The opinion of the court was delivered by: Michael M. Mihm, District Judge
NOW before the Court is a Motion for Summary Judgment by Defendants
William J. Gehring ("Gehring"), Clayton
Patino ("Patino"), Henry R.
Gregory, II ("Gregory"), Jerry L. Rathmann ("Rathmann"), John F. Halpin
("Halpin"), Mark Swedlund ("Swedlund"), James H. Kyle ("Kyle"), Leo A.
Vandervlugt ("Vandervlugt"), John Lappegaard ("Lappegaard"), Robert J.
Wilson ("Wilson"), George McKittrick ("McKittrick"), and Bruce B. Wright
("Wright") (hereinafter referred to collectively as the "Gehring
Defendants"). For the reasons set forth below, the Motion for Summary
Judgment [#378] is GRANTED.
The basic factual background has been sufficiently set forth in the
prior orders of this Court, and familiarity therewith is presumed. The
present motion is brought by the Gehring Defendants, who are in this suit
only as parties-in-interest in Count IX of the First Amended Complaint.
Gehring was the Senior Vice President of Information Systems and Chief
Information Officer for F&G. Gregory was F&G's Senior Vice President of
Advertising. Halpin, Kyle, and Lappegaard were respectively the Vice
President of Marketing, Vice President of Facilities and Development, and
the President of Spring Hill Nurseries, an F&G subsidiary. McKittrick was
the Vice President of Customer Sales and Service for F&G. Patino was the
President of MMI, another subsidiary of F&G. Rathmann was F&G's Senior
Vice President of Operations. Swedlund was the President of The
Children's Group, another F&G subsidiary. Vandervlugt was the General
Manager of the Breck Bulb Division of F&G. Wilson was the Director of
Production for F&G, and Wright was F&G's Senior Vice President of
The matter is now fully briefed and ready for resolution. This Order
Summary judgment should be granted where "the pleadings, depositions,
answers to interrogatories and admissions on file, together with the
affidavits, if any, show there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(c). The moving party has the responsibility of
informing the Court of portions of the record or affidavits that
demonstrate the absence of a triable issue. Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). The moving party may meet its burden of showing
an absence of disputed material facts by demonstrating "that there is an
absence of evidence to support the non-moving party's case." Id. at 325.
Any doubt as to the existence of a genuine issue for trial is resolved
against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986); Cain v. Lane, 857 F.2d 1139, 1142 (7th Cir. 1988).
If the moving party meets its burden, the non-moving party then has the
burden of presenting specific facts to show that there is a genuine issue
of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87 (1986). Federal Rule of Civil Procedure 56(e)
requires the non-moving party to go beyond the pleadings and produce
evidence of a genuine issue for trial. Celotex, 477 U.S. at 324.
Nevertheless, this Court must "view the record and all inferences drawn
from it in the light most favorable to the [non-moving party]." Holland
v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989).
Summary judgment will be denied where a reasonable fact-finder could
return a verdict for the non-moving party. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248
(1986); Hedberg v. Indiana Bell Tel. Co.,
47 F.3d 928, 931 (7th Cir. 1995).
The Gehring Defendants are in this case only as non-fiduciary
parties-in-interest pursuant to § 406(a) of ERISA, which prohibits a
"sale or exchange . . . of any property between the plan and a party in
interest," and also prohibits a "transfer to . . . a party in interest
. . . of any assets of the plan." 29 U.S.C. § 1106 (a)(1)(A) and
(D). ERISA further defines a "party in interest" to include any fiduciary,
person providing services to the plan, an employer, an
employee/officer/director or 10% shareholder of an employer, or any
relative of these individuals. 29 U.S.C. § 1002 (14). There is no
dispute that these Defendants qualify as parties in interest.
As the Court has previously held and hereby incorporates by reference,
once Plaintiffs establish that the purchases of stock by the ESOP
constituted a prohibited transaction under § 406, § 502(a)(3)
then provides a right of action to seek appropriate equitable relief from
parties-in-interest to redress the violation. Harris Trust, 120 S.Ct. at
2188, citing § 502(1)(1)(B). Borrowing from the law of trusts, the
Defendants can then invoke the substantive equivalent of a modified bona
fide purchaser defense by establishing that they gave value for the trust
property. if the Defendants are able to make such a showing, a presumption
of good faith attaches, and the burden shifts back to the Plaintiffs to
establish that Defendants acted in bad faith or had actual or
constructive notice of the circumstances that rendered the transaction
Plaintiffs have conceded that at least for purposes of these motions,
they do not contest that the stock purchase transactions were for "value"
in the sense that they were not gratuitous but rather involved
consideration that was more than nominal. Accordingly, the Gehring
Defendants are entitled to a presumption of good faith and lack of
knowledge unless Plaintiffs are able to rebut that presumption.
Initially, the Court notes that Plaintiffs make no effort to
demonstrate actual knowledge on the part of any of these Defendants,
relying instead on a constructive knowledge theory. In this respect, the
Court's review is complicated by the fact that Plaintiffs have made
virtually no effort to address the knowledge of each of the individual
Defendants. Rather, Plaintiffs seem to assume that the Gehring Defendants
all have equal knowledge and can be dealt with as a group. However, there
is no support for this assumption in either the record for this case or
the applicable law, which makes clear that guilt by association is
insufficient; the knowledge necessary to establish the liability of a
non-fiduciary party-in-interest must be determined on an individual basis
and cannot be based on what some other party knew. See Harris Trust, 120
S.Ct. at 2189-90. It is not the responsibility of this Court to root
through the record like a pig in search of truffles to determine whether
there is a factual basis for the assertion that any given Defendant had
the requisite knowledge to support a finding of liability; that burden
rests with Plaintiffs, and their failure to attempt to meet this burden
on an individual basis is fatal to their claim. Moreover, as set forth
below, even if the Court were to wade through the record in an effort to
determine whether there is sufficient evidence for the claim against any
of the Gehring Defendants to proceed to trial, these Defendants would
nevertheless be entitled to judgment in their favor.
Plaintiffs argue that the Gehring Defendants undertook no independent
investigation or inquiry with respect to the transactions. However, this
puts the cart
before the horse, as these Defendants are not fiduciaries,
and the law does not impose such an onerous duty on non-fiduciaries in
the absence of notice of the need to do so. In addition to being
non-fiduciaries, these Defendants were not Board Members, Executive
Committee Members, or members of the ESOP Administrative Committee. They
were not employed in the F&G financial department or by MBC, and to their
knowledge, business was quite good for F&G at the time of the
transactions, as F&G continued to have a strong financial performance
through the first two quarters of 1997. Moreover, the Court is unaware of
any evidence linking any of these Defendants to the process of
structuring the stock purchase transactions, determining the value of
shares to be sold, or negotiating the stock purchase price.*fn1 In
fact, six of the Gehring Defendants were not even directly involved in
the operations of F&G but rather were employed by various subsidiaries.
Access to certain information that was made available or known to the F&G
Board or Executive Committee cannot be presumed but must be proven, and
it is that proof that is lacking here.
Plaintiffs attempt to demonstrate knowledge by stating that some of the
Gehring Defendants were involved in the due diligence process when F&G
bought MBC in 1992 and "received materials indicating that increased
state regulation of sweepstakes was a concern of MBC." However, the
authority cited for this assertion is one line in a 70-page document
listing "[i]ncreased state regulation of sweepstakes first round winner"
as one of 12 concerns of the business. The suggestion that this was
sufficient to place even those Defendants who actually participated in
the process and received the materials on notice of circumstances
rendering the transaction unlawful is without merit. Plaintiffs also
reference reports authored by Gehring, Rathmann, and Wright in connection
with the due diligence of ...