Spitz v. Tepfer, s. 97-3276

• Decision Date: 17 March 1999
• Docket Number: 97-3330,Nos. 97-3276,s. 97-3276
• Parties: Pens. Plan Guide (CCH) P 23952N Ronald O. SPITZ, Plaintiff-Appellee, Cross-Appellant, v. Arthur H. TEPFER, et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 443

171 F.3d 443

Pens. Plan Guide (CCH) P 23952N

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.

Argued May 28, 1998.

Decided March 17, 1999.

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 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 had approved its incorporation into the Plan, as required by § 7.4 of the Plan document. On the other hand, the attorney who drafted the original Plan executed an affidavit in which she said that the loan program had been part of the Plan from the beginning. More importantly, Part VIII of the Summary Plan Description ("SPD") described a program for securing loans from the Plan.

Having laid the groundwork as described, Tepfer resigned from T & S on June 9, 1995, so that he could devote his full attention to TCG. Fenster followed him on June 12, 1995, as did T & S employee Nolan S. Frank. A little more than a year later, on September 12, 1996, Spitz filed the action now before us. In it, he requested eight specific forms of relief against Tepfer, Fenster, and Frank:

1. A declaration that the Fourth Plan Amendment was invalid.

2. A declaration that the Participant Loan Program was invalid.

3. A declaration that Tepfer and Fenster were no more than 60% vested in the T & S Plan.

4. A declaration that Frank was no more than 20% vested in the T & S Plan.

5. A declaration that Tepfer, Fenster, and Frank were not entitled to a contribution by T & S to their 401(k) accounts for 1995 because they were not employed by T & S on the last day of the year, as required by § 4.4(b) of the Plan.

6. An order requiring Tepfer immediately to repay to the T & S Plan the $48,000 loan he had taken out.

7. An injunction prohibiting the three defendants from filing baseless complaints with the U.S. Department of Labor about Spitz's conduct as trustee of the 401(k) Plan, or about the Plan itself.

8. An order granting Spitz his attorneys' fees and costs, as allowed by ERISA.

The defendants denied Spitz's allegations and filed a counterclaim against Spitz and T & S based on Spitz's alleged refusal to respond to their requests for information on their benefits status, in violation of his duties as Plan administrator. The district court granted Spitz's motion for summary judgment on July 7, 1997, but it refused to grant his petition for fees or costs, on the theory that they were not appropriate in an action brought under the Declaratory Judgment Act for relief that it believed was essentially "legal," not "equitable." Tepfer and his co-defendants appealed, and Spitz cross-appealed the adverse decision on fees.

II

We preface our discussion of the merits of the appeal with some preliminary observations about jurisdiction. As we noted, the present federal suit was preceded by a case covering much the same ground in state court--specifically, the Circuit Court of Cook County, Chancery Division. Nevertheless, there is no reason to be concerned about this court's jurisdiction or any possible preclusion defenses. First, many of the events about which Spitz is complaining had not yet occurred at the time Tepfer filed the state court action, and thus they would not have been supported by the same evidence nor considered part of the same transaction at issue there. See Whitaker v. Ameritech Corp., 129 F.3d 952, 956 (7th Cir.1997). Second, the defendants did not raise any kind of res judicata defense, and it is clear that such a defense can be waived. Allahar v. Zahora, 59 F.3d 693, 695 (7th Cir.1995). Finally, and most important, Spitz's present claim arises under ERISA, and thus it falls within the exclusive jurisdiction of the federal courts. 29 U.S.C. § 1132(e)(1). Because Spitz therefore could not have raised his ERISA-based claims in any fashion before the state court, and as the defendant he was not the person who selected the state forum, it is likely that he could not be precluded here. See River Park, Inc. v. City of Highland Park, 184 Ill.2d 290, 234 Ill.Dec. 783, 703 N.E.2d 883, 896 (1998).

Our review of the record also assures us that the judgment of the court below was final for purposes of appeal under 28 U.S.C. § 1291. Although the trial court, in its summary judgment order, granted Tepfer and his co-defendants leave to reassert Count II of their amended counterclaim once they effected proper service upon T & S, this loose end did not ultimately deprive the judgment of its finality. The trial court later revisited this portion of its ruling, noting that the defendants never properly named T & S as a party to the lawsuit in the first place, which they should have done by means of a third-party complaint. Accordingly, in an order dated July 23, 1997, the court dismissed Count II of defendants' amended counterclaim as not properly before it and closed the case. We also note that, although the order granting summary judgment does not directly adjudicate Spitz's initial request for an injunction prohibiting the defendants from filing frivolous complaints with the Department of Labor, this is because Spitz failed to prosecute it. Spitz's motion purports to request summary judgment on all allegations in the complaint and counterclaim without reservation, but the specific relief he requests (which would and did fully resolve each of his other claims) omits the injunction he proposed in his complaint. Nor does Spitz mention such an injunction in his cross-appeal. He has evidently long since abandoned that claim. Moreover, the tenor of the summary judgment opinion reflects the trial court's intent to dispose of...