counsel may seek an incentive award for the class
representatives, though the notice did not disclose the exact amounts of the incentive
awards sought. (Notice (dkt. #910-2).) As described above, none of the class members
objected to the proposed settlement. Moreover, none of the defendants opposed
plaintiffs’ motion for incentive awards. Finally, for reasons explained above, the court
finds the amounts sought reasonable and certainly no greater than one might expect
given the commitment required to see this litigation through to conclusion.
10
discussions.
Accordingly, the court finds a sufficient basis for approving incentive
awards.
As for the appropriate amount, district courts in this circuit have awarded
incentive fee awards ranging from $5,000 to $25,000.
See Cook, 142 F.3d at 1016
(affirming incentive award of $25,000 where class representative spent hundreds of hours
with attorney, providing them with an abundance of information, and reasonably feared
workplace retaliation); Redman v. RadioShack Corp., No. 11 C 6741, 2014 WL 497438, at
*12 (N.D. Ill. Feb. 7, 2014) (awarding $5,000 to each class representative); In re Sw.
Airlines Voucher Litig., No. 11 C 8176, 2013 WL 4510197, at *11 (N.D. Ill. Aug. 26,
2013) (approving $15,000 award for two class representatives because of active
participation in litigation); Heekin v. Anthem, Inc., No. 1:05-cv-01908-TWP-TAB, 2012
WL 5878032, at *1 (S.D. Ind. Nov. 20, 2012) (awarding $25,000 each to two class
representatives based on extensive involvement over seven years of litigation); Great Neck
Capital Appreciation Inv. P’ship, L.P. v. PricewaterhouseCoopers, L.L.P., 212 F.R.D. 400, 412
(E.D. Wis. 2002) (approving $5,000 awards where plaintiffs were “required to respond
to discovery requests, produce documents, meet with counsel in preparation for their
depositions and undergo depositions”). 6
6
An empirical study of incentive awards found that the average award was $15,992, and
that the award on average represented 0.16% of the total class recovery. Theodore
Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical
Study, 53 UCLA L. Rev. 1303, 1308 (2006). Here, the total recovery is approximately
$17.3 million (including attorney’s fees and costs), and therefore the total incentive
award of $65,000, represents 0.38% of the total award. While this amount is greater
than the average, the court finds it reasonable, especially in light of the length of this
action and the extensive involvement of the class representatives. Moreover, the average
11
Here, discovery was extensive and settlement occurred after both liability and
damages trials, on the eve of entry of judgment. Coupled with the class representatives’
apparent personal involvement -- especially that of plaintiff Nanette Stoflet -- the court
finds the requested awards appropriate, and will grant plaintiffs’ motion.
III. Attorneys’ Fee Award and Costs as part of Settlement
Plaintiffs are seeking fee awards based on (1) negotiated amounts for two of the
settlements and (2) 33% of the settlement funds for which plaintiffs did not negotiate a
specific amount. In the first category of attorneys’ fees and costs award, the Alliance
defendants, as part of their settlement, agreed to pay $5,345,000 to class counsel in
attorneys’ fees and costs. Similarly, the Trachte defendants agreed to pay 30% of the
$900,000 Trachte received as part of the Fenkells’ settlement of the phantom stock
options claim as attorneys’ fees and also agreed to contribute $25,000 towards costs. In
the second category, plaintiffs seek an award of 33% from each of the three “common
funds”: (1) $3.25 million settlement fund from the Trachte Trustees; (2) $900,000 from
the settlement with the Fenkells on the phantom stock options claim; and (3) $375,000
from the Fenkells. In addition to the fees sought as part of the class action settlement,
plaintiffs also seek attorneys’ fees and costs pursuant to ERISA § 502(a)(1) from David
Fenkell based on the unsettled claims. The class notice described each of these category
of fees sought. (Notice (dkt. #910-2) p.15.)
award across the five class representatives is $13,000, which is slightly less than the
average in the empirical study.
12
A. Negotiated Fees
Plaintiffs contend that the court should review their first category of requests for
attorneys’ fees -- those premised on fee amounts negotiated with defendants -- using the
lodestar method. (Pls.’ Mot. (dkt. #928) 20 (citing Redman v. RadioShack Corp., No. 11
C 6741, 2014 WL 497438, at *9 (N.D. Ill. Feb. 7, 2014); Kearney v. Hyundai Motor Am.,
No. SACV 09-1298-JST, 2013 WL 3287996, at *7-8 (C.D. Cal. June 28, 2013)).) The
lodestar is “the product of the hours reasonably expended on the case multiplied by a
reasonable hourly rate.” Montanez v. Simon, 755 F.3d 547, 553 (7th Cir. 2014).
Counsel for plaintiffs have spent over 16,000 hours of professional time on this
action from its inception until April 30, 2014, at current hourly rates ranging from $395
(for lower-level associates) to $895 (for highest-level partners), for a total lodestar
amount of $7,948,619.50.
(Declaration of R. Joseph Barton (“Barton Decl.”) (dkt.
#936) ¶¶ 68-69, 73; id. Ex. F (dkt. #936-6).) 7
In light of the length of this case,
involving extensive discovery, motions practice (including, motions to dismiss, motion for
class certification, motions for summary judgment), two trials, and ongoing settlement
discussions, the court finds that the total amount of time spent on this action is
reasonable. Moreover, class counsel has demonstrated that their hourly rates are on par
with the market rates charged by other plaintiffs’ firms handling ERISA breach of
fiduciary duty cases, recognizing that ERISA cases involve a national rate standard. (Pls.’
Br. (dkt. #928) 36-37.)
7
The court agrees with plaintiffs that in determining a fee award is it appropriate to rely
on current, rather than historical, rates. (Pls.’ Br. (dkt. #928) n.12.)
13
While this total amount does not distinguish -- and it would be difficult, if not
impossible to distinguish -- between time spent with respect to pursuing overlapping
claims and remedies against the various defendants, the bulk of the fee request under the
first category concerns the approximate $4.7 million award as part of the settlement with
the Alliance defendants. 8 The contribution to the total settlement from the Alliance
defendants represents approximately 60% of the total settlement ($7 million in cash and
stock out of a total contribution of approximately $12 million). As such, it is reasonable
for the Alliance defendants to pay the bulk of the attorneys’ fee award under the lodestar
method. See also Goodyear v. Estes Exp. Lines, Inc., No. 1:06-CV-863, JDT-TAB, 2008 WL
687130, at *4 (S.D. Ind. Mar. 10, 2008) (holding that an attorneys’ fee request by
agreement of the parties that does not diminish the class members’ award is
“presumptively reasonable”). 9
In their settlement with Trachte defendants, Trachte agreed to pay $270,000 in
attorney’s fees and $25,000 in expenses, separate from the $900,000 the subclass will
receive from the Fenkells’ phantom stock option claim. Similarly, this request for fees is
8
The Alliance defendants agreed to pay a total of $5.325 million in attorneys’ fees and
expenses, plus an additional $20,000 toward expenses incurred in 2014. Class counsel
proposes that the Alliance settlement should cover approximately 60% of the total costs
incurred by plaintiffs since their settlement represents approximately 60% of the total
settlement. The court finds this method reasonable, and therefore has allocated
$4,693,361 of the $5,325,000 award toward fees, with the remaining $631,639 allocated
toward expenses.
9
Of course, this presumption is lessened by an absence of a true, arm’s length negotiation
over the amount appropriately allocated to fees. This is because defendants’ primary
interest, if not sole interest, is total dollars paid. Even if the negotiations involved
specific discussions about the likely additional, fee award owed by statute, the bottom line
is still the total amount paid.
14
separate from the cash contribution to the class members. Regardless, the court finds a
$270,000 fee award based on the proportion of the $900,000 contribution compared to
the total class settlement contribution is reasonable.
B. Common Fund Fees
As for the second category of attorneys’ fees requests, class counsel seeks a fee
award representing one-third of the “common fund” settlements. In other words, class
counsel seeks (1) approximately $1.1 million from the Trachte Trustees $3.25 cash
contribution to the class settlement; (2) $300,000 from the $900,000 contribution from
the Fenkells’ phantom stock option settlement; and (3) $125,000 also from the Fenkells
based on claims concerning David Fenkell’s Alliance ESOP account. “When attorney’s
fees are deducted from class damages, the district court must try to assign fees that mimic
a hypothetical ex ante bargain between the class and its attorneys.” Williams v. Rohn &
Haas Pension Plan, 658 F.3d 629, 635 (7th Cir. 2011) (citing In re Synthroid Mktg. Litig.,
264 F.3d 712, 718-19 (7th Cir. 2001)). 10
In making this determination, the court considers “actual fee contracts that were
privately negotiated for similar litigation, information from other cases, and data from
class-counsel auctions,” in addition to “the amount of work involved, the risks of
10
Recently, the Seventh Circuit clarified -- or arguably simply reiterated -- that a district
court may opt to review a request for attorneys’ fees from a common settlement fund
using the lodestar method. Am. Art China Co., Inc. v. Foxfire Printing & Packaging, Inc., 743
F.3d 243, 247 (7th Cir. 2014) (“[I]n our circuit, it is legally correct for a district court to
choose either. Doing so is obviously not an abuse of discretion.”); see also Florin v.
Nationsbank of Ga., N.A., 34 F.3d 560, 566 (7th Cir. 1994) (approving both methods
based on the circumstances).
15
nonpayment, and the quality of representation.” Williams, 658 F.3d at 635-36 (quoting
Taubenfeld v. AON Corp., 415 F.3d 597, 599 (7th Cir. 2005)) (citing Synthroid, 264 F.3d
at 721).
While class counsel attempts to cabin the first category of fees from their fee
request from the common fund settlement, the court opts to consider the reasonableness
of the total fee award.
If one were to add the attorneys’ fees and costs in the first
category described above to the class settlement contribution, the total negotiated
settlement would be approximately $17.3 million ($11.675 million to the class and
subclass plus $5.64 million in negotiated attorneys’ fees and costs).
As such, the
$4,963,361 already awarded by the court under the first category of fees represents
approximately 29% of the total negotiated settlement. Plaintiffs request an additional
$1.525 million from the common settlement funds, bringing the award up to 37% of the
total settlement fund. This strikes the court as too high on an ex ante contingency fee
basis, but perhaps not on a lodestar basis.
An award of 25% of the common fund
settlements, would result in an additional $1.13 million in fees, for a total of $6.095
million, which represents approximately 35% of the total settlement. The court finds
this amount from an ex ante approach to be reasonable and consistent with other awards
in common fund class actions. (Pls.’ Br. (dkt. #928) 30 (describing awards ranging from
20% to 40% in common fund class action settlements).) Moreover, assigning a lower
percentage to this additional recovery is consistent with negotiated fee agreements that
guarantee plaintiffs’ counsel a higher percentage of the first dollars in and a lower
percentage of longer recoveries; in this case, the reduction hits at just over the first $11
16
million recovered. Accordingly, the court will award $812,500.00 in attorney’s fees from
the Trachte Trustees common fund settlement, $225,000.00 from the Trachte ESOP
common fund settlement, and $93,750.00 from the settlement with David Fenkell
concerning the Alliance ESOP claim.
C. Costs
Class counsel also seeks reimbursement of costs advanced by class counsel in the
total amount of $1,068,005.29, and provides documentation in support of that request.
(Barton Decl., Ex. G (dkt. #936-7).) 11 As described above, the court -- consistent with
class counsel’s request -- has apportioned $631,639.00 of the total $5.325 million
combined payment from the Alliance defendants to costs.
Moreover, the Alliance
defendants agreed to pay $20,000 to cover costs in 2014, for a total contribution to costs
of $651,639.00. Trachte ESOP and Trachte Building Systems also agreed to contribute
$25,000 to cover costs as part of their settlement. The court will, therefore, award the
remainder $391,366.29 from the common fund.
11
For reasons which are not clear to the court, class counsel removed $13,454.92 from its
costs request in light of Trachte’s agreement to pay up to $25,000 in costs. Moreover,
class counsel allotted the $20,000 from the Alliance Entity defendants to 2014 expenses,
but provided no record of 2014 costs. The court finds it easier to simply consider one
total request and apportion the costs across defendants. Accordingly, the court has
added the $13,454.92 back into the total amount. Class counsel has not provided any
detail on the amount of expenses in 2014, but given that that the only activities have
involved finalizing settlements, the court will assume that those expenses are limited.
17
IV. Unsettled Claims Against David Fenkell and Award of Attorneys’ Fees
Finally, plaintiffs seek an award of attorneys’ fees and costs against defendant
David Fenkell pursuant to ERISA § 502(g)(1), which allows an award to a party who has
achieved “some success on the merits.”
While the class has settled two claims with
Fenkell and his wife, the settlements do not resolve the court’s finding (1) that Fenkell,
along with the Alliance defendants, are jointly and severally liable to restore to the
Alliance ESOP $7,803,543 plus prejudgment interest; and (2) that Fenkell and Alliance
Holdings shall indemnify the Trachte Trustees. (Remedies Order (dkt. #790) 37-38.)
In the face of plaintiffs’ motion for attorneys’ fees, Fenkell responds with a
panoply of objections, a number of which are unrelated -- or at most, tangentially related
-- to plaintiffs’ motion. Recognizing this, the Alliance defendants sought leave to reply,
which they have now done, to which Fenkell has also filed a sur-reply.
The court
addressed above Fenkell’s purported objection to the settlement between the Alliance
defendant and plaintiffs.
Fenkell’s other objections primarily concern whether the
Alliance defendants’ settlement “extinguished” his liability, thereby rendering any
judgment against him moot and, in turn, undermining any basis for awarding attorneys’
fees to plaintiffs pursuant to ERISA § 502(g)(1). 12
A. Judgment Against David Fenkell
12
This opposition is oddly framed, in that Fenkell raises these objections but then
indicates that he will “petition” the court after the settlements are approved. (Fenkell’s
Opp’n (dkt. #938) 15.) The court sees no reason for delaying entry of judgment in this
case, and therefore will resolve the issues raised by Fenkell rather than waiting for some
future filing raising the same issues.
18
First, Fenkell argues that the settlements described above result in a payment of
$7,894,000, which exceeds the $7,803,543 awarded by the court in its remedies decision.
(Fenkell’s Opp’n (dkt. #983) 21.) Not only is Fenkell’s math wrong, but it skirts the
court’s award of prejudgment interest in order to make the math work. In arriving at the
$7,894,000 number, Fenkell adds the following amounts:
•
$5.5 million in stock to the subclass from the Alliance defendants;
•
$1.5 million in cash to the subclass from the Alliance defendants;
•
$150,000 in cash to the class from the Alliance defendants;
•
$369,000 value of the seller’s note assigned to plaintiffs by the Alliance
defendants; and
•
$375,000 from the Fenkell’s Alliance ESOP account as part of plaintiffs’
settlement with the Fenkells.
As emphasized by the italics above, the $150,000 in cash to the class should not
be included in this creative accounting at all, since the $7.8 million award only concerns
subclass claims, not class claims. More importantly, the court also awarded prejudgment
interest to be calculated from the date of the breach (August 29, 2007) at the current
prime rate, compounded quarterly. (6/4/13 Opinion & Order (dkt. #790) 37.) Based on
that order, plaintiffs calculated total prejudgment interest through August 29, 2014, as
$1,984,471.42, for a total award of $9,788,014.42:
19
(Declaration of Alina Lindblom, Ex. A (dkt. #943-1).)
Fenkell responds by arguing that the court should effectively reconsider its
prejudgment interest award.
In Fenkell’s view, the settlement negotiated between
plaintiffs and the Alliance defendants effectively assigns the prejudgment interest to the
Alliance defendants, and as such, it would not serve the purpose of prejudgment interest
to award it in a judgment against Fenkell. (Fenkell’s Opp’n (dkt. #938) 26.)
In its remedies order, the court described its reasons for awarding prejudgment
interest in this case.
(See 6/4/13 Opinion & Order (dkt. #790) 33-34.)
Fenkell’s
argument here fails to raise any credible basis for upending that award. The prejudgment
interest award was intended to compensate plaintiffs fully.
The fact that this award
likely provided plaintiffs with another bargaining chip in their settlement with the
Alliance defendants has nothing to do with plaintiffs’ right to receive full compensation
from a nonsettling defendant.
Similarly, it has nothing to do with the fact that the
20
Alliance defendants have separately negotiated the right to pursue Fenkell for the
judgment entered against him. The court sees no basis for reconsidering this award, and
further finds that plaintiffs’ calculation of the amount as $1,984,471.42 is sound.
The Alliance defendants and Fenkell have already been adjudged jointly and
severally liable to the subclass for a total of $9,788,014.42. Because plaintiffs are not
allowed to recover more than their total damages, the court must determine the judgment
against Fenkell on his unsettled claims in light of the plaintiffs’ settlements with other
defendants.
See Donovan v. Robbins, 752 F.2d 1170, 1178 (7th Cir. 1985) (“Since a
plaintiff’s total recovery, from all the tortfeasors together, is not allowed to exceed his
total damages, the amount that the nonsettling defendants will have to pay will be
smaller, the larger the settlement is.”) (citing Zenith Radio Corp. v. Hazeltine Research, Inc.,
401 U.S. 321, 348 (1971)).
As part of the settlements, plaintiffs have received $7,744,000 to cover plaintiffs’
award for subclass claims of $7.8 million plus prejudgment interest, leaving
$2,044,014.42 including prejudgment interest unsatisfied by the settlements.
In
Donovan, the Seventh Circuit embraced the proportionate or comparative fault approach
to determine the amount of a judgment against a non-settling defendant. Donovan, 752
F.2d at 1181 (describing the approach as a “neat solution”); see also Lumpkin v. Envirodyne
Indus., Inc., 933 F.2d 449, 464 (7th Cir. 1991) (explaining that Donovan “advocated the
adoption of a rule based on comparative fault” where “no party pays more than its
adjudicated fair share”). Under this approach -- which contemplates a settlement before
a finding of damages -- the court “fixes the percentage of the plaintiff’s damages that is
21
attributable to the fault of the settling defendants, multiplies that percentage by the
judgment against the nonsettling defendants, and deducts the resulting amount from the
judgment.” Id. at 1180.
In light of the procedural posture of this case, where the court awarded and
allocated damages before any defendant settled, the court need not hold a hearing as
Fenkell suggests.
In the remedies order, the court previously concluded “of the
defendants found liable, Fenkell is far and away the most culpable party.”
Opinion & Order (dkt. #790) 30.)
(6/3/14
Given this earlier finding, as well as the court’s
previous factual findings in this case as a whole, the court finds compelling evidence to
conclude that Fenkell’s crucial role in developing overseeing and implementing the 2007
transaction makes him responsible for at least 51% of plaintiffs’ damages, including in
particular at least 51% of the damages attributable for the wrongful conduct of the
Alliance defendants. 13 The court need not fix a specific percentage, however, because the
unsatisfied portion of this part of the remedies award -- $2,044,014.42 -- is far less than
13
The court makes this finding for purposes of assigning fault generally and allocating
responsibility with respect to plaintiffs’ fees and costs, but since the Alliance defendants
did not pursue a cross claim for contribution from Fenkell in this case the court will not
rule on the merits of that specific claim.
22
51% of the total award. 14 As such, the court finds that a judgment against Fenkell in the
amount of $2,044,014.42 is fair under a proportionate or comparative approach. 15
In addition to entering judgment against Fenkell in that amount, the court will
also enter judgment requiring him to indemnify defendants Mastrangelo, Seefeldt and
Klute for any compensatory relief they are required to pay. (6/4/13 Opinion & Order
(dkt. #790) 38.) Whether the fact that those defendants settled plaintiffs’ claims against
them with insurance proceeds alone moots this part of the judgment, as Fenkell now
argues, is not an issue before in this case. 16
B. Award of Attorneys’ Fees Pursuant to ERISA § 502(g)(1)
Plaintiffs also seek an award of attorneys’ fees and costs against Fenkell pursuant
to ERISA § 502(g)(1) in the amount left unpaid by the settling Alliance defendants,
based on their total lodestar fees of $7,948,619.50. (Pls.’ Opening Br. (dkt. #934).) 17
ERISA § 502(g)(1), 29 U.S.C. § 1132(g)(1), provides:
14
By way of example, if Fenkell were 51% at fault, the amount attributable to his fault
would be $4,991.887.35; if 75% at fault, $7,341,010.82; and if 90% at fault,
$8,809.212.98. Indeed, if Fenkell were at least 21% at fault, a judgment in the full
amount of the unsatisfied portion of the total judgment would be justified.
15
In the alternative, if the court were to adopt a “pro tanto approach,” which involves
“accounting for the settlement with a dollar-for-dollar reduction in the damages . . .
owed” by the nonsettling defendant, the result would be the same. See Schadel v. Iowa
Interstate R.R., Ltd., 381 F.3d 671, 674 (7th Cir. 2004).
16
As a legal matter, this would now appear to be a subrogated claim of the insurers, but
that, too, is not an issue before the court.
17
Fenkell argues that plaintiffs’ request violates Fed. R. Civ. P. 7(b)(1)(C) because
plaintiffs fail to define the relief sought. (Fenkell’s Opp’n (dkt. #938) 10 n.5.) Fenkell’s
23
In any action under this subchapter (other than an action
described in paragraph (2)) by a participant, beneficiary, or
fiduciary, the court in its discretion may allow a reasonable
attorney’s fee and costs of action to either party.
Recently, in Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242 (2010), the
Supreme Court provided guidance to district courts in exercising discretion under this
fee-shifting provision. The Court found that a party need not be a prevailing party, like
for example, in civil rights cases under 42 U.S.C. § 1988. Rather, the party must simply
show “some degree of success on the merits before a court may award attorney’s fees
under § 1132(g)(1).” Id. at 245.
Once a party has shown “some success on the merits,” the court decides whether
awarding fees is appropriate, employing one of two tests: the substantial justification test
and the five-factor test. Raybourne v. Cigna Life Ins. Co. of New York, 700 F.3d 1076, 1089
(7th Cir. 2012). More recently, the Seventh Circuit took the approach that the district
court need only consider whether a party achieved some degree of success on the merits.
Temme v. Bemis Co., Inc., -- F.3d --, No. 14-1085, 2014 WL 3843789, at *4 (7th Cir. Aug.
6, 2014).
This court need not delve into the arguable differences in the Raybourne and
Temme tests, however, because Fenkell does not challenge plaintiffs’ right to an award
under ERISA § 502(g)(1).
Rather, he argues only that there should be no judgment
entered against him, and in turn, no attorneys’ fees. The court having already rejected
brief, however, belies this argument. Specifically, Fenkell describes in great detail the
attorneys’ fee requests as part of the settlement, even creating a useful chart. (Id. at 11.)
24
this argument earlier in its opinion, nothing more need be said with respect to plaintiffs’
right to an award of fees.
Plaintiffs’ actual requested award is based on plaintiffs’ counsel’s calculated fees of
$7,948,619.50, which the court has already found to be reasonable. (See supra pp.1213.) While Fenkell asserts that the fees are “patently unreasonable” (Fenkell’s Opp’n
(dkt. #938) 19) -- and reiterated this objection at the fairness hearing -- he failed to
provide any specific examples of excessive charges, choosing instead to lob this general,
vague objection, contrary to clearly established case law in this Circuit. See, e.g., RK Co.
v. See, 622 F.3d 846, 854 (7th Cir. 2010) (affirming fee award where defendant failed to
“detail his objections to the fee petition such that the court can determine what portion
of the fees, if any, were not reasonably expended”); Hutchison v. Amateur Elec. Supply, Inc.,
42 F.3d 1037, 1048 (7th Cir. 1994) (holding that where defendant fails to “state
objections [to fee requests] with particularly and clarity “the district court should not
reward the defendants by denying the plaintiff’s counsel an opportunity to defend his
claim against specific challenges, whatever their source”); Ohio-Sealy Mattress Mfg. Co. v.
Sealy Inc., 776 F.2d 646, 664 (7th Cir. 1985) (“Counsel who oppose the fees have a
similar responsibility to state objections with particularity and clarity.”).
This, then, leaves only the question of the appropriate portion to be awarded
against Fenkell specifically. While the court generally agrees with plaintiffs that an award
of attorneys’ fees against multiple defendants where there is a common, intertwined core
of facts need not necessarily be apportioned based on individual damages awards (Pls.’
Opening Br. (dkt. #934) 43 (citing cases)), plaintiffs have secured $4,693,361 in
25
negotiated fees from the Alliance defendants and $270,000 in negotiated fees from the
Trachte defendants. Class counsel has also secured $1,131,250 in attorneys’ fees from
the common fund. The court appreciates plaintiffs’ counsel’s argument that an award
under § 502(g)(1) is to plaintiffs, whereas an award from the common fund goes to class
counsel. Regardless, both awards are for reasonably attorneys’ fees. Therefore, the court
opts to consider the total amount regardless of its specific source.
In light of the
prohibition against a plaintiff recovering more than that awarded, see Zenith Radio, 401
U.S. at 348, and the difficulty of differentiating between fees incurred for claims against
individual defendants, the court finds that it is appropriate to reduce any attorneys’ fee
awarded against Fenkell on plaintiffs’ unsettled claims by the amount already received in
approved, negotiated fees and awarded out of the common fund.
Accordingly, the court will award plaintiffs $1,854,008.50 in attorney’s fees
pursuant to ERISA § 502(g)(1) against David Fenkell for the remaining, unsettled
claims. 18 Of course, should Fenkell continue to dispute the judgment against him in
further proceedings before this court and on appeal, the full amount of additional fees
plaintiffs incur will also fall on him alone.
18
As a check on this amount, the court also considered the amount of attorneys’ fees
reasonably awarded against Fenkell in light of the court’s total remedies award.
Including prejudgment interest, the court awarded approximately $19 million to
plaintiffs. Of that, Fenkell was solely responsible for $2.896 million based on the
phantom stock option claim and was jointly and severally liable with the Alliance
defendants for approximately $9.8 million. Assuming Fenkell was 51% at fault as
compared to the Alliance defendants, it is fair to apportion approximately $7.89 million
($2.896 million plus $4.998 million) to Fenkell, which represents approximately 42% of
the total award. Applying that same percentage to plaintiffs’ counsel’s lodestar fees,
Fenkell would be responsible for approximately $3.28 million in fees, well below the
amount left unsatisfied by the various fee awards from the settlements.
26
Finally, the court must consider plaintiffs’ request for reimbursement of costs also
pursuant to ERISA § 502(g)(1). Plaintiffs request costs in the amount not covered by
the negotiated contribution of costs described above and totaling $391,366.29. That
amount, however, was sought from the common settlement fund, and the court granted
that request. (See supra p.17.) Accordingly, there are no unsatisfied costs to be awarded
against Fenkell.
ORDER
IT IS ORDERED that:
1) plaintiffs’ motion for payment of incentive awards to the class representatives
(dkt. #921) is GRANTED. Class representative Nanette Stoflet is awarded
$25,000, and class representatives Carol Chesemore, Martin Robbins, Thomas
Gierck and Daniel Dockel are awarded $10,000 each;
2) plaintiffs’ motion for attorneys’ fees and costs (dkt. #928) is GRANTED. The
court awards plaintiffs $4,693,361.00 in attorneys’ fees and $651,639.00 in
costs from the Alliance defendants, and $270,000 in attorneys’ fees and
$25,000 in costs from the Trachte defendants. The court awards class counsel
$812,500.00 in attorney’s fees from the Trachte Trustees common fund
settlement, $225,000.00 from the Trachte ESOP common fund settlement,
and $93,750.00 from the settlement with David Fenkell concerning the
Alliance ESOP claim. The court awards class counsel $391,366.29 in costs
from the combined common fund settlements;
3) plaintiffs’ motion for attorneys’ fees and costs pursuant to ERISA § 502(g)(1)
against defendant David Fenkell (dkt. #934) is GRANTED. Plaintiffs are
awarded $1,854,008.50 in attorneys’ fees against Fenkell;
4) plaintiffs’ motion for final approval of settlement agreements (dkt. #946) is
GRANTED;
5) the clerk of court is directed to enter judgment against David Fenkell on the
unsettled claims as follows:
a. David Fenkell is liable to restore to the Alliance ESOP $2,044,014.42;
27
b. David Fenkell shall indemnify defendants Mastrangelo, Seefeldt and
Klute for any compensatory relief they are required to pay;
c. David Fenkell shall be barred from continuing as trustee of the Alliance
ESOP; and
d. David Fenkell is liable to plaintiffs for attorneys’ fees and costs in the
total amount of $1,854,008.50;
6) except for the unsettled claims against David Fenkell for which the court will
enter judgment as described in paragraph 5 of this order, all other claims in
this action are dismissed, with the court retaining jurisdiction over
enforcement of the settlements, including over any objections by the
independent fiduciary based on the PTE determinations; and
7) the clerk of court is directed to close this case.
Entered this 4th day of September, 2014.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
28
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