Aramony v. United Way of America, 96 Civ. 3962(SAS).

• Decision Date: 20 November 1998
• Docket Number: No. 96 Civ. 3962(SAS).,96 Civ. 3962(SAS).
• Citation: 28 F.Supp.2d 147
• Parties: William ARAMONY, Plaintiff, v. UNITED WAY OF AMERICA, individually and as administrator and named fiduciary under the United Way of America Replacement Benefit Agreement, United Way Replacement Benefit Plan and United Way Supplemental Benefits Agreement, Defendants.
• Court: U.S. District Court — Southern District of New York

Page 147

28 F.Supp.2d 147

William ARAMONY, Plaintiff, v. UNITED WAY OF AMERICA, individually and as administrator and named fiduciary under the United Way of America Replacement Benefit Agreement, United Way Replacement Benefit Plan and United Way Supplemental Benefits Agreement, Defendants.

No. 96 Civ. 3962(SAS).

United States District Court, S.D. New York.

November 20, 1998.

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Michael Bailey, Dennis W. Houdek, Falcone, Houdek, Bailey & Curd, LLP, New York, New York, for Plaintiff.

Elise M. Bloom, Jackson, Lewis, Schnitzler & Krupman, New York, New York, Sara E. Hauptfuehrer, Edmund W. Burke, Susan Harthill, Steptoe & Johnson, LLP, Washington, D.C., for Defendants.

AMENDED OPINION AND ORDER

SCHEINDLIN, District Judge.

                                               TABLE OF CONTENTS
                I.   INTRODUCTION ............................................................ 152
                II.  FINDINGS OF FACT ........................................................ 153
                     A. The Parties .......................................................... 153
                     B. The Agreements at Issue .............................................. 153
                        1. Replacement Benefits Plan ......................................... 153
                            a. The Executive Committee's Adoption of an RBP .................. 154
                            b. Differences Between the Draft Plan and the Signed Plan ........ 154
                            c. 1990 Amendment to the RBP ..................................... 155
                        2. Supplemental Benefits Agreement ................................... 155
                        3. Employment Agreement .............................................. 155
                     C. The Parties' Post-Termination Conduct ................................ 156
                     D. Aramony's Criminal Conduct ........................................... 156
                        1. Estoppel Effect of Aramony's Conviction ........................... 157
                        2. Evidence of Aramony's Misconduct Before September 1989 ............ 158
                     E. Press and UWA Investigation of Misconduct ............................ 159
                     F. The Executive Committee's Awareness of Aramony's Misconduct .......... 160
                        1. Miscoding Personal Expenditures as Business Expenses .............. 161
                            a. UWA's Review of Aramony's Expense Reports ..................... 161
                            b. The January 24, 1990 Anonymous Letter ......................... 161
                            c. IGI's Briefings and Interim Reports ........................... 161
                        2. The Purchase of the Merlo Annuity ................................. 162
                        3. The Purchase of the Florida Condominium ........................... 163
                     G. Government Investigations ............................................ 163
                     H. Media Coverage of the "Aramony Scandal" .............................. 164
                     I. UWA's Post-1991 Decline in Revenues .................................. 165
                III. ARAMONY'S CLAIMS ........................................................ 166
                     A. Counts One and Two for Benefits Under the RBP ........................ 166
                        1. Forfeiture of Benefits Under the RBP .............................. 166
                            a. Paulachak's Implied Authority ................................. 166
                

                            b. Ambiguity in the Signed Plan .................................. 167
                            c. Conclusion .................................................... 168
                        2. Amount of Aramony's Benefits Under the RBP ........................ 168
                            a. Offsetting the Effect of the Tax Reform Act ................... 169
                            b. Offsetting the Effect of § 401(a)(17) .................... 169
                        3. Summary of Aramony's Claims for Benefits Under the RBP ............ 171
                     B. Counts Five and Six Seeking Benefits Under the SBA ................... 171
                        1. Forfeitability .................................................... 171
                        2. Waiver ............................................................ 171
                        3. Conclusion ........................................................ 172
                     C. Count Seven for Breach of Employment Agreement ....................... 172
                     D. Count Eight for Breach of Agreement to Reimburse Fees and Costs ...... 173
                     E. Count Ten for Unjust Enrichment ...................................... 173
                     F. Count Twelve for Breach of Duty of Good Faith and Fair Dealing ....... 173
                     G. Count Thirteen for Reformation of Agreements ......................... 173
                     H. Prejudgment Interest ................................................. 173
                     I. Attorneys' Fees ...................................................... 174
                     J. Summary of Aramony's Claims .......................................... 175
                IV. UWA's COUNTERCLAIMS ...................................................... 175
                     A. Count Four for Breach of Common Law Fiduciary Duty ................... 175
                        1. Liability ......................................................... 175
                        2. Damages ........................................................... 176
                            a. Recovery of Aramony's Salary .................................. 176
                            b. Recovery of Consequential Damages ............................. 176
                                 i. Lost Dues ................................................ 177
                                    a) Reduction in Dues Percentage .......................... 177
                                    b) Reduction in Funds Raised ............................. 178
                                ii. Costs Associated With the Locals' Dissatisfaction With
                                      UWA .................................................... 178
                               iii. Legal Fees and Costs ..................................... 179
                                iv. IGI Investigative Fees ................................... 180
                                 v. Accountants' Fees ........................................ 180
                                vi. Media Relations Services & Videotape Production .......... 180
                               vii. Cost of UWA's Presidential Search ........................ 181
                              viii. Travel Costs ............................................. 181
                     B. Count Five for Breach of Fiduciary Duty of Loyalty Under New York
                         Not-for-Profit Law .................................................. 181
                     C. Count Two for Breach of Employment Agreement ......................... 181
                        1. Liability ......................................................... 181
                        2. Damages ........................................................... 181
                     D. Count Three for Breach of Covenant of Good Faith and Fair Dealing .... 182
                     E. Prejudgment Interest ................................................. 182
                     F. Punitive Damages ..................................................... 182
                        1. Legal Standard .................................................... 182
                        2. Award of Punitive Damages ......................................... 184
                V.   CONCLUSION .............................................................. 184
                

I. INTRODUCTION

William Aramony, the President and Chief Executive Officer of the United Way of America ("UWA") for twenty-two years, was fired in 1992, after an investigation revealed that he had violated his office by engaging in fraudulent, dishonest and criminal conduct. His motive for these crimes is apparent — his personal enjoyment and financial benefit. In addition to losing his job, he was convicted of various crimes and sentenced to seven years in jail, a term he is now serving. He will not be released from jail until he is 75 years old.

Despite the fact that he is now a convicted felon, he does not lose the right to sue and seek compensation in the courts of law. Aramony claims that he is contractually entitled to certain pension benefits and salary from his former employer. He also claims that he is entitled to reimbursement for legal expenses incurred in an effort to settle these claims with UWA following his termination. Aramony asserts that UWA owes him a total of $7.2 million, including pre-judgment interest and attorneys' fees and costs. UWA denies any liability.

UWA, in turn, has counterclaimed against Aramony, alleging that he breached both his fiduciary duty to UWA and his employment contract. UWA claims it is entitled to $2.1 million as reimbursement for the compensation that it paid Aramony during the period of his disloyalty and to consequential damages of between $16 million and $37 million, which it allegedly suffered as a result of his misconduct. In addition, UWA seeks an award of punitive damages if UWA's proven actual damages do not completely offset any amount that is owed to Aramony. In response, Aramony asserts that UWA has waived its claims and defenses against him by supporting him at a time when it was fully aware of his criminal conduct. Aramony also asserts that UWA's damages fail for lack of proximate cause and because they are speculative.

In the course of this lengthy Opinion, I conclude that UWA owes Aramony certain monies, and that Aramony owes certain monies to UWA. I am concerned, however, that a simple but important principle may be overlooked in the plethora of details that follow. A felon, no matter how despised, does not lose his right to enforce a contract. On the other hand, his recovery of any contractual benefit does not diminish the seriousness of his criminal conduct, for which he is being severely punished. It is important that the many good people who are contributors to the United Way of America understand these important principles of our system of justice.

This action was tried to the Court on September 17, 18, 23, 24 and 28, 1998. The following constitutes the Court's findings of fact and conclusions of law.

II. FINDINGS OF FACT

A. The Parties

UWA is a non-profit corporation organized under the laws of New York and having its principal place of business in Alexandria, Virginia. Joint Pre-Trial Order ("JPTO"...