Diak v. Dwyer, Costello & Knox, P.C.

• Decision Date: 26 August 1994
• Docket Number: No. 93-2960,93-2960
• Citation: 33 F.3d 809
• Parties: Mark DIAK, Plaintiff-Appellant, v. DWYER, COSTELLO & KNOX, P.C., Terrance D. Knox, and John E. Dwyer, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 809

33 F.3d 809

Mark DIAK, Plaintiff-Appellant, v. DWYER, COSTELLO & KNOX, P.C., Terrance D. Knox, and John E Dwyer, Defendants-Appellees.

No. 93-2960.

United States Court of Appeals Seventh Circuit.

Argued Feb. 7, 1994.

Decided Aug. 26, 1994.

John J. Kurowski (argued), Charles W. Courtney, Jr., Kurowski & Courtney, Swansea, IL, for plaintiff-appellant.

Robert T. Mills (argued), Jon M. Moyers, Timothy F. Noekler, Cathryn A. Conrad, Coburn & Croft, St. Louis, MO, for defendants-appellees.

Before CUDAHY and COFFEY, Circuit Judges, and NORGLE, District Judge. ^*

CUDAHY, Circuit Judge.

Mark Diak, an accountant, was hired by the accounting firm Dwyer, Costello & Knox, P.C. (DCK) in late 1973. After retiring in 1985, he discovered that DCK had paid pension benefits to some retired employees. Believing he had been wrongfully denied pension benefits, Diak sued DCK and officers John Dwyer and Terrance Knox for breach of fiduciary duties under the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1001 et seq. (ERISA). The district court granted summary judgment for DCK, finding that DCK had not established a pension plan. Diak appeals, arguing that there was a "plan" under which he is entitled to benefits. Diak also argues that the district court abused its discretion when it denied his motion to compel discovery. We affirm.

I.

DCK began as a partnership (DCK Partnership) with Dwyer and his son-in-law Knox as partners. DCK incorporated in 1982 and Dwyer and Knox became officers and shareholders. In January 1984, Diak also became a shareholder and officer. In 1985, at the age of 32, Diak resigned from DCK and started a competing accounting firm.

Diak was never told that DCK had a pension plan. But in 1989, Diak learned that four retirees had received pension payments. In 1973, Abraham Schaffer retired from employment with DCK after 16 years of service as an accountant. Since his retirement, DCK has paid Schaffer $75/month as well as providing medical and dental coverage. In 1974, Della Chellist retired after 36 years of service as a secretary. Chellist has received $100/month and payment of medical and dental insurance. In June 1981, Mary Wiley retired after 5 years of service; DCK continued to pay her medical and dental insurance.

John Dwyer retired in 1981 after 55 years of service. After retirement Dwyer remained active in the firm on a limited basis, but received no salary. In 1983, Dwyer began to receive $1000/month from DCK; the amount increased so that by 1989 he was receiving $30,000/year. In his deposition, Dwyer testified that he and Knox established the amount of his pension, which in 1991 amounted to $30,000. When asked about the criteria for determining a pension amount, Dwyer replied:

The only guideline we have dealing with pensions is if somebody is with our firm, had been with our firm for twenty years and was 65, they got a pension, and a health and welfare that was established. We just established it. There was no particular plan. It was just established--if somebody had been with us all that time, they were entitled to something from us, no written plan....

Dwyer reported the payments on his income tax returns as pension payments. Dwyer also testified that he was familiar with pension plans and ERISA, having advised pension funds as clients and served as the executive director of the Central States Teamsters Pension Fund in 1978/1979.

According to DCK, the pension payments were not made pursuant to a "pension plan" but were individual contracts executed upon each person's retirement. Of the approximately 25 employees who left DCK after 1970, only the above-named four employees received any post-employment benefits. Moreover, DCK maintains that these contracts were made only with individuals who reached retirement age and retired from the partnership; no benefits have ever been paid to employees of the corporation DCK.

All of the pensions were paid out of DCK's general revenues. From 1984 until 1990, Schaffer, Chellist and Dwyer received from DCK an annual Form W-P2, and its successor, Form 1099-R. DCK's corporate income tax returns included deductions for pension contributions in each year from 1983 to 1990. In 1985, Diak noticed a deduction for pensions on the 1984 DCK tax return; when he inquired, Knox told him that the deduction did not reflect a pension, but only compensation for Dwyer.

In 1990, Diak made a formal demand for benefits. DCK responded that it had no pension plan. In 1991, Diak brought suit alleging that DCK, Knox and Dwyer breached their fiduciary duties under ERISA, and seeking clarification of the terms of the plan and recovery of benefits. The district court denied Diak's motion to compel discovery of Dwyer's tax returns for 1984 to 1991. The parties filed cross-motions for summary judgment, agreeing that there were no disputed issues of fact. DCK argued that it was entitled to relief as a matter of law because DCK never had a pension plan covered by ERISA; or if it did, Diak was not a participant in the plan; and that in any event Diak's claims were time-barred. The district court granted DCK's motion for summary judgment, finding DCK had not established a pension plan. We review the district court's grant of summary judgment de novo.

II.

ERISA imposes numerous fiduciary duties on employers in connection with pension plans. Employers are required to establish plans in writing, 29 U.S.C. Sec. 1102(1), create a fund or trust for benefit payments, 29 U.S.C. Sec. 1103(a), and maintain various records. 29 U.S.C. Sec. 1059. However, fiduciary duties arise only if there is a pension plan as defined by ERISA. The Act defines a pension plan as any plan, fund or program established or maintained by an employer that by its express terms or as a result of surrounding circumstances provides retirement income to employees. 29 U.S.C. Sec. 1002(2). A plan need not be in writing to be covered by ERISA so long as the plan is a reality, meaning something more than a mere decision to extend benefits. James v. National Business Systems, Inc., 924 F.2d 718, 719 (7th Cir.1991); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 739 (7th Cir.1986), cert. denied, 482 U.S. 915, 107 S.Ct. 3188, 96 L.Ed.2d 676 (1987); Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir.1982). Rather, we look to whether the decision "constituted an expressed intention by the employer to provide benefits on a regular and long-term basis." Wickman v. Northwestern Nat'l Life Ins. Co., 908 F.2d 1077, 1083 (1st Cir.), cert. denied, 498 U.S. 1013, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990). DCK's decision to extend benefits to certain employees does not compel the conclusion that it had established a pension plan. "A mere allegation that an employer or employee organization ultimately decided to provide an employee [pension] benefits is not enough to invoke ERISA's coverage." Scott v. Gulf Oil Corp., 754 F.2d 1499, 1504 (9th Cir.1985); Pritchard v. Rainfair, Inc., 945 F.2d 185 (7th Cir.1991) (plaintiff's belief he would receive health benefits and company's extension of health benefits to two other retirees did not establish a plan); Harris v. Arkansas Book Co., 794 F.2d 358, 360 (8th Cir.1986) (worker suddenly fired after 49 years of service; company's promise of a pension and payment of benefits to other retiree did not establish a plan).

In Donovan, the Eleventh Circuit set out the prevailing test for determining whether a "plan" has been established within the meaning of ERISA:

In determining whether a plan, fund or program (pursuant to a writing or not) is a reality a court must determine whether from the surrounding circumstances a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits.

688 F.2d at 1373. See also Ed Miniat, 805 F.2d at 739; Deibler v. United Food and Commercial Workers' Local Union 23, 973 F.2d 206, 209 (3d Cir.1992); Elmore v. Cone Mills Corp., 6 F.3d 1028, 1035 (4th Cir.1993); Landry v. Air Line Pilots Assoc. Int'l, 901 F.2d 404, 415 (5th Cir.1990); Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546, 551 (6th Cir.1989); accord Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 2217, 96 L.Ed.2d 1 (1987).

Applying the Donovan criteria, the district court found that Diak's claim foundered at the first step--ascertaining the benefits due under DCK's "plan." Dwyer testified that pension payments were determined on an ad hoc basis in consultation with Knox. Each of the individuals who received pensions received different packages, ranging from $75/month for Schaffer to $2500/month for Dwyer. Wiley received only health benefits (a welfare benefit rather than a pension). It is difficult to divine a formula at work in this distribution of payments. Diak's "expert" witness opined that DCK had a pension plan that guaranteed $2500/month to retired officers of the corporation (like Dwyer and Diak) and $100/month to other employees. But this fails to explain all of the payments--Dwyer received nothing at first, eventually received $1000/month, and did not receive $2500/month until 1989. Moreover, Schaffer and Wiley received less than $100/month, and numerous other employees who left the company received nothing.

It would also be difficult to ascertain the appropriate amount of benefits by years of service. Schaffer's 16 years of service netted him $75/month; Chellist's 36 years gave her $100/month; Wiley had worked only 5 years, and received only health benefits. Knox's affidavit indicates that at least two other employees worked for at least 10 years (Fred Siegel and ...