In re Lefkowitz, 90 Civ. 1716 (KTD)

Decision Date14 May 1991
Docket Number90 Civ. 2373 (KTD).,No. 90 Civ. 1716 (KTD),90 Civ. 1716 (KTD)
Citation767 F. Supp. 501
PartiesIn re Proceeding to Compel Adrienne M. LEFKOWITZ, as Preliminary Executrix of the Estate of Nicholas Marsh (a/k/a Nicholas V. Marsh), Deceased, And/or Arcadia Trading Company, Limited and/or Bay Novelty and Inspection Company, Limited, to turn over the death benefits of certain retirement plans to the Decedent's Surviving Spouse, Irene B. Marsh. Adrienne M. LEFKOWITZ, Plaintiff, v. ARCADIA TRADING COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, Bay Novelty and Inspection Company Limited Defined Benefit Pension Plan, Arcadia Trading Company Limited Pension Trust, Bonus Consultants Limited, the Committee of the Arcadia Trading Company Limited Defined Benefit Pension Plan, the Committee of the Bay Novelty and Inspection Company Limited Defined Benefit Pension Plan, Arcadia Trading Company, Limited, Bay Novelty and Inspection Company, Limited and the Bank of New York, as Preliminary Executor of the Estate of Irene B. Marsh, Defendants.
CourtU.S. District Court — Southern District of New York

COPYRIGHT MATERIAL OMITTED

Rosen, Szegda, Preminger & Bloom, (David S. Preminger, of counsel), New York City, for plaintiff.

McCarthy, Fingar, Donovan, Drazen & Smith (Frank W. Streng, William F. Macreery, of counsel), White Plains, N.Y., for defendant Bank of New York.

Milbank, Tweed, Hadley & McCloy (Lorraine M. Brennan, of counsel), New York City, for all other defendants.

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, District Judge.

Plaintiff Adrienne M. Lefkowitz originally commenced this action against her mother Irene B. Marsh to recover death benefits from two defined benefit pension plans (collectively "the Plans") adopted by two foreign companies, Arcadia Trading Company Limited ("Arcadia") and Bay Novelty and Inspection Company Limited ("Bay Novelty") in which her father Nicholas V. Marsh was the sole participant, naming Lefkowitz as the sole beneficiary. By Order to Show Cause and petition dated February 23, 1990, Mrs. Marsh commenced a turnover proceeding in Estate of Nicholas V. Marsh, File no. 1980/88, Surrogate's Court, New York County, seeking payment of death benefits on account of her late husband's participation in the two Plans during his life.1 On March 14, 1990, Lefkowitz removed that proceeding to this court where it was assigned civil docket number 90 Civ. 1716 and Mrs. Marsh promptly moved to remand the action back to the Surrogate's Court. Mrs. Marsh died on May 13, 1990, three days before my decision was rendered retaining jurisdiction and denying her motion to remand. After Mrs. Marsh died, I allowed The Bank of New York to be named as preliminary Executor of the Estate of Irene B. Marsh and it was substituted as the proper party defendant in place of Mrs. Marsh ("Estate of Marsh").

In the interim, on April 6, 1990, Lefkowitz filed the instant complaint with this court, which added certain parties not named and/or properly served in the previous case. I accepted this complaint, 90 Civ. 2373, as related to 90 Civ. 1716, but the cases were never consolidated. In this latest action, Lefkowitz seeks the same benefits as sought by the Estate of Mrs. Marsh. The parties now cross-move pursuant to Fed.R.Civ.P. 56 for summary judgment.2 Additionally, Lefkowitz seeks a declaratory judgment on the applicability of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 to the two foreign corporate benefits plans at bar.3

STATEMENT OF FACTS

Arcadia and Bay Novelty are corporations which were organized and have at all times existed under the laws of Hong Kong. Neither corporation does business in, nor pays taxes to, the United States. Arcadia established the Arcadia Trading Company Ltd. Defined Benefit Pension Plan (the "Arcadia Plan") and Bay Novelty established the Bay Novelty and Inspection Co. Defined Benefit Pension Plan (the "Bay Plan"). Provisions and terms of the Plans are identical. Contemporaneously with the establishment of the Plans, Arcadia and Bay Novelty entered into an agreement creating the Arcadia Trading Company Ltd. Pension Trust (the "Trust"), the purpose of which was, inter alia, to administer the trust fund to which Arcadia and Bay Novelty made the contributions necessary to fund the Plans in accordance with the United States Tax laws.4 Lefkowitz Motion, Exh. 6. Mr. Marsh, an American citizen and resident, was an employee of both Arcadia and Bay Novelty for the entire time that the Plans were in existence; he was the sole participant in each of the Plans.

The Plans properly filed a Form 5300, an Application for Determination for Defined Benefit Plan, with the United States Internal Revenue Service ("IRS"), seeking determinations that the Plans as drafted met the requirements of the Internal Revenue Code ("IRC"), 26 U.S.C. § 401 entitled Qualified Pension, Profit-Sharing, and Stock Bonus Plans, and § 501 entitled Exception from Tax on Corporations, Certain Trusts, etc. Subsequently, the IRS issued such determination letters for tax qualification to each of the Plans. Lefkowitz Motion, Exh. 3.

On May 26, 1983, Mr. and Mrs. Marsh executed mutual wills. Concurrently, they entered into a separate written agreement ("the Agreement"), pursuant to which neither one would "revoke his or her Will" or "execute a new Will, a Codicil or a trust agreement disposing of his or her property at death...." Lefkowitz Motion, Exh. 14.

Each of the Plans had filed with the IRS a Notice of Intent to Terminate as of December 31, 1984. Lefkowitz Motion, Exh. 9. For tax purposes, "termination" of the Plans was deemed effective by the IRS as of December 31, 1984 and the IRS found no adverse effects from such termination on the Plans qualified tax status. Lefkowitz Motion, Exh. 10.

In May 1986, Mr. Marsh suffered a paralyzing stroke after which Mrs. Marsh sought to and did bar him from their home. Mrs. Marsh then commenced a divorce action in January 1987. Soon after the divorce action was commenced, Mr. Marsh named Lefkowitz as the beneficiary of the death benefits payable under each of the Plans. Lefkowitz Motion, Exh. 11. In August 1987, Mr. Marsh commenced his own divorce action against Mrs. Marsh, claiming abandonment. Lefkowitz Motion, Exh. 27. Mr. Marsh died on March 15, 1988. At the time of his death, neither divorce action had been adjudicated but Mrs. Marsh was still estranged from Mr. Marsh. On May 13, 1990, Mrs. Marsh died. Mr. and Mrs. Marsh had three adult daughters from that marriage, one of whom is Lefkowitz. Mr. Marsh had been estranged from another daughter for ten years prior to his death and from the third daughter from 1983 to 1986.

DISCUSSION

The gravamen of Lefkowitz's complaint is her claimed entitlement to be designated the proper and lawful beneficiary of death benefits accrued by her father from the Arcadia and Bay Novelty Plans, under which he was a sole participant. The Estate of Marsh, however, claims that, "pursuant to the Internal Revenue Code and other federal statutes," Mrs. Marsh was entitled to a certain spousal benefit entitled the qualified pre-retirement survivor annuity ("QPSA")5 from the two Plans and that Mr. Marsh's purported designation of Lefkowitz, as a new beneficiary, was invalid. As such, the Estate of Marsh seeks to set aside the existing Lefkowitz designation and obtain QPSA benefits based on the application of Title I of ERISA.

After successfully removing this case from the Surrogate's Court, Lefkowitz now avers that the Plans at bar are not under the purview of ERISA for, although having a qualified tax status under the Internal Revenue Code, they are plans in foreign corporations not subject to the Labor sections of ERISA.6 Lefkowitz acknowledges, however, that these Plans would be subject to regulation under ERISA if they were Plans set up and/or run in the United States pursuant to 29 U.S.C. §§ 1001-1461.7

Employee benefit plans are subject to ERISA if they are established or maintained "by any employer engaged in commerce or in any industry or activity affecting commerce." 29 U.S.C. § 1003(a)(1). Certain plans, however, are exempt from ERISA, under Section 4(b) of Title I, 29 U.S.C. § 1003(b)(4). That section provides a limited exemption for a plan "maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens." There is no dispute that Mr. Marsh was a citizen of the United States, the Plans sought and obtained determinations from the IRS as to their "qualified status," the Plans were amended from time to time to remain qualified under the Tax Code, and Mr. Marsh was the sole participant and trustee of the Plans. Thus, the exemption clearly does not apply in the instant case.

Not only was the sole participant in the Plans a United States citizen, but Mr. Marsh availed himself of all of the concomitant ERISA tax benefits pursuant to Title II of the IRC. Indeed, if the Plans were not qualified plans, contributions to the Plans on behalf of Mr. Marsh would have been included in his gross income for the years in which contributions were made. Arcadia and Bay Novelty along with Marsh availed themselves of all of the privileges under the Internal Revenue Code. To claim, that a pension plan can selectively avail itself of the tax benefits of a qualified pension plan set forth in Title II, and yet not be subject to the rest of ERISA, primarily designed to protect the rights of employees to their benefits, is illogical and not supported by the submissions in this case. Clearly ERISA applies to the Plans at bar and jurisdiction is vested in this court pursuant to 29 U.S.C. § 1132(a)(3).

Considering that the Plans are governed by ERISA, Lefkowitz next claims that she is entitled to the death benefits without having to give up a spousal annuity to Mrs. Marsh's estate, principally because the Plans were never formally amended to adopt the QPSA provisions pursuant to 29 U.S.C. § 1055. This, Lefkowitz...

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