UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

DONALD D. KAPLAN and IAN DOLBY, )

)

Plaintiffs, ) 12 C 5134

)

v. ) Judge George M. Marovich

)

HOULIHAN SMITH & CO., INC. a/k/a )

HOULIHAN SMITH & COMPANY, INC., )

RICHARD HOULIHAN, )

ANDREW D. SMITH, )

CHARLES BOTCHWAY, )

ANTHONY J. MARSALA, )

DAVID L. HEALD, and )

CONSULTING FIDUCIARIES, INC., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

Lead plaintiffs, Donald D. Kaplan (“Kaplan”) and Ian Dolby (“Dolby”) have moved this

Court for final approval of a settlement agreement they entered (on behalf of a class) with

defendants Houlihan Smith & Co., Inc. a/k/a Houlihan Smith & Company, Inc. (“Houlihan

Smith”), Richard Houlihan (“Houlihan”), Andrew D. Smith (“Smith”), Charles Botchway

(“Botchway”), Anthony J. Marsala (“Marsala”), David L. Heald (“Heald”) and Consulting

Fiduciaries, Inc. in order to settle the ERISA claims plaintiffs asserted in this case. The Court

has held a fairness hearing and, for the reasons set forth below, now grants final approval of the

settlement agreement. Also before the Court is class counsel’s motion for attorneys’ fees and for

reimbursement of expenses from the settlement fund. 

Case: 1:12-cv-05134 Document #: 138 Filed: 06/20/14 Page 1 of 9 PageID #:778
I. Background

The two named plaintiffs, Kaplan and Dolby, were participants in the employee stock

ownership plan (the “ESOP”) sponsored by their employer, defendant Houlihan Smith, an

investment banking firm. The ESOP was established in 2006. As of January 2, 2010, the ESOP

owned 278,775 shares of Houlihan Smith.

Plaintiffs allege that in July 2010, Houlihan Smith’s Board of Directors decided to split

up the company and sell some assets. The individual defendants hired defendant Consulting

Fiduciaries, Inc. to represent the interests of the ESOP with respect to the division of the

company and the sale of the assets. According to plaintiffs, Consulting Fiduciaries, Inc. failed in

their duty, because they allowed asset sales to proceed even though the sales were unfair to ESOP

participants. Plaintiffs allege that on November 16, 2010, defendants Botchway and Marsala

purchased certain of Houlihan Smith’s assets for notes receivable and transferred their equity in

Houlihan Smith to the ESOP. On December 14, 2010, an entity owned by Houlihan and Smith

purchased certain other Houlihan Smith assets for notes receivable, and Smith transferred his

equity to the ESOP. The plaintiffs allege that the individual defendants did not pay enough for

those assets, both because the assets were worth more and because the ESOP was left holding

932,875 shares of a now-worthless company. 

The parties do not say much about defendants’ position(s) on the merits, but they say

defendants dispute the allegations. It appears defendants might have argued that Houlihan Smith

was headed toward failure in any case (which would mean that the shares of the company would

have lost value regardless of the transactions) and that the transactions were designed not to leave

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the ESOP with worthless shares but rather to salvage a business that could employ some or all of

Houlihan Smith’s former employees.

With the help of a mediator, the parties reached an agreement to settle this lawsuit. The

settlement agreement calls for one insurance carrier to pay $575,000.00 on behalf of Consulting

Fiduciaries, Inc. and Heald and for another insurance carrier to pay $700,000.00 on behalf of

Houlihan Smith, Houlihan, Smith, Botchway and Marsala, for a total settlement fund of

$1,275,000.00. The money, after fees and expenses, is to be divided among the class members

based on their pro rata share of the ESOP on December 31, 2009. Each of the two named

plaintiffs is to receive an extra $1,000.00 for his efforts as a named plaintiff. 

As was mentioned above, the settlement agreement allows for certain fees and expenses

to be deducted from the settlement amount. For example, the parties agreed that the plaintiffs’

attorneys could ask the Court for an award of fees of up to 30% of the settlement amount and of

reasonable expenses, all to be taken from the settlement amount. Defendants agreed not to

challenge plaintiffs’ attorneys’ fee petition. The settlement agreement was also made contingent

upon the approval of an independent fiduciary, who is to be paid $15,000.00 from the settlement

amount. The class members are to be paid within 45 days after this Court enters final judgment

(or after an appeal, should a notice of appeal be filed). 

In exchange, the class members are agreeing to release all defendants from any claims

arising from the subject matter of this lawsuit that were or could have been brought in this case. 

Now-retired District Judge Nordberg certified a class and granted preliminary approval of

the settlement agreement. Judge Nordberg certified a class of “all persons who were participants

in the Houlihan Smith & Company, Inc. Employee Stock Ownership Plan (“the ESOP”) on

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December 31, 2009 and/or beneficiaries of such ESOP participants.” The class definition

explicitly excludes the settling defendants (and their spouses, heirs, etc.). Judge Nordberg

certified the class pursuant to Rule 23(a) and 23(b)(1) and (2). Judge Nordberg also approved the

notice to the class members, which notice the parties then sent to the class members.

Once the class was notified, the Court received objections from two individuals, one

(Brian Semitekol (“Semitekol”)) of which is a class member and the other (Richard C. Johnston

(“Johnston”)) is not. Johnston did not commence work at Houlihan Smith until January 2, 2010

and, therefore, was not a participant in the ESOP on December 31, 2009. He believes that date

was selected arbitrarily. Semitekol was a participant on December 31, 2009, but he thinks the

settlement proceeds should be allocated based on the final allocation of shares on December 31,

2010.

On May 5, 2014, the independent fiduciary (who had been hired by the Plan fiduciaries)

issued his report. The independent fiduciary concluded “that the settlement is a reasonable and

attractive settlement for the Plan and Plan participants/beneficiaries.” 

II. Discussion

A. Final approval of settlement

Once a class is certified, the class claims may not be settled without the approval of the

court. Fed.R.Civ.P. 23(e) (“The claims, issues, or defenses of a certified class may be settled . . .

only with the court’s approval”). A court may approve a settlement “only after a hearing and on

finding that it is fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). In considering whether a

class action settlement is fair, adequate and reasonable, a court “must consider ‘the strength of

plaintiffs’ case compared to the amount of defendants’ settlement offer, an assessment of the

likely complexity, length and expense of the litigation, an evaluation of the amount of opposition

to the settlement among affected parties, the opinion of competent counsel, and the stage of the

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proceedings and the amount of discovery completed at the time of settlement.’” Synfuel

Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) (quoting Isby

v. Bayh, 75 F.3d 1191, 1199 (7th Cir. 1996)). The most important factor is the strength of the

plaintiff’s case. Id.

Here, the settlement of $1,275,000.00 is fair, reasonable and adequate. Although the

parties have not given the Court sufficient factual information to determine plaintiffs’ likelihood

of success on the merits, it is clear that the parties dispute the merits of the claims. 

Notwithstanding the dispute, the settlement amount constitutes about 61% of the independentlyappraised value of the ESOP shares as of December 31, 2008. (The parties have not provided an

appraised value for the shares as of December 31, 2009.) A roughly 60% recovery is reasonable

in this case. Two of the defendants are dissolved corporations with no apparent assets. (Indeed,

one of the chief allegations in this case was that the shares in the ESOP were worthless because

Houlihan Smith sold its assets.) The settlement proceeds are coming from two insurance

policies--the same two insurance policies that are funding the defense of this suit, such that

plaintiffs face the real possibility that the insurance policy maximums would be reached before

they win a judgment. Thus, even if plaintiffs could win more than the settlement amount at trial

(and that is by no means clear), they might be digging a dry hole. The settlement amount is fair,

reasonable and adequate.

The way the settlement proceeds will be divided among the class members also strikes

the court as reasonable. The settlement amount (after fees and expenses) will be divided pro rata,

based on the number of shares each class member held in his/her ESOP account on December 31,

2009. The average class member would receive about $13,000.00 (less attorneys’ fees and other

expenses). The two named plaintiffs will each receive an extra $1,000.00 for their efforts as

named plaintiffs, which is reasonable.

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Two individuals oppose this settlement. One is a class member, and the other is outside

of the class. Although the individual who is not a class member lacks standing to object to a

settlement agreement to which he is not a party, the two individuals make essentially the same

objection. They believe the proceeds of the settlement should not be allocated based on the

ESOP share allocations as of December 31, 2009. Class member Semitekol believes December

31, 2010 would be a better date, because by that date, the ESOP had allocated the additional

shares it received as a part of the challenged transactions. The defendants and the named

plaintiffs, on the other hand, argue that December 31, 2009 is the appropriate date, because that

was the date of the last allocation of ESOP shares before the transactions challenged in this case

occurred. The Court agrees that December 31, 2009 is a reasonable date to choose for allocating

the settlement proceeds. It is those shares that lost value when the challenged transactions

occurred. The shares that were added in December 2010 did not lose value, because, as plaintiffs

allege in their complaint, those shares were already worthless on account of the fact that

Houlihan Smith had already sold its assets. The parties’ choice of December 31, 2009 is

reasonable. The objections are overruled.

Because the settlement is fair, reasonable and adequate, the Court hereby approves the

settlement. 

B. Attorneys’ fees and expenses

Next, plaintiffs have filed a motion for attorneys’ fees and expenses. They seek

attorneys’ fees of 30% of the settlement amount, i.e., $382,500.00. They also seek expenses in

the amount of $54,261.75. 

1. Attorneys’ fees

Rule 23(h) of the Federal Rules of Civil Procedure allows a court to award reasonable

attorneys’ fees. Fed.R.Civ.P. 23(h). Such a payment from the settlement fund is “‘based on the

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equitable notion that those who have benefited from litigation should share in its costs.’” Sutton

v. Bernard, 504 F.3d 688, 691 (7th Cir. 2007) (quoting Skelton v. General Motors Corp., 860

F.2d 250, 252 (7th Cir. 1988)). 

Here, plaintiffs’ attorneys seek 30% of the settlement amount. This Court’s task is to

consider whether this is consistent with a hypothetical ex ante bargain for the attorneys’ work on

this case. Williams v. Rohm and Haas Pension Plan, 658 F.3d 629, 635 (7th Cir. 2011) (When

the attorneys’ fees are coming from the settlement fund, a court “must try to assign fees that

mimic a hypothetical ex ante bargain between the class and its attorneys.”). Plaintiffs’ attorneys

did not reach an agreement with their clients at the outset, but the Seventh Circuit has recognized

that the market rate for ERISA class actions is a contingency fee between 25% and 33% of the

settlement (or award). Williams, 658 F.3d at 636. Thus, the 30% plaintiffs’ attorneys request is

well within the range of market prices. The parties have given the Court no reason to think this

case is one that would be priced at a rate other than the usual market rate. 

Plaintiffs’ attorneys also argue that 30% is reasonable, because it is less than the amount

they would receive on a lodestar basis, i.e., if they were paid for their time at their hourly rates. 

This argument is absurd. Most of the hours were “billed” at a rate of $725 per hour, but

plaintiffs’ counsel has provided no evidence any plaintiff has ever or would ever agree to pay that

rate (or any of the other hourly rates plaintiffs’ lawyers claim as their rates). No rational lead

class action plaintiff would agree to pay such an hourly rate in a case where he stood to gain so

little, which is precisely why class action lawyers take cases on a contingency basis. 

Nonetheless, the rate of 30% is reasonable. 

The Court approves payment to the plaintiffs’ attorneys in the amount of $382,500.00 for

fees.

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2. Expenses

Next, the Court considers the expenses for which plaintiffs’ attorneys seek

reimbursement. 

The firm of Lewis, Feinberg, Lee, Renaker & Jackson, P.C. has provided a six-page

itemized list (including dates, amounts and descriptions) of the expenses it incurred in

connection with this case. The list includes photo-copying costs, Pro Hoc Vice Admission fees,

overnight shipping fees, travel and meal expenses, deposition transcript costs and mediation fees. 

The Court has carefully reviewed the list of expenses and concludes that they are expenses for

which a paying client would reimburse its lawyer. See In re: Synthroid Mkg Lit’n, 264 F.3d 712,

722 (7th Cir. 2001) (explaining the appropriateness of considering what the private market would

bear in determining whether litigation expenses are reasonable). Accordingly, the Court awards

expenses in the amount of $52,078.70 to Lewis, Feinberg, Lee, Renaker & Jackson, P.C.

Next, the firm of Outten & Golden, LLP seeks reimbursement of expenses in the amount

of $2,183.75. Specifically, Outten & Golden, LLP requests $350.00 to reimburse it for the filing

fee. The Court grants that expense. Outten & Golden, LLP also requests reimbursement for

expenses for service of process. The Court awards those expenses as well. Thus, the Court

awards Outten & Golden, LLP expenses in the amount of $2,183.75.

III. Conclusion

For the reasons set forth above, the Court hereby grants final approval of the settlement. 

The Court approves an incentive award of $1,000.00 each to named plaintiffs Kaplan and Dolby. 

The Court approves payment of $15,000.00 from the settlement fund to the independent fiduciary

Nicholas L. Saakvitne. 

The Court grants plaintiffs’ motion for attorneys’ fees. The Court approves an award of

attorneys’ fees in the amount of $382,500.00 from the settlement fund. The Court approves an

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award of $52,078.70 from the settlement fund to Lewis, Feinberg, Lee, Renaker & Jackson, P.C.

as reimbursement for expenses. The Court approves an award of $2,183.75 from the settlement

fund to Outten & Golden, LLP for reimbursement of expenses.

 Case dismissed with prejudice.

ENTER:

 

George M. Marovich

United States District Judge

DATED: June 20, 2014

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