Benistar Employer Services Trust Company v. Benincasa, HHDCV136042110S
| Decision Date | 17 January 2017 |
| Docket Number | HHDCV136042110S |
| Court | Connecticut Superior Court |
| Parties | Benistar Employer Services Trust Company (BESTCO) et al. v. James J. Benincasa et al |
UNPUBLISHED OPINION
The plaintiffs, Benistar Employer Services Trust Company (BESTCO) and Benistar Admin Services, Inc. (BASI) (petitioners) brought this action pursuant to General Statutes § 52-418 to vacate an arbitration award, dated May 15, 2013 and issued by Arbitrator Jeffrey G. Stein (Stein), through the auspices of the American Arbitration Association (AAA), in favor of James J. Benincasa and Jodi L. Benincasa (the Benincasas) and James J. Benincasa and Jodi L. Benincasa as participants in Mortgage$Unlimited, Inc.'s (MUI) Benistar 419 Plan & Trust (collectively, respondents). The respondents, thereafter, filed an application to confirm arbitrator Stein's May 15, 2013 arbitration award (Award) and his June 13, 2013 " Clarification of Arbitrator's Post-Hearing Decision and Award" (Clarification).
The dispute which brought the parties to arbitration involved the purchase of two $16 million individual whole life insurance policies on the lives of the Benincasas who were the president and vice president, respectively, and sole owners of MUI, an S corporation.[1] The policies were purchased by the Benistar 419 Plan and Trust (the " Plan"), a multiple-employer welfare benefit plan. The funding for the purchase of the policies came from MUI's participation in, and contributions to, the Plan. BESTCO was the Plan sponsor, and BASI was the administrator of the Plan. The Plan was designed to comply with I.R.C. § 419A(f)(6). In its conception, the Plan was to provide tax deductions to participating employers, such as MUI, for contributions paid by them to the Plan's Trust Fund. The contributions, in turn, funded the premiums for preretirement life insurance policies for key employees under the Plan. The Plan issued a certificate of coverage to the employer, MUI, listing the participants as the Benincasas, each of whom was to receive $16 million in death benefits. In this case, MUI contributed $750, 000 annually to fund the policies between 2001 and 2004, totaling $2.8 million. The contributions to the plans were, in fact, claimed as tax deductions by MUI.
In 2004, MUI transferred the benefits and life insurance policies from the Plan to the Grist Mill Trust Welfare Benefit Plan out of concern that the Plan would no longer support tax free contributions to the life insurance policies. Benistar 419 Plan Services, Inc. was the Grist Mill Plan's sponsor and administrator. The Benincasas--as participants--and MUI--as employer--shortly, thereafter terminated their participation in the Grist Mill Trust, and the Benincasas took possession of the policies in their own name. The Benincasas were charged $33, 546.90 for the surrender of the policies.
The Commissioner of Internal Revenue (" Commissioner") challenged the validity of the tax deductions and ultimately issued the Benincasas a notice of deficiency on their personal income taxes on the basis that the contributions to the Plan were payments on their personal behalf and were not ordinary and necessary business expenses of their employer MUI, under 26 U.S.C. § 162(a). The Commissioner also asserted that the distribution of the two life insurance policies resulted in taxable income to the Benincasas, which they failed to report. In addition, the commissioner imposed underpayment penalties pursuant to 26 U.S.C. § 6662A.[2] Attorney Thomas Brever was hired by the respondents to represent them in connection with these assessments.
The respondents filed a claim for arbitration against the petitioners[3] on November 29, 2007 asserting, among other theories of liability, breach of contract for their failure to provide a tax exempt vehicle to purchase the life insurance policies. The arbitration was sought in accordance with identical provision found in the Plan Administration Agreement and the Grist Mill Trust Welfare Benefit Plan Administration Fee Agreement, which provided in relevant part: " Any dispute or controversy arising under or in connection with this Agreement or with respect to the Employer's participation in the Plan shall be settled by Arbitration, conducted by a single arbitrator in New York City in accordance with the rules of the American Arbitration Association[4] then in effect . . . The decision of the arbitrator shall be final and binding, and judgment may be entered on the arbitrator's award in any court having jurisdiction." [5] The respondents submitted, inter alia, breach of contract and fiduciary duty claims to arbitration.
Evidence in the arbitration was taken on March 5, 2013 and March 6 2013. The arbitrator's Award dated May 15, 2013 was transmitted to AAA on May 17, 2013. The Award recited a pre-arbitration request by the respondents to add a cross claim in the context of the pending arbitration submittal which Stein had denied on the basis that the AAA rules required them to file a separate arbitration and then consolidate the cases. Stein declared in the Award that " [o]n or about April 18, 2013 . . . the record was closed." Substantively, Stein made the specific finding that the petitioners " breached their promises and obligations to [respondents] in numerous ways." Pertinently, this included a breach of the petitioners' " contractual fiduciary duties [by] failing to provide a compliant 419A(f)(6) plan, and most specifically by not determining the maximum amount of contributions that could be contributed . . . They [petitioners] . . . failed to provide a tax-free transfer of the policy out of the Plan to the [respondents]." Stein awarded the respondents the following damages: (1) taxes, including 6662A taxes, as of the date of the Award attributable to " the transfer of the [life insurance] polic[ies] as part of the exit strategy from the failed Plan"; (2) " the $33, 546.90 transfer fee" for the surrender of the policies; (3) the attorneys fees for " the legal defense of the IRS assessment" charged by Brever; and (4) any state taxes assessed for the transfer of the policies. Because the amount of the federal and state taxes and penalties had not yet been determined, and no findings as to such were made by Stein, he retained jurisdiction to interpret and resolve any disputes concerning the Award. The parties moved for clarification of the Award. In the Clarification Stein explained that the respondents had " not [yet] settled with the IRS and therefore there [could be] no set amount of taxes and penalties that could be awarded." Stein observed that his Award detailed Id. Further facts will be described as required below.
The petitioners filed their Application to Vacate Arbitration Award pursuant to § § 52-416(a) and 52-418 (" Application to Vacate") on May 24, 2013. The respondents filed their Application to Confirm the Award pursuant to § 52-421 on July 15, 2013. Thereafter, the undersigned undertook the resolution of the applications by agreement of the parties.
The petitioners advance several arguments why the Award should be vacated. First, the Award is clearly untimely and, thus, has no " legal effect, " because it was rendered more than thirty days from the close of the hearing. Second, the Award was based on a " manifest disregard [of] the law" because it " cannot be reconciled with the unambiguous terms of the contracts that it asserts were breached." Third, the Award violated " clear public policy" by " awarding damages for increased tax liability." Fourth, the Award was not a " final and definite award upon the subject matter submitted" because it did not fix, specifically, the amount of damages.
The respondents counter that the petitioners have not met the stringent standards required for vacatur of an arbitration award. In their view, the Award was, indeed, rendered within thirty days of the close of the hearing, the petitioners' arguments reflect mere disagreement with the arbitrator's findings of facts; and finally, the asserted public policy was not violated and the Award was finite and definite because it fixes sufficiently the rights and obligations of the parties.
The court agrees with the respondents that the petitioners have not met the high standards met for review of each of their claims. The court, therefore, denies the Application to Vacate and grants the Application to Confirm.
I.
As a general proposition " [j]udicial review of arbitral decisions is narrowly confined." (Internal quotation marks omitted.) AFSCME, Council 4, Local 2663 v. Dept. of Children & Families, 317 Conn. 238, 249, 117 A.3d 470 (2015). " Because we favor arbitration as a means of settling private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution . . . Furthermore, in applying this general rule of deference to an arbitrator's award [e]very reasonable presumption and intendment will be made in favor of the [arbitral] award and of the arbitrators' acts and proceedings." State v. Connecticut Employees Union Independent, 322 Conn. 713, 721, 142 A.3d 1122 (2016).
The standard to be applied in the review of an arbitral award is dependent upon the nature of the challenge. As an initial matter the court finds the submission to arbitration was unrestricted.[6] The identical language requiring arbitration in both the Plan Administration Agreement and...
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