Aramony v. United Way Replacement Benefit Plan

• Decision Date: 01 August 1998
• Docket Number: Docket Nos. 98-9502
• Citation: 191 F.3d 140
• Parties: (2nd Cir. 1999) WILLIAM ARAMONY, Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v UNITED WAY REPLACEMENT BENEFIT PLAN, UNITED WAY SUPPLEMENTAL BENEFITS AGREEMENT, Defendants-Counter-Claimants, UNITED WAY OF AMERICA, Individually and as administrator and named fiduciary under the United Way of America Replacement Benefit Plan, and as administrator of the United Way Supplemental Benefits Agreement, Defendant-Counter-Claimant-Appellant-Cross-Appellee. (L), 98-9672 (Cross-Appeal)
• Court: U.S. Court of Appeals — Second Circuit

Page 140

191 F.3d 140 (2nd Cir. 1999)

WILLIAM ARAMONY, Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v UNITED WAY REPLACEMENT BENEFIT PLAN, UNITED WAY SUPPLEMENTAL BENEFITS AGREEMENT, Defendants-Counter-Claimants, UNITED WAY OF AMERICA, Individually and as administrator and named fiduciary under the United Way of America Replacement Benefit Plan, and as administrator of the United Way Supplemental Benefits Agreement, Defendant-Counter-Claimant-Appellant-Cross-Appellee.

Docket Nos. 98-9502 (L), 98-9672 (Cross-Appeal)

August Term, 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: June 7, 1999

Decided: September 02, 1999

Appeal from a judgment of the United States District Court for the Southern District of New York (Scheindlin, J.), rendered following a bench trial of William Aramony's ERISA claims and United Way of America's breach of contract and fiduciary duty counterclaims. United Way contends that the district court erred by granting Aramony's claim of entitlement to benefits under a United Way Replacement Benefit Plan, finding that this plan compensated Aramony for the effect of I.R.C. §401(a)(17) on those benefits, and limiting United Way's recovery on its breach of fiduciary duty counterclaim. Aramony cross-appeals, arguing that the district court erred by rejecting his claim of entitlement to benefits under United Way's Supplemental Benefits Agreement and by limiting his recovery of attorneys' fees.

Affirmed in part, reversed in part, and remanded.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] MICHAEL BAILEY, New York, NY (Dennis W. Houdek, Falcone, Houdek, Bailey & Curd, LLP, on the brief), for Plaintiff-Counter-Defendant-Appellee-Cross-Appellant.

PAUL J. ONDRASIK, JR., Washington, DC (Sara E. Hauptfuehrer, Steptoe & Johnson LLP, on the brief), for Defendant-Counter-Claimant-Appellant-Cross-Appellees.

Before: WINTER, Chief Judge, OAKES, and SACK, Circuit Judges.

SACK, Circuit Judge:

For twenty-two years, William Aramony served as president and chief executive officer of United Way of America, one of the nation's premier charitable organizations. But in 1992 he was fired amidst a rising tide of allegations that he had engaged in fraud and financial improprieties with respect to United Way funds. Subsequently, Aramony was convicted in the United States District Court for the Eastern District of Virginia on numerous felony counts of fraud, and sentenced to seven years' imprisonment. In light of these events, United Way determined to deny Aramony an array of pension benefits. Aramony filed suit to regain the benefits, and United Way counterclaimed to recover for, inter alia, Aramony's breach of fiduciary duty. After a five-day bench trial, both sides prevailed in significant part, and both now appeal.

BACKGROUND

The background of this case is described in detail in the district court's opinion, Aramony v. United Way of Am., 28 F. Supp. 2d 147, 153-66 (S.D.N.Y. 1998). We restate it only insofar as necessary to explain our disposition of this appeal.

United Way of America, a not-for-profit New York corporation, organizes and provides services to local chapters engaged in a variety of charitable pursuits nationwide. United Way's activities are primarily funded by dues paid to it by these locals, calculated as a fixed percentage of the charitable contributions each receives. The affairs of United Way are overseen by a Board of Governors, but its day-to-day operations are controlled by its president and CEO, a post held by William Aramony from 1970 until his resignation under fire in 1992. A subcommittee of the board known as the Executive Committee is empowered to adopt pension plans and compensation agreements on United Way's behalf.

I. United Way's Pension Plans

United Way provides its employees with a qualified defined benefit plan under which pension benefits are calculated as a function of an employee's average salary over a five-year period, multiplied by a fixed ratio, and multiplied again by the employee's years of service. Pursuant to I.R.C. § 415, however, there is a maximum benefit an employee may receive pursuant to this plan in the neighborhood of $100,000 per annum $90,000 upwardly adjusted for cost of living increases. See 26 U.S.C. §415(b)(1).

On February 27, 1984, the Executive Committee met to consider adopting a non-qualified pension plan ("Replacement Benefit Plan" or "RBP") that would provide those highly compensated employees subject to the § 415 limitation, including Aramony, with benefits offsetting the impact of § 415 and certain other tax-code limitations on the qualified defined benefit plan. United Way's usual practice when considering pension plan proposals was for the Executive Committee to approve the concept of the plan, leaving the details to be worked out between United Way employees specializing in employee benefits, such as senior vice president and CFO Stephen Paulachak, and United Way's insurer, Mutual of America Life Insurance Co. The adoption of the RBP proceeded along these lines.

At the February 27 meeting, Paulachak distributed an agenda setting forth the basic principles of a proposed RBP. Aside from indicating the purpose of the proposed plan, the agenda did not refer to specific details, although it did recommend that the Executive Committee "authorize United Way... to establish a Replacement Benefit Plan . . . as outlined under [the attached draft plan]."

The referenced attachment was a partially incomplete sample RBP document, i.e., the document left blank significant terms such as its effective date and controlling law, offered but did not select from among various options for determining eligibility and benefit amounts, and did not contain a signature or signature line. This draft plan did, however, include two specific provisions of note. First, it contained a benefit calculation formula provision based on United Way's qualified defined benefit plan. Second, it contained a felony forfeiture provision stating:

The right to the payment of any amount provided under this Plan shall be subject to forfeiture upon the commission of a prohibited act by the Participant. A prohibited act shall be the commission of a fraud, embezzlement or other felony involving the Employer for which the Participant has been convicted in a Court of competent jurisdiction.

The draft plan went on to state, however, that "[e]xcept as may be provided in [the felony forfeiture provision], the Participant's rights under this Plan shall become nonforfeitable upon termination of employment."

The Executive Committee accepted the recommendation reflected on the agenda and authorized the establishment of an RBP, expecting Paulachak to work out the specific details of the plan in conjunction with Mutual. Accordingly, Paulachak relayed the Executive Committee's decision to Mutual, asking it to create the plan document embodying the RBP. About one year later the time lapse unaccounted for in the record Mutual produced a final document. On May 16, 1985, Paulachak signed it on United Way's behalf.

There are two significant differences between the plan produced by Mutual and signed by Paulachak (the "signed plan") and the draft plan that had been attached to the agenda at the February 1984 board meeting (the "draft plan"). First, whereas the draft plan's benefit-calculation formula referred to and depended upon United Way's qualified defined benefit plan, the signed plan's benefit-calculation formula referred to and depended upon a qualified defined contribution plan. United Way did not have a defined contribution plan. Second, the signed plan did not contain the felony forfeiture clause contained in the draft plan, providing instead only that benefits become nonforfeitable upon termination of employment.

In addition to providing Aramony benefits under the RBP, in October 1984 United Way entered into yet another compensation arrangement with Aramony, the Supplemental Benefits Agreement ("SBA"). In the SBA, United Way agreed to give Aramony an additional retirement benefit equal to the balance on a hypothetical account to which United Way would "contribute" $2,083.33 per month until Aramony's retirement, plus interest at United Way's option. In contrast to both versions of the RBP, the SBA was silent on the question of forfeiture.

II. Aramony's Misconduct

From at least as early as September 1982 onward, Aramony engaged in a pattern of financial misconduct and fraud at the expense not only of United Way and its local chapters, but also of those charity-giving members of the general public whose trust he thereby betrayed. During this period, Aramony routinely billed United Way for an array of unauthorized personal expenses, including personal air travel, car rentals, hotels, and meals. Aramony also regularly falsified expense reports throughout this period in an effort to conceal his wrongdoing, at times directing other United Way employees to assist him in doing so.¹

In late 1991, United Way learned that members of the press were looking into a possible story about United Way including, inter alia, allegations of wrongdoing by Aramony and another United Way officer. United Way responded by retaining the services of investigators at The Investigative Group, Inc. ("IGI") and of the public relations firm Hill & Knowlton. Later, United Way hired the law firm Verner, Liipfert, Bernhard, McPherson, and Hand ("Verner Liipfert") to assist and expand IGI's investigation, and the accounting firm Coopers & Lybrand to perform various audits in connection with the investigation.

In February 1992, IGI and Verner Liipfert's investigation began to focus on Aramony's misconduct. At the same time, reports of the allegations of Aramony's misconduct began to appear in the media. Eventually, United Way forced Aramony out.²

III. The Pension Benefits Litigation

As a consequence of Aramony's misconduct, United Way determined to deny him pension benefits...