Godfrey v. GreatBanc Tr. Co.

GREGORY GODFREY, JEFFREY SHELDON,and DEBRA ANN KOPINSKI, on behalf ofthe MCBRIDE & SON EMPLOYEE STOCK OWNERSHIP PLAN,and on behalf of a class similarly situated persons, Plaintiffs, v. GREATBANC TRUST COMPANY,MCBRIDE & SON CAPITAL INC.,MCBRIDE & SON MANAGEMENT COMPANY, LLC,JOHN F. EILERMANN, JR., and MICHAEL D. ARRI, Defendants.

Case No. 18 C 7918

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

February 21, 2021

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Three participants in the McBride & Son Employee Stock Ownership Plan (the Plan) filed this putative class action lawsuit for violations of the Employee Retirement Income Security Act (ERISA). Plaintiffs allege that the defendants—the Plan's sponsor, corporate officers of the sponsor, and the Plan's trustee—breached their fiduciary duties under ERISA by conducting transactions that stripped the Plan of its valuable assets and converted those assets for their own benefit. The plaintiffs seek to represent a class of 171 individuals who participated in the Plan. They have moved for class certification under Federal Rule of Civil Procedure 23. For the reasons below, the Court grants the motion.

Background

The Court assumes familiarity with this case's factual and procedural background, which the Court has described in its prior written opinions. See Godfrey v. GreatBanc Tr. Co., No. 18 C 7918, 2020 WL 4815906 (N.D. Ill. Aug. 19, 2020) ("Godfrey I"); Godfrey v. GreatBanc Tr. Co., No. 18 C 7918, 2019 WL 4735422 (N.D. Ill. Sept. 26, 2019) ("Godfrey II"). The following is a brief synopsis of the factual and procedural background, as relevant for the purposes of the present order.

Plaintiffs Gregory Godfrey, Jeffrey Sheldon, and Debra Ann Kopinski are former employees of McBride & Son Companies, Inc.—a Missouri-based home construction business—who participated in its Employee Stock Ownership Plan. Sheldon, who was McBride's Information Systems Director, started in 1998, and Godfrey, who was Chief Information Officer, started in 2001. Both left McBride in 2008. Kopinski was employed by McBride in an accounts payable role from 2000 to 2017. All three named plaintiffs are participants in the Plan. Two business transactions—both of which involved the Plan—underlie the plaintiffs' ERISA claims against the defendants. See 29 U.S.C. §§ 1109(a), 1132(a)(2). The plaintiffs assert that the defendants facilitated these transactions to obtain the Plan's assets for their own benefit. They allege that the transactions caused the Plan to lose significant value and that the defendants and other corporate insiders earned tens of millions of dollars in compensation.

A. 2013 McBride restructuring transaction

In 2013, defendants John Eilermann, Jr., McBride's CEO, and Michael Arri, the CFO, facilitated a business reorganization for the McBride enterprise. The plaintiffs contend that the reorganization included a change of the Plan sponsor and namedfiduciary, which facilitated the transfer of valuable Plan assets to the CEO, CFO, and other corporate officers. Prior to 2013, defendant McBride & Son Management Company (MS Management) was the Plan sponsor and named fiduciary in the Plan agreement. Effective January 1, 2014, MS Management's successor, defendant MS Capital, became the Plan sponsor and fiduciary. The plaintiffs allege that prior to the 2013 transaction, the Plan had been the sole shareholder of the successor MS Capital entity. But as a result of the 2013 transaction, the Plan's ownership interest in MS Capital was diluted, and defendants Eilermann and Arri received significant MS Capital shares. In short, the plaintiffs contend, MS Capital officers received excessive compensation to the detriment of the Plan. Each plaintiff was a Plan participant and therefore owned stock MS Capital stock during the 2013 transaction.

B. 2017 Plan redemption transaction

In 2017, as part of another transaction, all of the Plan's MS Capital stock was sold back to MS Capital for $187 per share. Defendants Eilermann and Arri, acting on MS Capital's behalf, proposed this sale to GreatBanc, the Plan trustee, who agreed to it. The plaintiffs contend that the share price was below fair market value and thus that the transaction harmed the plan and violated ERISA. The parties dispute the amount MS Capital shareholders received through this transaction. The plaintiffs contend that corporate insiders were financially enriched because they received $343 per share, but the defendants suggest that this valuation is inaccurate and the actual value of the stock was lower.

In 2018, the plaintiffs filed this lawsuit, asserting that the defendants' conduct in connection with the 2013 business reorganization and 2017 stock sale breached theirfiduciary duties. The plaintiffs seek to certify a class of similarly situated persons—participants and beneficiaries of participants in the Employee Stock Ownership Plan—on the Plan's behalf on the ground that the defendants breached their fiduciary duties to the Plan and involved the Plan in transactions prohibited by ERISA.

Discussion

Plaintiffs Godfrey, Sheldon, and Kopinski filed this lawsuit as representatives of a class of similarly situated persons. They seek relief on behalf of the Plan. The plaintiffs have moved under Federal Rule of Civil Procedure 23 to certify the following class of 171 members:

All participants in the McBride & Son Employee Stock Ownership Plan, and the beneficiaries of such participants, at any time between March 29, 2013 and December 15, 2017. Excluded from the proposed Class are (1) Defendants Eilermann and Arri, their immediate families, and their legal representatives, successors, and assigns, and (2) any owners of Class B and Class C Units of McBride & Son Companies, LLC ("MS Companies, LLC") during the class period including Jeffrey Berger, Jeffrey Schindler, and Jeffrey Todt.

Pls.' Mot. for Class Cert. at 1 (dkt. no. 158). To proceed as a class, the plaintiffs must show that the proposed class satisfies Rule 23, which sets out the requirements for class certification. Mulvania v. Sheriff of Rock Island Cty., 850 F.3d 849, 859 (7th Cir. 2017).

First, under Rule 23(a), a putative class must satisfy four requirements: numerosity, commonality, typicality, and adequacy of representation. See Fed. R. Civ. P. 23(a)(1)-(4). Rule 23(a) requires that the class is so numerous that joinder of all members is impracticable; there are common questions of law or fact; the representatives' claims are typical of those of the class; and the representatives fairly and adequately protect the interests of the class. See id. Second, if Rule 23(a) issatisfied, then the proposed class must fall within one of the three categories in Rule 23(b). Spano v. Boeing Co., 633 F.3d 574, 583 (7th Cir. 2011). The plaintiffs argue for certification under Rule 23(b)(1) or (b)(2). Pls.' Mot. for Class Cert. at 2. At the class certification stage, the Court does not "adjudicate th[e] case," but rather "select[s] the method best suited to adjudication of the controversy fairly and efficiently." Amgen v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 460 (2013).

A. Class definition and standing

Before turning to Rule 23, the Court must first address the defendants' challenge to the class definition. See Defs.' Resp. Mem. at 4-6 (dkt. no. 168). Specifically, the defendants challenge the proposed class definition as facially defective—they say "it includes individuals who do not have standing with respect to one, two, or even all of the 3 categories of claims alleged" and "[t]he class definition sweeps in participants regardless of whether they held stock at the time of the challenged acts." Id. at 5.

The Seventh Circuit has recognized "an implicit requirement under Rule 23": a class must be "defined clearly and based on objective criteria." Mullins v. Direct Dig., LLC., 795 F.3d 654, 657-59 (7th Cir. 2015). A clear definition is one that "identif[ies] a particular group, harmed during a particular time frame, in a particular location, in a particular way." Id. at 660. "[C]lasses that are defined by subjective criteria, such as by a person's state of mind, fail the objectivity requirement." Id. The defendants suggest that the class is defined inappropriately for what they say is an "obviously problematic reason": it includes individuals who left the Plan before the 2013 transaction, yet it treats all participants during the class period as the same regardless of how they were impacted by the 2013 and 2017 transactions. Defs.' Resp. Mem. at 5. The defendantscontend that the proposed class is overly inclusive, in part because it includes individuals who did not hold stock "at the time of the challenged acts" and therefore lack standing to sue. Id. The defendants say "[t]he only way" to avoid an "improper" result is through "individualized examination of each class member to determine whether they held stock at the time of each of the transactions." Id. at 6.

The defendants' characterization of the proposed class as unworkable is unpersuasive. First of all, the proposed class is clearly defined. The named plaintiffs and proposed class members were all Plan participants during a specified time period. And they do not plead individualized claims based on the fiduciaries' conduct. Rather, they allege harm to the Plan under 29 U.S.C. § 1109(a), which "imposes personal liability on the fiduciary whose breach of the obligations imposed by the statute results in a loss to the plan." Kenseth v. Dean Health Plan, Inc., 610 F.3d 452, 481 (7th Cir. 2010).

More specifically, the plaintiffs do not seek individualized awards for the class members; rather, the class seeks to recover the Plan's losses as proscribed by 29 U.S.C. § 1132(a)(2). See Kenseth, 610 F.3d at 481-82 ("Pursuant to section 1132(a)(2), a plan participant or beneficiary (among others) may commence a civil action for appropriate relief under section 1109(a), but she may only do...