Kemmerer v. ICI Americas Inc.

• Decision Date: 17 November 1995
• Docket Number: 95-1098,Nos. 95-1071,No. 95-1098,No. 95-1071,95-1071,s. 95-1071
• Citation: 70 F.3d 281
• Parties: Pens. Plan Guide P 23915H John L. KEMMERER; James H. Jordan, Appellants inv. ICI AMERICAS INC. John L. KEMMERER; James H. Jordan v. ICI AMERICAS INC., Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 281

70 F.3d 281

Pens. Plan Guide P 23915H

John L. KEMMERER; James H. Jordan, Appellants in No. 95-1071 v. ICI AMERICAS INC.

John L. KEMMERER; James H. Jordan v. ICI AMERICAS INC., Appellant in No. 95-1098.

Nos. 95-1071, 95-1098.

United States Court of Appeals, Third Circuit.

Argued Oct. 11, 1995.

Decided Nov. 17, 1995.

Theodore R. Mann (argued), Carol J. Sulcoski, Sharon C. Weinman, Mann, Ungar & Spector, P.A., Philadelphia, PA, for John L. Kemmerer, and John H. Jordan.

Michael L. Banks (argued), Morgan, Lewis & Bockius, Philadelphia, PA, for ICI Americas Inc.

Before: GREENBERG, LEWIS, and ROSENN, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

In this case, arising under the Employee Retirement Income Security Act (ERISA), the district court held that the defendant company breached the terms of the executive deferred compensation plan that it offered to its highly compensated employees. Yet it also held that the appellants--participants in that plan--failed to prove they suffered any damages as a result of the breach. We hold that the district court correctly decided both issues and therefore we will affirm its judgments.

I. Introduction

Appellants John L. Kemmerer and James H. Jordan were high level executives of the defendant, ICI Americas Inc. ¹ ICI offered its employees the opportunity to participate in a number of benefit plans. The dispute on appeal centers around its executive deferred compensation plan (the DEC plan), which like all such plans is commonly referred to as a "top hat" plan. Specifically, ICI encouraged its high level executives to participate in the DEC plan, under which participants deferred receipt of a percentage of their income, and thus initially reduced their annual taxable income. Although the DEC plan was unfunded, its participants were allowed to track or shadow investment portfolios available to participants of an ICI deferred contribution plan. ICI would credit the participants' balances in the DEC plan as though the hypothetical investments actually had been made. Appellants participated in the DEC plan.

An executive's account balance in the DEC plan became payable after the executive left ICI's employ. The DEC plan permitted participants to elect the method of payment by which distributions would be made. In this regard, the plan was amended on February 1, 1985, to state:

Amounts deferred under this agreement shall be paid to Optionee commencing January 15 of the year following the year of his separation from service in five percentage installments ... unless, prior to separation from service the Optionee files a written notice with the Secretary of Company, ('Secretary') requesting a different form of distribution. Such notice shall be treated as an election by the Optionee to receive payment by the method requested. The method of distribution requested shall be irrevocable after the close of business on the date of Optionee's separation from service.

Kemmerer v. ICI Americas, Inc., 842 F.Supp. 138, 139-40 (E.D.Pa.1994). ² Pursuant to this provision, "Jordan elected to have his DEC benefits paid in specific annual amounts until the year 2007. Kemmerer elected to have his plan balance distributed in fixed annual amounts until such time as his account balance would be exhausted." Id. at 140. After Kemmerer and Jordan retired (in 1986 and 1989 respectively), ICI began distributing their benefits in accordance with their respective elections. In 1991, however, ICI unilaterally decided to terminate the DEC plan. At that point, rather than complying with its retired executives' elections, ICI decided to distribute their accumulated account balances in three annual installments, with 10% interest on the unpaid balances, to be paid in January 1992, January 1993, and January 1994. ICI advised appellants of this change by letters dated November 29, 1991.

On October 16, 1992, after ICI made one payment on the new distribution schedule, appellants filed this action in the district court contending that, by terminating the DEC plan after their rights in it had vested, ICI breached its contractual obligations and thereby violated ERISA. They requested monetary damages for the benefits lost as a consequence of ICI's breach of the plan. In this litigation, they contend that the early termination of the plan had adverse tax consequences to them and required them to incur fees for financial management they otherwise would not have incurred. They do not contend, however, that ICI did not pay them the full amount of their account balances. Consequently, they are in the position, unusual if not unprecedented for plaintiffs, of suing for damages because they were paid money owed to them. Eventually appellants and ICI filed cross-motions for summary judgment on liability, and ICI filed a motion for summary judgment on damages. In an opinion filed on January 4, 1994, reported at 842 F.Supp. 138, the district court granted appellants' motion for summary judgment on liability, and denied ICI's motions on both liability and damages. The court entered an order on January 5, 1994, in accordance with its opinion.

The district court held a nonjury damages trial in October 1994. In an unreported memorandum opinion filed on December 22, 1994, the court rejected appellants' argument that ICI had the burden of proof and held that appellants had failed to prove that they suffered damages as a result of ICI's conduct. Accordingly, it entered a judgment in favor of ICI on December 23, 1994. On January 19, 1995, the parties stipulated, and the court ordered, that all claims except those for attorneys' fees and costs had been resolved. The court stayed proceedings as to those items pending the completion of this appeal. Both parties then filed appeals, appellants from the order of December 23, 1994, and ICI from the order of January 5, 1994.

Arguably, we should dismiss ICI's appeal, as ICI could challenge the district court's finding of liability in this court as an alternative ground for us to affirm. See Armotek Indus., Inc. v. Employers Ins. of Wausau, 952 F.2d 756, 759 n. 3 (3d Cir.1991). But we will not do so because appellants have filed a fee petition which, as we have indicated, the district court has stayed pending disposition of this appeal. Thus, even though we affirm on the damages issue, ICI may be aggrieved by the judgment on liability, because the district court may conclude that, on the basis of that judgment alone, it can award the appellants counsel fees. ³ Of course, we express no opinion on this point. However, in view of ICI's success at trial on the damages issue, its appeal from the denial of its motion for summary judgment on damages is moot and we will not consider it. See McDaniels v. Flick, 59 F.3d 446, 448 n. 1 (3d Cir.1995). We have jurisdiction over appellants' appeal pursuant to 28 U.S.C. Sec. 1291. The district court exercised diversity of citizenship and federal question jurisdiction under 28 U.S.C. Sec. 1332(a) and 29 U.S.C. Sec. 1132(e).

II. Discussion

A. Liability

We first consider whether the district court erred in concluding that ICI breached the terms of the DEC plan. We exercise plenary review on this issue as the district court granted the appellants' motion for summary judgment. See Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 554, 126 L.Ed.2d 455 (1993).

With the passage of ERISA, Congress set out to "assure the equitable character of employee benefit plans and their financial soundness." Moench v. Robertson, 62 F.3d 553, 560 (3d Cir.1995) (citing Central States, Southeast and Southwest Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985)) (internal quotations and alterations omitted). ERISA broadly defines the terms "employee pension benefit plan" and "pension plan" to include any plan established or maintained by an employer that, by its express terms:

results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

29 U.S.C. Sec. 1002(2)(A)(ii). Thus, top hat plans clearly are subject to ERISA. Nonetheless, not every type of pension plan is subject to all of ERISA's stringent requirements. Congress imposed strict regulations over plans whose participants and beneficiaries it most desired to protect--employer-funded plans designed to secure employees' financial security upon retirement. ERISA imposes upon the trustees and sponsors of such plans strict fiduciary duties and standards of care and further provides for detailed disclosure and vesting requirements. Top hat plans, however, which benefit only highly compensated executives, and largely exist as devices to defer taxes, do not require such scrutiny and are exempted from much of ERISA's regulatory scheme. See Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 930 n. 7 (3d Cir.1985). ⁴ In particular, top hat plans are not subject to certain vesting, participation, and fiduciary requirements. Id. at 930-31. But despite the exemption of top hat plans from many of ERISA's regulations, ERISA's enforcement provision clearly permits participants in top hat plans, as well as other covered plans, to bring civil actions "to enforce the substantive provisions of the Act or to recover benefits due or otherwise enforce the terms of the plan." Id. at 935; see 29 U.S.C. Sec. 1132(a)(1)(B) ("A civil action may be brought by a participant or beneficiary to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.").

Contrary to ICI's intimations, then, Congress' decision to exempt top hat...