In a case that hinged on the issues of fiduciary liability and deferred compensation, DPL Inc. settled lawsuits with three former top executives.
Under the deal, former group vice president and interim CFO Caroline Muhlenkamp, former chairman Peter Forster, and former president and chief executive officer Stephen F. Koziar Jr. dropped their claims, which totaled $134 million.
In exchange, DPL, parent company of Dayton Power and Light Co., agreed to drop all of its claims, including those involving amounts held in various deferred- compensation trusts.
In August 2004, DPL sued the three former executives, asserting, among other things, that they had breached their fiduciary duties and thus should forfeit their deferred compensation as well as their vested stock-based compensation. The former executives filed counterclaims against DPL and related parties that asserted claims based on the former executives’ employment and consulting contracts and various compensation plans.
Filed in Ohio’s Montgomery County Court of Common Pleas, the suit alleged that the three individuals “engaged in a multi-step scheme” to withdraw $33 million from a deferred-compensation plan before the end of 2003.
DPL maintained that as a result of the executives’ conduct, the company lost the ability to deduct a compensation expense on its federal income tax, took a hit to net income of more than $9 million, and incurred “hundreds of thousands of dollars in tax penalties” for late payment.
In December 2003, Muhlenkamp authorized the utility’s bank to distribute $7.1 million (for Forster), $9.7 million (for Koziar) and $16.3 million (for herself). The distributions were free of the 10 percent early-withdrawal penalties that DPL would otherwise have imposed.
The lawsuit was triggered by a March 10, 2004 internal memo sent by then controller Daniel Thobe charging the executives with self-dealing and published by the Dayton Daily News.
Under the settlement, the amounts to be given up by the former executives include deferred compensation worth about $43 million, 4.8 million stock options estimated to be worth $52 million, claimed bonuses and compensation amounting to $21 million, and a claim for attorneys’ fees of about $18 million. DPL expects to recover $14.5 million in legal fees.
The former executives will receive $25 million and will be responsible for paying all of their attorneys’ fees. Further, Forster and Muhlenkamp agreed to dismiss their lawsuit against the buyers of DPL’s financial-asset portfolio.