Fechter v. Connecticut General Life Ins. Co., Civ. A. No. 87-0506.

• Citation: 800 F. Supp. 182
• Decision Date: 20 August 1992
• Docket Number: Civ. A. No. 87-0506.
• Parties: Edward C. FECHTER, Evelyn Hoffman, and Roderick M. Jackson, individually and on behalf of all others similarly situated, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

800 F. Supp. 182

Edward C. FECHTER, Evelyn Hoffman, and Roderick M. Jackson, individually and on behalf of all others similarly situated, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY.

Civ. A. No. 87-0506.

United States District Court, E.D. Pennsylvania.

August 20, 1992.

Richard F. Stevens, Joseph A. Bubba, Allentown, Pa., for plaintiff.

Paul A. Fischer, James F. Jorden, Washington, D.C., for defendant.

OPINION AND ORDER

VAN ANTWERPEN, District Judge.

This matter is before us for a non-jury trial. Defendant Connecticut General Life Insurance Company has moved for judgment on partial findings of fact pursuant to Fed.R.Civ.P. 52(c). By way of background, we briefly describe the procedural history of this action, now in its fifth year of litigation.

This ERISA¹ case involves the 1984 termination of the HMW Industries, Inc. Cooperative Retirement Income Plan for Salaried Employees (the "Plan"), a forty year old pension plan which was grossly over-funded at the time of its termination. Upon termination, eighty-three percent (83%) of the Plan's surplus assets reverted to the company, HMW Industries, Inc., its subsidiary Hamilton Technology, Inc., and its parent Clabir Corporation. The remaining assets, seventeen percent (17%) of the Plan's surplus, were distributed to the Plan participants. Plaintiffs, a group of approximately 650 current and former salaried employees of HMW Industries, Inc. and Hamilton Technology, Inc., filed this class-action² under ERISA, challenging the disproportionate distribution of assets in favor of their employer. We have original jurisdiction over plaintiffs' claims pursuant to 29 U.S.C. § 1132(e)(1) and 28 U.S.C. § 1331.

On January 21, 1987, plaintiffs initiated this action against HMW Industries, Inc., Hamilton Technology, Inc., Clabir Corporation, and key management personnel³. One and one-half years later, following this Court's entry of a preliminary injunction, defendant's appeal of that injunction to the Third Circuit Court of Appeals, and a six-day non-jury trial, plaintiffs settled all their claims against each of these original defendants for $2.825 million. See Fechter v. HMW Industries, Inc., 879 F.2d 1111 (3d Cir.1989); HUYETT, J., Order Granting Plaintiffs' Motion for Preliminary Injunction, dated March 3, 1989, docket entry no. 93; HUYETT, J., Order, dated July 3, 1989, docket entry no. 199; HUYETT, J., Stipulation and Agreement, dated, July 3, 1989, docket entry no. 201; CAHN, J., Order, dated July 21, 1989, docket entry no. 220; Defendant's Post-Discovery Motion for Summary Judgment, Ex. 45, docket entry no. 261.⁴

During settlement negotiations with the Original Defendants, plaintiffs amended their complaint adding the Plan's insurance company and actuary, Connecticut General Life Insurance Company ("Connecticut General"), as a party-defendant. (Second Amended Complaint, filed July 19, 1989, docket entry no. 210). For purposes of clarity, plaintiffs further amended their complaint eliminating references to the Original Defendants. (Plaintiffs' Third Amended Complaint ("Complaint"), filed July 9, 1990, docket entry no. 242). In October 1991, this Court denied the parties' cross-motions for summary judgment finding, inter alia, that due process would require, at a minimum, that plaintiffs prove their case against Connecticut General based on a record and proceedings for which Connecticut General had been given a full opportunity to participate, rather than relying on the record adduced in the district court and Third Circuit proceedings prior to the time that Connecticut General was joined as a party to this action. (VAN ANTWERPEN, J., Order of October 8, 1991, docket entry no. 285). Thereafter, on June 30, 1992 through July 1, 1992 this non-jury matter⁵ proceeded to trial in Easton, Pennsylvania against the only remaining defendant Connecticut General.

In light of the extensive documentation in this case and since Connecticut General can only be liable to plaintiffs under their theories if plaintiffs prove that Connecticut General was an ERISA "fiduciary,"⁶ the trial against Connecticut General proceeded on a bifurcated basis. On the third day of trial, plaintiffs rested on the issues of liability, and defendant Connecticut General moved for judgment on partial findings of fact pursuant to Fed.R.Civ.P. 52(c). Plaintiffs offered more than 130 exhibits,⁷ the testimony of John Markley and Gloria G. Strantz, and the deposition of David W. Greene⁸ into evidence. Also in evidence is Exhibit B to Plaintiffs' Reply Brief in Further Opposition to Defendant's Motion For Judgment On Partial Findings.⁹ Collectively, this evidence constitutes the record for this stage of the proceeding. On July 2, 1992, the Court ordered the parties to submit Proposed Findings of Fact, Conclusions of Law, and Memoranda in support of and in opposition to defendant's motion. In addition, both parties have filed reply briefs.¹⁰ The Court further ordered that the parties would be limited at this stage to the issues and facts put forth in these submissions. Pursuant to Fed.R.Civ.P. 52(c) we make the following findings of fact and conclusions of law with regard to plaintiffs' evidence.

FINDINGS OF FACT

I. BACKGROUND

A. The Parties

1. This class-action involves the 1984 termination of the HMW Industries, Inc. Cooperative Retirement Income Plan (the "Plan"), a pension plan established in 1940, by HMW Industries, Inc., formerly the Hamilton Watch Company.¹¹ The Plan covered salaried employees of HMW Industries, Inc. and its various subsidiaries, including Hamilton Technology, Inc. (Pls.' Ex. 39 at 1-2). Hereinafter, unless the context indicates otherwise, HMW Industries, Inc. and its subsidiary, Hamilton Technology, Inc., are jointly referred to as "HMW". Clabir Corporation ("Clabir") acquired HMW in October 1983. (Complaint, ¶ 9; Def.'s Proposed Finding ¶ 4).

2. The plaintiff class consists of all employees of HMW Industries, Inc. and Hamilton Technology, Inc. who were participants in the Plan on March 31, 1984, and all retired employees of such entities who retained employee contributions in the Plan on March 31, 1984. The named plaintiffs are Edward C. Fechter, Evelyn C. Hoffman, and Roderick M. Jackson. (HUYETT, J., Order, dated May 31, 1988, docket entry no. 53).

3. Defendant Connecticut General Life Insurance Company ("Connecticut General") is a Connecticut insurance company licensed to do an insurance business in the State of Pennsylvania.

B. The HMW Plan

4. The HMW Plan was a defined benefit, contributory retirement plan, meaning that: (a) the Plan provided fixed, or "defined" benefits to participants based on criteria set forth in the Plan; (b) the participants were required to contribute between 2% and 4% of their salaries; and (c) the employer was required to contribute whatever amounts over and above employee contributions were necessary to provide the fixed benefits and maintain the Plan on a sound actuarial basis. (Pls.' Ex. 22; Pls.' Ex. 39). Because the Plan was over-funded, HMW did not have to make any contributions to the Plan during the last five years of its existence. (Pls.' Exs. 76-79; Pls.' Exs. 84-87; Pls.' Ex. 89).

5. HMW Industries, Inc. and Hamilton Technology, Inc. jointly and severally were Employers and Plan Sponsors for the Plan. (Pls.' Ex. 39 at 2). HMW Industries, Inc. was the Plan Administrator and named fiduciary for the Plan. (Pls.' Ex. 39 at 36). Gloria Strantz, a member of the plaintiff class, held the position at HMW of Manager of Employee Benefits, and in that position she had the duty and responsibility to assist the Plan Administrator in carrying out its responsibilities. (Pls.' Ex. 39 at 36; 7/1/92 Tr. at 53-54, Strantz Direct).

C. The Contract

6. As a funding vehicle for the Plan, HMW entered into Group Annuity Contract GR-81 (hereinafter "GR-81") with Connecticut General in 1940. (Pls.' Ex. 1). Between 1940 and 1961, the Plan covered both salaried and union employees. (Pls.' Ex. 1). After 1961, only salaried employees accrued benefits under the Plan. (Pls.' Ex. 13).

7. GR-81, a standard Deposit Administration contract, was a general account insurance contract which provided for a guaranteed, fixed amount of benefits to be paid to the Plan participants upon their retirement. From 1940 to 1984, HMW and its employees made annual contributions to the Plan in the form of premiums paid to Connecticut General. (Pls.' Ex. 22).

8. Under GR-81, deposits made by HMW or its employees were not placed in a separate account, but rather were deposited into Connecticut General's unallocated proprietary general account. (Pls.' Ex. 143, Affidavit ¶ 12; Pls.' Ex. 79 at 22; Pls.' Ex. 66 at 7).

9. Connecticut General maintained accounting records that reflected contributions received under GR-81, plus interest credited, less payments and expenses incurred. The funds attributable to the Plan were accounted for and described as HMW's "Experience Rating Fund." (Pls.' Exs. 67-79).

10. For accounting and record keeping purposes, Connecticut General divided HMW's Experience Rating Fund into two subaccounts. One subaccount was known as the "Deposit Administration Account." The terms and operation of the Deposit Administration Account were set forth in detail in GR-81. The Deposit Administration Account primarily kept record of that portion of the Experience Rating Fund attributable to so-called "active-lives," that is, employees who had not yet retired, but who would draw benefits in the future. (Pls.' Ex. 22; Pls.' Ex. 127 at 8; Pls.' Ex. 143 at ¶ 13; 6/30/92 Tr. at 105-06, 137-38, Markley Direct).

11. Another subaccount was known as the "Retired Lives Account," which kept a record of that portion of the Experience Rating Fund attributable to employees who had retired and were receiving guaranteed benefits. (Pls.' Ex. 22; Pls.' Ex. 143, Affidavit ¶ 13; Pls.' Ex. 72; Pls.' Ex. 147; 6/30/92 Tr. at 105-06, 137-38, Markley Direct). The Retired Lives Account was...