Opinion
No. X02 CV-03-4004679S CLD
February 4, 2008
MEMORANDUM OF DECISION
I. PROCEDURAL HISTORY
The above-entitled matter was tried to the Court from July 12, 2007, until August 1, 2007. On August 1, 2007, the parties were granted leave to take one additional deposition with an additional day to be reserved in the event that arguments were necessary regarding the admissibility of certain portions of the deposition. On December 21, 2007, both parties submitted briefs in the matter. The Court then established January 4, 2008, as the deadline for the submission of the deposition and the conclusion of any arguments pertaining to same. The parties filed reply briefs on January 23, 2008.
Plaintiffs have indicated in their brief that they are only pursuing their derivative claims set forth in Counts Nine through Sixteen of their complaint. Therefore, the Court will only consider Counts Nine through Sixteen of the complaint in its decision. Counts One through Eight, and Count Seventeen are deemed to have been withdrawn.
II. FACTS
The following description of the case constitutes the Court's Finding of Fact in the above-entitled matter, along with those facts that may be mentioned in the Discussion portion of the opinion.
In 1992, Defendant Michael A. Boyd, who at that time had over twenty years' experience in hedge funds, specializing in convertible securities, created Founders Financial Group, L.P. (hereinafter referred to as "Founders"), a holding company, Forest Investment Management, LLC (hereinafter referred to as "Forest"), a hedge fund specializing in convertible securities, and Forum Capital Markets, LLC (hereinafter referred to as "Forum"), a company specializing in sales and trading of convertible securities, research on issuers of convertible securities, and corporate finance. Defendant Boyd was Chief Executive Officer of Founders, Chairman of its Executive Committee, and Chief Investment Officer of Forest. Founders owned 100% of Forest and 96.08% of Forum. Defendant Boyd, Trustee, of the Michael A. Boyd Pension Trust (hereinafter referred to as the "Boyd Pension Trustee"), is the trustee of a trust established and controlled by Defendant Boyd, who is and has, at the relevant times, been the owner of approximately 25.664% limited partnership interest in Founders. Defendant Boyd is also the trustee of the Michael A. Boyd Trust Account (hereinafter referred to as "Boyd Account Trustee") which is a trust account established and controlled by Defendant Boyd, who is and has, at the relevant times, been the owner of approximately 0.332% interest in Founders. Founders had no operating businesses other than Forum and Forest and conducted no business of its own apart from Forum and Forest.
In 1994, Defendant Harold L. Purkey joined Forum as head of sales and later became its president. When he joined Forum, Defendant Purkey had over twenty years' experience in the sale and marketing of convertible securities. As of June 1, 2000, Defendant Purkey was a limited partner of Founders, owning a 5.367% interest in Founders. As of June 1, 2000, Defendant Purkey owned and controlled the Harold L. Purkey Annuity, a limited partner of Founders, which owned a 5.306% interest in Founders.
In 1995, Plaintiff Charles Keith Hartley, who had decades of experience in corporate finance, joined Forum to lead its Corporate Finance Department. Plaintiff Hartley owned a limited partnership interest in Founders, which as of June 1, 2000, was 3.533%. He was also the equitable owner of a limited partnership interest in Founders, which, as of June 1, 2000, was 2.156%. The limited partnership 2.156% interest in equity owned by Plaintiff Hartley was and is held by The Scottish Annuity Company (Cayman) Ltd. in a separate account pursuant to an agreement with Plaintiff Hartley. Plaintiff Hartley, as Trustee, is and has been the owner of a limited partnership interest in Founders, which, as of June 1, 2000, was 0.682%. The 0.682% limited partnership interest equitably owned by Hartley as Trustee was owned on behalf of the Charles K. Hartley Defined Benefit Pension Plan. Plaintiff Hartley has also pursued this litigation on behalf of Founders. In view of the several interests represented by Plaintiff Hartley, there are times in the opinion when reference will be made to "Plaintiffs Hartley."
Defendant Michael A. Boyd, Inc. (hereinafter referred to as "Boyd, Inc.") is a corporation organized under the laws of the State of Connecticut, with an office at 53 Forest Avenue, Old Greenwich, Connecticut. Defendant Boyd, Inc. is and, at all relevant times, has been the sole general partner of Founders. Defendant Boyd, at all relevant times, was the person appointed by Boyd, Inc. to act as its representative in all matters relating to Founders.
In 1997, Stephen DeVoe joined Forum and Forest as the Chief Operating Officer for both entities.
Messrs. Boyd, Purkey, Hartley and Devoe were on the Founders' Executive Committee from the time they started working with Defendant Boyd. The Executive Committee, which met at least monthly, dealt with all significant issues pertaining to Forest and Forum. Plaintiff Hartley was given notice of all Executive Committee meetings, attended all of them, unless he was out of town, in which case he was informed about the meeting he missed, received all the information and documents provided to other members of the Executive Committee, participated in Executive Committee meetings, and voted the same as every other member of that committee — one man, one vote. Defendant Boyd's management style was to achieve consensus, which he was able to do with all important Executive Committee decisions.
Plaintiff Hartley also voted at Partnership meetings, as did every other partner. For certain decisions, such as the sale of Forum and of Forest, a super-majority of at least two-thirds of the ownership interests of all Founders partners was required. Plaintiff Hartley, at the time of the sales of Forum and Forest, had a 6.37% ownership interest in Founders. That interest was based on Plaintiff Hartley's investment in Founders, directly and through entities he controlled, of $1,250,000.
Defendant Boyd controlled Boyd, Inc., the general partner of Founders, which owned a 2.786% interest in Founders as of June 1, 2000, and Defendant Boyd, through entities or accounts he controlled also owned a combined 32.496% interest in Founders as of June 1, 2000. At all relevant times, Defendant Boyd, or entities or accounts that he owned or controlled, owned or controlled more than one-third of all the partnership interests of Founders.
Under the terms of the Limited Partnership Agreement, the vote or consent of a simple numerical majority of all of the partners who owned in the aggregate two-thirds or more of the capital accounts of all of the partnership interests of Founders was required to sell to any third party all or substantially all of the assets or business of Forum or Forest. Because Defendant Boyd, or entities or accounts that he owned or controlled, owned in the aggregate more than one-third of the capital accounts of all of the partnership interests of Founders, he was, under the terms of the Limited Partnership Agreement, able to block the sale to any third party of all or substantially all of the assets or business of Forum or Forest. He could not, however, compel the sale of either Forest or Forum.
In 1998, Founders began to have discussions with other entities about the possibility of acquiring either Forum or Forum and Forest together. At that time, electronic trading had supplanted the benefits of personal contacts, banks had developed large capitalization capabilities, and the forecast for Forum was less than positive. Informal inquiries resulted in indications of interest in buying Forum only at book value, and only for stock in the acquiring company, which was of no interest to the members of the Executive Committee.
In the summer of 1999, the Founders Executive Committee decided to see if it could find an investment banking firm that would undertake the assignment of finding a buyer interested in buying Forum or Forest or both. The members of the Executive Committee of Founders at the relevant times were Plaintiff Hartley, Defendants Boyd and Purkey, Eric Grant, Stephen Devoe, and Kendrick Wakeman. The Executive Committee gave Defendant Purkey the assignment of seeking out an investment banking firm and Defendant Purkey ultimately recommended that Founders go forward with Putnam, Lovell, DeGuardiola Thorton, Inc. (hereinafter referred to as "Putnam Lovell"). The Executive Committee hired Putnam Lovell on September 1, 1999, agreeing to pay it a retainer of $75,000 every three months, credited toward a success fee. Founders made three such payments to Putnam Lovell, for the period through June 1, 2000.
Putnam Lovell continued its marketing efforts through the time of the sales of Forum and of Forest. Included in those efforts was its valuation of Forum and three valuations of Forest. In the fall of 1999, Putnam Lovell determined, as of August 31, 1999, that the Fair Value of Forum's business in a third-party sale was $37 million. In the fall of 1999, Putnam Lovell indicated, as of August 31, 1999, the Fair Value of Forest's business in a third-party sale was $53 million. In its updated valuation of Forest as of December 31, 1999, Putnam Lovell determined that the fair value of Forest in a third-party sale had declined to $28 million. The book value of Forum as of year-end 1999 was $20.6 million. It was not uncommon for brokerage firms to sell at multiples of 1.5 to 2 times book value. On April 10, 2000, Putnam Lovell indicated that the median purchase price of Forest, as of March 31, 2000, was $36,453,000. As a member of the Executive Committee Plaintiff Hartley was aware of all of the values presented by Putnam Lovell. Plaintiff Hartley never urged or requested that all of the valuations be distributed to the Founders partners. These valuations were merely estimates of value, which can differ from the amount that someone is actually willing to pay. They constituted hypothetical estimates of value and can differ from the amount someone is actually willing to pay for a company. Steven Pierson, of Putnam Lovell, admitted in his deposition that many times the actual sale price of a business is lower than the Putnam Lovell valuations. He stated that the best barometer of price is that amount at which a company actually sells. He further indicated that it is always difficult to find a buyer for a single-product hedge fund, such as Forest, with a small investment team, and even more so when they have performance difficulties, which had occurred to Forest. Putnam Lovell had also indicated that the valuation of Forest, as of March 31, 2000, could be as low as $16,493,000 in a private sale.
In December 1999, First Union, a national bank, expressed interest in buying Forum and possibly Forest. In a lengthy conversation between Steven Kohlhagen, then Managing Director of First Union Securities, Defendant Purkey and Mr. DeVoe, Mr. Kohlhagen learned much information about Founders, Forum, and Forest, including the fact that not all Founders owners were employees of Forum, some were employees of Forest. Defendant Boyd was employed by Forest and not employed by Forum.
On January 27, 2000, First Union made a proposal to acquire Forum for cash, with an additional provision for a retention pool, an amount of money to be paid only to Forum employees whom First Union unilaterally decided to hire. The purpose of the retention pool, together with guaranteed salaries and bonuses, was to induce Forum employees whom First Union wanted to hire to join First Union, and for those employees to stay at First Union for at least three years. Any forfeited amount of the retention pool went to First Union employees, in First Union's sole discretion. The principal asset First Union would be acquiring was the experience, skill, and contacts of Forum employees who specialized in convertible securities.
In February 2000, the Executive Committee, and then the entire Partnership, met to discuss First Union's proposal. At the Partners' meeting, Steve Pierson of Putnam Lovell explained First Union's proposal, and the fact that only those employees whom First Union hired would be eligible to share in the retention pool. All 22 partners (with one abstention) voted to proceed with discussions with First Union for the sale of Forum. Plaintiff Hartley voted in favor of proceeding. First Union then conducted a series of meetings with Forum employees to determine whom to hire.
Plaintiff Hartley knew that the purpose of his several meetings with First Union was to interview for a job with First Union. He also knew that he would not participate in the retention pool unless First Union hired him. Plaintiff Hartley did not receive a job offer from First Union. Defendant Purkey urged First Union to hire Plaintiff Hartley and arranged for Plaintiff Hartley to have additional interviews with First Union. Ultimately, the additional interviews were not successful and Plaintiff Hartley was not hired by First Union.
As of March 2000, First Union instructed that anyone working at Forum whom it was hiring had to divest himself or herself of any interest in Forest, because of a conflict of interest between the existing capabilities of First Union and the business of Forest. At that time, there had not been any bids received on Forest.
The absence of any buyer for Forest put the Plaintiff and all the other Founders partners in a dilemma. The sale to First Union was beneficial to all Founders partners in that they stood to make an excellent profit on their investment in Founders, while avoiding potential significant losses if Forum was not sold. However, that deal could not go forward unless Forest was sold.
There were four options available to the Founders partners: First, not to proceed with the sale of Forum to First Union, the only buyer Putnam Lovell had been able to locate in several months, to the loss of all Founders partners. Second, wait until a third party could be found to buy Forest. The problem with that scenario is that no one wanted to buy Forest, and First Union was eager to close on the Forum deal as soon as possible. Third, have the Forum employees whom First Union was hiring divest themselves of their ownership interest in Forest by redeeming their partnership interests at book value, in accordance with the Founders Limited Partnership Agreement. The problem with that scenario was that the book value of Forest was considerably less than the Founders partners hoped to receive from the sale of Forest. Fourth, Defendant Boyd and others could acquire Forest at more than book value, enabling the Forum employees to divest themselves of their interest in Forest, as First Union required, while making a profit on their investments. All of these options were discussed at an Executive Committee meeting in late March 2000.
While the fourth option would provide a major benefit to the Founders partners, it was much less attractive financially to Defendant Boyd. When First Union demanded that the Forum employees it was hiring divest their ownership interests in Forest, Defendant Boyd could have stood by while the Forum partners redeemed their Founders partnership interests at book value. In that circumstance, since many of the Founders partners went to First Union, Boyd's 35% ownership interest in Forest (through Founders) would have increased substantially, without Boyd paying any money. Instead, he took on a 66% ownership interest in the group that acquired Forest for $20,000,000 plus cash and accounts receivables (hereinafter referred to as the "Boyd Acquisition Group"). As a result, Boyd spent millions of dollars to purchase an interest in a company that had no cash, no receivables, and whose major asset was Boyd himself. All of the other partners, including Plaintiff Hartley, were in favor of the fourth option. In April 2000, Boyd was requested by the partners in Founders to purchase Forest. Defendant Boyd was under no compulsion to acquire Forest, either by himself or with others, but considered it in the best interests of the Founders partners to proceed with that acquisition. Boyd and the others in the Boyd Acquisition Group had no obligation to acquire Forest. Plaintiff Hartley did not object when he learned that the Boyd Acquisition Group was willing to acquire Forest.
In April 2000, First Union decided not to hire Plaintiff Hartley. Plaintiff Hartley was informed of this decision before three key events: (1) the April 10, 2000 Executive Committee meeting at which he voted in favor of both transactions; (2) the April 11, 2000 Partnership meeting at which the partners discussed both transactions; and (3) the April 17, 2000 Partnership meeting, which Plaintiff Hartley described as an "open forum," at which the partners completed their discussion about both transactions and voted on whether to proceed with the sales. At all those Partnership meetings Plaintiff Hartley did not express any objection to either transaction. The credible evidence is that he orally voted "Yes" to proceed with the transactions. By secret ballot, 93% of the Founders partners voted in favor of both transactions. Plaintiff Hartley secretly voted his 6.37% ownership interest against both transactions. Plaintiff Hartley received over $3,000,000 from the sales of Forum and Forest based upon his 6.372% interest in Founders. This amount represented a profit of approximately $1,750,000 on his investment.
In late March 2000, Defendant Boyd did a comprehensive analysis to determine the amount which he and the Boyd Acquisition Group would be willing to pay for Forest, preparing 30 to 40 spreadsheets, in various iterations. As a result of this analysis Boyd estimated that the purchase price of Forest should have been in the range of between $15 million and $16 million. In the negotiation of the price for Forest, Putnam Lovell's three valuations of Forest were of very limited significance, and had no effect on the negotiations. At the Executive Committee meeting held on April 10, 2007, there was negotiation about the purchase price for Forest. Plaintiff Hartley actively participated in the negotiation. At that negotiation, Defendant Boyd offered to purchase Forest for between $12 million and $14 million. Plaintiff Hartley, Defendant Purkey, Eric Grant and Kendrik Wakeman, all of them Founders partners, representing the sell side, countered with $30 million. The Boyd Acquisition Group eventually acquired Forest for $20,000,000 in cash, together with the infusion of $987,000 in cash and over $7 million in accounts receivable. Plaintiff Hartley never requested to join the Boyd Acquisition Group. Defendant Boyd never told Plaintiff Hartley that he could not join the group. Plaintiff Hartley was never told that he had to be a Forest employee to participate in the acquisition of Forest, and he never inquired who was in the Boyd Acquisition Group. Plaintiff Hartley never made a bid, alone or with anyone else, to purchase Forest. Many of the partners Boyd wanted to have as part of the acquisition group rejected the offer because they felt the price was too high.
If the sale of Forum to First Union and the sale of Forest to the Boyd Acquisition Group did not proceed, the Corporate Finance Department would have been eliminated and Plaintiff Hartley would have been out of a job, because it would have been necessary for Forum to cut back on employees significantly. The total amount the Boyd Acquisition Group paid for Forest consisted of three elements: $20 million in cash, plus over $7 million in receivables, plus cash capital of more than $987,000. Putnam Lovell's estimated valuation of Forest as of March 31, 2000, in a private sale (such as the Boyd Acquisition Group's purchase of Forest) was in the range of $16,493,000 to $31,887,000. The Boyd Acquisition Group's purchase of Forest for $20,000,000 plus the infusion of cash and accounts receivable was within the range of Putnam Lovell's estimated valuation of Forest in a private sale as of March 31, 2000, within two weeks of the date the Founders partners approved the sale.
By the April 11, 2000 Partnership meeting, each Forum employee going to First Union knew his or her own package with First Union, including his or her individual allocation of the retention pool, bonus, and compensation package. That information was not made known to all Founders partners because it was personal to each individual. At the April 11, 2000 Partnership meeting, all Founders partners, including Plaintiff Hartley, received a statement of their cash balances as of March 31, 2000, and a draft term sheet regarding the sale of Forum to First Union and the sale of Forest to the Boyd Acquisition Group. At that meeting, all Founders partners received a draft term sheet regarding the sale of Forum to First Union, including the amount of the retention pool ($13.095 million), the fact that the retention pool would be paid only to Forum employees being hired by First Union, and that retention pool payments would be forfeited if those employees did not remain at First Union for at least three years, as well as details of the First Union bonus pool.
The Putnam Lovell valuations were distributed to the Founders partners. The Putnam Lovell valuation of Forest as of March 31, 2000, was distributed to the Founders partners at the April 11, 2000 Partnership meeting. The vote for the sale of Forest was conducted on the basis of a purchase price of $20 million, exclusive of cash and cash equivalents. The representative for Putnam Lovell advised Mr. DeVoe and Defendant Purkey that there were no bids for Forest and the figure of $20 million was acceptable to Putnam Lovell.
Defendant Boyd did not withhold any pertinent information from any Founders partner prior to the vote on both sales. Defendant Boyd acted in a fair and equitable manner toward his partners in connection with the Forest and Forum transactions. No aspect of either transaction was ever hidden from Plaintiff Hartley. At the April 17, 2000 Partnership meeting, Hartley knew that he would receive more than $3 million dollars if the sales of Forum and Forest were approved. Plaintiff Hartley did not speak at the April 17, 2000 Partnership meeting. None of the partners at the April 17, 2000 Partnership meeting spoke against the proposed sales of Forum and Forest. That meeting was conducted, at the request of Founders, by the law firm of Kelly, Drye and Warren which firm prepared the ballot. Founders retained the accounting firm of John Fulvio and Associates to oversee the vote. By secret ballot, the Founders partners voted to approve the sale of Forum and Forest in accordance with the super-majority requirement of the Founders Agreement of Limited Partnership. John Fulvio and Associates reported that the sales had been approved in accordance with the super-majority requirement of the Founders Agreement of Limited Partnership, but did not reveal the actual vote, and did not reveal that Plaintiff Hartley had voted "No." 93% of the capital accounts of the Founders partners, and 91% of the partners by head count voted to approve the sale of Forum to First Union and Forest to the Boyd Acquisition Group, thereby satisfying the super-majority requirement in the Founders Agreement of Limited Partnership. Following the April 17, 2000 Partnership meeting, and continuing through June 12, 2000, Messrs. Boyd, Purkey and DeVoe did not know that Plaintiff Hartley voted against the sales of Forum and Forest. Prior to the closings of the sales of Forum and Forest, Plaintiff Hartley never brought any action in court to try to stop either deal.
On May 2, 2000, Founders and Forum signed an Acquisition Agreement with First Union. On June 1, 2000, First Union wired about $22,000,000 to Founders, effectuating its acquisition of Forum. As of June 1, 2000, Founders executed a Consent and Agreement with those people acquiring Forest. By June 1, 2000, the Boyd Acquisition Group had paid $20 million and had invested an additional $6 million to capitalize Forest, since Forest's cash and receivables had been distributed to the Founders partners.
Prior to June 6, 2000, Defendant Purkey was the Founders representative on the board of directors of Hybridon. At that time, Founders maintained a $5.2 million investment in Hybridon. First Union required Defendant Purkey to give up his Hybridon seat since First Union was not interested in acquiring Hybridon as part of its transaction. On June 6, 2000, Defendants Boyd and Purkey and Mr. DeVoe agreed to Plaintiff Hartley replacing Defendant Purkey on the Hybridon board of directors. Plaintiff Hartley and Founders entered into a consulting agreement permitting Plaintiff Hartley to assume the seat on the Hybridon board of directors and to be compensated for his service. Plaintiff Hartley also received stock options for serving on the Hybridon board. If Defendants Purkey and Boyd and Mr. DeVoe had been aware that Plaintiff Hartley was opposed to the sales of Forest and Forum, they would not have given Plaintiff Hartley the benefit of serving on the Hybridon board, a position which required Plaintiff Hartley to oversee Founders' investment of $5.2 million.
On June 12, 2000, Plaintiffs' lawyer sent a letter to Defendant Boyd indicating that Plaintiff Hartley objected to the sales of Forest and Forum. Defendants Boyd and Purkey and Mr. DeVoe were shocked to receive this letter, since Plaintiff Hartley had never voiced his displeasure in any of the meetings. After receiving this letter Defendants Boyd and Purkey and Mr. DeVoe learned from John Fulvio that Plaintiff Hartley had voted against both sales.
The effective date of the sale of Forum was June 1, 2000. Founders sold Forum to First Union as of that date for the sum of $22 million. Between April 30, 2000, and May 31, 2000, Forum's book value declined from over $21 million to a little over $15 million. This was due to the fact that First Union did not want to acquire the Hybridon position, which was transferred by Forum to Founders. The Hybridon investment was highly illiquid, and was not worth $5.2 million in May 2000. On May 31, 2000, the Forum books also included its ownership interest in 17 million Reptron bonds. This was an illiquid investment worth far less than its stated book value. The $22 million purchase price paid by First Union for Forum constituted the only bid any party made to acquire Forum and represented a multiple of Forum's book value. The purchase price represented either at or above the fair market value of Forum. First Union's retention pool allocations were based on the value of each Forum employee to First Union and not based on ownership interests in Founders. The retention pool ($13.095 million) was not paid to Founders. It was only paid to those Forum employees whom First Union decided to hire. If Forum employees who went to First Union did not stay three years, they forfeited the balance of their retention payments and the balance would be reallocated by First Union, in its sole discretion, and would not be paid to Founders. First Union had no obligation to reallocate any such forfeited amount to a former Forum employee. The retention pool is not part of the purchase price paid by First Union to Founders. It was First Union's acquisition of the personal goodwill of the Forum employees it was hiring, and not the purchase price for Forum. The portion of Putnam Lovell's success fee attributable to the retention pool was not paid by Founders. It was paid solely by the Forum employees First Union hired.
First Union viewed the employees that it hired as necessary for the ongoing business of Forum, taking into account each person's capabilities in helping take the business where it needed to go, as well as how critical and important each person was to the future business First Union wanted to build. The Forum employees hired by First Union had unique skill in their areas. Those employees included senior management, as well as employees who generated revenue for Forum — salesmen, traders and research analysts. None of the Forum employees hired by First Union were bound by employment agreements or covenants not to compete prior to the closing of the First Union transaction. The employment agreements which the Forum employees did sign in anticipation of the First Union acquisition of Forum were contingent upon the closing of the First Union transaction.
Defendant Purkey was to receive $2.5 million in retention payments and $3 million in salary and bonuses over the three-year period. Defendant Purkey paid taxes at ordinary income tax rates for the retention pool payments that he received. If the retention pool payments had been a part of the purchase price for Forum, the payments would have been subject to capital gains tax treatment, which is lower than the ordinary income tax rate. The retention pool was the acquisition of the personal good will of Forum employees who were hired by First Union, and not part of the purchase price for Forum.
There were no formal bids received to purchase Forest. Forest was never taken off the market prior to the final transaction. As of May 31, 2000, Forest's book value was $8,813,149.13. The price paid for Forest was the result of negotiation. The final purchase price for Forest was $20,000,000, plus cash and receivables of over $7,000,000. This purchase price represented a multiple of Forest's book value. Forest was not purchased at a discount, and there was no plan for the purchase of Forest at a discount. To the contrary, the final purchase price was higher than Defendant Boyd thought Forest was worth. The effective date of the sale of Forest was June 1, 2000. Pursuant to the Consent and Agreement, the Boyd Acquisition Group was obligated to pay Founders $7,148,398.57 in accounts receivable, even if those receivables were not collected. The $7,148,398.57 in accounts receivable were a portion of the purchase price of Forest. Further, pursuant to the Consent and Agreement the Boyd Acquisition Group was obligated to pay Founders cash capital in excess of $987,000. Because all of the cash and receivables of Forest were distributed to Founders, in addition to paying to Founders $20 million, the buying group of Forest was forced to re-capitalize Forest by paying $6 million into the business upon its sale. This $6 million was operating capital, without which Forest could not have operated after the closing. The purchase price paid for Forest was at or above the fair market value for Forest.
If the sales of Forum and Forest did not go through, Plaintiff Hartley and the entities he controlled would have received 6.37% of the book value of Founders based on the Founders Agreement of Limited Partnership. This would have been a fraction of what the plaintiffs did receive from the sales of Forum and Forest. Further, Plaintiff Hartley's job would have been eliminated. All Founders partners received their proportionate share of the proceeds of the sales of Forum and Forest due them.
Shortly after Founders sold Forest, three new partners, Scott Watson, John Holman and John McDonald, bought into the buying group of Forest, Forest II. Those three partners invested based on a valuation of Forest of $26 million, representing the $20 million paid plus $6 million that was necessary to recapitalize the business to enable it to operate. The $20,000,000 (exclusive of cash and accounts receivable) purchase price for Forest constituted the only bid any party made to acquire Forest. That purchase price was at or above the fair market value of Forest. Even if the cash and receivables are not included in the purchase price, the $20,000,000 constituted fair value for Forest.
III. DISCUSSION A. Plaintiffs Hartley Claims 1. Count Nine — Breach of Fiduciary Duty
Count Nine of the Complaint represents a derivative claim for breach of fiduciary duty against Michael A. Boyd, Michael A. Boyd, Inc. and Harold L. Purkey. Essentially, Plaintiffs claim that Defendants Boyd and Boyd, Inc. breached the fiduciary duties of loyalty and good faith they owed to Founders, in that they failed to protect the interests of Plaintiffs as limited partners of Founders by maximizing the price at which the businesses of Forum and Forest were sold by Founders and it is alleged that they refused, in bad faith, to consent to the sale of Forum to First Union until Defendant Boyd and other Forest Partners were permitted to purchase the business of Forest at significantly less than its fair value as of December 31, 1999; and in that they approved the sale of Forum to First Union at a price many millions of dollars below its fair value in May 2000. Plaintiffs also allege that Defendant Purkey breached the fiduciary duties of loyalty and good faith he owed as a member of the Executive Committee of Founders and as the principal negotiator on behalf of Founders of the sale of the business of Forum to First Union; in that he failed to protect the interests of Plaintiffs as limited partners of Founders by maximizing the price at which the business of Forum and Forest were sold by Founders; in that he approved the sale of Forest to Defendant Boyd and other employees of Forest at a price at least one-third below the fair value of Forest as of December 31, 1999; in that he approved the sale of Forum to First Union at a price many millions below its fair value in May 2000, while obtaining payments to himself and other Forum employees of $13 million from a "retention pool"; and in that he failed to use his position to negotiate a reduction in the unnecessarily and unreasonably high "retention payments" to be made to himself and other employees of Forum.
It is clear that Connecticut law governs all of the issues in this case, even though some of the entities involved have been established in other states. See Merrick v. Cummin, 100 Conn.App. 664, 667 n. 3, 919 A.2d 495 (2007); Macomber v. Travelers Property and Casualty Corp., 277 Conn. 617, 640, 894 A.2d 240 (2006).
The general partner of a limited partnership has a fiduciary duty to the limited partners and the limited partnership. Konover Development Corp. v. Zeller, 228 Conn. 206, 218, 635 A.2d 798 (1994). "Once a fiduciary relationship is found to exist, the burden of proving fair dealing shifts to the fiduciary." Id. at 219. "Proof of a fiduciary relationship imposes a twofold burden on the fiduciary. First, the burden of proof shifts to the fiduciary; and second the standard of proof is clear and convincing evidence," clear and satisfactory evidence, or clear, convincing and unequivocal evidence. Id. at 229-30. The burden of clear and convincing evidence "is sustained if the evidence induces in the mind of the trier a reasonable belief that the facts asserted are highly probably true, that the probability that they are true or exist is substantially greater than the probability that they are false or do not exist." Springfield Oil Services, Inc. v. Conlon, 77 Conn.App. 289, 299, 823 A.2d 345 (2003). A general partner has the duty to prove that he dealt fairly with the limited partners and not just that he acted reasonably. Id. at 302. A general partner's fiduciary duty cannot be negated by the terms of the limited partnership agreement. Id. In the context of a commercial limited partnership with financially sophisticated parties, "a fiduciary may demonstrate that a particular transaction was fair by showing: (1) that he made a free and frank disclosure of all the relevant information he had; (2) that the consideration was adequate; (3) that the [fiduciary] had competent and independent advice before completing [the] transaction; and (4) the relative sophistication and bargaining power among the parties." Id. at 299-300. There is no breach of fiduciary duty where a partner is not given information he already has. McKosky v. Plastech Corp., Superior Court, judicial district of New Haven, No. 426036 (June 13, 2001, Blue, J.).
It cannot be disputed that Defendants Boyd and Boyd, Inc. owed fiduciary duties to Founders and its limited partners. Defendant Boyd was the person designated to act as the representative of the general partner in all matters relating to Founders and was the Chairman of the Executive Committee and Chief Executive Officer of Founders. He owed, as general partner, a fiduciary duty to the limited partners and the limited partnership. Springfield Oil, supra at 299. Therefore, the fiduciary relationship having been found to exist, the burden of proving fair dealing shifts to the fiduciary. Id.
Plaintiffs argue that Defendants Boyd and Boyd, Inc. failed to establish by clear and convincing evidence that they made a full and frank disclosure of all of the relevant information they had concerning the value of Forest and Forum. They claim that the ballot only mentioned that the fair market value of Forest had been determined to be $20,000,000 and that the documents did not mention the Putnam Lovell estimate of fair value on April 10, 2000, to be $37,000,000. They further argue that the Founders limited partners were neither told about the updated valuation nor were they told which Founders partners were purchasing Forest or in what proportion.
Plaintiffs further allege that Defendant Purkey engaged in self-dealing because his personal interest in the Forum transaction was not disclosed to the limited partners. Defendant Purkey was to receive $2.5 million in retention payments and $3.0 million in salary and bonuses. He received 10.673 % of the proceeds of the Forum and Forest transactions received by Founders. Plaintiffs claim that, as the agent for Founders in the negotiations with First Union, Defendant Purkey breached his duty of fair dealing to the limited partners.
Plaintiffs further claim, that based upon the prior valuations of Forest and Forum the Defendants Boyd and Boyd, Inc. failed to establish that the consideration received by Founders for the businesses of Forum and Forest was fair and adequate.
The Court has analyzed this issue pursuant to both its findings and the dictates of the Springfield Oil and Konover decisions. Pursuant to Springfield Oil and Konover the fiduciary is bound to prove to the Court by clear and convincing evidence that (1) there was full and frank disclosure, (2) the consideration was adequate, (3) the fiduciary had independent advise prior to the closing, and (4) the relative sophistication of the parties. The Court will now analyze these requirements in seriatim.
(1) Full and Frank Disclosure
The Court has found that all of the Putnam Lovell valuations were distributed to the partners. Specifically, The Putnam Lovell valuation of Forest as of March 31, 2000, was distributed to the Founders partners at the April 11, 2000 Partnership meeting. The valuations were of dubious value in view of the extreme volatility in value which they demonstrated. It was unnecessary for Defendant Boyd and Boyd, Inc. to disclose the names of all partners who were part of the Boyd Acquisition Group. All partners who were interested could have joined the group. Plaintiffs Hartley never indicated a desire to join the group and they actively participated in the negotiation of the ultimate purchase price. It was not necessary for Defendant Purkey to disclose his package to the partners. All employees who were going with First Union negotiated separate packages. The determination of payment was in the sole discretion of First Union. Defendant Purkey has met his burden of proof that he did not engage in self-dealing or violate his fiduciary responsibilities in his negotiations with First Union. First Union ultimately determined that Defendant Purkey was a key employee in its acquisition of Forum. They paid him accordingly.
Defendants made full disclosure of all pertinent information to Plaintiffs Hartley and to all Founders partners at all relevant times. Plaintiff Hartley was present at all Founders Financial Group L.P. Executive Committee, Management Committee and Partnership meetings where the sales of Forum and Forest were discussed. Plaintiff Hartley was given the opportunity to vote at all meetings and voted to proceed with the sales of Forum and Forest at the April 10, 2000 Executive Committee meeting. He was given ample opportunity to voice his opinions at all meetings. However, he chose not to speak at both the April 11, 2000 and the April 17, 2000 Partnership meetings. He did not make known his objection to either transaction until after both transactions were completed. All Founders partners were free to speak at both meetings. All Founders partners received the full amount due them as a result of the sales and the Plaintiffs Hartley received in excess of $3,000,000.
(2) The Consideration was Adequate
The valuations of Putnam Lovell were not complete appraisals. They were more akin to the prices suggested by real estate agents in listing property. The three valuations fluctuated greatly over a short period of time demonstrating the volatility of the business being valued. Plaintiffs argue that the monies received were below fair value, in view of the valuations of Putnam Lovell. However, with respect to the sale of Forest, the monies received were within the range of value attributed by Putnam Lovell in a private sale. The $20 million exceeded the low end of the private sale estimate by about 3.5 million. The value cannot be compared to the Putnam Lovell estimate regarding a sale in the open market. It must be remembered that Putnam Lovell had tried to market Forest for several months and had failed to obtain one bid on the company. Further, the sale of Forest was in excess of the book value of the company and represented a multiple of that book value. The Putnam Lovell reports were of questionable value. They were not prepared in accordance with accepted appraisal standards and methodologies. For instance, Putnam Lovell's discounted cash flow analysis did not properly employ the Build Up Method or the Gordon Growth Model, thereby improperly driving up the valuations. Significant risks should have been considered by Putnam Lovell that were not included in the valuations. A significant risk not considered was the risk that Defendant Boyd would leave Forest, since he was not bound by any employment agreement or covenant not to compete. Defendant Boyd, due to his expertise and prior performance record, represented the primary value of the Forest entity. Further, there was no showing that Putnam Lovell included appropriate industry risk premiums in its valuations. These risk premiums are essential in any valuation of a risky business such as a hedge fund.
Plaintiffs claim that the "retention pool" monies held by First Union should have been included in the purchase price of Forum, thus increasing the shares received by the Founders partners. They argue that including these payments would increase the value to an area in line with the latest Putnam Lovell valuation of the company which had been received prior to the closing. Again, the First Union bid represented the only legitimate bid for Forum. There had been some preliminary interest from other sources in buying the company at book value by exchanging company shares, but this had been rejected by the Founders partners. The partners of Founders were fearful that the value of Forum was declining in view of the changing marketplace. The First Union offer represented what a willing buyer wanted to pay for the business. It was not a theoretical valuation of property that might never come to fruition. It was an excellent deal for those partners hired by First Union. The problem is that Plaintiff Hartley was not hired by First Union despite Defendant Purkey's efforts. It is clear and convincing to the Court that this problem was not created by the defendants and that there was no breach of fiduciary duty to any of the partners. The price paid by First Union represented a multiple of the book value of the company. It represented fair consideration for the company. There are additional factors which convince the Court that the retention payments should not be considered in the purchase price. First, Founders did not receive any of the retention payments. The payments were kept by First Union and paid to those employees who stayed with First Union over the course of three years. If the retention payments were included in the purchase price, Founders would have been required to distribute monies to the partners which it never received. Second, Plaintiffs have argued that the Court should consider the fact that Putnam Lovell charged its success fee on the basis of the cash plus the retention payments, as evidence of the fact that the retention payments were part of the purchase price. The Court has rejected this argument. Putnam Lovell's fee was a "success fee" in accordance with the terms of the Engagement Agreement with Founders. The fact that Putnam Lovell charged a fee based upon the entire transaction is not dispositive of the appropriate purchase price to ascribe to the transaction. It would have been more of an indicia of price, to the Court, if Founders had paid the entire fee from its resources. Instead, those employees whom First Union hired paid the additional success fee based upon their portion of the retention payments. The additional success fee for the retention pool was not paid by Founders. Third, the retention payments received by Defendant Purkey were taxed at ordinary income rates. Whereas, if he had received these payments as part of the overall purchase price of Forum, he would have made the tax payments pursuant to the lower capital gains' rates. Fourth, the Court credits the testimony of the defendants' expert, Alan Schachter, with regard to the appropriate recognition of purchase price. In his opinion, $22,000,000 was the appropriate purchase price. The Court finds his analysis and opinion more persuasive than the plaintiffs' expert, Kenneth J. Pia, Jr. The Court also accepts defendants' expert opinion as to the value of Forest at the time it was sold. Plaintiffs' expert did not update any of the Putnam Lovell reports to provide opinions of value as of June 1, 2000, when Forum and Forest were sold. Many of the factors underlying the Putnam Lovell valuations change over time, including, economic factors, industry factors, company profitability, competitive issues in the marketplace, and operational issues. Yet no updated valuations were performed by Putnam Lovell or plaintiffs' expert as of June 1, 2000. The value of hedge funds fluctuate, and are more volatile than other types of businesses. Defendants' expert performed independent calculations, using updated data to arrive at opinions of value as of June 1, 2000, the dates Forum and Forest were sold. Defendants' expert followed the Build Up Method in arriving at the discount rate. The Build Up Method is an accepted appraisal standard to arrive at a discount rate. By simply following the Putnam Lovell reports, one is not capable of making a finding of the fair market value of Forum and Forest as of June 1, 2000. It appears to the Court that plaintiffs' expert placed too great an emphasis on the reports of Putnam Lovell and did not perform enough independent analysis when arriving at his opinion. For the reasons mentioned, the Court has accepted the values found by the defendants' expert in arriving at its determination of the value of Forum and Forest. Fifth, it has been established that "personal relationships of a shareholder-employee are not corporate assets when the employee has no employment contract with the corporation." Martin Ice Cream Co. v. Commissioner of Internal Revenue, 110 T.C. 189, 207 (1998). Therefore, since none of the employees involved in the First Union purchase had employment contracts, the courts have supported the conclusion that a "retention payment" of this nature constitutes the acquisition of personal good will, and not part of the purchase price for the business. A similar conclusion was reached in Norwalk v. Commissioner of Internal Revenue, T.C. Memo. 1998-279 Docket No. 20685-96, 20686-96, 20767-96, 20772-96, 20773-96 (U.S. Tax Ct., July 30, 1998, Ruwe, J.), wherein, in determining the fair market value of an accounting firm, the court held that personal ability and reputation of the accountants were not corporate assets, since the accountants were not bound by employment agreements or covenants not to compete.
Defendant Purkey, the Court is convinced, used his best efforts on behalf of the partnership in negotiating with First Union. He attempted to lower the retention pool. However, First Union remained resolute that there had to be a large retention pool for it to complete the purchase. The partners always had the option of refusing the deal based upon the large retention pool. They never exercised this option, probably because they knew that this was the best deal available, and that the value of Forum was declining.
(3) Competent and Independent Advice
All of the parties, including Defendant Boyd and Boyd, Inc., acted on the advice of legal counsel and consultants. Plaintiff Hartley had the opportunity to avail himself of legal counsel at any stage in the proceedings. Founders retained the law firm of Kelly, Drye and Warren to conduct the Partnership meeting. Kelly, Drye and Warren drafted the ballot and Putnam Lovell drafted the term sheet, which were both distributed to the Founders partners. Founders also retained the accounting firm of John Fulvio and Associates to oversee the vote. By secret ballot, the Founders partners voted to approve the sale of Forum and Forest in accordance with the super-majority requirement of the Founders Agreement of Limited Partnership. John Fulvio and Associates reported that the sales had been approved in accordance with the super-majority requirement of the Founders Agreement of Limited Partnership, but did not reveal the actual vote, and did not reveal that Plaintiff Hartley had voted "No." 93% of the capital accounts of the Founders partners, and 91% of the partners by head count voted to approve the sale of Forum to First Union and Forest to the Boyd Acquisition Group, thereby satisfying the super-majority requirement in the Founders Agreement of Limited Partnership.
(4) Sophistication of the Parties
All of the parties involved were sophisticated businessmen. Plaintiff Hartley was a sophisticated businessman with decades of business experience and knowledge, who had a clear understanding of both the Forum and Forest transactions. All of the parties involved had in excess of twenty years experience in the field.
The defendants have proven by clear and convincing evidence that they have satisfied the requirements of the Springfield Oil and Konover decisions. They dealt fairly with the plaintiffs regarding both transactions. Judgment shall enter in favor of the defendants regarding Count Nine.
2. Count Ten — Reckless, Intentional or Wanton Breach of Fiduciary Duty
Plaintiffs claim that the defendants' actions were done with a reckless indifference to the rights of Founders or were an intentional and wanton violation of those rights.
The Court has already found that the defendants have proven by clear and convincing evidence that they did not breach their fiduciary duty to the plaintiffs. Assuming, arguendo, that the burden remains with the defendants to prove that their actions were not reckless, intentional or wanton, they have satisfied that burden by clear and convincing evidence based upon the Court's prior ruling on breach of fiduciary duty and its Finding of Fact. Judgment shall enter in favor of the defendants on Count Ten.
3. Count Eleven — Derivative Claim for Conspiracy to Breach Fiduciary Duty against Michael A. Boyd, Michael A. Boyd, Inc., Harold L. Purkey, Boyd Pension Trustee and Boyd Account TrusteeIn order for the plaintiffs to have been successful on Count eleven the Court would have had to have found a breach of a legal duty. See Marshak v. Marshak, 226 Conn. 652, 664-65, 628 A.2d 964 (en banc), overruled on other grounds, State v. Vakilzaden, 251 Conn. 656, 666, 742 A.2d 767 (1999) (en banc); Manufacturers Hanover Trust Co. v. Stamford Hotel Limited Partnership, Superior Court, Judicial District of Norwalk at Stamford, Docket No. CV91 0116971S (December 15, 1994, Karazin, J.). The Court has held that there was not a breach of a legal duty. Therefore, Judgment shall enter in favor of the defendants regarding Count Eleven.
4. Count Twelve — Derivative Claim for Reckless, Intentional or Wanton Conspiracy to Breach Fiduciary Duty
The Court has held that there were no reckless, intentional or wanton acts on the part of the defendants. Where the party asserting a claim for conspiracy to commit a tort is unable to establish the underlying cause of action, the cause of action for conspiracy must also fail. Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 140, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002). Therefore, Judgment shall enter in favor of the defendants regarding Count Twelve of the Complaint.
5. Count Thirteen — Derivative Claim for Aiding and Abetting Breach of Fiduciary Duty
There was no breach of a fiduciary duty. A civil action for aiding and abetting a breach of fiduciary duty depends upon the existence of a valid underlying cause of action for breach of fiduciary duty. Efthimiou v. Smith, 268 Conn. 499, 505, 846 A.2d 222 (2004). Therefore, there can be no claim for aiding and abetting such a breach. Judgment shall enter for the defendants on Count Thirteen.
6. Count Fourteen — Derivative Claim for Reckless, Intentional or Wanton Aiding and Abetting Breach of Fiduciary Duty
Since there was no breach of fiduciary duty, this count must fail. Judgment shall enter in favor of the defendants on Count Fourteen.
7. Count Fifteen — Breach of Agreement of Limited Partnership against Michael A. Boyd, Michael A. Boyd, Inc. and Harold L. Purkey
Plaintiffs claim that Founders was an intended third-party beneficiary of the Partnership Agreement of Founders Financial Group L.P. They further claim that Defendants Boyd and Boyd, Inc. and Defendant Purkey owed Founders an implied duty of good faith and fair dealing pursuant to the Founders Agreement of Limited Partnership. They claim that those defendants breached their implied duties of good faith and fair dealing in that they caused the amount that Founders received from the sale of Forest to be less than it should have been and that the sale of Forum to First Union was less than it should have been by the failure to include the retention pool in the purchase price.
"An action for breach of the covenant of good faith and fair dealing requires proof of three essential elements, which the plaintiff must duly prove: first, that the plaintiff and the defendant were parties to a contract under which the plaintiff reasonably expected to receive certain benefits; second, that the defendant engaged in conduct that injured the plaintiff's right to receive some or all of those benefits; and third, that when committing the acts by which it injured the plaintiff's right to receive benefits it reasonably expected to receive under contract, the defendant was acting in bad faith." Homes of Westport, LLC v. The Wilton Bank, Superior Court, Judicial District of Fairfield at Bridgeport, Docket No. CV06 0403842S (October 2, 2007, Maiocco, J.). "Bad faith, in general, implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence, it involves a dishonest purpose." De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 433, 849 A.2d 382 (2004).
Assuming, arguendo, that Plaintiffs could sue as a member of Founders on the theory that Founders was a third-party beneficiary (see Beck v. New Samaritan Family Housing of Waterbury, Superior Court, Judicial District of Waterbury at Waterbury, Docket No. CV03 0181797S [June 15, 2005, Matasavage, J.] [39 Conn. L. Rptr. 520] for authority that a third-party beneficiary could not sue) to the partnership agreement, the plaintiffs have failed to prove part two of the test. They failed to establish that the defendants engaged in conduct that injured the plaintiffs' right to receive some or all of the benefits to which they were entitled. The Court has already held that the monies received by Founders for the sale of Forum and Forest represented fair value and adequate consideration for the companies. The Court has also held that it was proper not to include the retention pool in the purchase price. Therefore, Judgment shall enter for the Defendants on Count Fifteen of the Complaint.
8. Count Sixteen — Derivative Claim for Unjust Enrichment against Michael A. Boyd, Michael A. Boyd, Inc., Harold L. Purkey, Boyd Pension Trustee and Boyd Account TrusteePlaintiffs claim that Defendant Purkey was unjustly enriched due to the substantial payments he received from the retention pool. They further claim that all of the Boyd entities were unjustly enriched in that they purchased Forest at a fraction of its fair market value.
A party seeking recovery for an unjust enrichment claim must prove three elements. The plaintiff must demonstrate that: (1) the defendant received a benefit; (2) the defendant unjustly did not pay for the benefit; and (3) the defendant's failure to pay was to the plaintiff's detriment. Weisman v. Kaspar, 233 Conn. 531, 550, 661 A.2d 530 (1995). "A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . With no other test than what, under a given set of circumstances is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard." Meaney v. Connecticut Hospital Association, Inc., 250 Conn. 500, 511-12, 735 A.2d 813 (1999).
Plaintiffs cannot recover on the unjust enrichment claim because they failed to prove that Defendants retained any benefit unjustly and that they retained any benefit to Founders' detriment. Plaintiffs failed to meet their burden of proof for the following reasons:
1. Defendant Boyd and others who purchased Forest bought Forest only when there was no other available buyer, after Forest had been marketed for months. This purchase was much more preferable for Plaintiffs Hartley and the other Founders partners than any other option with respect to Forest.
2. The amount the Boyd Acquisition Group would pay for Forest was agreed to at the April 10, 2000 Executive Committee meeting wherein Plaintiff Hartley voted in favor of that purchase.
3. When First Union demanded that the Forum employees it was hiring divest their ownership interests in Forest, Defendant Boyd could have not acted while the Forum partners redeemed their Founders partnership interests at book value. In that circumstance, since many of the Founders partners went to First Union, Boyd's 35% ownership interest in Forest (through Founders) would have increased substantially — without Boyd paying any monies. Instead, he took on a 68% ownership interest in a group acquiring Forest for $20,000,000 along with an infusion of $6,000,000 in cash. As a result Defendant Boyd spent millions of dollars to purchase an interest in a company that had no cash, no receivables, and whose major asset was Boyd himself.
4. First Union bought Forum after Forum had been marketed for sale for months and First Union was the only party ever to make a formal bid for Forum.
5. Both Forum and Forest were sold at multiples of their book value, and at or above their respective fair market values.
6. Plaintiff Hartley was given ample opportunity to voice his opinions at all meetings. However, he voted in favor of the sales of Forum and Forest at the April 10, 2000 Executive Committee meeting. He chose to remain silent at the April 11, 2000 Partnership meeting where the Forum and Forest sales transactions were discussed, and the April 17, 2000 Partnership meeting where both transactions were discussed and the partners voted on both transactions. Plaintiff Hartley did not make known his objection to either transaction until after both transactions were completed.
7. Defendant Purkey urged First Union to hire Plaintiff Hartley and convinced First Union to conduct repeated interviews for that purpose. However, First Union declined to hire Plaintiff Hartley. Defendants had no control over that decision.
8. First Union, not any defendant, determined which Forum employees to hire and how to allocate the retention pool. First Union alone determined the salaries and bonuses it would pay to the employees it hired. Those employees were not bound to accept these salaries and bonuses and were free to work elsewhere. The amounts which First Union paid to the Forum employees it hired were determined based upon First Union's subjective assessment of the value of each Forum employee to First Union, that employee's specific skills, and how critical each employee was to the business that First Union wanted to build.
9. Because the retention pool was to be paid over a three-year period and for tax reasons, Defendant Purkey would have received more of a benefit if the retention pool was lower and the price paid for Forum was higher. Additionally, if a Forum employee whom First Union hired did not remain at First Union for three years, that employee forfeited the remaining retention pool payments otherwise due. In that event, First Union, in its sole discretion, reallocated that remaining amount to other First Union employees, whether or not they had worked at Forum.
10. The Forum and Forest transactions were conducted pursuant to the terms of the Founders Agreement of Limited Partnership. No pertinent information was withheld from Plaintiff Hartley or any other Founders partner.
11. Plaintiffs Hartley received over $3,000,000 from the sales of Forum and Forest, the full amount due them pursuant to the terms of the Founders Agreement of Limited Partnership. All other Founders partners also received the full amount of the proportionate distributions due them pursuant to the terms of the Founders Agreement of Limited Partnership.
The Plaintiffs have failed to prove that the Defendants retained any benefit unjustly. They have also failed to prove that Defendants retained any benefit to Founders' detriment. Therefore, Judgment shall enter in favor of the Defendants on Count Sixteen.
IV. CONCLUSION
Based upon the foregoing reasons, Judgment shall enter in favor of the Defendants.