Cunha v. Ward Foods, Inc., Civ. No. 77-0306.

• Decision Date: 21 June 1982
• Docket Number: Civ. No. 77-0306.
• Parties: Allen H. CUNHA, Jr., et al., Plaintiffs, v. WARD FOODS, INC., et al., Defendants.
• Court: U.S. District Court — District of Hawaii

545 F. Supp. 94

Allen H. CUNHA, Jr., et al., Plaintiffs, v. WARD FOODS, INC., et al., Defendants.

Civ. No. 77-0306.

United States District Court, D. Hawaii.

June 21, 1982.

Larry L. Myers, Edward C. Kemper, Thomas T. Watts, Kemper & Watts, Honolulu, Hawaii, for plaintiffs.

Robert S. Katz, Honolulu, Hawaii, for Ward Foods, Inc.

Willson C. Moore, Jr., Honolulu, Hawaii, for Wyatt Co.

OPINION AND ORDER

SAMUEL P. KING, Chief Judge.

This case is before the Court again on cross-motions for summary judgment on various of the counts in the complaint. I have fully outlined the facts of the case in my prior opinion at 501 F.Supp. 830 (D.Hawaii 1980) and, therefore, will not repeat them here. In that earlier opinion, I declined to grant summary judgment on some of the counts that are before me again today on the grounds that issues of material fact remained to be resolved. In making the present motions, the parties have now agreed that these issues are ripe for decision by the Court as matters of law.

The plaintiffs have moved for summary judgment on Counts X, XI and XII. The defendant Ward Foods has moved to dismiss or, alternatively, for partial summary judgment on Counts X through XXII¹, and Count XXIV. The motions have been fully briefed and argued, and the parties have submitted affidavits and exhibits to the Court.

Counts X and XXIV

Count X alleges a breach of contract in defendant Ward Foods' refusal to allocate to plaintiffs a pro rata share of pension fund assets upon the termination of the HonIron Pension Plan. Count XXIV alleges violations by Ward Foods of the minimum funding requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.

The factual basis for plaintiffs' claim on Count X is undisputed. Article XIII of the HonIron Pension Plan provides that, upon plan termination, retired employees have a priority to benefits over all other employees up to 100% of the fund's assets. Any funds remaining after distribution to the retirees are to be allocated equally to two other classes of employees: those who have reached the optional early retirement age of 55 (the "55 + group"), and those who are between 45 and 55 with ten years of service (the "45 & 10 group").

When the Pension Plan was terminated on August 31, 1974, there were enough assets to pay some, but not all, of the benefits accrued by the retirees, but no assets to pay the 55 + group or the 45 & 10 group. After the Plan's termination, Ward Foods then took the remaining assets in the fund earmarked for the retirees, added funds of its own, and purchased annuity contracts from the Bankers Life Insurance Company for both the retirees and the 55 + group designed to provide those employees with retirement benefits equivalent to those that they would have received had there been sufficient assets in the fund at termination. The 45 & 10 group, of which the plaintiffs are a part, were not provided with such benefits.

Plaintiffs now claim that, under the liquidation and distribution provisions of Article XIII of the Plan, they are entitled to an equal or pro rata share of the benefits provided to the 55 + group by the Bankers Life annuity contracts. They allege that the funds provided by Ward Foods to purchase the annuity contracts were, in fact, contributions to the trust fund that were consequently subject to the distribution requirements of the Plan.

The plaintiffs' claim rests on the assumption that Ward Foods' post-termination contributions were assets of the trust fund. Under Article XIII, at termination only those "assets of the Plan then held in the Trust Fund shall be liquidated and distribution shall be made to the extent funds are available emphasis added." The meaning of this language is clearly that the distribution requirements apply only to those assets in the fund at the time of termination and liquidation. Since it is undisputed that Ward Foods contributed the additional funds to purchase the annuity contracts after the trust fund was liquidated, I find as a matter of law that the distribution requirements of Article XIII do not apply to any of those funds. Furthermore, since there were not enough assets in the trust fund at the time of liquidation even to pay benefits to all the retirees, neither the 55 + group nor the 45 & 10 group (including plaintiffs) would have been entitled to participate in the distribution of the liquidated fund assets.

Plaintiffs have claimed that Ward Foods made certain guarantees to the 55 + group that it would provide pension benefits to that class of employees, but not to the 45 & 10 group, and that those guarantees violated Ward Foods' contractual obligation to provide equal benefits to the plaintiffs. I fail to see, however, what relevance these guarantees, if any, have to plaintiffs' rights under the Plan. The plaintiffs' contractual rights are defined by the terms of the Plan, and any promises Ward Foods might have made to the 55 + group do not alter those rights. Moreover, as Ward Foods rightly points out, its motivation for providing benefits to the 55 + group, but not to the plaintiffs, is not material to plaintiffs' claims.

Finding that the plaintiffs have no right to participate in the distribution of the assets that Ward Foods provided after the termination of the Pension Plan, I therefore GRANT defendant Ward Foods' Motion for Partial Summary Judgment, and DENY plaintiffs' Motion for Partial Summary Judgment, as to Count X.

Count XXIV raises the alternative claim that Ward Foods' undertaking to provide the funds enabling all the retirees and 55 + group to receive pension benefits constituted a de facto continuation of the Pension Plan beyond August 31, 1974 and a violation of the minimum funding requirements of ERISA. Although the factual basis of the claim is slim, I nevertheless find that the plaintiffs have at least raised a genuine issue of fact regarding the continuation of the Pension Plan. I therefore DENY Ward Foods' Motion for Partial Summary Judgment with respect to Count XXIV.

Count XI

Count XI alleges that Ward Foods' termination of the Pension Plan constituted a breach of the agreement because it was done without prior notice to the plan participants. The claim is based on the allegation that one provision in Article XIII of the Plan — giving the company "the right to change, modify, amend, suspend, or discontinue the Plan at any time except as modified by any Labor Agreement between the Company and the Union emphasis added" — required that the Plan be read in conjunction with certain labor agreements between HonIron and its unions that prohibited unilateral termination of the Plan without prior notice to all parties.

Ward Foods asserts, however, that the notice provisions in the labor agreements, by their terms, apply only "with respect to those employees in the respective collective bargaining units represented by" the unions which are parties to the agreements. Since the plaintiffs were not members of the unions, defendant argues that the notice provisions of the labor agreements do not cover the plaintiffs.

At this pass, I cannot find as a matter of law that the Pension Plan means what either the plaintiffs or the defendant say it means. The quoted phrase may mean that the company's right to terminate is conditioned for all purposes and as to every Plan participant on the terms of the labor agreements, or it may mean that the labor agreements are to be read into the Plan only to the extent of their own terms, in which case the notice requirement would appear to cover only union members.

I find that this is a question going to the facts and circumstances surrounding the formation of the Plan and is therefore a disputed question of fact best reserved for the trier of fact. On this basis, I hereby DENY both the plaintiffs' and the defendant's motions for partial summary judgment on Count XI.

Count XII

Count XII alleges that Ward Foods breached Article V.A. of the Plan — which requires the company to make "such contributions to the Trust Fund which are necessary to maintain the Plan in full force and effect under the terms of the Internal Revenue Code" — by failing to fund the Plan for the eight months of 1974 preceding termination. Decision under this count requires construing the contract in light of the provisions of the I.R.C. dealing with pension plans.

The applicable provisions of the I.R.C. are those that define a "qualified plan" for purposes of obtaining a tax deduction for contributions to, and a tax deferral for benefits from, pension plans, 26 U.S.C. § 401 et seq. See also 26 C.F.R. § 1.401 et seq. Plaintiffs argue that these provisions required Ward Foods to make contributions to the Plan for the eight months of 1974 preceding termination on August 31. The defendant, on the other hand, has argued that these provisions do not require contributions to be made, but simply prescribe the conditions that must be met in order for any contributions that are made to be deductible.

I must agree with the defendant. The Court has been directed to no language in the I.R.C. or the regulations that specifies when or how much an employer must contribute to a plan. For example, 26 C.F.R. § 1.401-1(a)(3) outlines the tests that must be met "in order for a trust forming part of a pension ... plan to constitute a qualified trust under section 401(a) of the I.R. C.." None of these tests require the employer to make any contributions at any particular time.

Plaintiffs rely on §§ 1.401-1(b)(1)(i) & (c) in support of their position. Section 1.401-1(b)(1)(i) merely states the general definition of a covered pension plan, i.e., "a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years." Plaintiffs assert in essence that the word "systematically" defines the word "maintained," and that therefore the employer...