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Case: 1:94-cv-00002-TMR Doc #: 284 Filed: 06/03/99 Page: 1 of 25 PAGEID #: 30

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO


WESTERN DIVISION


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WILLIAM P. McDANNOLD, et aI.,

Plaintiff,

vs.

STAR BANK, N.A., et at.,;

Defendants.

Case No. C-1-94-002

CHIEF JUDGE WALTER HERBERT RICE

DECISION AND ENTRY APPROVING SETTLEMENT AGREEMENTS
BETWEEN PLAINTIFFS, ON ONE HAND, AND DEFENDANTS
LINDHORST & DREIDAME, WILLIAM KIRKHAM AND GRADISON &
COMPANY, ON THE OTHER; DECISION AND ENTRY SUSTAINING
JOINT MOTION TO APPROVE SETTLEMENTS (DOC. #175); EXPRESS
FINDING OF NO JUST REASON FOR DELAY, PURSUANT TO FED. R.
CIV. P. 54(b); DIRECTIVE TO ENTER FINAL JUDGMENT, APPROVING
SETTLEMENT AGREEMENTS AND DISMISSING, WITH PREJUDICE,
PLAINTIFFS' CLAIMS AGAINST DEFENDANTS LINDHORST &
DREIDAME, WILLIAM KIRKHAM AND GRADISON & COMPANY;
DISTRIBUTION OF SETTLEMENT PROCEEDS STAYED; ALTERNATIVE
CERTIFICATION OF DECISION AS APPEALABLE UNDER 28 U.S.C.
§ 1292(b); ENTRY JOURNALIZING PROCEDURES ESTABLISHED
DURING TELEPHONE CONFERENCE CALL CONDUCTED ON MAY 18,
1999

This litigation arises out of the leveraged buyout of the shares of stock of

Electro-Jet Tool & Manufacturing Company, Inc. ("Electro-Jet"). Since the Court

has previously set forth the facts and circumstances giving rise to this litigation, it

need only recite those circumstances that are essential to an understanding of the

Case: 1:94-cv-00002-TMR Doc #: 284 Filed: 06/03/99 Page: 2 of 25 PAGEID #: 31

issues resolved herein. In 1987, Defendant John Enders ("Enders"), who was

then the beneficial owner of approximately 83% of the shares of Electro-Jet's

stock, decided to sell his interest in that company. That decision ultimately led to

the transformation of Electro-Jet's then existing profit sharing plan into an

employee stock ownership plan ("ESOP"), which would the purchase Enders'

stock. Defendant William Kirkham ("Kirkham") and his law firm, Defendant

Lindhorst & Dreidame ("L&D"), were retained to represent the ESOP, and

Defendant Gradison & Company ("Gradison") was retained to conduct the

required appreisal.' On December 23, 1987, employees of Electro-Jet were

informed that the profit sharing plan would be transformed into the ESOP, and

that the ESOP would purchase, for the sum of $12,500,000, the 83% of the

shares of Electro-Jet which were owned by Enders. Of that sum, $2,300,000

would come from the assets of the ESOP, and the remainder would be financed

by a loan from Defendant Star Bank ("Starn). Electro-Jet, rather than the ESOP,

would be responsible for repaying the loan. The transaction closed on January

29, 1988. As a result, the ESOP became the owner of approximately 83% of

Electro-Jet's shares, and it transferred $2,300,000 of its assets to Enders.

In their Amended Complaint, the Plaintiffs, who are participants in the

ESOP, with one of their number the current Trustee of the ESOP (Frank Gollings),

set forth claims under the Employee Retirement Income Security Act of 1974

"Gradison retained Z. Lew Melnyk ("Melnyk") to perform the actual work required
to complete the appraisal. For purposes of convenience, the Court will treat
Gradison and Melnyk as one.

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("ERISA"), 29 U.S.C. § 1001 m. seq., against Star, Enders 2 and others. In

addition, the Plaintiffs set forth state law claims against l&D, Kirkham and

Gradison.? Enders, in turn, has filed a Third-Party Complaint against Thomas

Simons ("Simons"), Enders' long-time attorney, and Graydon, Head & Ritchey

("GH&R"), Simons' law firm. See Doc. #.159.

On May 2, 1997, the Plaintiffs, l&D, Kirkham and Gradison ("Proponents")

filed a joint motion requesting that the Court approve the settlement agreements

into which they had entered. See Doc. #175. The Plaintiffs had agreed to settle

their claims against l&D and Kirkham for the payment of $1,000,000, and their

claims against Gradison for $750,000. That motion has been opposed by

Defendants Enders and Star and Third-Party Defendants Simons and GH&R

("Opponents"). See Doc. #180. Of particular importance, the Opponents

objected to the portion of the settlement agreements, which, if approved by the

Court, would have prevented them from asserting claims for indemnification or

contribution against the settling Defendants (a "bar order"). In addition, the

Opponents objected to the type of set-off that they would receive, if this Court

were to approve the settlement agreements. Those agreements provide that the

amount paid thereunder would reduce the liability of the non-settling Defendants

on a pro tanto or dollar-for-dollar basis. The Opponents suggested that their

liability should be reduced on a proportionate fault basis (i.e., the non-settling

2The Plaintiffs have also sued Joyce Richter, in her capacity as trustee of a trust
created by Enders. For purposes of convenience, the Court treats Enders and
Richter as one.

3Plaintiffs initially set forth a claim of breach of fiduciary duty under ERISA against
l&D and Kirkham. However, this Court has previously ruled that those
Defendants were not fiduciaries under that statute. See Doc. #217.

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Defendants would be liable only for their proportionate share of the total loss

4
suffered by the ESOP) .

Since the Plaintiffs brought this action as a derivative action, on behalf of

themselves and all participants in the ESOP, they sought to have the settlements

approved in accordance with Rule 23.1 of the Federal Rules of Civil Procedure.

The final sentence of Rule 23.1 provides:

The action shall not be dismissed or compromised without the approval of
the court, and notice of the proposed dismissal or compromise shall be
given to shareholders or members in such manner as the court directs.

Procedures applicable to the settlement of a class action under Rule 23(e) of the

Federal Rules of Civil Procedure must also be applied when a court is asked to

approve the settlement of a derivative action under RUle 23.1. See 7C Wright,

Miller & Kane, Federal Practice and Procedure § 1839. The first step in the

approval process for the settlement of a class action, under Rule 23(e), is for the

District Court to give its preliminary approval to same. Williams v. Vukovich, 720

F.2d 909, 920 (6th Cir. 1983). On March 30, 1998, this Court gave its preliminary

approval to the Joint Motion to Approve Settlements (Doc. #175). See

41n other words, under a proportionate fault method, the non-settling Defendants
would be required to pay only that portion of the total damages, suffered by the
ESOP, which corresponded with their proportionate share of the total iiability.
Thus, in this litigation, if the actions of the settling and non-settling Defendants
combined to cause the ESOP to suffer damages in the sum of $5,000,000, and
the non-settling Defendants were found to be 50% responsible, they would be
liable for only $2,500,000 of those damages, regardless of the amount of the
settlements at issue herein, whereas they would be liable for $3,250,000, under a
pro tanto approach ($5,000,000 damages less $1,750,000 in settlements), if
those settlements are approved. Of course, by changing the numbers in that
hypothetical example, one could conceive of a situation where the QfQ tanto
approach would result in the non-settling Defendants paying less than they would
under the proportionate fault method.

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Doc. #218. On that date, the Court also entered a Decision, in which it addressed

and rejected a number of the objections to the settlement agreements propounded

by Enders, Star, Simons and GH&R. See Doc. #217. In particular, the Court

rejected the Opponents' objection to the bar order contained in the settlement

agreements, since those Defendants did not have rights to indemnification or

contribution, under either federal or Ohio law, against any of the Defendants who

had settled," The Court did not, however, resolve the question of whether the

non-settling Defendants' liability should be reduced on a pro tanto or proportionate

share basis. On June 1, 1998, the Court conducted a fairness hearing on the two

settlement agreements into which the Plaintiffs had entered. 6 The Court now sets

forth its reasons for concluding that those agreements are fair, reasonable and

adequate and, therefore, its rationale for approving thern.? As a means of

analysis, the Court initially sets forth its reasons for finding that the settlement

agreements are fair, reasonable and adequate to the participants of the ESOP,

5The bar order would have prevented the non-settling Defendants from asserting
"claims over" against the settling Defendants. That term was defined to include
any type of claim by which the non-settling Defendants attempted to obtain
indemnification and/or contribution from the settling Defendants, based upon the
liability of the former to the Plaintiffs. Since the non-settling Defendants did not
have rights to indemnification or contribution against the settling Defendants, the
Court concluded that it was not necessary to conduct a mini-trial to determine
whether the settling Defendants were paying their fair share of the total, potential
liability owed to the Plaintiffs.

6During that hearing, the Court heard from the Plaintiffs, L&D, Kirkham, and
Gradison, as proponents of the settlement agreements, and Star, Simons and
GH&H, as opponents of same.

7During that fairness hearing, the Plaintiffs set forth the manner in which
participants in the ESOP had been notified of the two settlement agreements and
of that hearing. The Court found that found that notice had been reasonable and
adequate. See Transcript (Doc. #246) at 9.

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following which it will turn to its reasoning for concluding that the non-settling

Defendants' liability should be reduced on a QIQ tanto, rather than on a

proportionate basis.

In Granada Investments, Inc. v. DWG Corp., 962 F.2d 1203 (6 t h Cir. 1992),

the Sixth Circuit explained the standards which govern the approval or disapproval

of a settlement in a derivative action under Rule 23.1 :

We review the approval of settlements in shareholder derivative

actions for abuse of discretion. In re General Tire & Rubber Co., 726 F.2d
1075 (6th Cir.), cert. denied, 469 U.S. 858 (1984); Priddy v. Edelman, 883
F.2d 438 (6th Cir. 1989). Settlements are welcome in cases such as this
because litigation is "notoriously difficult and unpredictable." Maher v.
Zapata Corp., 714 F.2d 436, 455 (5th Cir. 1983) (quoting Schimmel v.
Goldman, 57 F.R.D. 481, 487 (S.D.N.Y. 1973)). Absent evidence of fraud
or collusion, such settlements are not to be trifled with. Priddy, 883 F.2d
at 447.

Relevant factors framing our inquiry include the likelihood of success

on the merits, the risk associated with the expense and complexity of
litigation, and the objections raised by class members. See Officers for
Justice v. Civil Service Commission of San Francisco, 688 F.2d 615, 625
(9th Cir.), cert. denied, 459 U.S. 1217 (1983). The district court enjoys
wide discretion in assessing the weight and applicability of these factors.
Maher, 714 F.2d 436 at 455.

JQ. at 1205-06. In addition to the factors listed in Granada, the Sixth Circuit has

said, in the context of the settlement of a class action under Rule 23(e), that the

District Court should consider the amount of discovery conducted and whether

the settlement was reached as a result of arms-length 'negotiations (as opposed to

some form of fraud or collusion). Williams, 720 F.2d at 923. The District Court

should also give some deference to the judgment of counsel representing the

class. JQ. at 922-23. The Proponents of the two settlement agreements,

Plaintiffs, L&D, Kirkham and Gradison, have the burden of persuading the Court

that the settlement agreements are fair, reasonable and adequate.

In re General

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Tire & Rubber Co., 726 F.2d 1075, 1080 (6th Cir.), cert. denied, 469 U.S. 858

(1984) (liThe proponents of the settlement, however, have the burden of

persuading the court that their compromise is fair, reasonable and adequate. ").

The first factor identified by the Sixth Circuit in Granada is the Plaintiffs'

likelihood of success on the merits of their claims against L&D, Kirkham and

Gradison. This factor requires the Court to consider not only the likelihood that

the Plaintiffs would be able to establish that those Defendants are liable, but also

the probable amount in damages that the Plaintiffs would have recovered from

those Defendants had they prevailed. The Court must then weigh those

components against the relief offered by the settlement. Williams, 720 F.2d at

922.

The Plaintiffs have asserted a legal malpractice claim against L&D and

Kirkham and a claim of fraud against Gradison." Two potentially fatal

impediments to the Plaintiffs' claim against L&D and Kirkham were identified

during the fairness hearing. A major obstacle to the Plaintiffs' claim against L&D

and Kirkham would have been their statute of limitations defense. This litigation

was filed approximately six years after Kirkham provided the services which

8The appraisal by Gradison was completed in January, 1988, nearly six years
before the Plaintiffs initiated this litigation. The statute of limitations for a claim
of malpractice against Gradison would have been set forth in § 2305.09 of the
Ohio Revised Code, which provides that such a claim must be brought within four
years. The discovery rule is not applicable to claims of professional malpractice
that are governed by § 2305.09. Investors REIT One v. Jacobs, 46 Ohio St.3d
176, 546 N.E.2d 206 (1989); Hater v. Gradison & Company, 101 Ohio App.3d
99, 655 N.E.2d 189 (1995). Therefore, any malpractice claim against Gradison
by the Plaintiffs would have been barred by the statute of limitations.
Consequently, the Plaintiffs asserted a claim of fraud, rather than one of
malpractice or negligence, against that Defendant.

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underlay the Plaintiffs' claim against him and his law firm. The statute of

limitations for legal malpractice claims in Ohio is one year. See Ohio Rev. Code

§ 2305.11. Although the discovery rule applies to legal malpractice claims (see

Zimmie v. Calfee. Halter & Griswold, 43 Ohio St.3d 54, 538 N.E.2d 398 (1989)),

it is certainly possible that the jury would have found that the Plaintiffs knew or

should have known of the alleged negligence by Kirkham, more than one year

before this litigation was filed. Assuming that the jury would "find that the

Plaintiffs' claim against L&D and Kirkham was not barred by the statute of

limitations, the Plaintiffs would still face the hurdle of convincing the jury that

Kirkham had committed malpractice. According to Plaintiffs' counsel, his clients

had retained a eminently qualified expert witness, who would testify that

Kirkham's performance fell below the requisite standard of care; however,

Plaintiffs' counsel also conceded that L&D and Kirkham had retained an equally

distinguished expert witness, who, not surprisingly, would provide diametrically

opposite testimony. With respect the Gradison, the Plaintiffs' burden, if their

claim against that Defendant were to be tried, would be to convince the jury not

that the appraisal had been conducted negligently, but rather that Gradison had

intentionally misrepresented the results of that appraisal. As Plaintiffs' counsel

conceded, it might be difficult to convince a jury that Gradison had so acted,

since it was merely an appraiser which had absolutely no motive to defraud

anyone. See Transcript (Doc. #246) at 20. Based upon the foregoing, the Court

finds that the impediments to Plaintiffs' claims against L&D, Kirkham and

Gradison, although not establishing that those claims would have necessarily

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failed, certainly cast doubt on the question of whether the Plaintiffs would have

succeeded in establishing that the settling Defendants were liable.

The question of the amount of damages the Plaintiffs might have been able

to recover, had they been able to prevail on the merits of their claims against the

settling Defendants, causes the Court to confront the major objection to the

settlement agreements posed by the Opponents, particularly Star, Simons and

GH&R, at the fairness hearing. During that hearing, Plaintiffs' counsel explained

his theory of recovery against L&D, Kirkham and Gradison as being based upon

the premise that their misconduct had caused the ESOP to enter into the

transaction with Enders. As a result, the ESOP lost $2,300,000 of its assets and

the opportunity to grow those assets in the ensuing years. Plaintiffs' counsel

estimated that damages would be in the range of between $5,000,000 and

$7,000,000. 9 Although not questioning that ranqe,.'? the Opponents asserted that

the Plaintiffs were claiming that the ESOP suffered a different loss, as a result of

the actions of L&D, Kirkham and Gradison, than it had suffered as a result of their

(the Opponents') actions. In support of that assertion, Star's counsel furnished a

copy of a summary of damages, which the Plaintiffs had previously provided to

the Defendants for purposes of mediation. In that document, the Plaintiffs set

9With respect to Gradison, Plaintiffs counsel explained that there was an
alternative theory, under which that Defendant could be liable only for the
difference of the value of the stock of Electro-Jet, as represented by Gradison,
and its actual value. According to Plaintiffs' counsel, Gradison's expert witness
would testify that this difference was very small, thus possibly limiting the
Plaintiffs' potential recovery from Gradison.

10lndeed, counsel for Simons and GH&R conceded that, if the ESOP had lost in the
range of $6,000,000, the settlement agreements were fair, reasonable and
adequate.

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forth the different elements which they asserted they were entitled to recover.

One element was the loss of the ESOP's assets and the opportunity to grow those

assets, damages that Plaintiffs contended were caused by the actions of all

Defendants. In addition, the Plaintiffs contended that they were entitled to

recover damages, as a result of the non-recourse loan that Star had made to the

ESOP. The Opponents argued that, since the ESOP had suffered only one loss, as

a result of the combined actions of all Defendants, it was improper for the

Plaintiffs to attempt to recover additional damages from them (the Opponents),

which they did not seek to recover from the settling Defendants."

If, as the

Opponents asserted, the Plaintiffs are attempting to recover under an additional

theory of damages from them, which the Plaintiffs have not included in their

settlements with L&D, Kirkham and Gradison, it might be possible that the

settlement agreements are not fair, reasonable and adequate, since those

agreements could have been premised upon a less than complete consideration of

all elements of the damages suffered. However, based upon the statements made

"In their summary of damages, the Plaintiffs also contended that Enders and Star
were obligated to disgorge the profits that they had made as a result of the
transaction. The Plaintiffs seek to hold those Defendants liable for breach of
fiduciary duty under ERISA. That statute expressly provides that a fiduciary who
has breached his fiduciary duty is liable for the losses suffered by the plan, as a
result, and must restore any profits he has made through the use of plan assets.
29 U.S.C. § 11 09(a). Thus, the Plaintiffs assertion that Enders and Star must
disgorge their profits is an additional remedy that is provided by ERISA, not
applicable to L&D, Kirkham and Gradison, since they did not act as fiduciaries
under that statute. Given that the settling Defendants are not statutorily
obligated to disgorge their profits, the Plaintiffs are not disregarding a remedy that
is available from L&D, Kirkham and Gradison and, at the same time, pursuing that
remedy against the non-settling fiduciaries. Therefore, the fact that the Plaintiffs
are seeking disgorgement from Enders and Star, but not from the settling
Defendants, is unfair neither to the ESOP and its participants nor to Enders and
Star.

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by Plaintiffs' counsel during the fairness hearing, this Court does not accept the

Opponents assertion. Plaintiffs' counsel conceded that, by seeking to recover

both for the loss of the ESOP's assets (and the opportunity to grow those assets)

and an additional amount of damages, based upon the non-recourse loan made to

that plan by Star, they were seeking inconsistent remedies, one of which

attempts to place the plan in the position it would have been if the transaction

had not occurred, while the other remedy is based upon the transaction having

occurred. Transcript (Doc. #246) at 71. In addition, Plaintiffs' counsel indicated

that he believed that the most likely remedy against the settling Defendants would

be an award of damages based upon the loss of assets by the ESOP and the

opportunity to grow those assets.

Id. at 72. Moreover, Plaintiffs' counsel argued

extensively that disgorgement is an additional remedy which is available against

Star and Enders, but not L&D, Kirkham and Gradison. However, he did not argue

that there are different methods for calculating all damages, not considering the

disgorgement of profits, that can be recovered from the non-settling Defendants

and from the settling Defendants. Based upon those statements from Plaintiffs'

counsel, the Court concludes that the Plaintiffs will rely upon the same theory of

recovery (i.e., that the Plaintiffs are entitled to recover damages for the assets

lost by the ESOP and the opportunity to grow those assets) against the non­

settling Defendants (in addition to the disgorgement remedy discussed in footnote

11 ). Accordingly, based upon the estimate of the range of damages presented by

Plaintiffs' counsel, to which counsel for the Opponents did not object, the Court

finds that the Plaintiffs' potential recovery against the settling Defendants is in the

range of $5,000,000 to $7,000,000.

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Balancing that potential recovery against the impediments to success on the

merits of the Plaintiffs' claims against the settling Defendants, which are

discussed above, the Court concludes that the first Granada factor strongly favors

approval of the settlement agreements. The Plaintiff are guaranteed to receive

from 25% to 35% of the total loss suffered by the ESOP, as a result of settling

with Defendants whose liability would have been questionable. Moreover, the

Plaintiffs' claims against the non-settling Defendants remain.

The second factor identified by the Sixth Circuit in Granada is the risk

associated with the expense and complexity of the lawsuit. Plaintiffs' counsel

indicated that it had cost his clients $70,000, to retain the services of an expert

witness who would testify that Kirkham had committed malpractice. Without

settling their claims against L&D and Kirkham, the Plaintiffs would have incurred

additional expenses for the services of that expert witness. In addition, the

Plaintiffs claims against the remaining Defendants arise under ERISA. By settling

their claims with L&D, Kirkham and Grsdison. the Plaintiffs have reduced the

complexity of this litigation, by limiting their lawsuit to a claim under a federal

statute. Accordingly, the Court finds that this factor favors the approval of the

settlement agreements.

The third factor identified by the Sixth Circuit in Granada requires the Court

to consider and to weigh objections by members of the class (i.e., participants in

the ESOP). No objections to either of the settlement agreements were lodged

with the Court. Moreover, Frank Gollings, the current Trustee of the ESOP who is

now a Plaintiff in this litigation, has indicated that he feels that the settlement

agreements constitute fair, reasonable and adequate resolutions of the Plaintiffs'

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claims against L&D, Kirkham and Gradison. Accordingly, this factor strongly

favors the Court's approval of those two agreements.

In addition to the factors set forth in Granada, the Sixth Circuit has

indicated that the District Court should consider the amount of discovery

conducted and whether the settlement was reached as a result of arms-length

negotiations (as opposed to through some form of fraud or collusion). Williams,

720 F.2d at 923. These considerations also strongly favor the Court's approval of

the settlement agreements. The Plaintiffs did not agree to settle with L&D,

Kirkham and Gradison, until after extensive discovery had been conducted. The

Plaintiffs had reviewed tens of thousands of documents and had taken dozens of

depositions, before settling. In addition, there is no hint that the settlement

agreements are the product of anything but arms length negotiations. Indeed,

those agreements were reached as a result of negotiating sessions conducted by

an impartial mediator.

Finally, the Court deems it appropriate to afford some deference to the

opinion of Plaintiffs' counsel that the settlement agreements are fair, reasonable

and adequate.

Accordingly, based upon the foregoing, the Court finds that the settlement

agreements between the Plaintiffs, on one hand, and L&D, Kirkham and Gradison,

on the other, are fair, reasonable and adequate to the ESOP.

The remaining question that must be resolved, before the Court can

approve those agreements, is whether the non-settling Defendants should receive

a pro tanto or proportionate share set-off. In arguing that they are entitled to a

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set-off based upon proportionate fault, the Opponents have placed primary

reliance upon McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994). That litigation

was an admiralty dispute, wherein the Supreme Court was called upon to decide

the method by which the liability of some defendants would be set-off, as a result

of settlements entered into by other defendants. The AmClyde Court held that,

when one of a group of liable defendants settles with the plaintiff, the liability of

the remaining defendants is to be set-oft by the proportionate share of the settling

defendants' responsibility for the total obligation. The AmClyde Court rejected

the use of Q[Q tanto set-offs in admiralty cases.F Since the claims against the

non-settling Defendants, herein, arise under ERISA, rather than under admiralty

law, this Court does not consider AmClyde to be controlling. Rather, under the

circumstances of this litigation, this Court concludes that the liability of the non-

settling Defendants may be reduced on a dollar-for-dollar or Q[Q tanto basis.

In AmClyde, the Supreme Court began its analysis, by noting that no

statute passed by Congress provided any "policy guidance" with respect to the

question presented. Rather, the Supreme Court was free to adopt a common law

rule, based upon its precedents regarding the fashioning of remedies in admiralty

cases. 511 U.S. at 207. Primarily, the AmClyde Court relied upon United States

v. Reliable Transfer Co., 421 U.S. 397 (1975), wherein that Court had decided to

abandon a century of precedent, under which damages in admiralty cases were

assessed equally among parties at fault, regardless of the degree of their relative

12The AmClyde Court actually rejected two Q[Q tanto approaches. One of those
approaches would extinguish the right of contribution of the non-settling
defendants, and the other would not. The AmClyde Court rejected the latter
approach out of hand, because it could discourage settlements and result in
increased litigation. 511 U.S. at 211.

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blame, and adopted a rule whereby damages were assessed in accordance with

the relative fault of the parties. The AmClyde Court indicated that the method of

set-off it would adopt had to be consistent with the principle of relative fault, set

forth in Reliable Transfer. Id. at 211. In addition, the AmClyde Court noted that

judicial economy and the promoting of settlements were paramount

considerations. Id. Although proportionate share and the variety of Q[Q tanto set­

offs, in which the contribution rights of the non-settling defendants were

extinguished, were judged to be close competitors for the appropriate method by

which the liability of non-settling defendants would be set-off in admiralty cases,

the Supreme Court selected the former method, because it was deemed to be

more faithful to the principles of Reliable Transfer.

Herein, as indicated, the Plaintiffs seek to impose liability upon the non­

settling Defendants for breach of fiduciary duty under ERISA.

In contrast to the

guidance provided by Congress concerning admiralty law, that statute provides

significant policy guidance. Section 4091a) of ERISA provides that the fiduciary of

a plan, who has breached the fiduciary duties that he owed to that plan, "shall be

personally liable to make good to such plan any losses to the plan resulting from

each such breach." 29 U.S.C. § 11 09(a). Congress did not indicate that, when a

fiduciary and non-fiduciaries jointly cause a plan to suffer a loss, the fiduciary shall

be liable for his proportionate share of the total liability. Rather, Congress

expressly stated that the fiduciary shall "make good" the loss that results from his

breach of fiduciary duty. Given the language of § 409(a), this Court, unlike the

Supreme Court in AmClyde, is not governed by the principle of allocating damages

according to the relative fault of the parties. Indeed, the fiduciary is responsible

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for making good not just those damages caused by his relative fault, but all losses

caused by his breach of duty. Consequently, adherence to the proportionate

share principle does not drive this Court's decision. On the contrary, use of that

approach could result in the principles established by Congress in § 409(a) being

disregarded. Under the proportionate share approach to set-offs, the plaintiff

bears the risk of settling with some defendants too cheaply.

In AmClyde, the

Supreme Court gave the example of two equally liable defendants (i.e., each is

50% at fault). If one settles for $250,000, and the jury finds that the plaintiff's

damages are $1,000,000, the non-settling defendant, under the proportionate

share method of crediting the non-settling defendant, is liable for only $500,000

(50% of the total liability). Under that scenario, the plaintiff would not be

compensated for the entire loss that it suffered. Such an approach could permit a

fiduciary, who has breached his duty, to avoid being required to make good the

losses which the plan suffered as a result of that breach. Such a result would be

contrary to the command of Congress.

In addition, the AmClyde Court deemed Q.[Q tanto set-offs, in which the

non-settling defendant's right to contribution was extinguished, to be inefficient,

because of the need to conduct a hearing to ascertain whether the settling

defendant was paying its fair share of the total liability.13 Herein, that concern is

not present, because, as this Court has already concluded, the non-settling

Defendants do not have valid claims of indemnification or contribution, under

either Ohio or federal law, from any of the Defendants who have settled. See

13The AmClyde court noted that courts have required such a procedure when the
non-settling defendant is losing its right of contribution.

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Doc. #21 7 at 6-11 . Consequently, since the settlement agreements will not, in

and of themselves, extinguish the rights of contribution of the non-settling

Defendants, there is no need to conduct such a hearing. Accordingly, there is no

concern over the inefficient use of judicial time.

Finally, in In re Masters, Mates & Pilots Pension Plan, 957 F.2d 1020 (2d

Cir. 1992), a case for breach of fiduciary duty under ERISA, the Second Circuit

held that non-settling defendants/fiduciaries were entitled to a pro tanto set-off

for the amounts paid by a number of defendants/fiduciaries who had settled.!"

The result reached therein and the reasoning employed to support that result are

persuasive.

In sum, the Court concludes that, in an action arising under ERISA, where

non-fiduciary/defendants have settled, the non-settling fiduciary/defendants are

entitled to a pro tanto set-off for the amount that has been paid. To hold that

non-settling fiduciary/defendants are liable only for their proportionate share of the

total loss suffered by a plan could cause this Court to disregard the Congressional

command that fiduciaries who breach their duties must make good all the losses

suffered as a result.

14The Second Circuit also held that a court could not enter a bar order preventing
non-settling defendants from asserting claims for contribution and/or
indemnification against settling defendants, without conducting a hearing to
determine whether the settling defendants were paying their fair share of the total
liability. This Court has previously concluded that such a hearing was not
necessary in this litigation, because the non-settling Defendants did not have
rights to indemnification or contribution that could be extinguished by the
settlement agreements into which the Plaintiffs, L&D, Kirkham and Gradison have
entered. See Doc. #217.

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Accordingly, based upon the foregoing, the Court approves the two

settlement agreements into which the Plaintiffs have entered. As a consequence,

the liability of the non-settling Defendants shall be reduced by $1,750,000, the

amount paid by L&D, Kirkham and Gradison to settle the Plaintiffs' clairns.!"

The final question is whether the Court should enter final judgment,

approving the two settlement agreements and, as a consequence, dismissing the

Plaintiffs' claims against L&D, Kirkham and Gradison, with prejudice. Rule 54(b)

of the Federal Rules of Civil Procedure provides:

(b) Judgment Upon Multiple Claims or Involving Multiple Parties. When
more than one claim for relief is presented in an action, whether as a claim,
counterclaim, cross-claim, or third-party claim, or when multiple parties are
involved, the court may direct the entry of a final judgment as to one or
more but fewer than all of the claims or parties only upon an express
determination that there is no just reason for delay and upon an express
direction for the entry of judgment. In the absence of such determination
and direction, any order or other form of decision, however designated,
which adjudicates fewer than all the claims or the rights and liabilities of
fewer than all the parties shall not terminate the action as to any of the
claims or parties, and the order or other form of decision is subject to
revision at any time before the entry of judgment adjudicating all the claims
and the rights and liabilities of all the parties.

In Justice v. Pendleton Place Apartments, 40 F.3d 139 (6 t h Cir. 1994), the Sixth

Circuit restated the factors that a District Court must consider before finding that

there is no just reason for delay and directing that final judgment be entered on

some claims.

151n addition, as this Court has already indicated (see Doc. #217), the non-settling
Defendants do not have viable claims of indemnification or contribution against
the settling Defendants.

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The "decision to certify a claim for immediate appeal under Rule 54(b)
merits substantial deference," Solomon v. Aetna Life Ins. Co., 782 F.2d 58,
61 (6th Cir. 1986), and we review the district court's ruling for an abuse of
discretion.

Several factors have emerged from case law to determine whether an

order is properly certifiable as a final order. See 10 Charles A. Wright,
Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2659
(1983) ("Wright & Miller"); Corrosioneering, Inc. v. Thyssen Environmental
Systems, Inc., 807 F.2d 1279, 1283 (6th Cir. 1986); Solomon, 782 F.2d at
61 n. 2. First is the relationship between the adjudicated and unadjudicated
c1aims--they should generally be separate and independent so that the
appellate court will not have to consider the same issues again if a second
appeal is brought. Wright & Miller § 2659. Similarly, a court of appeals
should not entertain appeals on issues that are still before the trial court
"because questions the appellate court might want to consider have not
been adjudicated at the trial level." ld. This is true both because of the
need for a fully-developed record and because future proceedings in the
district court might moot the issues. Another "requirement" under Rule
54(b) is that the district court articulate its reasons for certifying a final
order. Solomon, 782 F.2d at 61 (failure to provide grounds for certification
an abuse of discretion). The court must "weigh and examine the competing
factors ... [and] do more than just recite the 54(b) formula of 'no just
reason for delay.'" Id.

Id. at 141.

Herein, a application of those factors convinces this Court that it should

find that there is no just reason for delay and direct the entry of final judgment on

the Plaintiffs' claims against L&D, Kirkham and Gradison. The Plaintiffs have

asserted state law claims against the settling Defendants, while their claims

against the non-settling Defendants are based upon ERISA. However, all of those

claims arise out of the same transaction, to wit: the sale of shares of Electro-Jet's

stock to the ESOP; therefore, all claims share a similar factual basis. The claims

against L&D, Kirkham and Gradison have been resolved as a result of settlement

agreements, rather than through adjudication. Consequently, this Court has not

resolved any claim on the merits, which the Sixth Circuit will be required to

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review if final judgment is now entered pursuant to Rule 54(b). Therefore, there

is little risk that the Sixth Circuit would be called upon to conduct a second

review of the issues resolved in this Decision, even if a second appeal involving

the non-settling Defendants were to be brought. If, on the other hand, this Court

were to decline to make the requisite finding under Rule 54(b), and, thus, possibly

delay appellate review of this Decision, until after the trial of the Plaintiffs' claims

against the non-settling Defendants, a second trial of this lawsuit (with the

possibility of a second round of appeals) would be required, if the Sixth Circuit

were to disagree with this Declsion.!" Herein, this Court has concluded that the

Defendants are entitled to have their liability reduced on a QIQ tanto basis, rather

than by the proportionate share method. If the Sixth Circuit should disagree with

that conclusion, a second trial of Plaintiffs' claims against the non-settling

Defendants would be required to determine the proportionate fault of the non-

settling Defendants. On the other hand, allowing the issue of the appropriate

manner of reducing the liability of the non-settling Defendants to be tested on

appeal now, delaying the trial until the appeal is resolved, will obviate the need for

two trials, even if the Sixth Circuit should disagree with this Court's resolution of

that issue. In addition, the Court has approved settlements which contain bar

orders, preventing the non-settling Defendants from asserting claims for

contribution or indemnification against the settling Defendants. Allowing the

approval of such bar orders to be tested on appeal, before a trial has been

l61n Justice, the Sixth Circuit also indicated that an appellate court should not
entertain appeals on issues that are still before the trial court. 40 F.3d at 141.
Herein, this Court is directing that final judgment be entered on its Decision to
approve the two settlements. Since that Decision has been made with finality,
the Sixth Circuit will not asked to review issues that remain before this Court.

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conducted in this litigation, will avoid the possibility that two trials will be

required. The settling Defendants have conditioned the settlements on such bar

orders. Accordingly, a trial of the Plaintiffs' claims against the settling Defendants

could be required, if the Sixth Circuit should conclude that the bar orders are

inappropriate. An appeal now, with the concomitant delay of trial between the

Plaintiffs and the non-settling Defendants, will allow the Plaintiffs' claims against

all Defendants to be resolved in one trial, if this Court's approval of the bar orders

were to be reversed. Consequently, the more efficient course, both in the trial

and appellate courts, is for this Court to find that there is no just reason for delay

and to direct the entry of final judgment on the Plaintiffs' claims against L&D,

Kirkham and Gradison, pursuant to Rule 54(b).

Accordingly, the Court expressly finds that there is no just reason for delay

and, consequently, directs that final judgment be entered, approving the

settlement agreements and dismissing the Plaintiffs' claims against L&D, Kirkham

and Gradison, with prejudice. An integral part of the approval of those

agreements is the Court's conclusion herein that the liability of the non-settling

Defendants shall be reduced, on a pro tanto basis, by $1,750,000, the amount

paid by L&D, Kirkham and Gradison to settle the Plaintiffs' claims.

In addition, the

approval of the settlement agreements, which contain bar orders, will preclude the

assertion of claims for indemnification and/or contribution against the settling

Defendants."?

17Whether the bar orders constitute injunctions that are appealable (see 28 U.S.C.
§ 1292(a)), independent of the final judgment entered herein, is a question which
this Court need not resolve. The same comment is equally applicable to the
question of whether this Decision is appealable under the collateral order doctrine.
See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949).

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Pursuant to Rule 62 of the Federal Rules of Civil Procedure, to allow both

for an orderly appeal and, if reversed on appeal, to allow the Court to retain

jurisdiction over the settlement funds, now on deposit in an interest bearing

account, the Court will stay the distribution of the funds from the settlement

aqreements.I"

Alternatively, this Court certifies this Decision for an immediate appeal

pursuant to 28 U.S.C. § 1292(b), which provides:

When a district judge, in making in a civil action an order not otherwise
appealable under this section, shall be of the opinion that such order
involves a controlling question of law as to which there is substantial
ground for difference of opinion and that an immediate appeal from the
order may materially advance the ultimate termination of the litigation, he
shall so state in writing in such order. The Court of Appeals which would
have jurisdiction of an appeal of such action may thereupon, in its
discretion, permit an appeal to be taken from such order, if application is
made to it within ten days after the entry of the order: Provided, however,
That application for an appeal hereunder shall not stay proceedings in the
district court unless the district judge or the Court of Appeals or a judge
thereof shall so order.

(emphasis in the original), Herein, the decision of this Court to approve the

settlement agreements involved the resolution of a controlling question of law, to

wit: whether a pro tanto or proportionate fault set-off should be adopted. There

being no controlling precedent from either the Sixth Circuit or the Supreme Court,

there is a substantial ground for a difference of opinion on that issue.

In addition,

for reasons set forth above (l.e. avoiding the risk that two trials would be

18During a telephone conference call between the Court and counsel, conducted
on May 18, 1999, procedures by which those settlement funds may be invested
in different interest-bearing accounts were established. The Court discusses those
procedures below. The fact that these funds are now deposited in an interest
bearing account outweighs the need, in this Court's opinion, for a supersedeas
bond.

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required in this litigation), resolution of the propriety of the approval of the

settlement agreements will materially advance the ultimate termination of this

litigation. Accordingly, this Court certifies this Decision for an immediate appeal,

pursuant to 28 U.S.C. § 1292(b).

On May 18, 1999, the Court and counsel conducted a telephone

conference call. The Court now journalizes the procedures established during that

conference call.

First, the Court informed counsel that it would be filing this Decision,

approving the settlement agreements. In response, counsel for the non-settling

Defendants, in particular Star's counsel, argued persuasively that the Court should

delay the trial of this litigation, until they have had the opportunity to obtain

appellate review of the Court's conclusion that those agreements should be

approved. Accordingly, the Court vacated the previously established trial date

and indicated that, pursuant to Rule 54(b), it would enter final judgment on

Plaintiffs' claims against L&D, Kirkham and Gradison.

Second, counsel informed the Court that a mediation session was

scheduled by the Sixth Circuit for June 2, 1999. 19 The Court directed all parties

to participate in that mediation. Although all counsel indicated that they would

willingly participate, counsel for L&D and Kirkham stressed that he did not want

his participation to be construed by the mediator or any of the parties as an

19That mediation, which arises out of a notice of appeal previously filed by Star,
will address all aspects of this litigation, rather than merely the issues which Star
has appealed.

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indication that his clients would contribute more to the settlement of this litigation

than the previously agreed upon amount.

Third, the parties agreed to inform the Court as to the results of the

mediation. If that process does not result in the resolution of this litigation, the

Court will schedule a telephone conference call in order to establish further

procedures leading to the resolution of this litigation, including, perhaps, some

type of advisory opinion concerning the Plaintiffs' darnaqss.P

Fourth, the Court and counsel discussed Star's request that distribution of

the settlement funds be stayed. As indicated above, the Court has stayed that

distribution. During that discussion, Plaintiffs' counsel raised the issue of the

manner in which those funds have been invested since the settlement agreements

were executed. Plaintiffs' counsel expressed the fear that those funds have been

earning a low rate of interest in the intervening period. The Court directed

Plaintiffs' counsel to inform the Court of the specific location of those funds." If

Plaintiffs' counsel deems it preferable to invest those funds in a different manner

(i.e, in the equity markets, rather than in a money market account), he must

provide information concerning that alternative to the Court and to counsel for the

2°The Court established an executive committee, which will participate in any
future telephone conference calls, which is composed of the following members,
to wit: Stephen Perry, for the Plaintiffs; Thomas Schuck, for Star; John Hust, for
Enders and Richter; Robert Pitcairn, for Weber and Gerding; Clem DeMichelis, for
L&D and Kirkham; James Burke, for Gradison; David Greer, for GH&R and Simons;
and Eric Holzapfel, for Electro-Jet.

21Plaintiffs' counsel indicated that those funds were in escrow accounts. Counsel
for L&D and Kirkham indicated that the settlement funds paid by his clients had
been deposited in an interest-bearing account with Provident Bank.

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other parties. The other parties may thereafter present their objections, regarding

the Plaintiffs' suggestion, to the Court.

June 2, 1999

Copies to:

All counsel of record

WALTER HERBERT RICE, CHIEF JUDGE

UNITED STATES DISTRICT COURT

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