Lackey v. Whitehall Corp., Civ. A. No. 85-2639-S.
| Decision Date | 12 December 1988 |
| Docket Number | Civ. A. No. 85-2639-S. |
| Parties | Kermit E. LACKEY, William A. Shipley, and Murray F. Tysinger, Jr., Plaintiffs, v. WHITEHALL CORPORATION, et al., Defendants. |
| Court | U.S. District Court — District of Kansas |
Matthew C. Haverty, Mark V. Parkinson, Bruce Keplinger, Payne & Jones, Chtd., Overland Park, Kan., for plaintiffs.
David J. Waxse, Shook, Hardy & Bacon, Overland Park, Kan., Michael V. Abcarian, Johnson, Bromberg & Leeds, Dallas, Tex., for defendant and third-party plaintiff.
Barton Brown, Kip A. Kubin, Wallace, Saunders, Austin, Brown and Enochs, Chtd., Overland Park, Kan., for third-party defendant.
A court trial was held in this Employment Retirement Income Security Act ("ERISA") and breach of contract case on November 8, 1988 and November 9, 1988. After reviewing the evidence presented, the court is now prepared to rule.
1. Whitehall ("Whitehall") Corporation is a Delaware corporation with its principal place of business in Dallas, Texas. At all relevant times, Mr. Lee Webster has been Whitehall's chief executive officer and chairman of the board.
2. Crystek is a subdivision of Whitehall, having its principal place of business in Fort Myers, Florida. Crystek's traditional line of business was the manufacture and sale of radio frequency control crystals.
3. In the latter part of 1979, Wallace C. Wilson was hired by Whitehall to be general manager of the Crystek subdivision. He reported directly to Mr. Webster and was unable to take certain actions without Webster's approval (e.g., hiring of personnel).
4. Plaintiff Kermit Lackey was employed to serve as Crystek's manager of manufacturing in January 1980.
5. Plaintiff William A. Shipley was employed in November 1981, to serve as Crystek's director of marketing.
6. Plaintiff Murray F. Tysinger, Jr. was employed in November 1981, to serve as Crystek's director of engineering.
7. In July 1981, Mr. Wilson prepared a "five year plan" for the future growth of the Crystek subdivision. The plan was submitted to Mr. Webster. The plan proposed a scheme for transforming Crystek into the only quartz crystal facility serving both original equipment manufacturers and end-users in the commercial two-way communications market. This ambitious undertaking was the goal for Crystek agreed to by Mr. Webster and Mr. Wilson.
8. Mr. Wilson believed that two key personnel (Tysinger and Shipley) were necessary for the success of the five year plan. Mr. Wilson had talked individually with Tysinger and Shipley in May, 1981, at an industry symposium. They expressed interest in the prospective positions.
9. In September 1981, Mr. Wilson drafted an offer of employment to each of the two key personnel outlining the compensation benefits for each. The draft offer included pension plans for the two individuals. Mr. Webster reviewed the draft offer and objected to the pension terms. However, deferred compensation provisions were substituted for the pension plans. These provisions were included to make the offer enticing and especially to persuade Tysinger to leave his employment with General Electric. Identical provisions of deferred compensation were included in the employment offers made to both Tysinger and Shipley. The offers stated:
Deferred compensation of 20% of salary annually, vesting at 20% per year, to be funded at the end of 5 years, upon earlier termination, or as negotiated by the parties.
Exhibits 4, 5, 408 and 409. Both Tysinger and Shipley accepted the employment offers.
10. On January 12, 1982, Mr. Wilson offered deferred compensation benefit to Kermit Lackey. This was done by a handwritten memorandum to Lackey, which incorporated the exact language used in the earlier offers to Tysinger and Shipley. Exhibits 6 and 410. In similar fashion, on March 10, 1982, Mr. Wilson extended an identical deferred compensation benefit to another current Crystek employee, Kenneth Lee, controller at Crystek. Exhibits 7 and 411. When Joseph Dutka was offered the manager of process engineering position on March 27, 1982, a deferred compensation benefit was included in the offer. Exhibits 8 and 412.
11. Mr. Wilson explained the method of calculation for the deferred compensation provisions to Tysinger, Shipley and Lackey in the same manner. Mr. Wilson explained that 20% of the employee's salary would be set aside and vested each year. Thus, at the end of five years, the deferred compensation would be 100% vested. Bookkeeping records at the Crystek subdivision for the years 1982, 1983 and 1984 reflect this method of calculation.
12. On February 18, 1985, Mr. Webster sent Mr. Wilson a memorandum stating that he had learned of Crystek's method of calculating the deferred compensation and that this method was incorrect. Mr. Webster advised Mr. Wilson to correct the calculation method and to adjust Crystek's records to reflect his (Webster's) understanding of the deferred compensation provisions. According to the Whitehall (Webster's) interpretation of the benefit term, the deferred compensation would be 20% of the employee's annual salary, 20% of which would be vested each year (therefore 4% of the salary would vest each year, 20% of 20%). Mr. Webster claimed this was the intended method of calculation and the method he had instructed Mr. Wilson to use.
13. Mr. Wilson communicated to Tysinger, Shipley and Lackey that Mr. Webster believed a different calculation method should be used on the deferred compensation benefits, and that Mr. Webster disapproved of the method Crystek had been using.
14. On July 15, 1985, Murray Tysinger resigned his position with Crystek to accept an employment offer with another company.
15. With Tysinger's departure, the five year plan for expansion into new markets was a failure. It had not been successful even before his departure. On August 16, 1985, Mr. Wilson resigned as general manager of the Crystek subdivision and accepted an agreed settlement for his deferred compensation.
16. On August 29, 1985, Mr. Webster traveled to Fort Myers, Florida. There, he announced the appointment of John Erasmus as Mr. Wilson's successor, the abandonment of the five year plan, and the return to traditional markets. Also, he met separately with Shipley, Lackey and Dutka. Mr. Webster stated that Whitehall had never intended to extend the deferred compensation provision to Lackey or Dutka, but that the corporation would honor the extension, using the method of calculation it understood. Mr. Webster offered each of the three employees continued employment with Crystek, and stated that they would each receive the accrued deferred compensation, but in accordance with the calculation method he had intended, and not the one used by Mr. Wilson. Dutka accepted the offer. Lackey initially accepted the offer, but the following day he informed Erasmus that the deferred compensation as outlined by Webster was unacceptable. Thus, Lackey decided to leave his position with Crystek.
17. In his separate meeting with Shipley, Mr. Webster offered continued employment and explained Whitehall's understanding about the method of calculating deferred compensation. Shipley refused to accept Whitehall's method of calculation and chose to leave the company.
18. The deferred compensation was to be paid out of the general assets of Whitehall Corporation.
19. The parties agree on the amounts of vested deferred compensation owed to each plaintiff under both the disputed methods of calculation. The amounts are as follows:
Whitehall's Plaintiffs'
Name of Party Method Method
Tysinger $19,348.21 $34,886.42
Shipley $13,592.10 $23,876.04
Lackey $11,773.10 $21,286.22
CONCLUSIONS OF LAW
The issue presented is whether the facts show the establishment or maintenance of a "plan, fund or program" covered by ERISA. 29 U.S.C. § 1002(2). "The existence of a `plan' is a prerequisite to jurisdiction under ERISA." Jervis v. Elerding, 504 F.Supp. 606, 608 (C.D.Cal. 1980). Deferred compensation provided in a contract negotiated by an employer and an individual employee is not an employee benefit plan for the purposes of ERISA. See Id. at 608-09 (quoting Goodman & Stone, Exempt Compensation Arrangements Under ERISA, 28 Cath.U.L.Rev. 445, 452, 452-53 (1979)).
Plaintiffs argue that the deferred compensation provisions constitute an unfunded ERISA covered plan for the Crystek management team. Whitehall argues that the deferred compensation provisions are terms of the employment agreements executed with the individual plaintiffs on an ad hoc basis, and not a benefit plan for company managers. Whitehall contends that it never established or maintained a plan within the meaning of ERISA.
The court finds that the Crystek deferred compensation provisions are terms included as part of the employment agreements with select individuals, and not an ERISA covered benefit plan. McQueen v. Salida Coca-Cola Bottling Co., 652 F.Supp. 1471 (D.Colo.1987), is supportive of the court's decision. In that case, a current employee of defendant entered into a "deferred compensation agreement" with the defendant. After examining the agreement as a whole, the United States District Court of Colorado found the deferred compensation agreement to be an employment agreement, and not an ERISA plan. Id. at 1472. See also Jervis, 504 F.Supp. at 609 ()
In the present case, plaintiffs Tysinger and Shipley received the deferred compensation as part of their individual employment...
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