171 F.3d 443 (7th Cir. 1999), 97-3276, Spitz v. Tepfer

Docket Nº:97-3276, 97-3330.
Citation:171 F.3d 443
Party Name:Ronald O. SPITZ, Plaintiff-Appellee, Cross-Appellant, v. Arthur H. TEPFER, et al., Defendants-Appellants, Cross-Appellees.
Case Date:March 17, 1999
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 443

171 F.3d 443 (7th Cir. 1999)

Ronald O. SPITZ, Plaintiff-Appellee, Cross-Appellant,

v.

Arthur H. TEPFER, et al., Defendants-Appellants, Cross-Appellees.

Nos. 97-3276, 97-3330.

United States Court of Appeals, Seventh Circuit

March 17, 1999

Argued May 28, 1998.

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[Copyrighted Material Omitted]

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David A. Belofsky (argued), David A. Belofsky & Associates, P.C., Chicago, IL, for Plaintiff-Appellee.

Robert R. Tepper (argued), Chicago, IL, for Defendants-Appellants.

Before FLAUM, MANION, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

Ronald Spitz and Arthur Tepfer were co-owners of a retirement plan consulting business, Tepfer & Spitz, Ltd. ("T & S"). Ironically, this case reflects a pitched battle between the two, along with two other employees who sided with Tepfer, over T & S's own 401(k) profit sharing plan. Spitz believed that Tepfer had played fast and loose with the plan, and he brought this action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), and the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking declarations that Tepfer's actions were illegal, that Tepfer and the other two defendants were not entitled to certain contributions by T & S to their 401(k) accounts, and that Tepfer had to repay a $48,000 loan he had received from the T & S plan. The district court ruled in Spitz's favor on all points except his request for attorneys' fees pursuant to ERISA § 1132(g)(1); it rejected Tepfer's ERISA-based counterclaim. We conclude that the district court should have recognized disputed issues of material fact with respect to the contested loan, and that the case must therefore be remanded for further proceedings. In addition, however, we conclude that Spitz is entitled to attorneys' fees under ERISA to the extent he may prevail in the end. We therefore remand for further proceedings on this point as well.

I

T & S began operations in December 1990. Spitz and Tepfer each owned 50% of the company's shares, and they were its sole directors and officers: Spitz served as president, and Tepfer served as secretary. In January 1991, T & S established the 401(k) profit sharing plan ("the Plan") that lies at the heart of this suit. T & S was the sponsor and administrator of the Plan, while Spitz, Tepfer, and employee Frederic A. Fenster served as trustees. Under § 6.4(b) of the Plan, no employee was fully

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vested until he or she had completed six years of service with T & S.

At some point prior to mid-1995, Tepfer took a number of steps that led to his departure from T & S. First, in March 1995, he filed a suit in state court to force a dissolution of T & S. Tepfer's complaint also alleged that Spitz had committed various torts. This gambit was not as successful as Tepfer had hoped, because the state court eventually ordered a buyout and required him to pay damages to T & S for taking company assets when he later left the firm. In all, Tepfer lost $103,000 and all his interest in T & S as a result of that action.

Meanwhile, still prior to his departure from T & S, Tepfer formed an independent corporation known as Tepfer Consulting Group, Ltd. ("TCG"), for which he served as the sole shareholder and president. On June 8, 1995, without informing Spitz, Tepfer executed a document entitled "Fourth Amendment to the Tepfer & Spitz, Ltd. 401(k) Profit Sharing Plan and Trust" (the "Fourth Plan Amendment"). The T & S Board of Directors never adopted, ratified, or approved this alleged Fourth Plan Amendment; indeed, Spitz did not discover its existence until some time in 1996. Spitz claimed, and the district court agreed, that the Fourth Plan Amendment unambiguously provided that all participants in the T & S Plan became 100% vested as of January 1, 1995. (Tepfer contested this characterization before the district court, but for the reasons stated by that court, we agree with its interpretation of the amendment.) The Fourth Plan Amendment also stated that employees were guaranteed to receive their allocation of the T & S annual contribution to the Plan even for a year during which they left employment. Without the amendment, § 4.4(b)(2)-(4) of the Plan excluded participants from receiving any part of the "matching contribution" from T & S for a given year if they were not actively employed with the company on the last day of that year.

A few days earlier, on June 2, 1995, Tepfer withdrew $48,000 from the Plan without Spitz's knowledge. He did so by drafting a document entitled "Participant Loan Program," so that he could characterize this transaction as a loan. Nothing in the three-page Participant Loan Program document indicated that anyone associated with the Plan...

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