Summary of the Lawsuit
This lawsuit on behalf of current and former participants and their beneficiaries of the Trachte Building Systems, Inc. Employee Stock Ownership Plan alleges violations of the Employee Retirement Income Security Act (ERISA) in connection with the transfer of pension accounts from the Alliance Holdings, Inc. Employee Stock Ownership Plan to the Trachte ESOP and the purchase of Trachte Building Systems, Inc. stock from Alliance Holdings, Inc. and Stephen W. Pagelow in August 2007.
Summary of the Claims
This case arose out of a transaction involving the Trachte ESOP that occurred on August 29, 2007. At that time, the assets of the accounts of Trachte employees who were participants in the Alliance ESOP, consisting of Alliance stock and AH Transition stock, were transferred into the Trachte ESOP and exchanged for Trachte stock and the Trachte ESOP purchased additional shares of Trachte stock from Alliance affiliates and Stephen W. Pagelow.
The Complaint alleged that the transfer of assets from the Alliance ESOP to the ESOP violated ERISA because the Alliance and AH Transition stock had less value after the transfer than before the transfer and because the stock was exchanged for and conditioned on the purchase of overpriced Trachte stock. The Complaint alleged that the value of the participants’ accounts, consisting almost exclusively of Trachte stock, was further jeopardized because Trachte acquired more debt than it could reasonably service in order to finance the Transaction. The lawsuit also alleged that the executive compensation of David Fenkell, a fiduciaries responsible for approving and orchestrating the transaction was based on the price paid for the Trachte stock by the Trachte ESOP, putting those fiduciaries in such a position that their personal interests were in conflict with the interests of the Trachte ESOP participants and beneficiaries. As a result of the Transaction and the effect of the debt on Trachte, the accounts of the participants in the Trachte ESOP have significantly declined in value and Trachte itself is burdened with excessive debt that threatened the viability of the company.
Class Action Allegations
On September 22, 2011, the Court entered an order certifying this case as a Class Action. The classes are defined as follows:
CLASS: Participants in the Trachte ESOP at any time from August 29, 2007 to the present who had an account or received an allocation which they did not subsequently forfeit under the terms of the Plan and the beneficiaries of such participants, excluding any fiduciary of the Trachte ESOP or Alliance ESOP during the 2007 Transaction on or about August 29, 2007 and any members of their immediate families, legal representatives, heirs, successors or assigns.
SUBCLASS: All persons who were participants or beneficiaries of the Alliance ESOP at the time of the 2007 Transaction and whose accounts were transferred to the Trachte ESOP on or about August 29, 2007 as part of the 2007 Transaction, excluding any fiduciary of the Trachte ESOP or Alliance ESOP during the 2007 Transaction on or about August 29, 2007 and any members of their immediate families, legal representatives, heirs, successors or assigns.
Excluded from the Classes are Defendants, any fiduciary of the Trachte ESOP or Alliance ESOP at the time of the 2007 Transaction and any members of their immediate families, legal representatives, heirs, successors or assigns.
Status of the Litigation
The lawsuit, entitled Chesemore, et al. v. Alliance Holdings, Inc., et al. (W.D. Wisc.), was filed on June 30, 2009. The Alliance Defendants, the Trustees, and Defendant Pagelow filed Motions to Dismiss the Complaint, which the Court largely denied on February 17, 2011. The case was bifurcated into two phases in May 2011. A seven-day court trial in Phase I was held in October 2011. On March 28, 2012, the Court issued an order memorializing decisions made orally at the summary judgment hearing held on October 6, 2011 prior to trial. In the order on summary judgment, the Court denied the Trustees’ and the Alpha Defendants’ motions for summary judgment, granted the motion by Defendant Pagelow in its entirety and dismissed Pagelow from the case, and granted in part and denied in part both Plaintiffs’ and the Alliance Defendants’ cross motions for summary judgment. On July 24, 2012, the Court found the Alliance Defendants and the Trustee Defendants liable for violations of ERISA. In late July 2012, the Court held a three-day court trial on remedies and relief. On June 4, 2013, the Court issued its Order on remedies, awarding several components of relief to the Class and Subclass, totaling approximately $17.2 million plus pre-judgment interest. On July 1, 2013, the Alliance ESOP filed a motion for clarification regarding the Court’s remedies decision. On July 5, 2013, Defendant Karen Fenkell filed a motion to dismiss, to which Plaintiffs filed an opposition on July 22, 2013. On October 16, 2013, the Court issued a ruling denying Defendant Karen Fenkell’s motion to dismiss and granting in part and denying in part the Alliance Defendants’ motion for clarification.
After the two trials, Plaintiffs reached settlements, on behalf of the Class or Subclass, with each of the Defendants. The terms of the settlements are described in the Class Notice. The combined value of the proposed settlements totals $12.575 million in cash and stock, plus the assignment of two sellers’ notes with face values of $1.3 million and $4.3 million; in addition, the Alliance Entities have agreed to pay $5.325 million toward the attorneys’ fees incurred by Class Counsel in prosecuting this case. Pursuant to the Plan of Allocation (available on this page), the amount paid in these settlements, minus any additional amounts awarded by the Court in attorneys’ fees, or reimbursement of expenses, or as a service award to the class representatives (who expended significant time and effort to aid Class Counsel) will be paid into either restored accounts in the Alliance ESOP and/or the Trachte ESOP.
The deadline for Class Members to return the Questionnaire–which was sent with the Notice of Settlement was July 3, 2014. The deadline for any Class Member to object to the Settlement, the Plan of Allocation or Class Counsel’s request for attorneys’ fees or expenses was also July 3, 2014.
Town Hall Meetings were held by Class Counsel on June 16, 2014, at Trachte headquarters, 216 Wilburn Road, Sun Prairie, WI for all interested Trachte ESOP participants and beneficiaries were invited to attend this meeting.
On February 19, 2014, and April 9, 2014, the Court preliminarily approved the Settlements. The Court held a fairness hearing on July 24, 2014 at the United States District Court for the Western District of Wisconsin, United States Courthouse, 120 N. Henry Street, Madison, WI 53703.
On September 5, 2014, the Court issued an order granting Final Approval of the Settlement, and also awarded Incentive Awards to the Class Representatives and Attorney Fees to Plaintiffs and Class Counsel and a Final Judgment in favor of Plaintiffs was entered on September 8, 2014.
On October 3, 2014, Defendant David B. Fenkell filed an appeal, including among other things, as to the settlements with Alliance and the Trachte Trustees/Pagelow. The appeal was fully briefed before the 7th Circuit and oral argument was held May 18, 2015. On July 21, 2016, the Seventh Circuit issued an opinion affirming the lower court’s decision in all respects. The proceeds from any settlement or judgment cannot be paid until the time for Defendant David B. Fenkell to take any further appeal is exhausted or those appeals are resolved.