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Workers Suing Company Officials And Trusts
GRAND RAPIDS — She got right to the point.
“They took the money and left,” said a longtime employee of the Michigan Bulb Co., who wished to remain anonymous. She was one of more than 200 employees who were made jobless when the mail-order seller of garden seeds and bulbs closed the doors of its three area locations.
The woman, a widow who turns 65 this year and who lives alone on the near northwest side of the city, said she lost her job, her health insurance and her retirement money when parent company Foster & Gallagher Inc. of Peoria, Ill., closed Michigan Bulb less than two weeks ago.
Last week Foster & Gallagher filed bankruptcy papers in Delaware.
In three weeks, a conference regarding a lawsuit will be held in U.S. District Court for the Central District of Illinois. The suit, filed in April by former Foster & Gallagher employees, charges six individuals connected with the company or a related trust, the U.S. Trust Co. and the Northern Trust Co., with mishandling the firm’s Employee Stock Ownership Plan, a fund that was valued at more than $80 million about six years ago. At that time the ESOP owned about a third of the company’s common stock.
Debra Keach and Patricia Sage, the plaintiffs, allege:
- In 1995, U.S. Trust caused the ESOP to borrow $70 million in order to buy nearly 3.6 million shares of Foster & Gallagher common stock from some of its officers. The reported share price was $19.50.
- In 1997, U.S. Trust caused the ESOP to use a $538,490 cash contribution from the company to buy 28,920 shares of common stock from shareholders at $18.60 a share.
- In 1998, the ESOP used a $3 million cash contribution from the company and $47 million from the proceeds of a loan to buy about 3.6 million shares of common stock from selected shareholders.
Around September of 1999, the plaintiffs allege, ESOP administrators announced that the share price for Foster & Gallagher common stock was $8.52 as of Dec. 31, 1998 — or almost $12 a share less than the price reported a year earlier. At the same time, they revealed that the total value of company stock in the ESOP decreased by more than $83 million and had a current net value of just over $7 million.
“Regrettably, the huge debt that Foster & Gallagher and the ESOP took out in 1995 in order to pay $70 million to Thomas S. Foster, Melvyn R. Regal and other insiders ended up being more than F&G and the ESOP could afford to repay,” said Dean Rhoads, an attorney with Sutkowski & Washkun, a Peoria-based law firm representing the plaintiffs.
“As a result, the retirement benefits of thousands of ESOP participants have apparently been wiped out,” he added.
Foster, who died in 1996, and Regal were shareholders and executives with the company.
The plaintiffs have charged U.S. Trust and six individuals with breach of fiduciary claims. They have also filed restitution claims against some of the defendants, most notably Regal and Ellen D. Foster, executrix of the estate of Thomas S. Foster. Northern Trust and Ellen Foster were co-trustees of the Thomas Foster trust.
A scheduling conference will be held July 31.
“Basically, it’s a case-management conference. It will be with Judge (John A.) Gorman, who is the magistrate judge, and it will relate to establishing a schedule for the completion of discovery, the filing of motions and that sort of stuff,” Rhoads told the Business Journal last week.
But the case is likely to take years to reach its conclusion. In the meantime, the West Side woman who was looking forward to her retirement is now looking for something else.
“I guess I have to find another job,” she said.