Opinion ID: 3022346
Heading Depth: 3
Heading Rank: 2

Heading: The Emergency Board Meeting

Text: Fruehauf continued to have financial difficulties, and on September 19, 1996, with the Company lacking sufficient cash to meet its payroll and other operating expenses, its Board held 4 an emergency meeting. Although the parties dispute what was considered at this meeting, the District Court concluded that the Board and Fruehauf’s outside counsel discussed three things. First, they considered the possibility of a Chapter 11 bankruptcy filing. Second, they discussed a modified retention plan that would distribute immediate cash payments to twelve of the KERP beneficiaries if they agreed to remain with the Company until at least March 1, 1997 (the “KERP modification”). Finally, they discussed an amendment (known as the “Third Amendment”) to the Company’s pension plan.1 The Third Amendment was drafted by Fruehauf’s outside counsel and reviewed by Geraldine Tigner (Fruehauf’s Vice President of Human Resources) and Greg Fehr (a senior Fruehauf executive), both of whom were members of the Company’s Pension Administration Committee. Limited to 400 Fruehauf employees (almost all of them managers or executives, and none union members or non-salaried workers), it provided two things. First, it lifted the 1991 benefit freeze for those employees who were vested in the pension plan and calculated benefits based on 1996 salaries (hereafter the “Pension Thaw Provision”). Second, it granted all covered employees a cash contribution to their pension account equal to 5% of annual salary plus 8% annual interest (hereafter the “Cash Benefit 1 The pension plan is a qualified plan under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq. It is a nominal party to this appeal. 5 Provision”) if they were employed by the Company or its successor on, or were laid off prior to, March 31, 1997. Because the Cash Benefit Provision was available to all employees covered by the Third Amendment, it included even those not vested in the pension plan. Notably, Tigner and Fehr, who were the only Fruehauf executives to review the Third Amendment and who were also beneficiaries of the KERP, stood to reap substantial benefits from its adoption. Fehr’s pension benefits increased by 470%, while Tigner’s benefits increased by 200%.2 Fruehauf later calculated the cost of the Third Amendment as $2.4 million. The source of funding for the Third Amendment was a surplus on the “union side” of Fruehauf’s pension plan, i.e., the funds designated to pay benefits for union members exceeded the cost of those benefits. Those surplus funds would otherwise revert to the Company after benefits were paid. With this backdrop, the Board approved the Third Amendment at the September 19, 1996 emergency meeting. It became effective on October 4, 1996. 2 The other members of the Pension Administration Committee also realized substantial gains. The pension plan’s actuary testified that Kenneth Minor received a 455% increase in benefits and Joseph Damiano received a 330% increase. Derek Nagle, the CEO of Fruehauf shortly before the Company went into Chapter 11, received an increase of nearly 200%. 6