Kay v. Thrift and Profit Sharing Plan

• Decision Date: 31 December 1991
• Docket Number: Civ. A. No. 89-4427.
• Citation: 780 F. Supp. 1447
• Parties: William KAY, on behalf of himself and all others similarly situated, Plaintiff, v. THRIFT AND PROFIT SHARING PLAN FOR EMPLOYEES OF BOYERTOWN CASKET COMPANY, et al., Defendants and Third-Party Plaintiffs, v. David P. ANDERSON, et al., Third-Party Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

780 F. Supp. 1447

William KAY, on behalf of himself and all others similarly situated, Plaintiff, v. THRIFT AND PROFIT SHARING PLAN FOR EMPLOYEES OF BOYERTOWN CASKET COMPANY, et al., Defendants and Third-Party Plaintiffs, v. David P. ANDERSON, et al., Third-Party Defendants.

Civ. A. No. 89-4427.

United States District Court, E.D. Pennsylvania.

December 31, 1991.

COPYRIGHT MATERIAL OMITTED

Gordon W. Gerber, Arthur S. Gabinet, Dechert, Price & Rhoads, Philadelphia, Pa., for plaintiff.

Ira B. Silverstein, Fox Rothschild O'Brien & Frankel, Philadelphia, Pa., for defendants and third-party plaintiffs.

Kevin T. Fogerty, Traub Butz & Fogerty, P.C., Allentown, Pa., for third-party defendants.

MEMORANDUM AND ORDER

HUYETT, District Judge.

This case arises as a result of the precipitous drop in the stock market on October 19, 1987, which has come to be known as "Black Monday." Plaintiff class, comprised of employees fired during the quarter that ended September 30, 1987, alleges that the defendants improperly amended the Thrift and Profit Sharing Plan for Employees of Boyertown Casket Company ("the Plan") to reduce their benefits.

As of the dates the employees were fired, the written terms of the Plan required that payment of benefits to the employees be based on a valuation on September 30, 1987. After Black Monday, however, the defendants amended the terms of the Plan to use a valuation date of October 30, 1987. As a result of this amendment, defendants reduced the benefits payable to members of the plaintiff class. Plaintiffs submit that, as a matter of law, defendants could not retroactively change the Plan to force a post-crash valuation of benefits on employees who had been fired before the crash and were awaiting payment based upon the September 30, 1987 valuation date. Plaintiffs claim that the amendment violated the rights under the Plan and under the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq., and that defendants must pay plaintiffs the value of their benefits as of September 30, 1987. In addition, plaintiffs claim that, by adopting the amendment and applying it to reduce their benefits, the non-plan defendants violated their fiduciary duties and, thus, are personally liable to plaintiffs.

I.

A. The Parties

Plaintiff William Kay was formerly the Chief Executive Officer of Boyertown Casket Company ("Boyertown"). The defendants in this case include the Plan; Boyertown, which created the Plan for the benefit of its employees; Amedco Funeral Supply, Inc. ("AFS"), which acquired Boyertown in May of 1987 and succeeded to Boyertown's liabilities under the Plan; and Service Corporation International ("SCI"), AFS' parent company. Sometime on or before April 1, 1988, AFS changed its name to Boyertown Casket Company.

The defendants also include the following individuals who were allegedly fiduciaries of the Plan:

Barry Doney — former Plan administrator, formerly controller of Boyertown;

Sharon Lacey — Manager, SCI Pension department;

Joseph Turner — Vice President, administration of SCI, member of the Board of AFS;

David Beck — Trustee of the Plan and Member of SCI, Thrift Committee;

Donald Gould — Trustee of the Plan and Member of SCI, Thrift Committee;

Keith Plowman — Trustee of the Plan and Member of SCI, Thrift Committee;

E. Keith Payne — Member of the Board of AFS;

Ben Dees — Member of the Board of AFS.

B. The Relevant Plan Provisions

Boyertown created the Thrift and Profit Sharing Plan for Employees of Boyertown Casket Company ("the Plan") in 1982 as a benefits plan for Boyertown employees. By operation of law and pursuant to the document creating and governing the Plan ("the Plan Document"), the Plan was subject to ERISA.

Participating employees had the option of investing their benefits in either a "Fixed Income Investment Fund," or in the "Diversified Investment Fund" or both ("the Plan Funds"). The Diversified Investment Fund ("the Diversified Fund") was to invest benefits in stocks and securities. The Diversified Fund invested in two stocks, the "Mutual Qualified Funds" and the "Clipper Fund." All of the members of the plaintiff class elected to invest all or part of their benefits in the Diversified Fund.

While plaintiffs were employed, the Plan provided that, upon termination, employees were to receive their benefits based upon the value of their benefits as of the last day of the calendar quarter in which the employee was terminated. Section 9.01(b) of the Plan Document provided:

Upon the termination of employment of a Member before reaching his 65th birthday for reasons other than Disability or death, the value of his vested portion shall be determined as of the Valuation Date on or immediately after the date of his termination and shall be distributed as provided in Section 9.02.

Exhibit B to Plaintiffs' Motion for Summary Judgment, Plan Document at § 9.01. "Valuation Date" was defined as "the last business day of each calendar quarter." See Exhibit B to Plaintiffs' Motion for Summary Judgment, Plan Document § 1.31. Under section 9.02 of the Plan Document in effect at the time, distributions were to be made "in one lump sum as soon as practicable after the Valuation Date on or immediately after the date of termination of employment, and in any event, not later than the 60th day after the close of the Plan Year in which the Member's termination of employment occurs." See Exhibit B to Plaintiffs' Motion for Summary Judgment, Plan Document at § 9.02.

Valuation of each employee's benefits was done by taking the balance of each employee's account as of the preceding Valuation Date, adding the employee and employer contributions during the quarter to each employee's prior balance, and allocating a ratable portion of the earnings of the entire fund for the quarter to each employee's account. See Exhibit B to Plaintiffs' Motion for Summary Judgment, Plan Document at §§ 6.01, 6.02, and 6.03. The Plan Document required benefits to be paid "as soon as practicable," but historically it took time to make the calculations, and payments were not actually made to terminated employees until thirty to forty-five days after the Valuation Date. See Exhibit C to Plaintiffs' Motion for Summary Judgment, Gravitz Deposition at pp. 14-17. No part of the gains or losses in the Diversified Fund's investments that occurred between the Valuation Date and the date of actual payment of benefits was allocated to terminated employees. See Exhibit C to Plaintiffs' Motion for Summary Judgment, Doney Deposition at pp. 17-20. Indeed, the Trust Agreement relating to the investment of the Plan's assets states that "all charges and credits (between Valuation Dates) shall be considered as being made immediately after the next ensuing valuation." See Exhibit D to Plaintiffs' Motion for Summary Judgment, Trust Agreement at p. 4.

C. William Kay's Termination and the Valuation of Benefits

On May 14, 1987, AFS (a subsidiary of defendant SCI) acquired substantially all of the assets of Boyertown and succeeded to Boyertown's liabilities under the Plan. Following the acquisition, numerous Boyertown employees, including William Kay and other members of the plaintiff class, were terminated. By September 30, 1987, nearly 100 employees had been fired.¹ This was many more employees than had ever been terminated in a single quarter since the inception of the Plan.

Kay was relieved of all responsibilities at Boyertown shortly after the acquisition. On June 23, 1987, defendant Donald Gould, an SCI executive, wrote to Kay formally terminating Kay's employment as of June 30, 1987. Kay's last day at work at Boyertown was June 30, 1987. Accordingly, under the terms of the Plan as described above, Kay's benefits were to be valued as of the last day of the calendar quarter on or immediately following his termination. As of June 30, 1987, the value of Kay's account was $191,755.21.

In July 1987, Kay asked Barry Doney, the Plan's administrator, when he would receive payment of his benefits. Doney replied that because Kay would receive his final paycheck in July, he was deemed terminated in the third quarter, as opposed to the second quarter. Therefore, Kay would receive his benefits based on a Valuation Date at the end of the third quarter — September 30, 1987. Kay inquired about transferring his benefits to the Fixed Income Fund in the interim. Doney replied that it was too late to transfer the funds for the third quarter, and that a transfer for the last quarter would be fruitless because Kay would be cashed out of the Plan as of September 30, 1987. See Declaration of William Kay, sworn to April 11, 1990, at ¶ 3. Other employees were told the same thing. See Declaration of Eugene H. Sargent, sworn to January 16, 1990, at ¶ 3.

In early October 1987, in accordance with routine practice, Mr. Doney sent the relevant information to Buck Consultants, Inc. ("Buck"), the actuarial consultants for the Plan, so that Buck could begin the September 30, 1987 valuation. Before the end of September 1987, SCI had decided to give 100% vesting to all Plan participants, entitling them to 100% of the contributions Boyertown had made to their accounts, regardless of the number of years that they had worked.² Accordingly, Mr. Doney instructed Buck to perform the valuation with 100% vesting. See Exhibit G to Plaintiffs' Motion for Summary Judgment.

Ordinarily the valuation process took six to eight weeks, but this valuation was not ordinary because of the unprecedented number of plan participants who were being cashed out. Despite this extraordinary situation, defendants did nothing to protect the Plan or the benefits of the former employees from possible fluctuations in the stock market between the September 30, 1987 Valuation Date and the time that the calculations were completed and the employees were paid. See Exhibit C to Plaintiffs' Motion for Summary Judgment, Doney Deposition at pp. 25-27.

Throughout October, Buck worked on the...