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Dolby v. Houlihan Smith & Co., Inc.

United States District Court, N.D. Illinois, Eastern Division

June 20, 2014

DONALD D. KAPLAN and IAN DOLBY, Plaintiffs,
v.
HOULIHAN SMITH & CO., INC. a/k/a HOULIHAN SMITH & COMPANY, INC., RICHARD HOULIHAN, ANDREW D. SMITH, CHARLES BOTCHWAY, ANTHONY J. MARSALA, DAVID L. HEALD, and CONSULTING FIDUCIARIES, INC., Defendants.

MEMORANDUM OPINION AND ORDER

GEORGE M. MAROVICH, District Judge.

Lead plaintiffs, Donald D. Kaplan ("Kaplan") and Ian Dolby ("Dolby") have moved this Court for final approval of a settlement agreement they entered (on behalf of a class) with defendants Houlihan Smith & Co., Inc. a/k/a Houlihan Smith & Company, Inc. ("Houlihan Smith"), Richard Houlihan ("Houlihan"), Andrew D. Smith ("Smith"), Charles Botchway ("Botchway"), Anthony J. Marsala ("Marsala"), David L. Heald ("Heald") and Consulting Fiduciaries, Inc. in order to settle the ERISA claims plaintiffs asserted in this case. The Court has held a fairness hearing and, for the reasons set forth below, now grants final approval of the settlement agreement. Also before the Court is class counsel's motion for attorneys' fees and for reimbursement of expenses from the settlement fund.

I. Background

The two named plaintiffs, Kaplan and Dolby, were participants in the employee stock ownership plan (the "ESOP") sponsored by their employer, defendant Houlihan Smith, an investment banking firm. The ESOP was established in 2006. As of January 2, 2010, the ESOP owned 278, 775 shares of Houlihan Smith.

Plaintiffs allege that in July 2010, Houlihan Smith's Board of Directors decided to split up the company and sell some assets. The individual defendants hired defendant Consulting Fiduciaries, Inc. to represent the interests of the ESOP with respect to the division of the company and the sale of the assets. According to plaintiffs, Consulting Fiduciaries, Inc. failed in their duty, because they allowed asset sales to proceed even though the sales were unfair to ESOP participants. Plaintiffs allege that on November 16, 2010, defendants Botchway and Marsala purchased certain of Houlihan Smith's assets for notes receivable and transferred their equity in Houlihan Smith to the ESOP. On December 14, 2010, an entity owned by Houlihan and Smith purchased certain other Houlihan Smith assets for notes receivable, and Smith transferred his equity to the ESOP. The plaintiffs allege that the individual defendants did not pay enough for those assets, both because the assets were worth more and because the ESOP was left holding 932, 875 shares of a now-worthless company.

The parties do not say much about defendants' position(s) on the merits, but they say defendants dispute the allegations. It appears defendants might have argued that Houlihan Smith was headed toward failure in any case (which would mean that the shares of the company would have lost value regardless of the transactions) and that the transactions were designed not to leave the ESOP with worthless shares but rather to salvage a business that could employ some or all of Houlihan Smith's former employees.

With the help of a mediator, the parties reached an agreement to settle this lawsuit. The settlement agreement calls for one insurance carrier to pay $575, 000.00 on behalf of Consulting Fiduciaries, Inc. and Heald and for another insurance carrier to pay $700, 000.00 on behalf of Houlihan Smith, Houlihan, Smith, Botchway and Marsala, for a total settlement fund of $1, 275, 000.00. The money, after fees and expenses, is to be divided among the class members based on their pro rata share of the ESOP on December 31, 2009. Each of the two named plaintiffs is to receive an extra $1, 000.00 for his efforts as a named plaintiff.

As was mentioned above, the settlement agreement allows for certain fees and expenses to be deducted from the settlement amount. For example, the parties agreed that the plaintiffs' attorneys could ask the Court for an award of fees of up to 30% of the settlement amount and of reasonable expenses, all to be taken from the settlement amount. Defendants agreed not to challenge plaintiffs' attorneys' fee petition. The settlement agreement was also made contingent upon the approval of an independent fiduciary, who is to be paid $15, 000.00 from the settlement amount. The class members are to be paid within 45 days after this Court enters final judgment (or after an appeal, should a notice of appeal be filed).

In exchange, the class members are agreeing to release all defendants from any claims arising from the subject matter of this lawsuit that were or could have been brought in this case.

Now-retired District Judge Nordberg certified a class and granted preliminary approval of the settlement agreement. Judge Nordberg certified a class of "all persons who were participants in the Houlihan Smith & Company, Inc. Employee Stock Ownership Plan ("the ESOP") on December 31, 2009 and/or beneficiaries of such ESOP participants." The class definition explicitly excludes the settling defendants (and their spouses, heirs, etc.). Judge Nordberg certified the class pursuant to Rule 23(a) and 23(b)(1) and (2). Judge Nordberg also approved the notice to the class members, which notice the parties then sent to the class members.

Once the class was notified, the Court received objections from two individuals, one (Brian Semitekol ("Semitekol")) of which is a class member and the other (Richard C. Johnston ("Johnston")) is not. Johnston did not commence work at Houlihan Smith until January 2, 2010 and, therefore, was not a participant in the ESOP on December 31, 2009. He believes that date was selected arbitrarily. Semitekol was a participant on December 31, 2009, but he thinks the settlement proceeds should be allocated based on the final allocation of shares on December 31, 2010.

On May 5, 2014, the independent fiduciary (who had been hired by the Plan fiduciaries) issued his report. The independent fiduciary concluded "that the settlement is a reasonable and attractive settlement for the Plan and Plan participants/beneficiaries."

II. Discussion

A. Final approval of ...


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