Full opinion text
OPINION AND ORDER WILLIAM M. CONLEY, District Judge. Once the concept of employee stock ownership plans (ESOPs) gained acceptance in the early 1970s, their numbers grew rapidly. See Steven F. Freedman, Effects of ESOP Adoption and Employee Ownership: Thirty years of Research and Experience, 2007 University of Pennsylvania Dynamics Working Papers, # 07-01 (January 10, 2007), posted at http:// repository.upenn.edu/od_working_papers/ 2. By 1993, more than 9,000 plans were in effect, along with over 20 pieces of legislation encouraging owners of privately-held companies to implement ESOPs and share equity with employees. Id. at 3. Since 1993, the number of ESOP plans appears to have stagnated, likely due to a combination of changes in the tax laws, the highly-publicized failures of ESOPs with ownership interests in corporations such as Enron, Polaroid and United Airlines, and the perceived costs of doing business associated with ESOPs, such as underinvestment, inefficient decisionmaking and conflicting fiduciary obligations. Id. As many majority owners of closely-held companies with ESOPs began looking for ways to sell their majority interests, defendants David B. Fenkell and the companies he formed and controls, Alliance Holdings, Inc. (“Alliance”), A.H.I., Inc. (“AHI”) and AH Transitions (collectively “the Alliance Defendants”), saw an opportunity. They buy companies with an ESOP, fold these ESOPs into the Alliance ESOP, hold and expand the companies over a relatively short period of time and then flip them at a profit, benefitting Alliance generally and Fenkell in particular as he personally redeems phantom stock. All of this is perfectly legal, provided that someone is acting as fiduciary to protect the interests of the employee holdings in the ESOP. Unfortunately, Fenkell and the other Alliance Defendants took calculated steps to insure no one would be doing so when they flipped Trachte Building Systems, Inc. (“Trachte”). In 2002, defendant Alliance purchased Trachte in a private stock transaction for $24 million and merged accounts of plaintiffs, who were Trachte employees, with an old Trachte ESOP into the Alliance Holdings, Inc. Employee Stock Ownership Plan and Trust (the “Alliance ESOP”). Five years later, Alliance expected to sell Trachte for around $50 million. After failing to find a third-party buyer at the desired price, Alliance orchestrated a sale of Trachte to a newly-formed Trachte Building Systems Employee Stock Ownership Plan (“the Trachte ESOP”). Plaintiffs’ accounts in the Alliance ESOP, holding approximately $8 million worth of Alliance stock, was a linchpin of the sale. Alliance structured the sale as a series of interdependent actions on August 29, 2007 (collectively, “the 2007 Transaction”), each of which was conditioned on the completion of all subsequent actions. At Alliance’s direction, the Alliance ESOP spun-off the Trachte employees’ accounts into the new Trachte ESOP and the Alliance shares in those accounts were exchanged for Trachte shares held by AHI. Using these shares as collateral for loans, Trachte and the Trachte ESOP redeemed or purchased all of Trachte’s outstanding equity from Alliance, AHI and Stephen Pagelow, Trachte’s former CEO. At the close of the 2007 Transaction, the Trachte ESOP had paid $88.1 million for 100% of Trachte’s equity and Trachte had taken on $36 million in debt. Fenkell and Alliance designed this transaction so that either plaintiffs’ ESOP holdings would be used as leverage to buy Trachte on terms favorable to Alliance or those holdings would revert to holdings in the Alliance ESOP. All of this might have been fine, except that Alliance also orchestrated the parties so that no independent person was looking out for the employees’ interests in the Alliance or the Trachte ESOP. Only a week before the 2007 Transaction, Alliance appointed Trachte’s President Jeffrey A. Seefeldt and CFO James Mastrangelo— both beholden to Alliance — as the sole members of Trachte’s board of directors. The board then adopted a new Trachte ESOP and named as its sole trustees Seefeldt, Mastrangelo and Pamela Klute, Trachte’s VP of Human Resources, (collectively, “the Trustee Defendants”). After realizing at the eleventh hour that they faced a conflict of interest and were not qualified to assess the transaction, the Trustee Defendants hired defendants Alpha Investment Consulting Group, LLC (“Alpha”) and John Michael Maier to serve as “independent fiduciaries” of the Trachte ESOP, review the transaction and direct the trustees. Unfortunately, Alliance and the trustees restricted the scope of Alpha’s authority and obligations and did not appoint Alpha properly as a directing trustee. As a result of the Alliance Defendant’s orchestration and the Trustee Defendant’s negligence and conflicts of interest, questionable judgments were made in the valuation of Trachte without independent scrutiny and the Trachte ESOP paid more than fair market value. Ultimately, Trachte could not afford the debt load that it incurred as part of the 2007 Transaction. The 2007 annual valuation for the Trachte ESOP placed Trachte’s equity value at $16.99 million. By 2008, the value was $0. Plaintiffs brought this suit under ERISA, 29 U.S.C. § 1001, et seq., alleging numerous breaches of ERISA fiduciary duties by Alliance and Fenkell as fiduciaries of the Alliance ESOP; by Seefeldt, Mastrangelo and Klute as trustees of the Trachte ESOP; by Alpha and Maier as fiduciaries of the Trachte ESOP; and various forms of vicarious liability against all defendants. The court held a liability trial from October 11, 2011, to October 19, 2012, and based on the factual findings set forth below, the court finds: (1) defendants Seefeldt, Mastrangelo and Klute breached their fiduciary duties to the Trachte ESOP under ERISA § 404(a)(1)(D) to follow plan terms by attempting to abdicate their duties and choosing to accept Alpha’s direction; (2) Seefeldt, Mastrangelo and Klute violated ERISA § 406(a)(1) by causing the Trachte ESOP to enter a prohibited transaction without adequate consideration; (3) Seefeldt, Mastrangelo and Klute are not liable for any failure to monitor under ERISA § 404(a) or for any breaches by one another or by Alpha under ERISA § 405(c); (4) defendants Alpha and Maier did not violate ERISA § 406(a)(1) because they were not acting as functional fiduciaries of the Trachte ESOP; (5) defendants Alliance and Fenkell breached their fiduciary duties of loyalty and care under ERISA § 404(a) to the Alliance ESOP by using the accounts of the Trachte employees for their own purposes; (6) Fenkell violated ERISA § 406(b) by dealing with plan assets in his own interest and receiving consideration from a party dealing with the plan; (7) Alliance is liable as co-fiduciary for Fenkell’s breaches under ERISA § 405(a) and for breaching its duty to monitor Fenkell under ERISA § 404(a); and (8) equitable relief is appropriate under ERISA § 502(a)(3) against defendants AHI and AH Transition for the fiduciary breaches of Alliance and Fenkell, but no other liability is appropriate under ERISA § 502(a)(3). MOTION TO STRIKE ROBERT GROSS’ EXPERT TESTIMONY Prior to trial, the court reserved judgment on plaintiffs’ motion to strike portions of Robert Gross’ expert testimony. (Dkt. #473.) Gross opined that it was appropriate for Barnes Wendling to include a $1.9 million “tax-shield” in its valuation of Trachte for the 2007 Transaction, because the Trachte ESOP received a tax benefit from its leveraged ESOP purchase, while the Alliance ESOP gave up those tax benefits. Plaintiffs argued that his opinion was contrary to the commonly accepted valuation principles for determining fair market value (namely, that one should assume a hypothetical buyer and seller with no special characteristics), was not supported by peer-reviewed publications and was contrary to the opinions of all the other experts in this case. After hearing the testimony of the valuation experts, the court concludes that it was not appropriate to include a tax shield in assessing a company’s fair market value for a sale between two ESOPs. The court will nevertheless deny plaintiffs’ motion to strike Gross’ testimony. Gross attempted to apply general valuation principles to assess the unique structure of the 2007 Transaction. Despite the clarity of the general principle for assessing fair market value, the valuation experts noted some uncertainty about this issue and the court benefited from hearing arguments on both sides. Given the uniqueness of this transaction, it is unsurprising that Gross could not cite peer-reviewed literature for his opinion and, in that respect, his opinion was no better or worse than the other valuation experts in this case. FACTS A. The Parties 1. Named Plaintiffs The named plaintiffs Carol Chesemore, Daniel Donkle, Thomas Gieck, Martin Robbins and Nannette Stoflet are all former and current employees of Trachte. Each was a participant in the Old Trachte ESOP until their accounts were transferred to the Aliance ESOP on September 18, 2002. They remained participants in the Alliance ESOP until August 29, 2007, when the Alliance ESOP transferred all of its accounts held by Trachte employees to the new Trachte ESOP as part of the 2007 Transaction. They remain vested participants in the Trachte ESOP. 2. Trachte Defendants Nominal defendant Trachte ESOP is an employee benefit plan for Trachte employees established on August 22, 2007, in anticipation of the 2007 Transaction. The Trachte ESOP is a defined contribution employee benefit plan under 29 U.S.C. § 1002(3). Trachte is a manufacturer of steel, self-storage systems. Trachte had three wholly-owned subsidiaries: TracRite Door, Inc., a Wisconsin corporation; Fire Facilities, Inc., a Wisconsin corporation; and Store-N-Save Self Storage, Ltd., a Canadian corporation. As a result of the 2007 Transaction, Trachte became 100% owned by the Trachte ESOP. Stephen Pagelow was Trachte’s chief executive officer and chairman of its board of directors until his retirement in the summer of 2007. He began working at Trachte in 1977 and became its president in 1980, taking the reins from his father-in-law. Pagelow purchased a controlling interest and became chairman in 1984. In 1987, he caused Trachte to establish an employee stock ownership plan (the “Old Trachte ESOP”) and sold some of his ownership interest to it. The named plaintiffs were all participants in the Old Trachte ESOP. During Pagelow’s tenure, Trachte grew from 12 employees to approximately 200 employees. Between 1991 and 2002, its revenue increased from approximately $5 million to more than $42 million. 3. The Alliance Defendants In September 2002, Trachte was purchased by defendant Alliance. Alliance is a holding company that specializes in acquiring ESOP-owned and closely-held operating companies with limited marketability, allowing the owners to sell their interest but remain involved in management. Consistent with its business model, Alliance typically holds the companies for a short time and then divests them, hopefully at a profit. From 2002 until the 2007 Transaction, Alliance controlled directly or indirectly over 75% of the voting power of Trachte stock. On April 12, 2007, it assigned all of its Trachte stock to its wholly-owned subsidiary, defendant AHI. At the time of the 2007 Transaction, 53% of Alliance’s common equity was held by nominal defendant Alliance ESOP. The remainder was held by defendant AH Transition Corp., a wholly-owned subsidiary of the Alliance ESOP. The Alliance ESOP is an employee benefit plan for employees of Alliance and its holding companies. Its assets consist of cash, shares of Alliance and shares of AH Transition, allocated to participant accounts. At the end of 2006, the Alliance ESOP had 10,240 participants, 305 of which were Trachte employees. Since the formation of the Alliance ESOP in 1995, Alliance has been its sponsor and named fiduciary and held the authority to appoint its administrator and trustee. Since Alliance’s inception, defendant David B. Fenkell has been its president, its chief executive officer and the sole member of its board of directors. Since their inception, Fenkell has also been president and sole director for AHI and AH Transition and the sole trustee of the Alliance ESOP. In these various positions, Fenkell made Alliance’s acquisition and divestiture decisions, usually in consultation with Alliance’s director of acquisitions and one of its portfolio managers. In 2006 and 2007, Kenneth Wanko was the director of acquisitions. He also served as an officer of Alliance, AHI and AH Transition. Eric Lynn was the portfolio manager responsible for Trachte in 2006 and 2007. His job was to serve as a liaison and oversee the subsidiary’s business performance. During that period, Wanko and Lynn were not members of Alliance’s board of directors, nor trustees or named fiduciaries of the Alliance ESOP, and exercised no control over investment decisions for Alliance or the Alliance ESOP. 4. The Trustee Defendants Defendants Jeffrey Seefeldt, James Mastrangelo and Pamela Klute were appointed trustees of the Trachte ESOP from its adoption on August 24, 2007. Seefeldt and Mastrangelo were also appointed as the sole members of Trachte’s board of directors on August 22, 2007, one week before the 2007 Transaction. Seefeldt began working for Trachte in 1980 and was groomed as Pagelow’s replacement. He became Trachte’s president in 2002 and became CEO sometime in the summer of 2007. In September 2009, Seefeldt resigned as president, board member and trustee. Mastrangelo was hired as Trachte’s chief financial officer in September 2004 and became its executive vice-president and chief operating officer on July 23, 2007. He resigned as an officer and board member in April 2011, but remains a trustee of the Trachte ESOP. In 1995, Klute was hired by Trachte for its human resources department. She was vice president of human resources at the time of the 2007 Transaction. Klute was also president of the Wisconsin Chapter of the ESOP Association from 2005 until 2009, and remains a trustee of the Trachte ESOP. 5. Alpha Defendants Defendant Alpha Investment Consulting Group, LLC (“Alpha”) provides investment services to fiduciaries of retirement plans, foundations and endowments. On August 13, 2007, Alpha was appointed as an “independent fiduciary” to the Trachte ESOP for the 2007 Transaction. Defendant John Michael Maier has been a senior consultant and partner with Alpha since July 1, 2007. Maier was the only person at Alpha who performed substantive work for Trachte. He reviewed the 2007 Transaction and signed a letter purporting to direct the Trachte trustees to proceed with the transaction. B. 2002 Transaction By 2002, Pagelow was seeking to wind down his participation in Trachte. At that point, he owned approximately 42% of the company; the old Trachte ESOP owned 30.34%; and assorted private individuals owned the remaining shares. Alliance provided his exit strategy. On September 18, 2002, Alliance acquired 80% of Trachte’s common stock for $24 million (“the 2002 Transaction”). Alliance also acquired Trachte preferred stock valued at $2 million. Pagelow retained ownership of 20% of Trachte’s common stock and received a 40% ownership of Store-N-Save, with Trachte retaining the remaining 60%. Store-N-Save was previously a wholly-owned subsidiary of Trachte Recognizing Pagelow’s value to Trachte, Alliance insisted he remain with Trachte for five years as chairman of Trachte’s board of directors. In exchange, Pagelow received a put option on his Trachte stock payable beginning in October 2007 and a put option for his Store-N-Save stock beginning in 2009. The Trachte put option gave Pagelow the right to tender his shares to Trachte based on the company’s prior year appraisal value. As part of the 2002 Transaction, Alliance merged the old Trachte ESOP into its Alliance ESOP. Alliance common stock was exchanged for all the Trachte common stock held by the Old Trachte ESOP, the employee accounts were transferred into the Alliance ESOP and the Old Trachte ESOP was dissolved. The Trachte employees became participants in the Alliance ESOP, with accounts that held Alliance common stock allocated to them to equal the value of their previous accounts. The last relevant feature of the 2002 Transaction is that Trachte was required to establish two “phantom stock plans,” one for Trachte employees and another for Alliance employees. These stock-based, deferred compensation plans were designed to provide an incentive to grow Trachte for resale. Eligible high-level Alliance and Trachte employees would receive cash payments based, in part, on changes in the value of Trachte stock. Pagelow and Fenkell were participants in these respective phantom stock plans. Benefits under both plans were to be paid by Trachte. The two phantom stock plan documents, which are identical in all relevant respects, defined a formula for awarding units of phantom stock and the conditions to trigger payment of benefits. (Fenkell Decl., Exs. F, G, dkt. ##300-6, 300-7.) The amount of a participant’s benefits started at zero and increased solely upon future appreciation of Trachte’s common equity. (Id., at §§ 1.19 and 5. 1, cross referencing § 1.22) A change in control of the ownership of Trachte was a “Triggering Event” under both plans. (Id., at §§ 1.7, 1.27, 1.29.) Upon a triggering event (other than dissolution or liquidation), “[Trachte], at its option, may either (i) pay each Participant or (ii) not make such payments and continue this Plan.” (Id., at § 5.1.) C. Trachte’s Performance Under Alliance According to Trachte’s annual, audited financial statements, its combined net sales increased between six and eight million dollars each year from 2003 until 2006, rising from $52 million in 2003 to $75 million in 2006. Trachte’s overall profitability, however, was flat during this period; its annual EBITDA (excluding its subsidiary Store-N-Save) was $5.7 million in 2003; $4.5 million in 2004; $6.8 million in 2005; and $6.3 million in 2006. By the end of 2006, Trachte’s sales revenues were declining. Sales decreased 13% and 11% in the third and fourth quarters of 2006 compared to the same period in 2005. Nevertheless, according to the annual valuations performed for the Alliance ESOP by Alliance’s retained appraiser Stout, Risius and Ross (“SRR”), the paper value of Trachte’s common equity increased steadily, from $25.4 million in 2003, to $28.09 million in 2004, $42.14 million in 2005 and $44.94 million in 2006. During this same time frame, Pagelow was gradually winding down his activities for Trachte. After the 2002 sale, he resigned as president and was replaced by Seefeldt, who assumed day-to-day management of the company. Pagelow also reduced his hours from 50 to 60 hour weeks to 32 hour weeks, a number which declined further over time. On September 2, 2005, Pagelow entered an agreement to exercise his put option early on 25% of his remaining Trachte shares. He sold 3,373.5 shares for $566 per share, for a total of just over $1.9 million, based on the prior year’s appraisal value. The parties agreed that the same methodology would be used when he exercised the remainder of his put option. Pagelow reduced his hours further to twenty hours a week, but agreed to remain employed for two more years, until September 1, 2007. In November 2005, Pagelow informed Fenkell that he wanted to exercise his remaining put option on the Trachte Stock. This decision was apparently precipitated by Pagelow breaking his hip in July 2006. As a result, Pagelow went to the office only one day throughout the remainder of 2006, but remained involved with the Trachte business. He was present and presided as chairman over the November 15, 2006 Trachte Board of Directors meeting. He also participated by phone in a practice run of management’s presentation to potential third-party buyers of Trachte. In early 2007, he resumed working twice a week, eight hours each day. Consistent with Pagelow’s agreement to extend his employment by two years, Pagelow did not formally resign as Trachte’s CEO and chairman until August 29, 2007, even though Seefeldt was assuming ever greater responsibilities in the months leading up to that date. Indeed, Pagelow had de facto stopped working as CEO and chairman by the summer 2007, when Mastrangelo became COO and Seefeldt became CEO. D. Alliance’s Attempts to Sell Trachte to Third Parties In early 2006, Fenkell and Alliance concluded that it was time, perhaps past time, to offload Trachte. Pagelow’s request to exercise his remaining put option placed pressure on Alliance in several respects. Because Alliance was responsible for redeeming his shares and lacked the liquidity to satisfy his put option, it would have to borrow money or sell Trachte. More importantly, Alliance and particularly Fenkell had doubts about Trachte’s future performance without Pagelow’s leadership. Even with Pagelow’s involvement, Fenkell and Alliance were worried that Trachte’s growth potential was exhausted. Not only had the self-storage market as a whole matured and shown signs of stalling, Trachte had pushed its sales revenues aggressively during Alliance’s four-year ownership, increasing its net sales almost 70% with no appreciable improvement in its gross profit. Accordingly, Alliance worried that Trachte’s rapid growth and profit margins were not sustainable. By the end of 2006, Fenkell had evidence that Trachte sales were beginning to decline. Finally, Alliance’s business model created pressures to sell Trachte. Alliance had a majority of its equity tied up in Trachte. A sale of Trachte could provide needed liquidity to fund new acquisitions and diversify its risk. Fenkell and Alliance recognized they had three strategic alternatives: (1) recapitalize Trachte, (2) sell Trachte to a third party or (3) sell Trachte internally through a newly-formed Trachte ESOP. Given their negative view of Trachte’s potential for future growth and of its management’s abilities, Alliance quickly rejected recapitalizing Trachte. Between the two remaining options, Alliance preferred to sell Trachte to a third party. From their experience, Fenkell and Wanko predicted Trachte would fetch around $50 million in an independent sale, exclusive of Store-N-Save, compared to $45 million in a leveraged buyout by management. Fenkell also doubted whether management would be able to obtain financing. Accordingly, Alliance decided to pursue a sale to an independent third party. 1. Marketing Trachte After unsuccessfully attempting to market Trachte to strategic buyers on its own in the first half of 2006, Alliance decided to hire a firm to do so. At Wanko’s suggestion, Seefeldt signed an engagement agreement on behalf of Trachte with William Blair, an investment banking firm. The agreement set an expected transaction consideration of between $45 and $55 million, exclusive of Store-N-Save. William Blair sent marketing materials to a wide range of prospective strategic and financial buyers using projections developed by Trachte’s sales department under Mastrangelo’s supervision. These materials predicted that Trachte would achieve sales of $71.2 million with an EBITDA of $7.8 million in 2006. In November 2006, William Blair received letters of intent from four prospective buyers: Tricor Pacific Capital, Inc. (“Tricor”); Watermill Group; Lincolnshire Equity Fund III, L.P. (“Lincolnshire”); and H.I.G. Capital, LLC (“HIG”). The proposed terms fell short of Alliance’s predictions, ranging from $28 to $41.3 million. The prospective buyers received additional financial information and attended a presentation by Trachte management in December 2006. In February 2007, three of the buyers submitted revised offers, ranging from $32 to $40.77 million. (Pis. Ex. 74, dkt. # 491-2.) At the August 2006 Trachte board of directors meeting, Fenkell and Alliance learned that Trachte’s year-end sales were predicted to be 2.5% below budget for 2006 (though still 6% ahead of 2005) and that first half margins were 24.2% below budget. (Joint Ex. 6, dkt. # 584-1, at 4.) At the November 2006 board meeting, Mastrangelo told the board that these margins were actually below 2005 levels and forecasted net operating income and EBITDA for 2006 would fall about $500,000 short of the projections sent to prospective buyers in the William Blair marketing materials, which Mastrangelo attributed to higher steel prices and an unanticipated one-time expenditure. (Id.) At the meeting of the compensation committee for Alliance in December 2006, Fenkell repeated these concerns about Trachte’s lower sales and earnings. 2. Trachte Management’s Initial, Unsolicited Letter of Intent In the summer of 2006, Seefeldt and Mastrangelo learned through Pagelow of Alliance’s plan to sell or recapitalize Trachte. They discussed among themselves and with Pagelow the possibility of making an offer on behalf of Trachte management or a to-be-formed ESOP. In early fall, Seefeldt and Mastrangelo asked Page-low to communicate their interest in pursuing a management-led buyout to Alliance, which he did at the November board of directors meeting. In December 2006, Seefeldt and Mastrangelo engaged Anderson for advice in developing their proposed ESOP purchase of Trachte. Brian Anderson was an attorney at DeWitt Ross & Stevens, had around 20 ESOP clients and was a member of the ESOP Association and the National Employee Ownership Council. Anderson was familiar with Trachte management, because Trachte engaged him in 2000 with respect to the old Trachte ESOP and he had continued working on its other benefit plans. On February 6, 2007, around the time the third-party buyers were submitting their revised offers, Seefeldt and Mastrangelo submitted a letter to Fenkell and Pagelow proposing to purchase Trachte without Store-N-Save for $42 million (the “February 6 letter of intent”). (Joint Ex. 19, dkt. # 586-5.) The letter proposed that the Alliance ESOP would spin off the accounts of Trachte employees into a new Trachte ESOP, which would then leverage the accounts for a $24 million loan to purchase Trachte; Pagelow would provide a $2.1 million seller’s note; and the new company would remain liable for $3.79 million in unfunded customer deposits, $4.2 million in phantom stock and $300,000 in ESOP notes. Mastrangelo and Seefeldt based their proposal on what they learned from the William Blair presentations, their knowledge of the market and past valuations of Trachte for the Alliance ESOP. Their offer assumed EBITDA would increase roughly one million dollars each year from $8 million in 2007 to $11 million in 2011. Alliance did not respond formally to Mastrangelo and Seefeldt’s proposal. Instead, Fenkell informed them by phone that Alliance was not interested, because he doubted that they could obtain financing. 3. HIG Offer Alliance and Pagelow entered a nonbinding letter of intent with HIG on February 2, 2007, under which HIG proposed to purchase a 100% interest in Trachte exclusive of Store-N-Save for $40.8 million. The letter of intent proposed that HIG would pay $37.5 million in cash and assume $3.3 million in unfunded customer deposits, but it expressly excluded payments under either phantom stock plan. It also included a 45-day period of exclusivity until the end of March 2007 for HIG to perform its due diligence. Based on information it received fi’om Trachte management, HIG concluded that the self-storage industry was unlikely to sustain significant growth and that Trachte’s late 2006 and early 2007 sales were below prior years. (Pis. Ex. 147, dkt. # 596-5; Hanneman Dep., dkt. # 576, 83-84.) After HIG raised these concerns with Alliance, Trachte’s management attempted to allay HIG’s concerns through personal interviews, a conference call and a memorandum sent by Mastrangelo. (Trustee Defs. Ex. 1582, dkt. #591-54.) From these conversations, HIG concluded that management itself was skeptical about its ability to meet the 2007 projections. On April 5, 2007, HIG submitted a revised letter of intent to purchase Trachte for $32 million in cash, $3.3 million in unfunded customer deposits and a $5.5 million “earn-out” dependent on Trachte’s performance in 2007. (Joint Ex. 36, dkt. # 595-2.) Alliance would receive the full earn-out if Trachte achieved its predicted EBITDA of $8.16 million in 2007; a prorated earn-out to the extent it exceeded its 2006 EBITDA of $6.48 million; and no earn-out if it fell below the latter figure. This proposal also excluded payments triggered by the phantom stock plan. In justifying this revised offer, HIG pointed out that Trachte had been experiencing gross revenue problems for three quarters or more, its revenues had been flat for the last twelve months, and its EBITDA would be flat through the first half of 2007. (Pis. Ex. 147, dkt. # 596-5.) Officials from Alliance and HIG exchanged informal emails, but Alliance never responded officially to HIG’s offer. E. Alliance Returns to Trachte Management Once it became apparent that Trachte would not sell at Alliance’s desired price on the open market, Alliance turned to its second option, a leveraged buyout by Trachte management. On April 4, 2007, at Fenkell’s direction, Wanko asked Seefeldt and Mastrangelo to resubmit their letter of intent. Seefeldt and Mastrangelo were unaware of the precise terms of earlier offers, since they were not privy to the letters of intent or the subsequent price negotiations with HIG. Mastrangelo, however, was aware that the HIG deal had fallen through because HIG was concerned with the drop in Trachte’s revenue and in the self-storage market. He knew margins in late 2006 were below the prior year and sales in the first quarter of 2007 were below budget. In addition, Karen Hitchcock distributed a memo in March of 2007 to senior management, including Pagelow, Seefeldt and Mastrangelo, predicting a likely decline in Trachte sales and revenue based on a decline in the self-storage market precipitated by a housing slump. (Pis. Ex. 135, dkt. # 595-14.) Seefeldt knew the housing market was in a slump by March 2007, but dismissed her memo as a doomsday prediction. Mastrangelo considered revising their previously-rejected initial $42 million letter of intent in light of Trachte’s performance over the last few months, but decided instead to submit the same letter as an opening for negotiations. After a few conversations, Mastrangelo asked Wanko to put together a draft letter of intent. Alliance’s counsel drafted a new letter of intent and sent it to Mastrangelo and Seefeldt on April 12, 2007. (Alliance Ex. 2558, dkt. # 592-7.) That same day, Alliance assigned all of its shares of common and preferred stock of Trachte to its wholly-owned subsidiary AHI which remained the majority shareholder of Trachte until the closing on August 29, 2007. A final, non-binding letter of intent was executed on April 19, 2007. (Joint Ex. 21, dkt. # 586-7.) Consistent with the February 6 letter of intent, it proposed that a to-be-formed Trachte ESOP would purchase a 100% interest in Trachte for $42 million and Store-N-Save for $9.33 million. The April 19 letter of intent set an anticipated closing date of May 31, 2007, and was signed by Seefeldt and Mastrangelo on behalf of a to-be-formed Trachte ESOP, Seefeldt on behalf of Trachte, Wanko on behalf of AHI, and Pagelow for himself. Although the values changed, the April 19 letter of intent set the final framework of the 2007 Transaction. Mastrangelo and Seefeldt would set up and serve as trustees of a new Trachte ESOP. The Alliance ESOP would spin off its accounts held by Trachte employees, containing $7.5 million worth of Alliance stock, into the new Trachte ESOP. Alliance would sell the new Trachte ESOP $7.5 million in Trachte common shares for a promissory note, which the Trachte ESOP would pay off with the Alliance stock. Using the employee accounts as part of its collateral, Trachte would then take out a bank loan of $27.5 million, pay off the phantom stock plan for Alliance employees of $4.9 million (but not the plan for Trachte employees), pay $2 million in cash to redeem preferred stock held by Alliance, and $13.6 million ($4.5 million in cash and $9.1 million in subordinated promissory notes) to redeem common stock held by Alliance and Pagelow. Finally, Trachte would loan the remaining proceeds to the Trachte ESOP, which it would use to purchase all outstanding common shares held by Alliance and Pagelow for $19.98 million. The letter contained no provision for customer deposits. The April 12 draft letter of intent also provided that SRR would perform all valuation appraisals for the transaction, for both sides. For the last three years, Alliance had engaged SRR to provide the annual valuations for the Alliance ESOP. Anderson objected to this provision because he did not believe SRR was sufficiently independent of Alliance. He told Alliance’s counsel that he had no serious problems with SRR performing the valuation but was uncomfortable with Trachte relying on SRR for the fairness opinion. (Trial Tr. l-B-31-32, dkt. #648.) The final April 19 letter of intent provided that SRR would provide “all valuation appraisals” and that “all fairness opinions required by Trachte ESOP will be issued by one of (1) GBQ Capital Partners, LLC, (2) Moore Stephens Apple or (3) Barnes Welding Valuation Services.” (Joint Ex. 21, dkt. #586-7, ¶4^).) The parties understood that the firm supplying the fairness opinion would still have to rely on the appraisal by SRR. F. Review of the 2007 Transaction 1. Trustee Defendants’ Legal Representation In April 2007, Seefeldt and Mastrangelo engaged their attorney, Brian Anderson, to draft the ESOP plan, advise them about their fiduciary roles and provide due diligence regarding the 2007 Transaction. Anderson did not provide financial advice, but advised them about structure of the deal, focusing on ERISA fiduciary and compliance issues. He reviewed most of the important documents, including the letter of intent and the engagement letters with the various service providers and had primary responsibility for drafting the Trachte ESOP plan document and summary plan document. Seefeldt also engaged William Peck to serve as Trachte’s corporate counsel, in particular to review the credit agreements. From April through the close of the transaction, counsel for Alliance, Peek and Anderson exchanged numerous drafts of transaction documents. 2. Loan Due Diligence by JP Morgan Chase Seefeldt and Mastrangelo initially approached JP Morgan Chase, N.A. in December 2006 to discuss financing for their plan to purchase Trachte. They returned to Chase after executing the April 19 letter of intent. From April 2007 through August 29, 2007, Mastrangelo provided information to Chase, its mezzanine finance group, Chase Capital, and their lawyers. Mastrangelo was in weekly contact with Chase and provided it with periodic forecasts and financial information, including the monthly unaudited financial statements. He also assisted Chase in sensitivity analyses designed to determine whether Trachte could meet its debt obligations in the event that its performance fell below forecasts. Wanko also helped arrange the financing from Chase by assisting in the development of several presentations, sitting in on meetings with Chase and having at least one personal conversation with Chase employees. (Pis. Ex. 200, dkt. # 597-4.) Ultimately, Chase provided Trachte with a first lien loan of $12.5 million and a second lien loan of $15 million. The loan covenants required Trachte to maintain a ratio of debt to EBITDA lower than 4.5. 3. Valuation by Stout, Risius and Ross Since 2004, SRR had performed an annual valuation of all stock held directly or indirectly by the Alliance ESOP, including Trachte as a subsidiary of Alliance. (Joint Ex. 12, dkt. # 585, 1-4; Joint Ex. 13, dkt. # 585-5.) Mastrangelo had supplied SRR with documents and financial information for these valuations each year since approximately 2004. Before the 2007 Transaction, SRR’s last annual valuation was issued as of December 31, 2006, and placed Trachte’s value at $44.94 million and its EBITDA at $6.3 million. In each of the three prior years of Alliance’s ownership of Trachte, SRR’s annual valuations were consistently rosy. Although Trachte’s EBITDA was relatively flat, moving from $5.7 million in 2003 to $6.3 million in 2006, SRR found Trachte’s equity value had risen from $25.4 million to $44.94 million. Between 2003 and 2004, its EBITDA fell 21%, while SRR’s valuation of its equity increased 10.6%. Fenkell, as trustee for the Alliance ESOP, retained SRR to provide a “take-down letter” (or “bring-down letter”) for the 2007 Transaction. These letters would update SRR’s December 31 valuation of Trachte common stock to the closing date of the transaction. The primarily responsibility for the “take-down” letters fell to Susan Gould, the managing director of SRR’s ESOP practice group. The report was produced by Jeff Buettner, a manager in SRR’s ERISA and ESOP valuation group. Buettner had an MBA, had worked in ESOP valuations since 1999 and was a member of the National Center of Employee Ownership and of the ESOP Association, where he was on the Valuation Advisory Committee. SRR’s engagement letter defined the scope of its services. It stated that SRR would provide a valuation of Alliance common stock for the trustee of the Alliance ESOP to use in conjunction with the transaction. (Joint Ex. 20, dkt. #586-6.) It further provided that its “analysis will be solely for the purpose stated herein, and should not be referred to or distributed for any other purpose, in whole or in part, without our prior written consent.” (Id.) Having developed the annual report and letter to serve Fenkell’s purposes as trustee of the Alliance ESOP, SRR included this provision to limit its legal liability if others relied on the valuation. SRR believed it was acceptable for others to read the letter and consider its analysis, but they could not rely on SRR’s conclusions without performing their own independent analysis. In late April, before receiving the finalized letter of intent, Susan Gould realized that Fenkell expected the firm providing the fairness opinion for the Trachte trustees to rely on SRR’s valuation. Gould thought that it “sounded strange” for a valuation company to provide a fairness opinion without performing its own valuation. (Pis. Ex. 195, dkt. # 597-3.) Neither Buettner nor Gould had been involved in a transaction in which SRR performed services for both the buyer and the seller, which they regard as a conflict of interest. Gould was also concerned with SRR’s potential liability if the Trachte trustees relied on the SRR valuation to fulfill their obligations under ERISA. On August 29, 2007, SRR issued three, three-page take-down letters to Fenkell as trustee of the Alliance ESOP. The letters express SRR’s opinion that, as of August 29, 2007, the fair market value of (1) Trachte common stock was $13,725 per share, (2) Alliance common stock was $17.15 per share, and (3) AH Transition common stock was $23.65 per share. (Joint. Ex. 30-31, dkt. ##587-1, 587-2, 587-3.) SRR placed the overall fair market value for Trachte’s common equity at $44.1 million. As compared to SRR’s annual valuations, the take-down letter for Trachte’s stock had five noteworthy features. First, SRR’s treatment of Trachte’s cash on hand changed between its annual valuations. The take-down letter included all cash in excess of “customer deposits” (advances on future builds) as part of Trachte’s common equity value, which assumes Trachte did not require any cash as operating capital beyond the customer deposits. In contrast, SRR’s annual valuations had previously concluded that Trachte needed $2.5 million in working capital in 2004 and $4 million in 2005, including only cash in excess of these amounts as part of Trachte’s equity. The 2006 valuation included only “non-operating capital” in Trachte’s equity value without identifying the specific amount of working capital assumed. (Trial Tr., dkt. # 676, 33-41.) Second, SRR included a $1.9 million tax shield in its 2006 annual valuation of Trachte, but not in its take-down letters. The annual valuation included a tax shield because the Alliance ESOP could take tax deductions on principal and interest payments for the loan used to purchase Trachte in 2002. SRR did not include this tax shield in its take-down letters because the loan that provided this tax benefit to the Alliance ESOP would be paid off during the transaction. (Id. at 46-53.) Third, SRR applied a 5% discount for lack of marketability in its 2006 annual valuation of Trachte, but not in the 2007 take-down letters. (Id.) Privately-held companies that lack a readily available market are often accorded a “lack of marketability discount,” the precise amount of which requires judgment on behalf of the appraiser. The take-down letters for Alliance and AH Transition stock did provide a 5% discount for lack of marketability. According to Buettner, once the discount for lack of marketability was taken at the level of the Alliance stock, it did not need to be repeated again at the Trachte level. Fourth, the take-down letter did not subtract the phantom stock liabilities from Trachte’s value, although the letter noted this limitation. (Joint Ex. 30, dkt. # 587-1, at 2.) Again, SRR justified the lack of subtraction on the grounds that those liabilities had already been subtracted in its valuation of Alliance stock. Fifth, the take down letter and the 2006 annual valuation used management’s fall 2006 projections for adjusted net income in 2007 and for gross revenue from 2007 through 2011. SRR never asked for or received revised projections, although it had reason to believe such projections would be useful. In particular, Buettner was aware management had supplied Barnes Wendling with updated projections, but never asked to see them. Wanko also told Gould that Trachte’s projections were “quite shaky” and Trachte would likely miss management’s gross revenue projections for 2007. Moreover, Gould believed the HIG deal fell through because of the downward trend of orders in 2007 and because HIG doubted Trachte would meet its 2007 budget, particularly its predicted EBITDA growth from $6.5 to $8 million, which Gould herself regarded as “hefty.” Although SRR did not take into account management’s revised projections, it did have Trachte’s unaudited monthly financial statements through June 30, 2007. It noted that Trachte’s EBITDA for early 2007 was higher than budget, but also knew that Trachte’s margins had benefitted from fortuitously low steel prices. (Trial Tr., dkt. # 676, 99, 103.) SRR also noted that management was taking steps to enhance their margins, such as cutting its 401k plan, cross-training employees and redesigning products to reduce their steel content. (Id. at 102.) SRR did not consider data after June 30, 2007, although the transaction did not close until August 29, 2007. 4. Fairness Opinion by Barnes Wendling Valuation Services Anderson researched the three valuation firms listed in the letter of intent and recommended the trustees hire Barnes Wending Valuation Services, Inc. On May 10, 2007, Seefeldt and Mastrangelo signed a letter engaging Barnes Wendling to provide a fairness opinion in connection with the 2007 Transaction. (Joint Ex. 22, dkt. # 586-8.) Barnes Wendling was hired to provide “an independent opinion that the consideration to be paid in the proposed transaction is within a range of fairness.” (Id.) A fairness opinion evaluates the fairness of the whole transaction, including whether the buyer is paying fair market value and other features of the transaction, such as the financing. Barnes Wendling was not engaged to perform a complete appraisal of Trachte’s fair market value. In its initial draft engagement letter, Barnes Wendling proposed completing a full valuation report. This was removed from the engagement letter and Barnes Wendling was instructed that it must rely on the valuation by SRR. Barnes Wendling’s analytical process for a “valuation report” and a “fairness opinion” was to be similar, but a valuation report would contain an explanation for the basis of its valuation opinion. Nevertheless, as counsel for Seefeldt and Mastrangelo, Anderson instructed Barnes Wendling to “look under the hood” on the SRR report to determine if SRR appropriately analyzed Trachte’s value. Rosanne Aumiller was the person at Barnes Wendling primarily responsible for performing the fairness opinion. She is a certified public accountant, with specialized credentials in business valuation from the American Institute of CPAs and in appraisal from the American Society of Appraisers. This was Aumiller’s first ESOP valuation in the context of an ESOP transaction, though she had been involved with around 50 ESOP valuations for other tax purposes. Aumiller worked with a team of four other analysts, who together spent over a hundred hours reviewing the transaction. Barnes Wendling reviewed and relied on the SRR valuation data but never spoke to anyone at SRR. They also requested and reviewed data and financial documents provided by Trachte, met with management in person and spoke to the loan officer from Chase. At some point, management revised its five year forecasts to reflect the lower than anticipated growth in sales and in the self-storage industry generally and gave those revisions to Barnes Wendling. Their engagement letter makes clear that they had no obligation to review the accuracy of the data provided by management. During this process, Barnes Wendling sent several draft fairness opinions to Seefeldt, Mastrangelo and Klute. Aumiller sent Mastrangelo and Seefeldt a document explaining some of its financial concepts. She also suggested to Mastrangelo that they hire a financial adviser to help them understand concepts with which Mastrangelo was unaccustomed, to avoid questions if things did not go well and to give them assistance in uncomfortable negotiations with Alliance. (Pis. Ex. 487, dkt. # 601-5.) Barnes Wendling issued its final fairness opinion on August 29, 2007. (Joint Ex. 29, dkt. # 587.) It used the SRR valuation as a starting point. Then, using the public guidelines company method (also known as the market approach), it estimated Trachte’s value as between $25.1 and $37.65 million; using the discounted cash flow method, it estimated a value between $37.5 and $40.1 million. The letter lists these conclusions without explaining the company’s underlying calculations (such as the company sales used for comparison in the market approach or the financial predictions used for its discount rate for the cash flow method), which it would have included in a full valuation report. Taking the high end from the discounted cash flow method and the low end from the market approach, Barnes Wendling concluded the fair market value of Trachte’s total invested capital was $25.1 to $41.7 million. To determine the value of Trachte’s common equity, Barnes Wendling adjusted the total invested capital to account for cash on hand, customer deposits, Store-N-Save’s value, Store-N-Save’s debt to Trachte, a $1.9 million tax shield, the preferred equity and the phantom stock liability. These calculations were based on financial information from June 15, 2007. Barnes Wendling received information from July 31, 2007, but decided not to update the letter, because none of the figures changed more than $100,000, which it determined were not material changes. Ultimately, it concluded that the fair market value of Trachte’s common equity ranged from $26.2 million to $40.1 million. Barnes Wendling concluded that the total consideration of $45,234 million for Trachte’s total equity and $38,329 million for Trachte’s common equity (total consideration minus $2 million for preferred equity and $4,905 million for the phantom stock plan) fell within the range of reasonable values, albeit at the high end of the range. Barnes Wending also noted that the SRR valuation showed Trachte’s common equity was worth $36,165 million, which when one adds the $1.9 million tax shield, showed Trachte had a value of $38,065 million, supporting its conclusion that the price was reasonable. Thus, Barnes Wendling concluded the ESOP was paying “adequate consideration” within the meaning of ERISA § 3(18) and the transaction was “fair to the ESOP from a financial point of view.” Barnes Wendling’s analysis had the following pertinent features: • it justified adding back in $1.9 million for the tax shield to Trachte’s value, because the to-be-formed Trachte ESOP could deduct principal and interest payments on the loan; • it did not consider prior offers for Trachte, because Aumiller was not made aware of Alliance’s failed efforts to sell to an arms-length buyer (Aumiller asked Mastrangelo about prior offers and informed him that the opinion should consider serious offers); • it did not include a discount for marketability of Trachte stock (Aumiller considered such a discount but decided it was not appropriate because the Trachte ESOP was obtaining a controlling interest, but this analysis conflates two distinct concerns); • it did not offer an opinion on the value of Alliance or AH Transition shares, but instead relied on SRR’s valuation of the Alliance shares for the share exchange; and • it limited its analysis of the loans to whether the interest rate and terms were fair and did not consider (1) how the debt load would likely affect Trachte’s share value, (2) whether Trachte’s cash reserves and expected cash flow were sufficient to service its debt or (3) what would happen if Trachte failed to meet its EBITDA projections; • assumed all cash (except for customer deposits) was non-operating and counted it as part of Trachte’s value. 5. Criticism from Trachte Management and Employees During regularly-scheduled weekly meetings of Trachte’s senior management between April 14 and August 29, 2007, putative trustees Seefeldt, Mastrangelo and Klute discussed the proposed 2007 Transaction with other senior management. From the beginning of those discussions, concerns were raised about a leveraged buyout by a new Trachte ESOP. At two of the weekly meetings, the trustees took an informal vote to see if senior management favored the leveraged buyout. Both votes favored the buyout, with four of the ten or eleven managers dissenting. One manager, Jamie Lindau, was particularly persistent in his criticism. As Trachte’s national sales manager, Lindau was responsible for developing Trachte’s gross sales projections. From conversations with regional sales managers, Lindau had noted that Trachte was lining up fewer buyers for future purchases in 2006 than it had in either 2004 and 2005. Even before learning about the precise price or debt levels, Lindau was worried Trachte would be unable to make sufficient sales to maintain the margins required for the transaction debt and raised his objections with both Pagelow and Seefeldt. Lindau also opposed the sale because he believed it was unfair not to permit current Alliance ESOP participants to vote on the transaction. Around July 13, 2007, Seefeldt, Mastrangelo and Klute held a town hall meeting for all current Trachte employees to present the proposed transaction and to answer employee questions. They informed the Trachte employees that the value of their ESOP accounts would drop 77% at the close of the transaction due to the debt incurred to purchase Trachte, but that the accounts should regain 96% of their value within six years as the ESOP paid back the debt, assuming Trachte maintained at least a $6.3 million EBIDTA to service the debt. The trustees acknowledged that Trachte would be operating on “the narrow edge” to maintain its ability to pay the debt and to have cash for future opportunities, particularly in the first three years. The meeting revealed significant employee resistance to the proposed buyout. Several employees expressed concern about the fairness of the price. The trustees acknowledged that the transaction was on the high end of value and that they wanted a price $4 to 5 million less, but replied that this was not a normal negotiation, since Alliance told them the price was “take it or leave it.” During the meeting, the trustees struggled to explain the benefits of an ESOP purchase. They argued that the only alternatives were for Alliance to sell or refinance using Trachte’s assets, so that the company would face the same pressure to reduce costs but they would have no say in how that was accomplished. Moreover, they were worried that if Alliance sold Trachte, the employees’ accounts would stay with the Alliance ESOP. In that case, the employees could no longer contribute to those accounts and their value would be affected by the future investment decisions of Alliance, over which they would have no say. In reply, several employees pointed out that under the proposed Trachte ESOP, employees would also have no right to vote on Trachte business decisions, on the appointment of ESOP trustees or on ESOP investment decisions. When the employees pressed the trustees as to why they had no right to vote on the use of their pensions to finance the transaction or to vote about who served as trustees, the trustees responded that Alliance had decided there would be no vote. 6. ESOP Repurchase Obligations On June 28, 2007, Mastrangelo, on behalf of Trachte, retained ESOP Economics to conduct a repurchase obligation study to estimate the number of shares of Trachte stock owned by the ESOP that would become eligible for distributions due to projected turnover, diversification and retirement. The study’s purpose was to predict Trachte ESOP’s liquidity needs to pay for required distributions under the plan terms. On August 3, 2007, ESOP Economics provided Mastrangelo with its final report entitled “ESOP Repurchase Obligation Projections.” (Trustees Ex. 1595, dkt. # 591-63.) 7. Review of the Valuation and Fairness Opinion While reviewing a draft of the Barnes fairness opinion, Mastrangelo was confused by Barnes Wendling’s decision to add back in the tax shield. As a result, Mastrangelo hired RSM McGladrey Inc. to help the trustees understand the concepts and terminology in the fairness opinion and the valuation. Thomas Klingele, RSM McGladrey’s director of business valuation services, was assigned to explain what the reports meant and ensure they used normal methodology. He was not hired to perform a valuation of Trachte, or to render a fairness opinion. Klingele spent about 25.5 hours reviewing the final letter of intent and drafts of the fairness opinion and valuation. On July 6 (or July 9), 2007, Klingele issued a letter on behalf of RSM McGladrey to Mastrangelo as “Trustee of a ‘Trachte ESOP.’ ” (Joint Ex. 23, dkt. # 586-9.) The letter comments on a draft of the fairness opinion from July 2, 2007, the annual valuation from of December 31, 2006 and a draft of the take-down letter from June 30, 2007. Klingele concluded that the firms were using common and appropriate valuation methods (though he expressed no opinion that the methods were applied appropriately) and the EBIT-DA multiples used were within a reasonable range for companies of Trachte’s size. However, he noted that the Trachte ESOP was paying on the high end of the report’s estimate range of fair market value and noted that the reports made some questionable assumptions. In particular, he noted that Barnes Wendling’s adjustment for the tax shield “does not have consensus in the valuation community, especially under the ‘fair market’ standard of value,” because it takes into consideration special features of the ESOP that are not relevant for the hypothetical willing buyer and seller. Klingele based this conclusion on his education and discussions, but he had no experience with valuations for ESOPs, did not discuss the tax shield with anyone and did not perform any research into its appropriateness. In conversations with Mastrangelo, Klingele further noted that the documents were unclear about how cash and customer deposits were being treated and that it was important for management to be comfortable with its projections, because they were the basis of the valuation under the discounted cash flow method. Mastrangelo sent Trachte’s “senior management” copies of the RSM McGladrey letter and invitéd them to a meeting with Klingele, which occurred on July 11, 2007. At the meeting, Klingele discussed the importance of the underlying projections and the EBITDA multiples. The meeting was the first time that Seefeldt learned about the tax shield issue and he understood that Trachte needed to ask Barnes Wendling about it. Mastrangelo told Aumiller that he had hired RSM McGladrey, and about Klingele’s criticisms. He did not show her the letter from RSM McGladrey. She stated her disagreement with Klingele but did not explain her reasoning. Mastrangelo decided there was no consensus about whether a tax shield was appropriate and chose to accept Aumiller’s position. Seefeldt did not hear Aumiller’s response, but also chose to defer to Mastrangelo’s judgment. On August 1, 2007, Seefeldt sought additional advice from Walter Smith, a CPA and independent director on the Trachte board from 1983 to 2006. Seefeldt asked for Smith’s advice as one familiar with Trachte and experienced in buying, selling and valuing businesses. In 2002, Smith had voted for Trachte’s merger with Alliance because he believed the Alliance ESOP provided Trachte employees with needed diversification, but Smith had resigned from the Trachte board of directors in August 2006 because he did not support Alliance’s sale of Trachte. Smith sent his resignation letter -to Pagelow expressing his opposition to the sale, but never informed Alliance about his opposition. Smith met with Mastrangelo and Seefeldt on August 14, 2007, telling them that the price and interest rates were too high and that their predictions were too optimistic in light of the slowing real estate and self-storage markets. Smith had no specific opinion about what would be a fair price, but thought the EBITDA multiples in the transaction appeared reasonable. Although the meeting lasted several hours, they did not delve into details and Smith never expressly advised them not to proceed with the transaction. 8. Negotiation The $42 million sale price contained in the April 19 letter of intent was taken directly from Trachte management’s original February 6 proposal, which was itself never the subject of negotiation by the parties. Although the letter of intent was a “nonbinding” agreement, the essential price for Trachte was not up for negotiation as made clear through (1) emails from Wanko (Pis. Ex. 200, dkt. # 597-4), (2) phone conversations with Fenkell, including one in which he berated Seefeldt with profanity for attempting to press Alliance on the refinancing of Store-N-Save, (3) the trustees responses at the Town Hall meeting and (4) Seefeldt and Mastrangelo’s comments to the senior management and Walter Smith. Nevertheless, some aspects of the letter of intent did change, ultimately reducing the overall price for Trachte’s common equity from $42 to $38.6 million. Ultimately, Alliance agreed to the following concessions: • to reduce its seller note by $1.29 million, because Alliance took on additional debt to acquire Spencer Turbine in May 2007, reducing its equity and thus the value of the Alliance shares in the Trachte employee accounts; • to finance an escrow account to pay for around $150,000 for environmental cleanup at a Store-N-Save location, because the clean-up was necessary to refinance Store-N-Save as part of the transaction; • to pay $180,000 to Trachte’s labor union employees to o