Schwartz v. Gregori

• Citation: 45 F.3d 1017
• Decision Date: 17 March 1995
• Docket Number: No. 93-3964,93-3964
• Parties: , 10 IER Cases 396, 18 Employee Benefits Cas. 2745, Pens. Plan Guide P 23905M Diane A. SCHWARTZ, Plaintiff-Appellee, v. Joseph S. GREGORI, M.D.; Joseph S. Gregori, M.D., Inc., Individually and as Employer and Administrator of Pension Plan and Trust, Defendants-Appellants, John J. Kuczek and Kuczek & Associates, Inc., Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1017

45 F.3d 1017

63 USLW 2528, 10 IER Cases 396, 18

Employee Benefits Cas. 2745,

Pens. Plan Guide P 23905M

Diane A. SCHWARTZ, Plaintiff-Appellee, v. Joseph S. GREGORI, M.D.; Joseph S. Gregori, M.D., Inc.,

Individually and as Employer and Administrator of

Pension Plan and Trust, Defendants-Appellants,

John J. Kuczek and Kuczek & Associates, Inc., Defendants.

No. 93-3964.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 29, 1994.

Decided Jan. 31, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied March

17, 1995.

Robert Samuel Hartford (argued and briefed), Timothy M. Reardon (briefed), Nadler, Nadler & Burdman, Youngstown, OH, for plaintiff-appellee.

Richard J. Thomas (argued and briefed), Richard N. Selby (briefed), Henderson, Covington, Stein, Donchess & Messenger, Youngstown, OH, for defendants-appellants.

Before: MILBURN and SUHRHEINRICH, Circuit Judges; and JOINER, District Judge. ^*

JOINER, District Judge.

Defendants Joseph S. Gregori and Joseph S. Gregori, M.D., Inc., appeal the judgment in favor of plaintiff Diane Schwartz for breach of fiduciary duty and retaliatory discharge under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Secs. 1001 et seq. The district court awarded Schwartz damages to compensate her for the financial losses caused by defendants' breach of fiduciary duty, together with prejudgment interest; back pay and front pay for retaliatory discharge; and attorney fees. The Gregori defendants challenge their liability for retaliatory discharge and the award of back pay and front pay. We affirm.

I.

Joseph Gregori, a physician, and Diane Schwartz, a licensed x-ray technician, met through their employment in 1971. In 1975, Gregori started his own practice, formed Joseph S. Gregori, M.D., Inc., and hired Schwartz as his office manager and x-ray technician.

Defendant John Kuczek is a financial planner and insurance salesman, conducting business through Kuczek & Associates, Inc. Kuczek and Gregori are friends, and Kuczek performed financial planning services for Gregori. At Kuczek's suggestion, Gregori formed the Joseph S. Gregori, M.D., Inc. Employer's Pension Plan and Trust Agreement (the "plan") in 1975. Gregori individually served as trustee of the plan, and Gregori, Inc. served as administrator. Gregori, Schwartz and others were participants in the plan.

Gregori had no investment experience, and relied on Kuczek to make decisions for the plan. In 1983, Kuczek learned of a commodities investor, David Meek, whose funds supposedly were earning as much as 30 percent. Kuczek recommended to Gregori that the plan invest in Meek's funds. Gregori followed Kuczek's advice, investing $50,000 of plan assets in September 1983, and an additional $108,500 in December 1983. The latter investment was made following Kuczek's "due diligence" visit to Meek's office in Florida, where he learned that Meek's business had been in operation for only nine months. ¹ Following the December investment, the amount invested in Meek's funds represented 45.6 percent of the total plan assets.

Meek issued weekly statements for a period of time which indicated that the funds were performing well. Over the next year, Gregori and Kuczek received two notices disclosing that Meek was a defendant in an action brought by the Commodities Futures Trading Commission (CFTC), and that an injunction had been issued requiring Meek to allow the CFTC to have access to the books and records of one of his funds. On both occasions, Kuczek called Meek and was assured that the problem was an inadvertent one which was being remedied. Kuczek did not confirm Meek's report with the CFTC or recommend that the plan's assets be withdrawn.

Meek stopped issuing weekly statements in July 1985, and shortly thereafter the CFTC froze all of his accounts. In 1987, Gregori and Kuczek learned that Meek had embezzled all of the invested funds, and that the weekly reports were fictitious. The parties stipulated that the total loss to the plan was $288,991.09, and that Schwartz's share of the loss was $19,728.15. Kuczek offered to make restitution to the plan for the loss, but Gregori refused the offer and "forgave" Kuczek because he had not caused the loss intentionally. The plan was terminated on March 31, 1988, and Schwartz received a lump sum payment representing her share of the plan assets then in existence. This payment did not compensate Schwartz for the losses attributable to the Meek investment.

Schwartz and Gregori had several discussions during this time period regarding the plan's losses. Gregori offered to repay the lost funds to Schwartz in the form of bonuses over a three-year period, but Schwartz refused the offer because the bonuses would have been taxable as income in the years they were received, and could not have been invested in a qualified retirement plan. Through counsel, Schwartz demanded that Gregori reimburse her for the loss and threatened legal action. Gregori responded by telling Schwartz that she would be out of a job if she sued him. Gregori also threatened to force Schwartz to quit by reducing her hours.

Schwartz filed suit on November 10, 1988, and effected service on November 14. Within days, Gregori advertised for an x-ray technician. On November 22, Gregori sent his attorney a draft letter terminating Schwartz, and asked the attorney to make necessary alterations or clarifications. Gregori terminated Schwartz on December 9, telling her that he planned to scale back his practice, implement computerization, and involve his wife in the administration of the office.

Schwartz's original complaint asserted a breach of fiduciary duty claim against Gregori, Inc. only. Through amendment, Schwartz added a similar claim against the Kuczek defendants and Gregori individually, and added a claim against the Gregori defendants for illegal discharge, seeking back pay, reinstatement or front pay in lieu thereof, and damages for emotional distress.

The case was tried to the court. Extensive testimony was introduced on the breach of fiduciary duty claim, on which the district court found all four defendants jointly and severally liable, awarding Schwartz $19,728.15 together with prejudgment interest. With respect to the retaliatory discharge claim, Schwartz established that the reasons Gregori had given to justify her termination had not materialized; i.e., Gregori did not scale down his practice, did not computerize his office for three years, and involved his wife in the office for only a short time following Schwartz's discharge. Gregori testified at trial to additional reasons for Schwartz's termination, alleging incompetence, failure to perform duties, and failure to communicate and show initiative. The district court found that all of stated reasons were pretextual, and that Gregori's real reason for discharging Schwartz was her lawsuit to enforce her rights under the plan. Accordingly, the court found that the Gregori defendants retaliated against Schwartz in violation of ERISA. The court denied Schwartz emotional distress damages, and found that reinstatement was not a feasible remedy in light of the hostility between the parties. The court awarded back pay of $59,764, and front pay of $42,443. Finally, the court awarded Schwartz attorney fees of $33,253 for services rendered through the date of judgment.

II.

The scope of this appeal has been narrowed considerably since it was first filed, ² and the remaining issues concern Schwartz's claim of retaliatory discharge. An employee's rights under ERISA are set forth in Sec. 510, 29 U.S.C. Sec. 1140:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act [29 U.S.C.A. Sec. 301 et seq.], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and Pension Plans Disclosure Act. The provisions of section 1132 of this title shall be applicable in the enforcement of this section.

(Emphasis added.) The provision governing the relief available under ERISA is Sec. 502, 29 U.S.C. Sec. 1132(a), which provides in pertinent part:

A civil action may be brought--

....

(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]

Gregori's challenges to liability for retaliatory discharge merit only brief discussion. Gregori contends that ERISA Sec. 510 does not protect employees from retaliatory acts which are not intended to affect their benefit entitlement. Under his reading of the statute, Gregori claims that he is not liable because the plan losses had been suffered long before Schwartz's discharge. Gregori relies on Humphreys v. Bellaire Corp., 966 F.2d 1037 (6th Cir.1992); and Rush v. United Technologies, 930 F.2d 453 (6th Cir.1991); where this court set forth the elements of a Sec. 510 claim in the context of cases in which each plaintiff in fact claimed that he was discharged to prevent him from becoming eligible for certain plan benefits. Accordingly, this court held that intent to interfere with the attainment of a benefit was, in those cases, an element of the plaintiff's claim. However, in neither Humphreys nor Rush did the...