Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

LAWRENCE v. XEROX CORP.

May 26, 1999

GREGORY J. LAWRENCE AND HAL D. PUGACH PLAINTIFFS,
v.
XEROX CORPORATION, XEROX CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN, CRUM & FOSTER, INC., CRUM & FOSTER HOLDINGS, INC., TALEGENT HOLDINGS, INC., FAIRFAX FINANCIAL HOLDINGS LTD. AND PATRICIA M. NAZAMETZ DEFENDANTS.



The opinion of the court was delivered by: Lechner, District Judge.

  OPINION

This is an action brought by the plaintiffs, Gregory J. Lawrence ("Lawrence") and Hal D. Pugach ("Pugach") (collectively, the "Plaintiffs"), against defendants, Xerox Corporation ("Xerox"), Xerox Corporation Employee Stock Ownership Plan (the "Xerox ESOP"), Crum & Foster, Inc. ("C & F"), Crum & Foster Holdings, Inc. ("C & F Holdings"), Talegent Holdings, Inc. ("Talegent"), Fairfax Financial Holdings Ltd. ("Fairfax") and Patricia M. Nazametz ("Nazametz") (collectively, the "Defendants"). Plaintiffs seek to recover stock, or its value, alleged to have been lost when Defendants terminated the participation of C & F employees in the Xerox ESOP.

Currently pending are the request of the Plaintiffs to amend (the "Second Request to Amend") the amended complaint (the "Amended Complaint") and the motion, filed by Defendants, to transfer the instant action (the "Motion to Transfer") to the United States District Court for the Western District of Texas (the "Western District of Texas"), pursuant to 28 U.S.C. § 1404(a) ("Section 1404(a)").*fn1 A motion to dismiss this matter was noticed by Defendants in connection with the Motion to Transfer, but was not briefed. See Opposition Brief at 1 (noting that pursuant to an agreement made between the parties at a conference on 3 March 1999, the Motion to Dismiss would be submitted for consideration after the pending Motion to Transfer was decided). For the reasons set forth below, the Second Request to Amend is granted and the Motion to Transfer is granted; the instant action is transferred for all purposes to the Western District of Texas.

Facts

A.  Parties

Plaintiffs Lawrence and Pugach were employed by C & F at its offices in Roseland, New Jersey from, respectively, about 1 December 1986 through about 7 January 1994, and from about 1 April 1983 through about 1 May 1998. Plaintiffs would have been Participants in the Xerox ESOP commencing on 31 December 1993 and thereafter, if Xerox had not terminated the Xerox ESOP.

Xerox is a New York corporation with its principal place of business in Stamford, Connecticut.

Talegent is a Delaware corporation with its principal place of business in Seattle, Washington. Talegent was formed by Xerox to act as a holding company for the insurance and financial services operations of Xerox.

C & F is a Delaware corporation with its principal place of business in Morristown, New Jersey. C & F Holdings is a Delaware corporation with its principal place of business in Morristown, New Jersey. C & F Holdings is an affiliate of C & F.

Fairfax is a Canadian corporation with its headquarters located in Toronto, Canada. Fairfax purchased the C & F entities from Xerox in mid-1998 and now does business in the United States and the State of New Jersey by operating its C & F entities from their principal places of business in Morristown, New Jersey.

The Xerox ESOP is an entity established by Xerox effective as of 1 July 1989 under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), and as defined in Section 4975(e)(7) of the United States Internal Revenue Code. The Xerox ESOP is, according to its terms, controlled by Xerox and administered by a plan administrator (the "Plan Administrator"). See Xerox ESOP at 30, Article 12.01, attached to Amended Complaint as Exh. A. The Plan Administrator designated in the Xerox ESOP also serves as the named fiduciary of the Xerox ESOP. See id.

Nazametz serves as the Plan Administrator for the Xerox ESOP. Plaintiffs allege Nazametz maintains an office at the principal office of Xerox in Stamford, Connecticut. Although not specifically set forth by either party, it appears the operations of the Xerox ESOP are also centered in Stamford, Connecticut.

B.  Procedural History

The instant matter was commenced by Plaintiffs on 18 December 1998. Plaintiffs filed the Amended Complaint on 16 March 1999. Defendants filed an answer to the Amended Complaint on 6 April 1999.

On 8 April 1999, the Defendants submitted the Motion to Transfer. By letter, dated and received on 28 April 1999, the Plaintiffs submitted the Second Request to Amend.

C.  Background

During 1983 Xerox acquired C & F, a large insurance and financial services company. On or about 1 July 1989, Xerox established the fully leveraged, defined contribution Xerox ESOP to purchase 10,000,000 of its convertible shares for approximately $78 per share. The listed market value of one share of Xerox common stock ("Xerox Stock") on the New York Stock Exchange on 3 July 1989, the first trading day in July of 1989, was $20.81.

Plaintiffs allege that although the Xerox ESOP was facially established as a single plan, the Xerox ESOP was actually two separate, fully leveraged, defined contribution plans. Plaintiffs further allege the two plans which constituted the Xerox ESOP were operated by a single administrative structure and were controlled by the Chief Executive Officer and Board of Directors of Xerox.

The Xerox ESOP paid Xerox approximately $785,000,000 from borrowed funds for 10 million shares of Xerox Stock. The Xerox ESOP's loan to pay for the Xerox Stock purchase was secured by the Xerox Stock and a guarantee from Xerox; funds for repayment of the loan were to be derived from employee participant ("Employee Participant") concessions, Xerox Stock dividends and Xerox contributions as needed. Plaintiffs allege the Xerox ESOP did not provide for any rights of reversion.

The concessions of the Employee Participants were primarily a 1% reduction in merit pay increases and a 50% reduction in employer 401 K contributions for employees with more than 10 years of service. All Xerox Stock owned by the Xerox ESOP was to be distributed to the Employee Participants over the course of fifteen years, commencing in 1989. See 11 July 1999 Letter to C & F Employees, attached to Amended Complaint as Exh. B. Plaintiffs allege the establishment of the Xerox ESOP was additionally motivated by the need of Xerox to combat hostile merger or acquisition activity in 1989.

Early in 1993, Xerox announced its decision to exit the insurance and financial services business, and created Talegent and C & F Holdings to facilitate that exit and the sale of all the C & F entities. On or about 2 February 1993, the Xerox ESOP was terminated. The document distributed to all C & F employees announcing the termination of the Xerox ESOP stated that the termination "will not be a take away" and that "profit sharing replacements for the ESOP" would "be announced in the second quarter." Amended Complaint ¶ 22 and Exh. C. Plaintiffs allege the subsequently announced merit based profit sharing plan was not even remotely equivalent to the Xerox ESOP assets which had been taken away. Plaintiffs further allege the C & F employees received little or nothing in consideration for the Xerox Stock they lost upon termination of the Xerox ESOP.

Plaintiffs seek to represent a class composed of all C & F employees, as defined in Article 1.16 of the Xerox ESOP, who were employed by C & F during the period beginning 1 July 1989 and ending on 31 December 1992, and who were employed by C & F at least through calendar year 1993. Plaintiffs allege there are approximately 10,000 C & F employees who fall within this class description.

In Count One of the Amended Complaint, Plaintiffs seek to recover stock owned by the C & F Employee Participants through the Xerox ESOP. Plaintiffs allege Xerox and C & F received $785, 000,000 in 1989 as partial consideration for 10,000,000 shares of Xerox Stock, which immediately became the property of the Xerox ESOP. Plaintiffs further allege that in addition to the $785,000,000, Xerox and C & F received several significant benefits. These benefits included (a) highly significant tax savings and advantages, (b) reduction of non-union salary expenses, (c) the acquisition of additional leverage to retain valuable employees, (d) the discouragement of any unionization activity by nonunion employees, (e) increased compensation for Xerox and C & F executives who were instrumental in establishing the Xerox ESOP, and (f) the use of the Xerox ESOP to combat a hostile attempt at a merger or acquisition.

In Count Two of the Amended Complaint, Plaintiffs allege Xerox, Talegent, C & F, C & F Holdings, and Nazametz are Xerox ESOP fiduciaries, as defined by ERISA. Plaintiffs further allege that when the Xerox ESOP was established in July of 1989, it constituted a classic trust fund formed for the sole benefit of its beneficiaries, including the C & F Employee Participants. Plaintiffs assert the trustees had no right to return the trust assets to Xerox or to withhold the assets from the C & F Employee Participants. Plaintiffs seek to recover from Xerox, Talegent, C & F, C & F Holdings, and Nazametz the $252,000,000 value of the Xerox Stock alleged to have been taken from Plaintiffs upon the termination of the Xerox ESOP.

In Count Three of the Amended Complaint, Plaintiffs allege the Xerox ESOP, in addition to being an agreement regulated by ERISA and the Internal Revenue Code, is a trust agreement (the "Xerox ESOP Trust Agreement"). Plaintiffs further contend the Xerox ESOP Trust Agreement defines the procedure for the disbursal of assets and the rights of parties interested in those assets. Plaintiffs assert the Xerox ESOP Trust Agreement is subject to all the applicable laws of the State of New Jersey.*fn2

Plaintiffs allege Xerox, Talegent, C & F and C & F Holdings, as parties to the Xerox ESOP Trust Agreement, breached their obligations as trustees and parties to fulfill their contractual duties. Plaintiffs further allege Xerox, Talegent, C & F and C & F Holdings breached their obligation to deal fairly and in good faith. Plaintiffs seek to recover ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.