Hollenbeck v. Falstaff Brewing Corp.

• Decision Date: 28 February 1985
• Docket Number: No. 81-0791 C (4).,81-0791 C (4).
• Citation: 605 F. Supp. 421
• Parties: Barbara G. HOLLENBECK, Administratrix of the Estate of Virginia M. Gutting, Deceased, Plaintiff, v. FALSTAFF BREWING CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

605 F. Supp. 421

Barbara G. HOLLENBECK, Administratrix of the Estate of Virginia M. Gutting, Deceased, Plaintiff, v. FALSTAFF BREWING CORPORATION, Defendant.

No. 81-0791 C (4).

United States District Court, E.D. Missouri, E.D.

September 6, 1984.

On Application February 20, 1985.

As Amended February 28, 1985.

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David G. Dempsey, Shifrin, Treiman, Barken, Dempsey, & Ulrich, St. Louis, Mo., for plaintiff.

Theodore F. Schwartz, St. Louis, Mo., Joseph L. Alioto, Alioto & Alioto, San Francisco, Cal., for defendant.

On Application For Attorney's Fees February 20, 1985.

MEMORANDUM, FINDINGS OF FACT, and CONCLUSIONS OF LAW

CAHILL, District Judge.

This case has a long judicial history and pedigree. It essentially involves the rights of the litigants to proceeds from a death benefit plan that Falstaff had adopted for several of its executives. The plan is known as the "CBS Plan." Under the CBS Plan, Falstaff purchased life insurance policies on the individual lives of the executives that were covered by the Plan. At the death of a covered executive, the Plan provided that the executive's beneficiaries would receive the proceeds of the life insurance policy minus the amount of premiums paid by Falstaff and three percent interest on those premiums. Ferdinand Gutting was one of the Falstaff executives who was covered by the CBS Plan. In early 1975 Paul Kalmanovitz purchased a controlling interest in Falstaff. Shortly after Kalmanovitz's takeover, Gutting and several other Falstaff executives left Falstaff's employ.

Gutting died in 1980 and his widow made a claim for the benefits under the CBS Plan shortly thereafter. Falstaff, however, did not pay the CBS Plan benefits to Gutting's widow. Defendant argues that Gutting's beneficiaries have no right to any benefits under the terms of the CBS Plan. Paragraph 6 of the plan provides:

All payee's benefits payable under the terms of this agreement shall be forfeited if ... he ... is discharged for proper cause.

As used in this agreement, the term "proper cause" shall include, but not be limited to (1) failure to perform assigned duties with reasonable skill and diligence, (2) gross misconduct, or (3) conviction of a felony.

Defendant asserts that it fired Gutting for proper cause and therefore under paragraph 6 of the CBS Plan, Gutting forfeited the benefits of the Plan. Among the reasons defendant gave as constituting proper cause for Gutting's dismissal are Gutting's alleged: (a) involvement in paying a large sum of money to a Louisiana state legislator under suspicious circumstances, (b) failure to stop payments of improper rebates to retailers (known in the industry as "black-bagging"), (c) acquiesence in Falstaff's violation of federal alcohol laws, and (d) fraudulent failure to disclose in a financial statement that Falstaff had mortgaged nearly all of its assets. Plaintiff disagrees that Gutting was fired for proper cause. Plaintiff contends that Falstaff fabricated these "reasons" as a convenient way to avoid paying benefits to Gutting's beneficiaries under the CBS Plan.

Plaintiff has sued defendant in two counts. Count I purports to state a cause of action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (1976) (ERISA), for the recovery of benefits under the CBS Plan. Count I specifically alleges that Gutting was not fired for cause, and even if he was fired for cause, the forfeiture provision of the CBS Plan is unenforceable under ERISA. See 29 U.S.C. §§ 1103 & 1106. Count I seeks $375,000 in compensatory damages (the estimated amount of the death benefits payable under the CBS Plan) and $4,000,000 in punitive damages. Count II purports to state a cause of action for breach of fiduciary duties under Missouri common law. Count II also seeks $375,000 in compensatory damages (the estimated amount of the death benefits under the CBS Plan) and $4,000,000 in punitive damages.

In 1982, summary judgment was entered against plaintiff in this case. 541 F.Supp. 345. Plaintiff's former counsel had failed to answer defendant's requests for admissions on time. One of the defendant's requests asked plaintiff to admit that Gutting was fired for cause. Because of plaintiff's counsel's failure to file timely responses, the district court ruled that defendant's requests for admissions could be deemed as admitted. Shortly thereafter, the district court entered summary judgment finding that plaintiff had admitted that Gutting had been fired for cause and that the forfeiture clause was not rendered unenforceable by ERISA, 29 U.S.C. §§ 1053, 1103, or 1106. Plaintiff appealed. The Eighth Circuit reversed and remanded. The Eighth Circuit specifically vacated the original district court's summary judgment regarding the effect of ERISA on the CBS Plan and requested that the district court hold further rulings on ERISA issues in abeyance "until such time as it becomes necessary to decide that question." See Gutting v. Falstaff Brewing Corp., 710 F.2d 1309, 1312 n. 4 (8th Cir.1983). On remand, the case was transferred to this Court.

After remand, the parties asked the Court to decide several issues of law concerning the effect of ERISA on the CBS Plan. The Court has heeded the Eighth Circuit's request and abstained from ruling on these issues. See Gutting v. Falstaff, No. 81-791-C(4), mem. op. at 2-3 (E.D.Mo. Dec. 2, 1983). Now that the case has been tried, the Court finds that it is necessary to resolve several key legal issues concerning ERISA. The Court also wishes to address several other important legal issues that were raised during trial. The foremost issue, however, is whether the CBS Plan is governed by ERISA, and if so, to what extent does ERISA provide the applicable rules of decision for this case.

I. Applicable Rules of Decision.

The scope of ERISA's coverage is defined in 29 U.S.C. § 1003. ERISA applies to any "employee benefit plan if it is established or maintained (1) by any employer engaged in commerce or in any industry or activity affecting commerce...." It is beyond peradventure that Falstaff was and is engaged in activities "affecting commerce." Thus, the key question is whether the CBS Plan is an "employee benefit plan." Section 1002(3) defines "an employee benefit plan" as "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both...." In pertinent part, the term "employee welfare benefit plan" is defined as

Any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer ... to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance ..., benefits in the event of ... death....

This definition describes with perfect acuity the CBS Plan which Falstaff established and maintained through the purchase of insurance to provide death benefits for the beneficiaries of several of its employees. Therefore, it is apparent to this Court that the CBS Plan is an employee welfare benefit plan within the coverage of ERISA.¹

In contending that the CBS Plan is not covered by ERISA at all, the defendant at various times has asserted that the substantive ERISA provisions that plaintiff relies on to render the forfeiture clause unenforceable did not become effective until at least 1976. Defendant argues that Gutting was fired and forfeited his benefits in 1975, before these substantive ERISA provisions became effective. Therefore, defendant contends that ERISA cannot be applied retroactively to govern this case. Defendant also maintains that this is how the original district court had ruled in its 1982 order granting summary judgment.

For several reasons, defendant's argument lacks merit. First, whatever the import of the original district court's order granting summary judgment, the Eighth Circuit specifically vacated the district court's ERISA rulings in that order. See Gutting v. Falstaff Brewing Corp., 710 F.2d at 1312 n. 4. Second, plaintiff has abandoned her reliance on 29 U.S.C. § 1053 which did not become effective for the CBS Plan until January 1, 1976. Section 1053 of Title 29 outlaws "bad boy" clauses; that is, clauses which require accrued benefits to be forfeited if the employee is fired for cause or obtains employment with a competitor. Instead, plaintiff only relies on 29 U.S.C. § 1103(c)(1) and § 1106(a) & (b), both of which became effective on January 1, 1975.²See 29 U.S.C. § 1114(a). Neither party contends that plaintiff's cause of action accrued before January 1, 1975. Third, ERISA's coverage, jurisdiction, and preemption provisions became effective on or before January 1, 1975. See 29 U.S.C. §§ 1003, 1052, § 1144. Taken together, these three provisions vest jurisdiction in federal courts over causes of action relating to ERISA plans that accrue on or after January 1, 1975. They also mandate that those causes of action must be resolved exclusively under a uniform body of federal law. Congress clearly expressed that this mandate included the authority and responsibility to create federal common law where there are interstices in the substantive provisions of ERISA. See Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1216 (8th Cir.1981); Landro v. Glendenning Motorways, 625 F.2d 1344, 1351 (8th Cir.1980). Accord Thornton v. Evans, 692 F.2d 1064, 1079 (7th Cir.1982); Murphy v. Heppenstall Co., 635 F.2d 233, 237 (3d Cir.1980). Thus, for causes of action accruing in the gap period between January 1, 1975, and the effective date of an otherwise applicable substantive ERISA provision, the general federal law of ERISA still governs the action, as long as the action "relates to" "an employee benefit plan" within the meaning of §§ 1003 and 1144. See Amory v. Boyden Assoc., 434 F.Supp. 671, 672-73 (S.D.N.Y.1976). See also Flynn v. Aetna Casualty &...