) ) ) ) ) ) ) ) MOTION

r UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF ILLINOIS PEORIA DIVISION DEBRA K. KEACH and PATRICIA A. SAGE, Plaintiffs, ) ) ) ) ) ) CaseNo.Ol-1168 (ORAL ARGUMENT REQUESTED) U.S. TRUST COMPANY, eta!., Defendant) ) ) ) MOTION FOR SUMMARY JUDGMENT NOW COMES Defendant, GREGORY K. MCALLISTER, by and through his attorney, Dean R. Essig, and as for his Motion for Summary Judgment, states as follows: I. INTRODUCTION Plaintiffs have sued GREGORY K. MCALLISTER, among other defendants, (for equitable relief of “restitution” only), pursuant to Income Security Act of 1974 (ERISA) (29 U.S.C. § 502(a)(3) of the Employee Retirement § 1132 (a)(3)), alleging that these Defendants: “...had actual or constructive knowledge of the circumstances that rendered the 1995 and 1997 ESOP stock transactions unlawful...” As is demonstrated herein that claim is clearly unfounded. Plaintiffs have no valid cause of action against GREGORY K. MCALLISTER. Plaintiffs are suing MCALLISTER as a nonfiduciary transferee and therefore have a claim against him only if he knew or should have known the Trustee paid more than adequate consideration for his shares. Plaintiffs have brought suit against the “major participants” in the 1995 ESOP II Transaction, including the trustee, (U.S. Trust), the two valuation companies involved in the transaction, (Valuemetrics, Houlihan, Lokey, Howard & Zukin), and the two major shareholders, Thomas Foster (through his estate) and Melvyn Regal. They have brought suit against the other top level executives (including Defendants Peligrino (former President), Ostertag ( former President), and Dickes (former Executive Vice President)). and the other individuals who had direct involvement in the 1995 ESOP Transaction. They then proceeded to sue all of the “selling shareholders” (including MCALLISTER). The 1995 ESOP transaction was structured to benefit the controlling shareholders, Mr. Foster and Mr. Regal, who received gross proceeds of approximately $48,600,000, and F&G as a corporation (which was able to deduct the payment made to MCALLISTER). (Exhibit 499, Attached to GEHRING’s Motion for Summary Judgment). MCALLISTER, in contrast to Mr. Foster and Mr. Regal, paid taxes on his receipts from the 1995 transaction. (Exhibit 499). Contrary to Plaintiffs’ allegations and rhetoric, not all of the selling shareholders were “insiders” who reaped major windfalls from the transactions at issue. MCALLISTER was not an “insider”. According to Plaintiffs’ Exhibit 499~MCALLISTER, (after reinvesting in F&G stock as part ofthe 1995 Transaction and having taxes withheld) received net cash proceeds from the 1995 transaction in the amount of $51,685.00. MCALLISTER, like Plaintiffs was also a participant in the ESOP which owned F&G stock and was rendered worthless by the F&G bankruptcy. Plaintiffs, in their Complaint, have used the gross amounts relating to the 1995 transaction, which creates a significantly false impression as to the magnitude of MCALLISTER’S alleged benefit from, and participation in, the 1995 ESOP Transaction. It is important to note that MCALLISTER reinvested a substantial portion of the 1995 ESOP transaction back into F&G stock, and also paid taxes on the sale. MCALLISTER was employed by Foster & Gallagher from 1986 to 1996. For those ten years MCALLISTER was the Vice President of Metro Telephone, a subsidiary ofFoster & Gallagher. MCALLISTER was responsible for Foster and Gallagher’s telecommunications systems. MCALLISTER’s work Plaintiffs’ Exhibit 499 is the only document produced in the course of discovery by any party which purports to be a comprehensive overview of the monetary flow and results of the 1995 transaction. Defendant Stuber testified that it was “a true and accurate copy of the Foster & Gallagher Summary of ESOP Sale and EIP Activity Based on $19.50 Transaction Price.~’ (Stuber Deposition Transcript at p. 103). While MCALLISTER believes that there were minor variations between Exhibit 499 and the actual transaction, Exhibit 499 is certainly a reliable indicator of the approximate amounts received MCALLISTER and other Defendants. included running the technical side of telecommunications hardware and network for the company, In their depositions, Plaintiffs generally acknowledge that they were not aware of any evidence to support their causes of action against MCALLISTER. Ms. Keach acknowledged that she was not aware of any evidence that the $19.50 price per share in the 1995 ESOP Transaction was unfair. Presumably, Plaintiffs are claiming that each selling shareholder defendant attained exactly the same knowledge ofwrongdoing. As is demonstrated in MCALLISTER’S affidavit, MCALLISTER had no knowledge (either actual or constructive) of any wrongdoing in connection with the transactions at issue. No evidence has been established to the contrary. MCALLISTER was not a board member, executive committee member, or ESOP fiduciary and had no involvement in the structuring of the transaction at issue and negotiating and determining the appropriate share price. At the time ofthe transactions, MCALLISTER had no knowledge regarding any significant issues or problems regarding sweepstakes (which is the apparent focus ofthe causes of action). Perhaps most importantly, MCALLISTER believed that the business prospects of Foster & Gallagher were extremely good at the time of the transactions in question, and had no reason to believe that the prices paid for the shares were in any way improper. MCALLISTER had good reason to believe that to be true, as F&G’s financial performance continued to improve, and exceeded applicable projections from the time of the 1995 ESOP transaction through the first two quarters of 1997. Perhaps the most telling and objective evidence that there was no reason to suspect that the prices paid were unfair is the fact that the 1997 offering, at $18.62 per share, was “under subscribed”. The sum of$1,000,000.00 was authorized to purchase shares at $18.62 per share, but so many shareholders decided not to sell at that price that only $538,440.40 was paid out. Under the applicable law, as discussed in detail in Section III hereof, Plaintiffs have a claim against MCALLISTER only if they can prove (1) that the Trustee did not arrive at its determination offair market value for the F&G stock by way of a prudent investigation in the circumstances then prevailing, ~ (2) that MCALLISTER had actual or constructive knowledge that the Trustee did not arrive at its determination offair market value for the F&G stock by way ofa prudent investigation in the circumstances then prevailing, ~ (3) that MCALLISTER was unjustly enriched by receiving more than the fair market value for the stock they sold. Plaintiffs cannot establish g~y these three necessary propositions. Plaintiffs cannot establish either (1) of that the process followed to arrive at the purchase price was improper; or (2) that MCALLISTER was aware ofany impropriety or illegality; or (3) that the actual purchase price was improper. Plaintiffs certainly cannot establish that MCALLISTER was in any way culpable. The record in this case clearly shows that the Trustee arrived at its determination of fair market value for the F&G stock by way of a prudent investigation in the circumstances then prevailing and, in any event, MCALLISTER had every reason to believe that to be the case. A very substantial and widely accepted process was followed to arrive at the purchase price, utilizing some of the most respected valuation firms and law firms in the country. Just as importantly, there is ~ evidence to establish that the prices paid for the stock exceeded the fair market value. In fact, the only competent evidence in this regard squarely supports the propriety of the prices paid. MCALLISTER should not have been sued and he is clearly entitled to summary judgment now. II. MATERIAL FACTS CLAIMED TO BE UNDISPUTED Characteristics and Profile of the Defendant 1. MCALLISTER never served in any fiduciary capacity for Foster & Gallagher or the Foster & Gallagher ESOP. (MCALLISTER Affidavit attached) 2. 3. MCALLISTER was never employed by Michigan Bulb Company. (Id.) MCALLISTER had no involvement whatsoever with Michigan Bulb Company’s strategic plans and/or financial projection documents. (Id.) 4. MCALLISTER was not in the financial department of Foster & Gallagher. (Id.) 4 5. 6. 7. 8. MCALLISTER was never a board member of Foster & Gallagher. (Id.) MCALLISTER was never on the Foster & Gallagher Executive Committee. (Id.) MCALLISTER was never on the Foster & Gallagher ESOP Committee. (Id.) MCALLISTER was not involved in the decisions of the Foster & Gallagher. Board, Executive Committee, or any other committee or group to proceed with either of the 1995 ESOP transaction or the 1997 ESOP transaction, or the S Election transaction. (Id.) 9. MCALLISTER was in no way involved in the structuring of either the 1995 ESOP transaction or the 1997 ESOP transaction. (Id.) 10. MCALLISTER was in no way involved in determining, negotiating, or establishing the per share price in connection with the 1995 ESOP transaction or the 1997 ESOP transaction. (Id.) 11. At all times in connection with the 1995 ESOP transaction and the 1997 ESOP transaction, MCALLISTER, was operating under the understanding that very highly qualified and sophisticated entities (including U.S. Trust Company, Valuemetrics, Inc., Houlihan, Lokey, Howard, and Zukin and very large firms) were involved in structuring the transaction at issue and negotiating and determining the appropriate share price. (Id.) 12. MCALLISTER had no knowledge about the States’ Attorneys Generals inquiries or investigations until well after the transactions at issue/or had no knowledge of these matters until he read about those inquiries in the First Amended Complaint in this case. (Id.) 13. MCALLISTER never saw the “board books” which contained information regarding consumer complaints and sweepstakes issues except and until they were used as Exhibits in the discovery in this case. (Id.) 14. MCALLISTER was never aware of any significant issue or concern relating to sweepstakes issues until several years after the 1995 ESOP Transaction. (Id.) 15. Until this lawsuit was filed, MCALLISTER ever heard anyone state that the per share price paid in connection with any of the transactions at issue was in any way inappropriate. 5 (Id.) 16. Until this lawsuit was filed, MCALLISTER ever heard anyone state that the per share price paid in connection with any ofthe transactions at issue was too high. (Id.) 17. Until this lawsuit was filed, MCALLISTER ever heard anyone state that the per share price paid in connection with any of the transactions at issue caused the financial failure of Foster & Gallagher. (Id.) 18. At the time of the ESOP transactions at issue in this case, MCALLISTER believed that the prices paid were appropriate, and had no reason to believe otherwise. (Id.) 19. At the time of the ESOP transactions at issue in this case, MCALLISTER relied upon the trustee, the valuation firms, and their professional advisors to establish a fair price for the shares. (Id.) 20. At the time of the ESOP transactions at issue in this case, MCALLISTER had no reason to believe that the prices paid were not fair or were not appropriate. (Id.) 21. At the time of the ESOP transactions at issue in this case, MCALLISTER had no knowledge regarding any significant issues or problems regarding sweepstakes and any potential impact on the value of F&G stock. (Id.) 22. At the time of the ESOP transactions at issue in this case, MCALLISTER believed that the business prospects of Foster & Gallagher were extremely good. (Id.) The 1995 Transaction Retention of Advisors and Professionals A. F&G retained U.S. Trust as independent trustee, and U.S. Trust performed substantial investigation and negotiation regarding the appropriate price to be paid and other aspects of the 1995 ESOP Transaction. - 23. 41. MCALLISTER incorporates by reference and adopts paragraphs 10-28 of the Statement of facts from Defendant Dickes’ Motion for Summary Judgment as and for paragraph 23-41 oftheir Statement of Facts. B. U.S. Trust retained Houlihan, Lokev, Howard & Zukin (Houlihan). a well respected valuation firm. conducted its own appraisal of the value of the F&G 6 stock. and determined that the value was $19.81 per share. 42. 46. MCALLISTER incorporates by reference and adopts paragraphs 29-33 of the - Statement of Facts from Defendant Dickes’ Motion for Summary Judgment as and for paragraphs 42- 46 oftheir Statement of Facts. C. F&G retained Valuemetrics and Valuemetrics, a well respected valuation firm. conducted its own appraisal and value ofthe F&G stock, ~andconcluded that the range of values was $23.96 to $25.00. 47. -50. MCALLISTER incorporates by reference and adopts paragraphs 34-37 of the Statement of Facts from Defendant Dickes’ Motion for Summary Judgment as qnd for paragraphs 47-50 of their Statement ofFacts. D. U.S. Trust and Houlihan conducted substantial due diligence in connection with the 1995 ESOP Transaction. 51. 60. MCALLISTER incorporates by reference and adopts paragraphs 38-47 of the - Statement of Facts from Defendant Dickes’ Motion for Summary Judgment as and for paragraphs 51-60 of their Statement of Facts. Substantial Negotiations based upon the Houlihan and Valuemetrics valuations occurred. 61.- 85. MCALLISTER incorporates by reference and adopts paragraphs 48-72 ofthe Statement of Facts from Defendant Dickes’ Motion for Summary Judgment as and for paragraphs 5 1-85 of their Statement ofFacts. F. Sonneschein, Nath, & Rosenthal. a well respected law firm. conducted substantial E. due diligence and issued opinions supporting the fairness of the purchase price. 86.-122. MCALLISTER incorporates by reference and adopts paragraphs 73-122 of the Statement of Facts from Defendant Dickes’ Motion for Summary Judgment as and for paragraphs 86-135 of their Statement of Facts. G. 136. Valuemetrics issued a Transaction Memorandum and fairness opinion which fully supported the purchase price. On or about December 7, 1995, Valuemetrics issued its Transaction Memorandum. The memorandum covered, among other things, the transaction structure, the 7 amortization of the loan for the transaction, cash flow forecasts and debt coverage ratios, and the ESOP’s estimate repurchase liability. (Dickes Affidavit, ¶20; Exhibit 810). 137. Dickes and other selling shareholders received and reviewed a copy of the Transaction Memorandum prior to the December 20, 1995 closing. (Dickes Affidavit, ¶19). 138. F&G receipt of the December 7, 1995 Transaction Memorandum was not the first time Valuemetrics advised F&G ofthe proposed transaction structure. As early as the July 1995 meeting ofthe F&G Board of Directors, Valuemetrics was providing F&G with and overview of its structure analysis for the transaction. (Dickes Affidavit, ¶20; Exhibit 810). 139. On December 20, 1995, Valuemetrics issued its Fairness Opinioii to the F&G Board of Directors. In this Fairness Opinion, Valuemetrics concluded that the ESOP Transaction was fair from a financial point of view ofF&G and its shareholders. (Dickes Affidavit, ¶23). 140. On December 20, 1995, Sonnenschein issued an opinion letter to U.S. Trust and opined or advised on general fiduciary requirements of the Trustee, the F&G stock, qualifying as a qualifying employer securities under ERISA, the ERISA § 408 (e) exemption to prohibited transactions, and the issue of whether acquisition debt incurred by an employer in a leveraged ESOP must be taken into account in determining the fair market value ofthe stock acquired by the ESOP. (See generally Exhibit 85; Siske Dep. at 22). Sonnenschein opined that the loan to the ESOP and the purchase of F&G “should comply with the fiduciary requirement of Section 406 (a)(1) ofERISA,” and that both the loan and the stock purchase should both qualify for exemption from ERISA’s prohibited transaction provisions. 141. Pursuant to a letter dated December 20, 1995, F&G was entitled to rely on the opinions expressed by Sonnenschein in its December 20, 1995 opinion letter, subject to the assumptions and analysis set forth in the letter. (Exhibit 275; Siske Dep. at 24-25). H. U.S. Trusts findings, based upon opinions ofHoulihan. Sonnenschein. Mayer. Brown & Platt. and other professional advisors, supported the appropriateness of the transaction. U.S. Trust made the following findings: 8 142. WHEREAS, the Trustee has retained, consulted with and received and considered opinions and advice of Houlihan Lokey Howard & Zukin (the “Financial Advisor”) regarding certain financial matters in respect to the Loan and the offer of the Selling Shareholders to sell the Shares to the Trust; and WHEREAS, the Trustee has retained, consulted with and received and considered opinions and advice of Sonnenschein Nath & Rosenthal (the “Trustee Counsel”) regarding certain legal matters in respect to the Loan and the offer of the Selling Shareholders to sell the Shares to the Trust; and WHEREAS, the Trustee has also received and considered opinions of Mayer Brown & Platt, the Company’s special ESOP counsel (the “Special ESOP Counsel”), regarding certain matters of the Loan and the offer of the Selling Shareholders to sell th Shares to the Trust; and WHEREAS, the Trustee has also received and considered opinions of Kavanagh, Scully, Sudow, White & Frederick, P.C., and the general corporate counsel to the Company (the “Company counsel”); and WHEREAS, the Trustee has received and considered the opinions of Mayer Brown & Platt and Price Waterhouse (the EIP Tax Opinions”) dealing with the deductibility of compensation under the F&G Executive Incentive Plan. *** Based on the foregoing findings the Trustee hereby finds and concludes that the execution of the Stock purchase Agreement, ESOP Credit Agreement, the ESOP Notes, the Pledge Agreement and the Collateral Custodial Agreement (collectively the “ESOP Agreements”) by the Trustee and the entering into of the transactions contemplated in the ESOP Agreements are appropriate and consistent with the Trustee’s fiduciary responsibilities under the terms ofthe Trust Agreement and under the fiduciary responsibility requirements of ERISA and that the transactions contemplated in the ESOP Agreements are exempt from the prohibited transaction restrictions under ERISA and the Code. (Doe. No. 321, Ex. 85 at 01376-77, 1380). The 1997 ESOP Transaction 143. MCALLISTER reinvested a substantial portion ofthe proceeds received in the 1995 ESOP Transaction to purchase shares ofF&G. 144. As part of the F&G executive incentive plan (“EIP”), the Agreement to Purchase Stock between MCALLISTER and other F&G officers and F&G had various restrictions on the sale of stock by the EIP shareholders, to include an annual put provisions that provided, in relevant part: In 1997 and each year thereafter that Purchaser is employed by, or director of, F&G or one of its subsidiaries, F&G shall notify Purchaser of the Market Value of the shares..., and Purchaser shall have fifteen (15) days following notification within which to offer to 9 sell to F&G, all or a portion of the vested Shares owned by Purchaser. F&G’s Board of Directors shall determine the maximum dollar that F&G shall purchase in any year (not to exceed $1,000,000). (Exhibit 803 at Bates No. 1925; Exhibit 804 at Bates Nos. 4711-12; Exhibit 805 at Bates No. 1880). 145. Pursuant to the Agreement to Purchase Stock, the shares purchased by MCALLISTER and from F&G on December 20, 1995 “vested” at a rate of 10% for each consecutive 12 month period measured from December 20, 1995, that the shareholder was employed by or a director of F&G. (Exhibit 803 at Bates no. 1925; Exhibits 804 at Bates No. 4711; Exhibit 805 at Bates No. 1880). 146. Pursuant to the Agreement to Purchase Stock, the term “Market Value” was defined, in relevant part, as “the value of the Shares ofthe preceding December31 or if less. the value of the Shares as of an interim date, as determined by the independent appraisal prepared for the [F&G ESOP).” (Exhibit 803 at Bates No. 1927; Exhibit 804 at Bates No. 4717; Exhibit 805 at Bates No. 1886; Goldberg dep. at 233). 147. Under the put option in the Agreement to Purchase Stock, the EIP participants were entitled to sell their “vested” shares back to the company at the most recent ESOP valuation. (Goldberg Dep. at 233). 148. For the year ending December 31, 1996, the fair market value ofthe capital stock of F&G was $18.62 per share after recognizing the put option granted to ESOP participants. (Exhibit 211 at Bates No. 3386). 149. MCALLISTER was no longer an employee of F&G in 1997, but was given an opportunity to sell his stock at that time for $9.52 per share and at that time understood he was selling below the market value, but understood this option price was the maximum available to former employees. 150. F&G’s actual financial performance for the first two quarters of 1997 exceeded its forecasted financial performance for that same period. (Dickes Affidavit, ¶43; Goldberg Dep. at 127-28; Plt. Ex. 376). (In fact, that exceedance of projections continued throughout 1997). 10 151. On June 30, 1997, Valuemetrics issued a Fairness Opinion in which it opined that the $18.62 year-end value for F&G stock, determined as of December 31, 1996, was not greater than the fair market value of those shares as ofJune 30, 1997. (Exhibit 212 at Bates No. 03543). 152. Valuemetrics further states in its Fairness Opinion that F&G’s trailing 12 month performance through April 30, 1997 exceeded F&G’s prior performance for its fiscal year ended December 31, 1996, on both an earnings and cash flow basis. (Exhibit 212 at Bates No. 03545). Plaintiffs’ Deposition Testimony 153. Plaintiff Debra K. Keach testified at her deposition. in response to questions by counsel for these Defendants, as follows: Q. Are you aware of any evidence or information that the $19.50 price attributed to each share of Foster & Gallagher stock in the 1995 ESOP transaction was unfair? MR. OATES: Same Objections. You can answer subject to those objections. A. I am not aware of any. *** 154. Plaintiff Patricia A. Sage testified at her deposition as follows: Q. In this approximately 1995, late ‘95 time period, did you have any understanding more generally as to how top-level decisions were made at Foster & Gallagher? it appeared that Mr. Foster and Mr. Regal and Mr. Pellegrino were very involved in the decision-making, and Mr. Ostertag to a lesser extent, as well as Mr. Dickes. To me, in my mind, those are probably the top decision-makers. It would have been my assumption and — A. Q. If there was highly-confidential information involved in the decision made at the executive level of Foster & Gallagher, who would you assume would be privy to that information? MR. OATES: Object to foundation and compound question. You can answer subject to my objection. THE WITNESS: My guess that the most confidential ones would be strictly between Mr. Foster and Mr. Regal. *** 11 Q. I think you also testified that you relied on the Trustee to insure that the $19.50 price was fair and reasonable, correct? A. Yes. Why did you so rely upon the Trustee? Because it’s my understanding that they are supposed to insure that a fair transaction takes place and that they are looking out for the best interests ofthe ESOP participants. When you say the Trustee, who are you referring to? Primarily to U.S. Trust, but also to the ESOP committee of Foster & Gallagher. Back to the reliance issue. You relied upon the Trustee iii connection with the price, correct? Yes. And you think you acted reasonably in placing reliance on the Trustee? Q. A. Q. A. Q. A. Q. MR. OATES: Object. Foundation, calls for a legal conclusion. THE WITNESS: At the time I did. III. APPLICABLE LAW A. Summary Judgment Standard Summary Judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law”. Fed.R.Civ.P.56(c). The non-movant must “make a showing sufficient to establish the existence of [the] element[s] essential to a party’s case, and on which that party will bear the burden ofproof at trial” in order to withstand a motion for summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548,2552.91 L.Ed. 265 (1986). In determining whether factual issues exist, the court views all the evidence in the light most favorable to the nonmoving party, and draws all reasonable inferences in favor ofthat party. Wolf v. Buss, 77 F.3d 914, 918 (7th Cir. 1996). However, if “the record taken as a whole could not lead a rational trier 12 of fact to find for the non-moving party there is no ‘genuine’ issue for trial.” Matsushita Elec. Inc. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Under settled principles, neither the “mere existence of some alleged factual dispute” nor the existence of“some metaphysical doubt as to the material facts” is sufficient to avoid summary judgment. Fairchild v. Forma Scientlfic, Inc., 147 F.3d 567, 571 (7th Cir. 1998) (quoting Matsushita, 475 U.S. at 586). Rather, the plaintiffmust tender cold, hard, specific facts that establish a necessary and genuine issue for trial. See, Patt v. Family Health Sys., 280 F.3d 749, 752 (7th Cir. 2002). Moreover, even when factual questions exist, summary judgment may still be granted if certain of the movants legal arguments are correct. See Fletcher v. Kroger Co., 942 F.2d 1137, 1140 (7th Cir. 1991) (factual dispute does not preclude summary judgment unless disputed fact is outcome determinative under governing law). Summary judgment is encouraged as an efficient means ofnarrowing and streamlining litigation, and disposing of clear-cut aspects of more complicated cases (see, e.g., Delph v. Trent, 86 F.Supp.2d 572, 576 (E.D. Va. 2000); Timothy v. U.S., 612 F. Supp. 160, 161 (D.C. Utah 1985)), and may “contribute to the concept of efficient judicial administration.” Solomon v. Houston Corrugated Box Company, 526 F. 2d 389, 391 (5th Cir. 1976). B. Substantive Law Plaintiff have alleged that parties in interest to the F&G ESOP, including MCALLISTER, engaged in prohibited transactions in December, 1995, and in June, 1997, in violation of 29 U.S.C. §1106(a) when the parties in interest sold F&G shares to the F&G ESOP for allegedly more than adequate consideration. The only claim by Plaintiffs pending against MCALLISTER is that set forth in Count IX of the First Amended Complaint. Therein, Plaintiffs allege that, pursuant to 29 U.S.C. § 11 32(a)(3), they are entitled to equitable relief against MCALLISTER because of his participation in the alleged prohibited transactions. The following substantive law is relevant to MCALLISTER’s Motion for Summary Judgment with respect to this claim. 1. Prohibited Transactions under 29 U.S.C. ~11O6(a)and the Adequate Consideration Exemption under 29 U.S.C. ~11O8(e). 13 Under ERISA §406(a), 29 U.S.C. § 1106(a), certain types of transactions between a plan and a party in interest are prohibited. A “party in interest” includes any fiduciary, employer of employees covered by the plan, or employee, officer or director of such employer. 29 U.S.C. § 1002(14). The prohibited transactions between a plan and a party in interest, as set forth in §406(a), are as follows: Except as provided in section 1108 of this title: (1) indirectA fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should have known that such transaction constitutes a direct or (A) (B) sale or exchange, or leasing, of any property between the plan and a party in interest; lending of money or other extension of credit between the plan and a party in interest; furnishing of goods, services, or facilities between the plan and a party in interest; (D) transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan; or (E) acquisition, on behalfof the plan, of any employer security or employer real property in violation of section 1107(a) of this title. 29 U.S.C. §1 l06(a)(1). (C) ERTSA §406(a)(1)(A) and (D), 29 U.S.C. §1 106(a)(1)(A) and (D), prohibit a plan from buying or selling securities issued by the plan’s employer sponsor because such transactions carry inherent risk of “self-dealing” and “conflicts of interest.” However, because Congress did not wish to prohibit employers from providing their employees with the opportunity of owning a portion oftheir employers’ stock, Congress created §408(e) of ERISA, 29 U.S.C. §1108(e), which provides that §406 does not apply to the acquisition or sale by a plan ofthe employer’s securities as long as the acquisition or sale is for adequate consideration, no commission is charged, and the ERISA plan is an individual account plan. 29 U.S.C. Section 1108 (e) of Title 29 provides, in relevant part: Section 1106 of this title shall not apply to the acquisition or sale by a plan of qualifying employer securities (as defined in section 1 107(d)(5) of this title)-- § 1108(e). (1) if such acquisition, sale, or lease is for adequate consideration..., 14 (2) (3) if no commission is charged with respect thereto, and if— (A) the plan is an eligible individual account plan (as defined in section I 107(d)(3) ofthis title),... 29 U.S.C. §1108(e). Plaintiffs have not alleged that a commission was charged in the instant case in violation of § 11 08(e)(2). Furthermore, the Plan is an individual account plan in conformity with §1 108(e)(3). It is undisputed that the F&G shares purchased by the ESOP from the Defendants in December, 1995, and in June, 1997, were qualifying employer securities under 29 U.S.C. §1 107(d)(5). Thus, pursuant to the exemption provided in 29 U.S.C. §1 108(e)(1) there can be no violation of 29 U.S.C. § 1106 in this case so long as adequate consideration (as interpreted by the courts) was paid for the stock. The term “adequate consideration” is defined as follows: [I]n the case ofan asset other than a security for which there is generally recognized market the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms ofthe plan and in accordance with the regulations promulgated by the Secretary. 29 U.S.C. §1 102(18)(B). The impetus behind the exception set forth in §408(e) and other statutory ESOP provisions was Congress’s intent ‘to encourage employees’ ownership of their employer company.” Kuper v. Iovenko, 66 F.3d 1447, 1457 (6th Cir. 1995) (quoting Martin v. Feilen, 965 F.2d 660, 666 (8th Cir. 1992)). Under ERISA, a plan that primarily invests in the shares of stock of the employer that creates the plan is referred to as an ESOP. See Kuper v. lovenko, 66 F.3d 1447, 1457 (6th Cir. 1995) Congress intended ESOPs to function as both “an employee retirement benefit plan and a ‘technique of corporate finance’ that would encourage employee ownership.” Kuper v. lovenko, 66 F.3d 1447, 1457 (6th Cir. 1995) (quoting Martin v. Feilen, 965 F.2d 660, 666 (8th Cir. 1992)), cert. denied, 506 U.S. 1054, 113 S.Ct. 979, 122 L. Ed. 3d 133 (1993). 15 Under ERISA, in the case of an asset other than a security for which there is a recognized marker, adequate consideration is defined as “fair market value as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary [ofLabor].” 29 U.S.C. § 1002(18)(B). Although the Fed. Reg. 17632, these regulations were not promulgated at the time of the 1995 or 197 sales at issue in this case and have yet to be promulgated. In the absence of regulations from the Secretary ofLabor, the Fifth Circuit has set forth a widely accepted standard for the good faith determination of adequate consideration: The adequate consideration test, like the prudent man rule, is expressly f’ocused upon the conduct of the fiduciaries. A court reviewing the adequacy of consideration under [29 U.S.C. § 1002(18)] is to ask if the price paid is “the fair market value of the asset as determined in goodfaith by the.. .JIduciary;” it is not to redetermine the appropriate amount for itself de novo...we hold that the ESOP fiduciaries will carry the burden to prove that adequate consideration was paid by showing that they arrived at their determination of fair market value by way ofa prudent investigation in the circumstances then prevailing. Donovan v. Cunningham, 716 F. 2d 1455, 1467-68 (5th Cir. 1983), cert. denied, 467 U.S. 1251, 104 S.Ct. 3533 (1984). When making a determination whether a trustee conducted a prudent investigation, “the test of prudence the Prudent Man Rule — — is one of conduct, and not a test of the result ofperformance of the investment. The focus of the inquiry is how the fiduciary acted in selection of the investment, and not whether his investments succeeded or failed.” Id. Relying on Donovan, the Tax Court has stated that a Petitioner can prevail if he proves that the value ofthe shares purchased by the ESOP was determined “in good faith” within the meaning of 29 U.S.C. § 1002(18)(B). Eyler v. C’.I.R., T.C. Memo 1995-123 (1995). However, it has been held that ESOP fiduciaries will carry the burden ofproving that adequate consideration was paid “by showing that they arrived at their determination of fair market value in the circumstances then prevailing.” Donovan v. Cunningham, supra, at 1467-1468. Thus, the adequate consideration test focuses on the conduct ofthe fiduciaries in determining the price, not the price itself...” Id. at 1467. Eyler, T.C. Memo 1995-123, 128 In applying the prudent person test, a court must consider “whether the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the 16 investment.” Katsaros v. Cody, supra at 279 (quoting Donovan v. Mazzola, supra at 1232). This analysis focuses on the conduct of the fiduciaries, not the success or failure ofthe investment. Donovan v. Cunningham, supra at 1467; Donovan v. Walton, 609 F.Supp.122l, 1228 (S.D. Fla. 1985), affd sub nom. Brock v. Walton, 794 F.2d 586 (1 1th Cir. 1986). Eyler, T.C. Memo 1995-123, 135 Thus. the test ofa prohibited transaction under §406(a) is whether the fiduciary conducted a prudent and independent investigation to determine the fair market value of the stock. The issue of whether the price paid for the stock of MCALLISTER constituted more than adequate consideration in terms of fair market value goes to the issue of appropriate remedy, not to the issue of liability under §406. Reich v. Hall Holding Co., 990 F.Supp. 955, 967 (N.D. Ohio, 1998). As stated by the Court in Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983), “Appraisal of closely-held stock is a very inexact science; given the level of uncertainty inherent in the process and the variety ofpotential fact patterns, we do not think a court should require fiduciaries to follow a specific valuation approach as a matter of law under Section 3(18). The standard they must follow remains one of prudence.” Donovan, 716 F.2d at 1473. In evaluating the conduct ofa fiduciary, courts look closely at whether a fiduciary relied upon the outside advisors before implementing the challenged transaction. See Martin v. Feilen, 965 F.2d 660, 670-71 (8th Cir. 1992), cert. denied sub nom, 506 U.S. 1054, 113 S.Ct. 979 (1993). Securing an independent expert’s opinion ofa financial advisor or legal counsel is evidence of a thorough investigation. Martin, 965 F.2d at 670-71. In particular, a fiduciary can rely on the independent appraisal performed by the investment banking firm if such appraisal is performed as ofthe date ofthe transaction. Cunningham, 716 F.2d at 1468, 1470-71. In order for a particular investigation by a fiduciary to be reasonable and prudent, a fiduciary should (1) investigate the expert’s qualifications, (2) provide the expert with complete and accurate information, and (3) make certain that reliance on the expert’s advice is reasonably justified under the circumstances. Howard v. Slzay, 100 F.3d 1484, 1489 ( th 9 Cir. 1996). See Montgomery v. AETNA Plywood, Inc., 39 F.Supp.915, 919 (N.D.Ill.1998). 17 However, “[even if a trustee failed to conduct an investigation before making a decision, he is insulated from liability if a hypothetical prudent fiduciary would have made the same decision anyway,” Roth v. Sawyer-C’leator Lumber Company Employee Stock Ownership Plan, 16 F.3d 915, 919 ( th 8 Cir. 1994); see also Herman v. Mercantile Bank, N.A., 143 F.3d 419, 421 (8tIt Cir. 1998); cf. Fink v, Nat’! Say. and Trust Co., 772 F.2d 951, 962 (D.C.Cir. 1985) (Scalia, J. concurring in part and dissenting in part) (where fiduciary fails to investigate investment decision, he is not liable for damages if he “happened make...obj ectively prudent investments”). 2. For MCALLISTER to be held liable to make equitable restitution to the Plaintiffs, the record must show, among other things, (1) that the Trustee failed to conduct a prudent investigation under the circumstances then prevailing and (2) that MCALLISTER had actual or constructive knowledge that the Trustee failed to conduct a prudent investigation under the circumstances then prevailing. — through astrology or just blind luck — to In Harris Trust and Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 251, 120 S.Ct. 2180, 2190 (2000), the Supreme Court, relying on the common law of trusts as a starting point for analysis of ERISA, established what is, in effect, a “double knowledge” standard for prohibited transaction cases against non-fiduciary transferees of plan assets: [T]he transferee must be demonstrated to have had actual or constructive knowledge of the circumstances that rendered the circumstances unlawful. Those circumstances, in turn, involve a showing that the planfiduciary with actual or constructive knowledge of the fats satisfying the elements of a §406(a) transaction, caused the plan to engage in the , transaction. (Emphasis in original) As applied in the instant case, for MCALLISTER, who is being sued as a nonfiduciary transferee, to be held liable, Plaintiffs must demonstrate not only that the Trustee did not conduct a prudent investigation of the proposed investment in the ESOP, but also that MCALLISTER had actual or constructive knowledge of the Trustee’s failure to conduct a prudent investigation of the proposed investment in the ESOP under the circumstances then prevailing. It follows, therefore, that even in the event the Trustee does not prevail on the issue of whether a prudent investigation was conducted, Plaintiffs must still prove that MCALLISTER had actual or constructive 18 knowledge that a prudent and independent investigation was not conducted in order to prevail against him. See Smith v. Sydnor, 2000 WL 33687953, *15 (E.D. Va. 2000). To the extent that the Court determines that the Trustee must also prove that no more than adequate consideration for the shares of F&G was paid (which MCALLISTER argues is beyond the requirements of §408(e) and the widely accepted standard set forth in Donovan v. Cunningham), then in order to prevail against MCALLISTER, the Plaintiffs must demonstrate that MCALLISTER had actual or constructive knowledge that the Trustee paid more than adequate consideration for the shares of F&G stock. The record is devoid of any evidence showing that MCALLISTER had actual or constructive knowledge that the Trustee failed (allegedly) to conduct a prudent investigation in the circumstances then prevailing or that the Trustee paid to MCALLISTER (allegedly) more than adequate consideration for his shares of F&G stock. 3. In the ESOP context, constructive knowledge of circumstances that allegedly rendered the ESOP transaction between the plan and a party in interst illegal because the fiduciary allegedly caused the plan to pay more than adequate consideration should be narrowly limited for reasons of fairness and promotion of ESOPs. In Harris Trust and Savings Bank v. Sa!omon Smith Barney, Inc., 530 U.S. 238, 120 S.Ct. 2180, 147 L.Ed.2d 1187 (2000), the Supreme Court ruled that Section 502(a)(3) of ERISA, 29 U.S.C. §1132 (a)(3), which authorizes a”participant, beneficiary, or fiduciary” of a plan to bring a civil action to obtain “appropriate equitable relief’ to redress violations of ERISA Title I, extends to a suit against a nonfiduciary “party in interest” to a transaction barred by §406(a). In Harris Trust, the petitioners claimed, among other things, that National Investment Services of America (“NISA”). a fiduciary of the Ameritech Pension Trust (“APT”) had caused the plan to engage in a per se prohibited transaction under §406(a) in purchasing motel interests from Salomon Smith Barney (“Salomon”), and that Salomon was liable on account of its participation in the transaction as a nonfiduciary party in interest to the plan. Salomon provided broker-dealer services to APT, executing nondiscretionary equity trades at the direction of APT’s fiduciaries, thus qualifying as a “party in interest.” Section 3(14)(B), 29 U.S.C. §1002(14)(B) defines “party 19 in interest” as a person providing services to an employee benefit plan. Though Harris Trust, like the instant case, involved alleged violations of §406(a)(I )(A), 29 U.S.C. §1106(a)(1)(A) and §406(a)(1)(D), 29 U.S.C. §1 l06(a)(l)(D), Harris Trust differed from the instant case in that Harris Trust involved a per se violation of §406(a) for which there was not exemption under §408. Unlike Harris Trust, the instant case involves participants in an ESOP, a type ofplan with Congressional endorsements and approval, who happened to be parties in interest to the plan. Even though MCALLISTER is technically a party in interest to the ESOP, he had little or no control over the decision to participate in the ESOP and had no knowledge, actual or constructive, ofthe manner in which the Trustee conducted the investigation and made the decision as to the price per share for F&G stock. Even under the circumstances in Harris Trust involving a clear-cut, per se violation of ERISA §406(a), the Supreme Court was cognizant ofthe chilling effects of its decision on counterparties to transactions with plans. We note, however, that our interpretation of §502(a)(3) to incorporate common-law remedial principles does not necessarily foreclose accommodation of Salomon’s underlying concern that ERISA should not be construed to require counterparties to transactins with a plan to monitor the plan for compliance with each of ERISA’s intricate details.***While we have no occasion to decide the matter here, it may be that such concerns should inform courts’ determinations of what a transferee should (or should not) be expected to know when engaging in a transaction with a fiduciary. See Restatement (Second) ofTrusts ~297 (a), at 74 (defining “notice” to mean what a transferee “knows or should know” (emphasis added)). Cf. Prohibited Transaction Exemption 75-1, ~SII(e)( 1), 40 Fed. Reg. 50847(1975) (providing that a broker-dealer shall not be subject to civil penalties under §406(a) “party in interest” or taxes under 26 U.S.C. §4975 as a similarly defined “disqualified person” if such records are not maintained by the plan). Harris Trust, 530 U.S. at 252-253 In the instant case, if the Court were to take an expansive view ofconstructive knowledge on the part ofthe transferee, the result would surely be to discourage participation in ESOPs by parties in interest and to place a heavy burden of inquiry on participants who do not have the expertise to judge whether a trustee had fulfilled its obligations under ERISA. A person has constructive notice of breach of trust only when he has knowledge of sufficient facts that he should ascertain by inquiry whether the trustee is committing a breach of 20 trust. Scott & Fratcher §297, p. 110. Where the third person does not have actual knowledge ofthe breach, three questions arise: 1. Under what circumstances should he make inquiry? 2. What is the extent ofthe inquiry he should make? 3. What effect should the results of this inquiry have? Scott & Fratcher §297, p. 110. Whether a person who deals with another who is in fact a trustee is under a duty to inquire whether he is a trustee and whether he is committing a breach of trust in making the transfer, and, if so, to what extent inquiry should be made, depends on the circumstances. Scott & Fratcher §297, p. 111. A review ofcases in which the courts determined if the transferee had constructive knowledge of a breach oftrust pursuant to Restatement (Second) of Trusts §297(a) reveals that courts seldom find that a defendant should be held liable on the basis of constructive knowledge ofa breach of trust. See, e.g., C’onsumers Produce v. Volante Wholesale Produce, 16 F.3d 1374, 1376, 1380-83 (1994);EmpireFire& Marine Ins. C’o. v.Fremontlndem. Co., 90 Or. App.56, 6 1-62, 750 P.2d 1178, 1181(1998). 4. Placing the burden of proofon MCALLISTER to establish the fairness of the price paid would be inconsistent with the ERISA statutory and case law that places the burden of proving co-fiduciary liability on the Plaintiff. The Harris Trust Court noted in footnote 3 of its opinion that the issue of which party “as between the party seeking recovery and the defendant-transferee, bears the burden of proofon whether the transferee is a purchaser for value and without notice,” was not before the court. Id. n.3. The Court further noted a conflict of authority in non-ERISA cases on which party bears the burden ofproof. Id. (citing A. Scott & W. Fratcher, Law ofTrusts §284, p. 40). In cases such as the instant case where the party in interest is a plan participant in an ESOP, the Court should place the burden of proofon whether the transferee is a purchaser for value and without notice on the Plaintiffs in order to prevent overburdening participants who happen to be parties in interest with vague duties of inquiry that must surely discourage participation in ESOPs by such parties in interest. 21 Furthermore, the Supreme Court has stated that the common law of trusts offers a starting point for analysis ofERISA “[unless] it is inconsistent with the language of the statute, its structure, or its purpose.” HughesAircraft Co. v. Jacobson, 525 U.S. 432, 447, 119 S.Ct. 755 (1999); cf. Variety Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 1070 (1996) (“[T]he law of trusts often will inform, but will not necessarily determine the outcome of, an effort to interpret ERISA’s fiduciary duties.”). This Court need not look to the common law oftrusts, however, to determine whether Plaintiffs or the non-fiduciary transferees bear the burden of proofon the knowledge issue. Placing the burden on non-fiduciary transferees to prove that they did not know or have reason to know of the circumstances that allegedly rendered the December, 1995, or June, 1997, transactions unlawful would be inconsistent with the language and structure of ERISA. Section 1105(a) of Title 29, which addresses co-fiduciary liability, demonstrates why it is appropriate under 29 U.S.C. §1 132(a)(3) to place the burden of proving the knowledge ofthe circumstances that rendered the transaction unlawful on Plaintiffs, as opposed to a non-fiduciary transferee. Pursuant to § 1105(a), a co-fiduciary who participates in a prohibited transaction caused by another fiduciary can only be liable if such co-fiduciary “knows] such act or commission [by other fiduciary] is a breach,” or “has knowledge of a breach by [the] other fiduciary.” Moreover, the burden of proving knowledge of the co-fiduciary is on the plaintiff seeking relief. See, e.g., Silverman v. Mutual Benefit Llfe Ins. Co., 941 F.Supp. 1327, 1335, 1337 (E.D.N.Y. 1996) (specifying same burden for §1 105(a)(1) and §1 l05(a)(3)), aff’d 138 F.3d 98 (2~ Cir. 1998). Civil liability in this case must not be imposed upon MCALLISTER, who is a nonfiduciary, party in interest transferees under 29 U.S.C.~S1l32(a)(3), ith a different (lesser) w burden of proof than that required to hold a co-fiduciary liable under 29 U.S.C. §1105(a). To conclude otherwise would place a more stringent burden on non-fiduciaries under 29 U.S.C. §1 132(a)(3) than that placed on co-fiduciaries under §1105(a). 5. Plaintiffs must demonstrate that MCALLISTER was unjustly enriched in order to be entitled to the constructive trust or restitution remedy which they seek (even if it is ultimately determined that non-fiduciary transferees bear the burden of proof under §1 132(a)(3) of ERISA). The remedy of the imposition of a constructive trust or an order of restitution is aimed at persons who are unjustly enriched by wrongdoing rather than simply those who engage in wrongdoing. Plaintiffs have made it clear that their “Count IX” claim is for unjust enrichment.! In this case, Plaintiffs cannot demonstrate that MCALLISTER was unjustly enriched in the December 1995 ESOP transaction, even assuming that there was any wrongdoing. See 1 Dobbs, Law ofRemedies §4.1(2) (“The fundamental substantive basis for restitution is that the defendant has been unjustly enriched by receiving something, tangible or intangible, that properly belongs to the plaintiff.” See also See 1 D. Dobbs, Law ofRemedies 4.3(2) at 398-99 (2d ed. 1993) (indicating that the equitable remedy ofconstructive trust redresses unjust enrichment, not wrongdoing); 5 A. Scott & W. Fratcher, Law ofTrusts §4.02 (“The basis of constructive trust is the unjust enrichment that would result if the person having the property were permitted to retain it.”); Restatement ofRestitution §160 (“Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises.) (emphasis added). The only evidence in this case regarding the value of the F&G shares as of December 20, 1995, supports the proposition that they were worth at least $19.50 per share. That figure is $0.31 per share less than Houlihan’s “single best point estimate.” (Facts, ¶~J55, 4, 68), and is 6 less than Valuemetrics valuation. (Id.) Plaintiffs have no valuation for their case-in-chief despite bearing the burden, (at least as against the non-fiduciary transferees), ofproving that the alleged prohibited transaction between the selling shareholders and the Trustee was for more than adequate consideration. Not only have Plaintiffs failed to retain a valuation expert, they simply I As noted by Plaintiffs in their Amended Answers to Defendants’ Joint Interrogatories to Plaintiffs: ~‘P1aintiffs~estitution r claim that seeks a constructive trust on the proceeds of the stock transaction between the parties in interest and the ESOP seeks a ~well-estabIishedequitable remedy aimed at any persons who are unjustly enriched by wrongdoing rather than those who simply engage in ~vrongdoing.~~ee PIt. Amended Answer to Interrogatory No. 4 of the Joint Interrogatories to Plaintiffs at 16 S (emphasis added) (citations omitted). 23 have no evidence concerning what the value of the shares was, (assuming, for purposes of discussion, that they were worth less than the $19.50 per share which was paid). “[P]rohibited transactions do not per se mandate a remedy...” Etter v. Pease Construction Co., 963 F.2d 1005, 1009 ( th 7 Cir. 1991). To the contrary, “the fact that a transaction is prohibited under ERISA does not necessarily mandate a remedy... [rather, the decision to impose a remedy lies within the court’s discretion and should be ‘in tune with the case’s realities.” Id. (citations omitted); see also Leigh v. Engle, 858 F.2d 361 ( th 7 Cir. 1988), cert. denied, 489 U.S. 1078 (1989) (affirming lower court’s award of damages for only one of three prohibited transactions). Highly instructive on this issue is Smith v. Sydnor, 2000 WL 33687953 (E,D. Va. August 25, 2000), wherein the plaintiffs, participants in a 40 1(k) plan, sued their employer, McGraw, and the trustee of McGraw’s 40 1(k) plan for breach of fiduciary duties in relation to an alleged prohibited transaction under 29 U.S.C. § 1106(a). Both McGraw and the trustee were fiduciaries to the 401(k) plan. See Id. at p. 9. McGraw was in a financial difficulty and was looking for an investor or purchaser. The trustee was subsequently introduced to Columbia Naples Capital (“CNC”), a venture capital firm. CNC proceeded to invest approximately $2.4 million in McGraw. This investment was effectuated by two separate, but related transactions. The first transaction involved CNC’s purchase of a controlling share of McGraw’s common stock. See Id. The Plaintiffs challenged the transaction arguing that the $70 per share price that McGraw paid for the 401(k) plan’s preferred stocks was less than adequate consideration. In rejecting the plaintiffs position, the district court found that the evidence in the case indicated that the trustee made a good faith determination ofthe fair market value for the preferred shares. Se id. at 17-19. The Court further held, however, that even if the plaintiffs had demonstrated that the price had not been determined in good faith, they were not entitled to any damages because they failed to proffer arty evidence that the preferred stock was in fact worth more than the $70 appraised value. See id at 19-20. 24 The relevant case law and secondary sources make clear that Plaintiffs must prove unjust enrichment in order to sustain their causes ofaction against MCALLISTER. IV. ARGUMENT A. MCALLISTER is entitled to summary judgment with respect to the 1995 ESOP transaction. Applying the relevant case law to the undisputed facts of this case, it is clear that the Plaintiffs have no valid cause of action against MCALLISTER. For the following distinct and independent reasons, Plaintiffs Count IX claims against MCALLISTER is clearly without merit. 1. It is undisputed that the experts used for the 1995 ESOP transaction were well qualified and followed well established procedures to value and negotiate the price for the transaction. F&G retained eminently well-qualified experts and professionals to provide services for the 1995 ESOP transaction. These professionals and experts included U.S. Trust, Houlihan, Sonnensehein, and Mayer Brown & Platt. The qualifications of the professionals, particularly as they relate to ESOP transactions, are well documented and of record in this case. (See Dickes Statement of Facts ¶~j14, 5, 18-2 1, 23, 29, 34, 74-77). It cannot reasonably be argued that the 1 professionals and experts retained in connection with the 1995 ESOP transaction were anything but “blue chip”. Their reports recite, in detail, the valuation methods and procedures followed. There is no assertion that any of the professionals, valuation firms, and/or trustees did not do what they said they did in their reports. Under the “Prudent Man Rule”, the documented conduct of the fiduciaries and their advisors met the standard and requirements. (See, e.g. Donovan v. Cunningham, 716 F.2d 1455, 1467-68 2. (5th Cir. 1983). There is no evidence that MCALLISTER know or should have known of any impropriety or illegality, and that any information was withheld from the professional advisors, and/or that the professional advisors did not conduct a prudent, good faith investigation with respect to the transaction. More importantly for purposes of this Motion, MCALLISTER believed, in good faith, that the experts and professionals were very highly qualified, and followed proper procedures. 25 Under these circumstances, no good faith argument can be made that MCALLISTER knew or should have known that the experts and professionals were not well qualified, or that there was any reason for him to make further inquiry regarding their qualification, other than that which was “published’ in the transaction documents. MCALLISTER’s reasonable reliance on the experts and professionals certainly stands unrebutted. As is demonstrated in MCALLISTER’s affidavit, MCALLISTER had no knowledge (either actual or constructive) of any wrongdoing in connection with the transactions at issue. No evidence has been established to the contrary. MCALLISTER was not a board member, executive committee member, or an ESOP fiduciary, and had no involvement in the structuring of the transactions at issue or the pric~s paid for the stock. They were operating under the understanding that the highly qualified and sophisticated entities were involved in structuring the transaction at issue and negotiating and determining the appropriate share price. At the time of the transactions, MCALLISTER had no knowledge regarding any significant issues or problems regarding sweepstakes (which is the apparent focus of Plaintiffs’ causes of action). Perhaps most importantly, MCALLISTER firmly believed that the business prospects of Foster & Gallagher were extremely good at the time of the transactions in question, and had no reason to believe that the prices paid for the shares were in any way improper. The competent evidence in the record is that F&G was forthright in its disclosures in the course of due diligence, and that the experts and professionals retained by F&G conducted a prudent, good faith investigation and negotiation prior to approving the 1995 transaction. Even if either ofthese two propositions were to ultimately be disproven, however, Plaintiffs cannot establish knowledge to this regard (actual or constructive) charged against MCALLISTER. First, there is no competent evidence to establish that MCALLISTER had any reason to suspect that the blue chip professionals and experts did conduct a thorough, prudent investigation. What MCALLISTER knew is that the purchase price was driven down from $24.00 per share to $19.50 per share as a result ofthe U.S. Trust’s negotiations on behalf of the ESOP. 26 MCALLISTER was “several rungs” away from the top decision makers, and was not privy to any of the top level discussions or negotiations. As a non-fiduciary, MCALLISTER had no duty to investigate the actions ofthe fiduciaries, and had every right to rely upon their actions (and those of the professional advisors) under the facts and circumstances of this case. See, e.g., Consumers Produce v. Volante Wholesale Produce, 16 F.3d 1374, 1376, 1380-83 (1994); Empire Fire & Marine Ins. C’o. v. Fremontlndem. C’o., 90 Or.App. 56, 61-62, 750 P.2d 1178, 1181 (1988). 3. MCALLISTER’S reasonable reliance upon the fairness opinions of Houlihan and Valuemetrics negates any claim of constructive knowledge of unjawfulness on the part MCALLISTER. The Transaction Memorandum and Fairness Opinion prepared by Valuemetrics, the Fairness Opinion prepared by Houlihan, the Opinion Letter of Sonnenschein, and the ultimate approval ofthe transaction by U.S. Trust indicated that the December 1995 transaction was appropriate and legal. Assuming, for the sake of discussion, that there was anything inappropriate relating to the 1995 ESOP transaction (a proposition MCALLISTER still believes to be untrue) the reliance of MCALLISTER upon the written opinions of such highly respected experts and professionals negates any claim of constructive knowledge of impropriety. 4. Plaintiffs have no evidence to support a claim of unjust enrichment against MCALLISTER. Even if Plaintiffs could overcome all ofthe impediments to establishing “liability” on the part of MCALLISTER (who is clearly anon-fiduciary), they would not recover in any event. The only evidence in this case concerning the value of the F&G shares as of December 20, 1995 clearly supports the proposition that they were worth at least $19.50 per share. That price was $.31 per share less than Houlihan’s single best point estimate of$19.81. (Facts, ¶~J55, 64, 68). It was substantially less than Valuemetric’s valuation of $24.00 per share. (Facts, ¶~J55). Plaintiffs have no valuation for their case-in-chief, despite bearing the burden, as against the nonfiduciary transferees such as MCALLISTER, of proving that the alleged prohibited transaction 27 between the selling shareholders and the Trustee was for more than adequate consideration. Not only have they failed to obtain a valuation expert, they simply have no evidence concerning the value ofthe shares, assuming they were worth less than $19.50 per share.2 Because Plaintiffs cannot proffer any evidence from which a reasonable trier offact could conclude that the stock MCALLISTER sold in December 1995 was, in fact, worth less that the $19.50 per share he received, they cannot demonstrate that MCALLISTER was unjustly enriched or improperly profited from the transaction. Plaintiff, as equitable claimants in this case, have failed to provide this Court with any basis to invoke its equitable powers under 29 U.S.C. § I 132(a)(3) of imposting a constructive trust or ordering restitution or the disgorging of alleged (but completely unproven) illegal profits. Because Plaintiffs are proceeding against MCALLISTER under 29 U.S.C. §1 132(a)(3), they are entitled to only equitable relief. See generally Great-West Life & Annuity, 534 U.S. 204 (an ERISA plaintiff suing under 29 U.S.C. §1 132(a)(3) may obtain only purely equitable relief); see also Mertens, 508 U.S. at 255 (holding that ERISA does not permit a cause of action against non-fiduciaries for the recovery of damages). Nevertheless, those prohibited transaction cases in which plaintiffs were denied damages absent proofthat the amount paid by a plan was more (or, depending on the transaction, the amount received was less) than the value of the plan assets are instructive for purposes of Plaintiffs’ requested relief. In the context ofdamages, the focus is on the loss to the plan, while in the context of a constructive trust or restitution, the focus is on the amount the alleged wrongdoer was unjustly enriched. See, e.g., Kerr v. Charles F. Vatterott & C’o., 184 F.3d 938, 944 (8th Cir. 1999). In either case — loss or unjust enrichment there must be a starting point for the trier offact to make — the determination of loss or unjust enrichment. In this case, neither loss to the ESOP nor unjust attempt to establish the value ofthe shares as of the done so. The valuation obtained by those defendants (at S24.00 per share on a “controlling ownership” basis or $20.10 per share on a “non-controlling” basis) provides further support for the valuations used in the transactions at issue. 28 2 While Plaintiffs did not procure an expert opinion to relevant times, certain defendants (including U.S. Trust) have enrichment to MCALLISTER may be determined absent evidence that, in fact, the ESOP paid too much for the shares that MCALLISTER paid too much for the shares that he and others sold in the December 1995 transaction. See Restatement of Restitution § 160 (“Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched ifhe were permitted to retain it, a constructive trust arises.”); I D. Dobbs, Law ofRemedies §4.1(2) (“The fundamental substantive basis for restitution is that the defendant has been unjustly enriched by receiving something, tangible or intangible, that properly belongs to the plaintiff.”); 3 id § 12.1(1) (“Restitutionary recoveries are based on the defendant’s gain...”). Therefore, even if one were to assume Plaintiffs are ultimately able to demonstrate that MCALLISTER knew or should have known that the Trustee did not make a good faith determination of the purchase price for the stock the ESOP purchased (a proposition which, as discussed above, simply is not true), such a showing does not demonstrate that MCALLISTER received more than the fair market value for the stock. In the instant case, as in Smith v. Sydnor, supra even if the Plaintiffs were able to demonstrate that the Trustee failed to conduct a prudent investigation under the circumstances and that MCALLISTER had actual or constructive knowledge of the Trustee’s failure, Plaintiffs cannot demand equitable relief because they have offered no evidence that the F&G stock was worth less than the Trustee paid for it. B. MCALLISTER is entitled to Summary Judgment with respect to the 1997 transaction as well. MCALLISTER incorporates his arguments with respect to the 1995 ESOP transaction as support for Summary Judgment with respect to the 1997 ESOP transaction. Perhaps the most telling and objective evidence that there was no reason to suspect that the prices paid were unfair is that fact that the 1997 offering, at $18.62 per share, was “under subscribed”. The sum of $1,000,000.00 was authorized to purchase shares at $18.62 per share, but so many shareholders decided to sell at that price that only $538,440.40 was paid out. The fact that the 1997 29 transaction was “under subscribed” (see Statement of Facts, ¶~J 43-152) renders Plaintiffs’ claim 1 with respect to the 1997 transaction merit less. Moreover, the record reflects that the F&G ESOP received additional F&G shares which were paid for in 1997 by a special contribution from F&G. (See Dickes Facts, ¶~16I-163).Thus, the ESOP and its participants suffered no damages as a result of the 1997 transaction. The 1997 ESOP transaction was professionally done, consistent with prior valuations, and MCALLISTER certainly had no reason to believe that the valuation was in any way improper. Particularly given the fact that F&G continued to exceed financial projections through the first two quarters of 1997, through the date of the 1997 ESOP transaction, (and even beyond that point) (see Statement of Facts, ¶150), there was simply no reason to question the 1997 ESOP transaction valuation. Finally, as with the 1995 ESOP transaction, Plaintiffs have failed to produce a valuation for the shares as of the 1997 transaction date. Accordingly, they could not recover against MCALLISTER under a restitution theory, even if they could establish wrongdoing by a fiduciary in connection with the 1997 transaction, and knowledge of wrongdoing on the part of MCALLISTER. For these reasons, summary judgment with respect to the 1997 ESOP transaction is also warranted. V. CONCLUSION Wherefore, MCALLISTER respectfully requests that this Honorable Court grant this Motion for Summary Judgment, and other and further relief as is deemed just and proper. DEFENDANT REQUESTS ORAL ARGUMENT. Dated: Respe u y submitted, DEAN R. ESSIG 30 DEAN R. ESSIG Attorney at Law 135 Washington Square Washington, IL 61571 Phone: (309) 444-8041 Fax: (309) 444-7200 31 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF ILLINOIS PEORIA DIVISION DEBRA K. KEACH and PATRICIA A. SAGE, Plaintiffs, v. U.S. TRUST COMPANY, ci al., ) ) ) ) ) ) ) ) Case No. 01-1168 AFFIDAVIT OF GREGORY K. MCALLISTER IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT STATE OF ILLINOIS COUNTY OF PEORIA ) ) ) SS. NOW COMES GREGORY K. MCALLISTER, being first duly sworn on his oath, and states as follows: 1. I worked for Foster & Gallagher, Inc. from 1986 to 1996, serving as the Vice President ofMetro Telephone, a subsidiary of Foster & Gallagher. 2. I never served in any fiduciary capacity for Foster & Gallagher or the Foster & Gallagher ESOP. 3. I was never employed by Michigan Bulb Company. 4. I had very limited contact with Michigan Bulb Company, and had no involvement whatsoever with Michigan Bulb Company’s strategic plans andlor financial projection documents. 5. I was not in the financial department of Foster & Gallagher. 6. I was not a board member of Foster & Gallagher. 7. I was never on the Foster & Gallagher Executive Committee. 8. I was never on the Foster & Gallagher ESOP Committee. 9. I was not involved in the decisions ofthe Foster & Gallagher Board, Executive Committee, or any other committee or group to proceed with either the 1995 ESOP transaction or the 1997 ESOP transaction. 10. I was not in any way involved in the structuring of either the 1995 ESOP transaction or the 1997 ESOP transaction. 11. I was not in any way involved in determining, negotiating, or establishing the per share price in connection with the 1995 ESOP transaction or the 1997 ESOP transaction. 12. At all times in connection with the 1995 ESOP transaction and the 1997 ESOP transaction, I was under the understanding that very highly qualified and sophisticated entities (such as U.S. Trust Company, Valuemetrics, Inc., Houlihan, Lokey, Howard and Zukin and very large firms) were involved in structuring the transaction at issue and negotiating and determining the appropriate share price. 13. I had no knowledge about the States’ Attorneys Generals’ inquiries or investigations until I read about those inquiries in the First Amended Complaint in this case. 14. I have never seen the “board books” which contained information regarding consumer complaints and sweepstakes issues. 15. I was never aware of any significant issue or concern(s) relating to sweepstakes issues until the filing of this lawsuit. 16. Until this lawsuit was filed I never heard anyone state that the per share price paid in connection with any of the transactions at issue was in any way inappropriate. 17. Until this lawsuit was filed, I never heard anyone state that the per share price paid in connection with any ofthe transactions at issue was too high. 18. Until this lawsuit was filed, I never heard anyone state that the per share price paid in connection with any ofthe transactions at issue caused the financial failure of Foster & Gallagher. 19. At the time of the 1995 ESOP transaction and the 1997 ESOP transaction, I did not believe that the prices paid were too high. 20. At the time of the 1995 ESOP transaction and the 1997 transaction, I relied upon the valuation firms and their professional advisors to establish a fair price for the shares. 21. At the time of the 1995 ESOP transaction and the 1997 ESOP transaction, I had no reason to believe that the prices paid were not fair to the ESOP. 22. At the time of the 1995 ESOP transaction and the 1997 ESOP transaction, I had no knowledge regarding any significant issues or problems regarding sweepstakes and any potential impact on the value of F&G stock. 23. At the time of the 1995 ESOP transaction and the 1997 ESOP transaction, I firmly believed that the business prospects ofFoster & Gallagher were extremely good. 24. While I traveled to Michigan Bulb Company in 1992 in connection with the due diligence for that transaction, my due diligence activities were limited assessing the telecommunications systems and capabilities of Michigan Bulb Company. I did not have any~ involvement in matters relating to sweepstakes issues, regulations, or concerns, an no information relating to these topics ever came in to my possession, in the course of my limited involvement in the Michigan Bulb Company due diligence. 25. Both my wife and I lost a significant part of our retirement savings as ESOP shareholders due to the bankruptcy of F&G. I have personal knowledge ofthe matters set forth herein, and could and would competently testify thereto if called as a witness in this matter. Further Affiant Sayeth Not 6 Gre~Ø~ day of December, 2002. Subscribed and sworn to before me on this No~PubI~, ESSIG ~ ~ICtALS~L My ~ R. I ~ubli~~ N ~AN DEAN R. ESSIG Attorney at Law 135 Washington Square Washington, IL 61571 Phone: (309) 444-8041 Fax: (309) 444-7200 CERTIFICATE OF SERVICE The undersigned certifies that a copy ofthe foregoing was served upon the individuals listed below by either enclosing the same in an envelope, postage-prepaid, certified first class mail, and depositing said envelope in a United States Post Office Mail Box (unless otherwise stated) at Washington, Illinois on James W. Springer, Esq. Joseph Sudow, Esq. Charles G. Roth, Esq. Kavanagh, Scully, Sudow, White & Frederick, P.C. 301 Southwest Adams Street Suite 700 Peoria, IL 61602 Robert N. Eceles, Esq. Ira H. Rafaelson, Esq. O’Melveny & Myers, L.L.P. 555 l3thStreetNW Suite 500W Washington, DC 20004 Nancy G. Ross, Esq. Michael T. Graham, Esq. McDermott, Will & Emery 227 West Monroe Street Chicago, IL 60606 William R. Bay, Esq. Matt Darrough, Esq. Thompson & Coburn LLP One Firstar Plaza th Floor 34 St. Louis, MO 63101 Timothy L. Bertschy, Esq. Heyl, Royster, Voelker & Allen P.C. 124 Southwest Adams Street Suite 600 Peoria, IL 61602 Sean M. Anderson, Esq. Robert H. Rhode, Esq. Dean B. Rhoads, Esq. Steven P. Oates, Esq. Edward F. Sutkowski, Esq. Sutkowski & Rhode Ltd. 124 S.W. Adams, Suite 560 Peoria, IL 61602 Stephen D. Gay, Esq. Jeffrey A. Ryva, Esq. Greggory R. Walters, Esq. Husch & Eppenberger, P.C. 401 Main Street, Ste. 1400 Peoria, IL 61614-5591 Roy G. Davis, Esq. David G. Lubben, Esq. Davis & Campbell, LLC 401 Main Street Suite 1600 Peoria, IL 61602-1241 Jeffrey B. Rock, Esq. Hassleberg, Rock, Bell & Kuppler Associated Bank Building 4600 N. Brandywine Drive Suite 200 Peoria, IL 61614-5591 Mark A. Casciari, Esq. Sari Almuddin, Esq. Ian H. Morrison, Esq. Seyfarth & Shaw 55 E. Monroe, Ste. 4200 Chicago, IL 60603 32 Paul Ondrasik, Jr. Esq. Steptoe & Johnson, LLP 1330 Connecticut Ave., N.W~ Washington, DC 20036 John S. Elias, Esq. Robert M. Riffle, Esq. Cynthia L. Elias, Esq. Elias, Megirmes, Riffle & Seghetti, P.C. 416 Main, Suite 1400 Peoria, IL 61602 Bradley M. Jones, Esq. Richard L. Pemberton, Esq. Meagher & Geer 4200 Multifoods Tower ~3 S. 6th Street Minneapolis, MN 55402 L.Lee Smith, Esq. Hinshaw & Culbertson 298 Twin Towers Plaza 456 Fulton Street Peoria, IL 61602