Krueger International et al v. Blank, s. 99-1827

Citation225 F.3d 806
Decision Date25 August 2000
Docket Number99-1925,Nos. 99-1827,99-1934,s. 99-1827
Parties(7th Cir. 2000) Krueger International, Inc., Mark R. Olsen, Richard J. Resch, et al., Plaintiffs-Appellants, Cross-Appellees, v. Julie Blank, et al., Defendants-Appellees, Cross-Appellants. , and 99-1957
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Appeals from the United States District Court for the Eastern District of Wisconsin. No. 97-C-570--J.P. Stadtmueller, Chief Judge.

Before Cudahy, Kanne, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

Perhaps death and taxes are the only true certainties, but close behind must be the risk of dissension when death occurs and those left behind try to divvy up the assets. If some of those assets are shares in a closely held corporation, the problems only get worse. In this case, different combinations of the interested parties have been litigating since the 1992 death of the central figure, Robert Blank, about the way in which his retirement fund should be allocated and valued. (We shall refer to the different Blank family members by their first names, because Robert's wife Julie Blank also figures prominently in the case.) The piece of the dispute that is now before us concerns the relation between the ERISA plan operated by Robert's employer, Krueger International, Inc. (KI), and the stockholder agreement between Robert and KI that arguably governed the KI shares invested in the ERISA plan. The answer to that question in turn tells the parties what they really want to know, which is how much money KI must pay to Robert's beneficiaries. If the answer is determined by the 1992 value of the KI stock, as KI argues it is and as the district court held, then the beneficiaries are entitled to roughly one-fourth of what they would receive if it is determined by the 1996 or 1997 value of the stock. As we explain further below, we are in a position to resolve this question in principle in favor of KI's position, but a critical point remains that may yet entitle the beneficiaries to the payment they want. We are therefore reversing and remanding this case for further proceedings before the district court.

I

Robert worked for KI from 1969 until his death in 1992. During his time there, he saved for retirement through KI's Salaried Employees Retirement Plan (SERP). Under the terms of the SERP, plan participants could either invest in the general plan fund (and thus receive the returns that everyone else received) or instead create a "Directed Investment Account," which allowed participants to "monitor and direct the holding and subsequent disposition" of their investments. SERP sec. 4.10(a). Of course, that also meant that the individual participant bore the risk of loss and enjoyed the opportunity for gain in conjunction with her investment decisions. Consequently, the SERP provides that "[a]ny portion of a Participant's Directed Investment Account invested in a specific investment shall be accounted for separately. Income and expenses directly attributable to a Participant's specific investment shall be charged to the account." SERP sec. 4.10(b).

Robert decided to create a Directed Investment Account and thought that he should invest in his own company's stock. Because KI is not a publicly traded company, however, it imposes various restrictions on its shareholders. These are contained in the KI Stockholders Agreement (SA). Robert executed the SA in 1986 and also signed on to a collection of amendments in 1990. Three provisions of the SA and amendments are relevant to our case

(1) SA sec. 4.4 provides that upon the death of the employee-shareholder and upon written notice from KI within 90 days of the event, "[KI] shall have the option to redeem all (but not less than all) of the stock of KI." (2) Under SA sec. 6.1, when the stock is returned to KI, it is valued at "the proportionate value of the Appraised Value of all shares [of KI stock] as of the last day of the fiscal period . . . ending on or immediately preceding . . . the date of notice of exercise of the option [to repurchase shares from the deceased employee under SA sec. 4.4]."

(3) The 1990 amendments provide that upon both proper exercise of a repurchase option and a request that shares in the SERP be sold, the shareholder "shall cause the shares held in [the Directed Investment Account] to be distributed to Stockholder, shall cause the shares to become subject to the Stockholders Agreement, and shall cause the shares to be sold."

When Robert died in 1992, he had accumulated 1,516 shares of KI stock. At the time of his death, this stock was valued at $258.70 per share. One of the beneficiaries of his SERP was his then-wife, Julie Blank. Another portion was held in trust for his children. In addition, Diane Wilson, Robert's former wife, claimed that she was also entitled to a portion of Robert's death benefits as a consequence of their divorce decree. KI was interested in exercising its repurchase option, but it did not want to become mixed up in any family feuds. With those thoughts in mind, on June 10, 1992, KI employee and Plan Administrative Committee member Mark Olsen sent a letter to Julie that read in relevant part:

Krueger International, Inc., does hereby notify you of its intent to redeem all of the shares held by Robert L. Blank through his retirement plan account. . . . We are also aware that Bob's first wife may have a claim against his estate and accordingly we cannot actually disburse any proceeds or issue any notes payable for the redemption of the stock until such time as our legal counsel has assured us that we can distribute the assets [to the stated beneficiary]. Once that issue has been resolved, we will be in contact with you in regard to having the trustee of the Plan surrender the stock certificates to us.

As the dispute over proper beneficiaries was pending, Julie obtained an ex parte order prohibiting KI from distributing any SERP benefits. It took a trip all the way to the Supreme Court of Wisconsin, but finally in 1996 all the family disputes were resolved with an amended domestic relations order determining the percentages of Robert's pension funds that were to go to Julie (31.83%), Diane Wilson (20.43%), and the trust for the benefit of Robert's children (47.74%) (collectively, "the beneficiaries"). At this point, the beneficiaries jointly presented their claim for benefits to KI.

Not surprisingly, the world had continued to turn during the four years while the allocation problems were being resolved. The most important development for present purposes was the good fortune KI had enjoyed over that period, the value of common shares of KI stock increased nearly fourfold. The difference in the value of the KI shares at the time of Robert's death and the value in 1996 provided the trigger for the current dispute. In July 1996, Mark Olson, a KI executive and member of the Plan Administrative Committee, met with the beneficiaries and informed them that KI intended to redeem Robert's KI stock at the 1992 price along with interest for the period 1992-1996. Given the current market value, the beneficiaries were none too happy with this result.

KI repeatedly offered only to give the beneficiaries the 1992 price; the beneficiaries repeatedly insisted that they were entitled to current prices. They pointed to another provision of the SERP, sec. 6.09(c), which permits deferral of the receipt of a death benefit. Under that provision, "[d]uring any period of deferral, the portion of the deceased Participant's Account(s) payable as a death benefit to such person shall be entitled to receive allocations of gain or loss in the same manner as other Accounts." According to the beneficiaries, other accounts containing KI stock enjoyed the appreciation from 1992 to 1996, so Robert's stock should appreciate as well. Additionally, the beneficiaries relied on SERP sec. 6.04, which says that the value of a participant's account "shall be based on the most recently available valuation information," which they interpret as requiring KI to use the 1996 or 1997 share price information in calculating the redemption value of Robert's stock. KI read the SERP differently, saying that any asset in the SERP is nevertheless subject to the terms governing that asset. Arguing that it exercised its option to buy back the stock in 1992, KI maintained that Robert's account was different from all others, effectively in limbo until the family disputes were resolved.

Unable to settle its dispute with the beneficiaries, KI sued, seeking a declaration that the appropriate redemption price was $258.70 per share, requesting specific performance of Julie's obligation to order the plan Trustee to tender the shares, and asking for a general declaration of the parties' rights and responsibilities under the SA, SERP, and ERISA generally. Together (at last) with the Estate of Robert Blank, Diane Wilson, and Bank One Trust Company, Julie counterclaimed, asserting that KI had breached its fiduciary duties under ERISA. The district court found that KI had indeed exercised its option under the SA to redeem its shares. However it also read the SERP as requiring the company to value the stock as of the date of distribution (i.e., 1997). Concluding that the SERP and SA were in conflict, the district court decided that the SA was a collateral contract whose application was preempted by ERISA. It thus granted summary judgment for the beneficiaries on the core question and held that the 1997 values of the stock had to be used. With respect to the family's counterclaims, however, the court ruled for KI. Additionally, some collateral matters came up during the course of the fight. At one point, Julie requested plan documents from KI. KI was 153 days tardy in delivering the documents, so the judge imposed the maximum statutory sanction--$100 per day or $15,300 in total. Finally, the court denied the...

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