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FENER v. GALLAGHER

September 8, 2005.

TODD FENER, Derivatively on Behalf of ARTHUR J. GALLAGHER & CO., Plaintiff,
v.
ROBERT E. GALLAGHER; J. PATRICK GALLAGHER, JR.; BERNARD L. HENGESBAUGH; ELBERT O. HAND; ILENE S. GORDON; GARY P. COUGHLAN; T. KIMBALL BROOKER; JAMES R. WIMMER; and DAVID S. JOHNSON, Defendants, and ARTHUR J. GALLAGHER & CO., a Delaware corporation, Nominal Defendant.



The opinion of the court was delivered by: JOHN W. DARRAH, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Todd Fener, filed a shareholder derivative suit against Defendants, alleging breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. Presently pending before the court is the Defendants' Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for Plaintiff's failure to allege a "pre-suit demand" on the Board of Directors. BACKGROUND

A reading of Fener's Amended Shareholder Derivative Complaint supports the following summary of the alleged conduct of the parties.

  Arthur J. Gallagher & Co. ("the Company") was founded by Arthur J. Gallagher ("Arthur") in 1927. The Company is engaged in providing insurance brokerage, risk management, and related services to clients in the United States and abroad. Its principal activity is insurance brokerage, including the negotiation and placement of insurance for its clients. The Company is the nation's fourth largest insurance broker and is incorporated in the State of Delaware.

  In 1950, Arthur divided the Company between himself and his three sons, wherein he retained forty percent of the Company and each of his sons received a twenty percent of the Company and appointment to the Board of Directors ("the Board"). In 1984, the Company went public; and, in 1986, it was listed on the New York Stock Exchange.

  Defendant Robert Gallagher ("Robert"), one of Arthur's sons, began acting as the Chief Executive Officer from 1963 through 1994 and President from 1963 to 1990. In 1990, Robert became Chairman of the Board; and his brother, John Gallagher ("John") became Vice Chairman. At that same time, Defendant Patrick Gallagher ("Patrick") — John's son and Robert's nephew — became the President and Chief Operating Officer. A few years later, Patrick became the Chief Operating Officer and CEO. Currently, Robert is still Chairman of the Board; and Patrick is still a Director, President and CEO.

  Defendant David S. Johnson is, and has been since 2003, a Director of the Company. Johnson has served: as President of North American Commercial for Kraft Foods, Inc. since 2003; as President of North American Operations, Technology, Procurement, Information Systems and Sales for Kraft Foods North America, Inc. from 2002 to 2003; as Group Vice-President of Kraft Foods North America, Inc. from 2000 to 2002; and as Executive Vice-President of Kraft Foods, Inc. from 1998 to 2000.

  Defendant Bernard Hengesbaugh is, and has been since 2004, a Director of the Company. Hengesbaugh has served as Chairman of the Board of CNA Financial Corporation, an insurer of commercial enterprises, since 2002; and prior to that, he served as Chairman and CEO of CNA Insurance Companies from 1999 to 2002 and in various executive capacities with CNA since 1990. The Company and certain of its subsidiaries engage in brokerage and other transactions on behalf of CNA Financial and certain of its subsidiaries. Because of Hengesbaugh's dual fiduciary capacities to the Company and CNA, and the importance of the Company's ongoing business to CNA, Hengesbaugh is financially beholden to Robert, Patrick, and the Company's management.

  Defendant Elbert Hand is, and has been since 2002, a Director of the Company. Hand currently serves as the Chairman of the Board of Hartmarx Corporation, a consumer apparel products business, and previously served as Hartmarx's CEO from 1992 to April 2002 and as President and COO from 1985 to 1992.

  Defendant Ilene Gordon was a Director of the Company. Gordon has served: as President of Food Packaging, Americas, Alcan, Inc. since 2004; as President of Pechiney Plastic Packaging, Inc. and Senior Vice-President of Pechiney Group since 1999 to 2004; as Vice-President and General Manager of Tenneco Packaging Folding Carton from 1997 to 1999; and as Vice-President of Operations for Tenneco, Inc. from 1994 to 1997.

  Defendant Gary Coughlan was a Director of the Company. Coughlan served as a Senior Vice-President and CFO of Abbott Laboratories from 1990 to March 2001. Prior to that, Coughlan served as Senior Vice-President of Kraft General Foods from 1989 to 1990 and as Senior Vice-President and CFO of Kraft, Inc., which he joined in 1972, where he served with Johnson.

  Defendant T. Kimball Brooker was a Director of the Company. Brooker has served as President of Barbara Oil Company, an oil and gas exploration and investment business, since 1989 and as a Managing Director of Morgan Stanley & Co., Inc. from 1975 to 1988.

  Defendant James Wimmer was a Director of the Company. Wimmer, a lawyer, served as a partner of Lord, Bissel & Brook from 1959 to 1992 and was Of Counsel from 1992 to 1999, representing companies and individuals in securities and insurance-related matters. During the relevant period, Wimmer sold 19,000 shares of the Company stock for proceeds of $627,510.

  Defendants Brooker, Gordon, Hand, and Wimmer compromise the Company's Compensation Committee Board, which determines and approves the compensation of the CEO and makes recommendations to the Board with respect to the Company's compensation plans and equity-based plans. Because the members of the Compensation Committee Board control the other Defendants' awards, ...


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