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Keywords

settlementplaintiffdefendantdamagesattorneytrialfiduciarycorporate lawclass action

settlementplaintiffattorneyappealwillcorporationobjection

Related Cases

Montgomery v. Aetna Plywood, Inc., 231 F.3d 399

Facts

The ESOP owned 95% of Aetna Plywood's shares, with the remaining 5% owned by CEO Jeff Davis. In mid-1992, Davis and other directors caused the ESOP to sell its shares back to the company at a below-market price, leading to a class action suit filed by Montgomery in May 1995. After a trial, the district court found the defendants liable for undervaluing the ESOP's stock and awarded damages. The parties later reached a settlement, which included cash and stock for the class, but disputes arose regarding attorney fees and the restructuring plan proposed by Aetna Plywood.

Just before Aetna Plywood purchased the stock owned by its ESOP, the ESOP owned 95% of the company's outstanding shares. The remaining 5% was owned by Jeff Davis, who served as Aetna Plywood's chief executive officer, the chairman of its board of directors, and a member of the committee that managed its ESOP.

Issue

The main legal issues included whether the class had standing to challenge the restructuring plan, the appropriateness of the attorney fees awarded to class counsel, and whether the lead plaintiff should receive an incentive award.

The first issue raised in these appeals concerns the district court's decision to allow Aetna Plywood to go forward with its proposed ownership restructuring plan.

Rule

The court applied principles of ERISA and Delaware corporate law, particularly regarding fiduciary duties and the standing of stockholders in derivative suits.

Delaware law requires that the plaintiff in a derivative suit (the form that the parties assume the class's objections take) be a stockholder of the corporation at the time of the challenged transaction.

Analysis

The court determined that the class lacked standing to challenge the restructuring plan under Delaware law, as they were not stockholders at the time of the transaction. It also found that the district court did not abuse its discretion in awarding attorney fees based on the net settlement recovery and in refusing to grant an incentive award to the lead plaintiff. However, the court concluded that the district court erred in denying class counsel a portion of the stock promised in the settlement agreement.

This conclusion brings into focus the question we have yet to answer—who, for standing purposes, is a “stockholder.” In light of our conclusion about when the transaction the class challenges took place, the class will have standing only if a prospective stockholder can be considered a “stockholder” for standing purposes.

Conclusion

The court affirmed the district court's decisions regarding the restructuring plan and attorney fees but reversed the decision denying class counsel a portion of the stock. The court also upheld the refusal to grant an incentive award to the lead plaintiff.

Therefore, we must affirm the district court's rejection of the class's challenge to Aetna Plywood's ownership restructuring plan.

Who won?

The prevailing party was Aetna Plywood, as the court upheld the restructuring plan and the award of attorney fees, while only partially reversing the district court's decisions.

The district court did not abuse its discretion in basing class counsel's attorney fees on class's net settlement recovery.

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