Davidson v. Henkel Corp.

• Decision Date: 23 July 2013
• Docket Number: Case No. 12-cv-14103
• Parties: JOHN B. DAVIDSON, Plaintiff, v. HENKEL CORPORATION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

JOHN B. DAVIDSON, Plaintiff,

v.HENKEL CORPORATION, et al., Defendants.

Case No. 12-cv-14103

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

Dated: July 23, 2013

HON. GERSHWIN A. DRAIN

OPINION AND ORDER DENYING IN PART AND GRANTING IN PART

DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S COMPLAINT[#10]

I.INTRODUCTION

On September 14, 2012, Plaintiff, John B. Davidson, filed the instant class action¹ Complaint pursuant to the Employee Retirement Income Security Act,29 U.S.C. § 1001 et seq.("ERISA"), against Defendants, Henkel Corporation, Henkel of America, Inc. and Henkel Corporation Deferred Compensation and Supplemental Retirement Plan (collectively "Defendants"), seeking to recover plan benefits from Defendants.Plaintiff maintains that the retirement benefits from his nonqualified deferred compensation plan were wrongfully reduced by Defendants failure to follow the Internal Revenue Code's ("IRC") special timing rule for the withholding of Federal Income Contributions Act ("FICA") taxes on vested deferred compensation.Furthermore, because Defendants failed to follow the special timing rule, Plaintiff lost the benefit of the IRC's non-duplication rule resultingin devastating tax consequences.Instead of paying FICA taxes once on the entire amount of deferred compensation pursuant to the special timing and non-duplication rules, Plaintiff is now required to pay FICA taxes each year that he receives benefit payments from his deferred compensation plan.

Presently before the Court is Defendants' Motion to Dismiss Plaintiff's Complaint, filed on November 16, 2012.This matter is fully briefed and a hearing was held on May 16, 2013.For the reasons that follow, the Court denies in part and grants in part Defendants' Motion to Dismiss Plaintiff's Complaint.

II.FACTUAL BACKGROUND

Plaintiff began working for Henkel Corporation in 1974.²During his employment, Plaintiff participated in the available retirement programs, which included a nonqualified deferred compensation plan (the "Plan").The Plan is a "top-hat" plan within the meaning of ERISA, or a plan that benefits a select group of highly compensated employees.The Plan was "designed to allow Participants to defer a portion of compensation not taken into account under the Henkel Corporation Retirement Plan and to provide supplemental benefit based on compensation not taken into account under that plan."SeeCompl., Ex. 1at 2.Under the terms of the Plan, an eligible employee can make deferrals from his base salary and/or bonus.Id. at 8.The Plan further provided for the supplemental benefits to be paid at the time of retirement.Id. at 17-18.Plaintiff retired on August 1, 2003.

Prior to his retirement, Plaintiff discussed his options with the Plan administrator, including benefit and tax calculations.Plaintiff relied on the Plan administrator's representations whendeciding to retire in 2003.

After his retirement, Plaintiff received his monthly retirement benefits.On September 19, 2011, Plaintiff received a letter from the Director of Benefits at Henkel Corporation, advising that:

During recent compliance reviews performed by an independent consulting firm, it was determined that Social Security FICA payroll taxes associated with your non-qualified retirement benefits have not been properly withheld.

* * *

At the time of your retirement, FICA taxes were payable on the present value of all future non-qualified retirement payments.Therefore, you are subject to FICA Taxes on your non-qualified retirement payments on a "pay as you go" basis for 2008 and beyond, which are the tax years that are still considered "open" for retroactive payment purposes.

Id., Ex. 2.

After the investigation, Defendants remitted the full FICA tax due to that date on behalf of itself and the affected retirees.Defendants did not deduct the entire amount owed for FICA taxes from the retirees' accounts, rather they reimbursed themselves by reducing the retirees' monthly benefit payments for a twelve to eighteen month period.Effective January of 2012, Defendants began adjusting participants' monthly payments under the Plan.

Plaintiff contacted Defendants to challenge the change to his benefits and Defendants responded on October 14, 2011 stating:

Yes, at the time you commenced receipt of this benefit, Henkel should have applied FICA tax to the present value of your nonqualified pension benefit.

Yes, this applies to the non-qualified benefit only.

No, this benefit comes from the Henkel Corporation Supplement Retirement Plan payment.This is the restoration plan which provides benefits similar to the qualified plan, but on compensation that exceed IRS limits for qualified plans.

Plaintiff maintains that Defendants acted with gross negligence and recklessness in failing to properly determine the FICA taxes that may have been payable at the time of his retirement in2003.Defendants acted in their own self interest by contacting the IRS and entering into an agreement with the IRS without apprising Plaintiff, and by removing money from Plaintiff's retirement benefit checks to reimburse itself for its own error.

Plaintiff argues that Defendants should have withheld FICA taxes on the present value of his nonqualified deferred compensation benefits upon his retirement and, if that had occurred as required by the IRC, Plaintiff would have owed no additional FICA in 2003 or in any subsequent year.Here, FICA taxes are now being assessed on each year's compensation payments because Defendants failed to properly withhold FICA taxes in compliance with the IRC and the special timing rule.Plaintiff brings the following claims: Count I, recovery of benefits due under ERISA; Count II, violation of ERISA; Count III, estoppel; Count IV, breach of contract; Count V, breach of implied contract; Count VI, misrepresentation; Count VII, breach of common law fiduciary duty and Count VIII, negligence.

III.LAW & ANALYSIS

A.Standard of Review

Federal Rule of Civil Procedure12(b)(6) allows the court to make an assessment as to whether the plaintiff has stated a claim upon which relief may be granted.SeeFed. R. Civ. P. 12(b)(6)."Federal Rule of Civil Procedure 8(a)(2) requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'"Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555(2007) (citing Conley v. Gibson, 355 U.S. 41, 47(1957).Even though the complaint need not contain "detailed" factual allegations, its "factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true."Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548(6th Cir.2007)(quotingBell Atlantic, 550 U.S. at 555).

The court must construe the complaint in favor of the plaintiff, accept the allegations of the complaint as true, and determine whether plaintiff s factual allegations present plausible claims.To survive a Rule 12(b)(6) motion to dismiss, plaintiff's pleading for relief must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."Id.(citations and quotations omitted)."[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."Ashcroft v. Iqbal, 556 U.S. 662, 668(2009)."Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'"Id."[A] complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'"Id.The plausibility standard requires "more than a sheer possibility that a defendant has acted unlawfully."Id."[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'- 'that the pleader is entitled to relief.'"Id.

Federal Rule of Civil Procedure 12(b)(1) authorizes a party to challenge the court's subject matter jurisdiction.In analyzing a motion filed pursuant to Rule 12(b)(1),

[t]here is no presumption that the factual allegations set forth in the complaint are true and the court is "free to weigh the evidence and satisfy itself as to the existence of its power to hear the case."[United States v. Ritchie, 15 F.3d 592, 598(6th Cir. Cir.), cert. denied, 513 U.S. 868(1994)].The court has wide discretion to consider materials outside the pleadings in assessing the validity of its jurisdiction.Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325(6th Cir.1990).The plaintiff bears the burden of demonstrating subject matter jurisdiction.RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134(6th Cir.1996).

Ashley v. United States, 37 F.Supp.2d 1027, 1029(W.D. Mich.1997)."A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking."Sweeton v. Brown, 27 F.3d 1162, 1169(6th Cir.1994)(quotingUnited States v. Siviglia, 686 F.2d 832, 835(10th Cir.1981), cert. denied, 461 U.S. 918(1983)).

B.Defendants' Motion to Dismiss Plaintiff's Complaint

1.The Federal Insurance Contribution Act

Plaintiff's allegations arise from Defendants purported negligent administration of the Plan and the resulting FICA tax penalties incurred as a result of Defendants failure to withhold FICA taxes in accordance with the special timing rule.

FICA tax is imposed by Congress under the Federal Insurance Contributions Act, codified at 26 U.S.C.§ 3101 et seq.Specifically, the IRC states that "[i]n addition to other taxes, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages . . . ."26 U.S.C. § 3101(a).Further, "[t]he tax imposed by ...