Lucas v. Seagrave Corporation

• Decision Date: 01 November 1967
• Docket Number: Civ. No. 4-66-420.
• Citation: 277 F. Supp. 338
• Parties: Cornelius H. LUCAS, Lawrence W. Cable, Edwin M. Feeser, for themselves and on behalf of others similarly situated, Plaintiffs, v. The SEAGRAVE CORPORATION, Hupp Corporation and Great West Life Assurance Company, Defendants.
• Court: U.S. District Court — District of Minnesota

277 F. Supp. 338

Cornelius H. LUCAS, Lawrence W. Cable, Edwin M. Feeser, for themselves and on behalf of others similarly situated, Plaintiffs, v. The SEAGRAVE CORPORATION, Hupp Corporation and Great West Life Assurance Company, Defendants.

Civ. No. 4-66-420.

United States District Court D. Minnesota, Fourth Division.

November 1, 1967.

Johnson & Thompson, by Charles E. Spring, Minneapolis, Minn., for plaintiffs.

Maslon, Kaplan, Edelman, Joseph & Borman, by Stephen B. Swartz and Harvey F. Kaplan, Minneapolis, Minn., for defendant Seagrave Corporation.

Lasley, Foster & Roehrdanz, by George M. Roehrdanz, Minneapolis, Minn., for defendant Hupp Corporation.

Rider, Bennett, Egan, Johnson & Arundel, by Wm. T. Egan and Donald R. Backstrom, Minneapolis, Minn., for defendant Great West Life Assur. Co.

MILES W. LORD, District Judge.

This matter is before the Court on the several motions of defendant Seagrave. The plaintiffs are residents of Minnesota. Defendants Seagrave Corporation, Hupp Corporation and Great West Life Assurance Company are foreign corporations doing business in Minnesota. The motions are submitted upon affidavits and briefs of the parties and oral arguments.

The complaint alleges that the named plaintiffs and others similarly situated achieved the status of beneficiaries of a non-contributory employee annuity plan of the defendant Seagrave Corporation. The complaint further alleges that the class of employees represented by plaintiffs were discharged by Seagrave and thereby denied their benefits under the plan. Plaintiffs seek relief on the theory that:

1. The discharge and termination of the class of employees constituted a partial termination of the pension plan in accordance with the Internal Revenue Code which requires a distribution of accrued benefits upon such an occurrence;

2. Plaintiffs were induced to rely upon the pension plan to their detriment, consequently defendants are estopped to deny them benefits; and

3. Defendants were unjustly enriched as a result of having received tax benefits and have and will continue to benefit from a reduction of contributions to the plan as a result of denying the accrued benefits to plaintiffs.

Defendant Seagrave moves the Court as follows:

(a) For summary judgment to the effect that plaintiffs' allegations 1 and 3 above fail to state a claim upon which relief can be granted;

(b) For an order determining that no class action may be maintained in this case;

(c) For an order dismissing or severing the claims of the named plaintiffs on the grounds of misjoinder; and

(d) For an order dismissing the claim of plaintiff Lawrence W. Cable on the grounds that his claim does not satisfy the $10,000 jurisdictional requirement.

The complaint and affidavits disclose that since August 1, 1965, defendant Seagrave has operated its Flour City Architectural Metals Division with principal offices in Minneapolis. The assets and property used by Seagrave in the operation of this division were acquired from defendant Hupp Corporation which had acquired the Flour City operation in 1960. In conjunction with its purchase of assets and property from Hupp, Seagrave took an assignment of the interest of Hupp in a noncontributory pension plan represented by an annuity insurance contract with defendant Great West. It appears that subsequent to the date of Seagrave's purchase approximately 30 of the 65 employees participating in the plan, several of them with long service to Flour City, were discharged by Seagrave or terminated their employment. At this point the facts are disputed. Plaintiffs assert that the employees were discharged or pressured into resigning by Seagrave pursuant to an intent to ultimately terminate the plan after the employees' benefit forfeitures (which were credited toward Seagrave's contributions to the plan) were exhausted. Because of this Seagrave has paid no contributions from the time it purchased Flour City. Further, plaintiffs contend that because of defendant's intent in this regard, the severance of the class of employees must be viewed as a mass discharge rather than isolated individual terminations. The defendant Seagrave is silent concerning plaintiffs' allegations of an intent to terminate the plan, it merely asserts that the plan has continued. However, Seagrave does controvert plaintiffs' allegation of group termination, viewing it as individual firings and terminations, some for "cause". In any event, the discharges and terminations occurred over a period of approximately one year; the substantial portion of them on the date Seagrave assumed control of the business.

The Great West policy, which established the plan on October 26, 1955, provides, in summary, that premium payments sufficient to purchase an annuity of a specific amount upon "normal retirement" (65) are paid annually by the employer with respect to each eligible employee. Upon attaining retirement age, the employee is entitled to the annuity. (Sections 2, 4 and 5 of the policy.) In the event the employer ceases making premium payments, the accumulated benefits are used to purchase paid-up annuities for the participants of the plan. (Sections 9 and 11.) If an employee is terminated prior to normal retirement age, the accumulated benefits for such employee also terminate and the employer may credit this accumulation to the next annual premium obligation. There are sections of the policy evidently designed to comply with the qualification criteria of the Internal Revenue Code (e. g. Sec. 24). The "plan termination" apparently contemplated by the policy is upon "Cessation of premium payments" which may occur upon (1) any failure of the employer to comply with the terms of the policy, or (2) the number of employees covered is less than 25, or (3) a liquidator or receiver of the employer's business is appointed (Secs. 9 and 11). Upon such event, Great West in its discretion may refuse to receive further premiums.

(1) THE INTERNAL REVENUE CODE

The plaintiffs assert that the policy is silent as to the effect of a sale of the corporation with large numbers of employee discharges. Since the plan purports to be "qualified" under the Internal Revenue Code, the alleged mass discharge constitutes "partial termination" of the plan and vesting of the employees' pension benefits in accordance with Sec. 401(a) (7)¹. Seagrave moves for summary judgment on the ground that this count fails to state a claim upon which relief may be granted.

Although, as plaintiffs contend, the policy demonstrates some intention to qualify for deductions under the tax laws, it does not follow that, the policy being silent or ambiguous, the Internal Revenue Code acts to vest rights in the terminated employees. The Court feels that a less ambiguous demonstration of intent is necessary in order to draw such a conclusion. A specific indication of an intention to use the provisions of the Internal Revenue Code to interpret or define terms of the contract is absent. Given this absence, it seems fairly clear that the tax provisions are relevant only to the tax status of the plan. Thus, without a more demonstrable intention to abide by the Code's definitions, it would appear that the only consequence herein of the "partial termination" of a plan with the employer denying the accrued benefits would be a failure to qualify under the provisions so as to render improper an income tax deduction by the employer for its contributions. Barca v. Stein, 44 Misc.2d 68, 252 N.Y.S.2d 938, aff'd 24 A.D.2d 1080, 265 N.Y.S.2d 606 (1964); cf. Hudson v. John Hancock Mutual Life Ins. Co., 314 F.2d 16 at 21 (8th Cir. 1963). Consequently, it appears that this allegation by plaintiffs is insufficient. We conclude that there is no genuine issue of fact raised on this question and summary judgment is a proper disposition of plaintiff's contention.

(2) QUASI-CONTRACT

Plaintiffs allege in Counts 2 and 3 of their complaint that, the contract constituting the pension plan aside, there is a right of recovery on a theory of quasi-contract for the value of that part of their services for which the plan contributions were to be compensation. They contend that the pension constituted a form of compensation that they were induced to rely upon, and did so rely, to their detriment and that the defendant Seagrave was consequently unjustly enriched. Seagrave moves for a summary judgment on the unjust enrichment count.

Courts have been uniformly reluctant to grant terminated employees vested rights in a non-contributory pension fund where the terms of the pension contract have not been literally met. Some courts find that such pension plans constitute a mere arrangement for a gratuity and the employer as donor has the unlimited right to fix the terms and conditions of the gift. Neuffer v. Bakery & Confectionery Workers International Union, 193 F.Supp. 699 (D.C.Dist.Col. 1961); see cases collected in 42 A.L.R.2d 461-487 at 464.

However, most often, private noncontributory pension plans have been held to give rise to contractual rights that vest upon the employee satisfying the terms of the contract; normally a specified number of years or attaining retirement age. 42 A.L.R.2d, supra, at 467-470. The courts which have considered situations analogous to the one before this Court have generally held that where group discharges have taken place as a result of plant shutdown or sale of the employer's operation, if none of the conditions for termination specified in the plan have occurred, the terminated employees have no rights in the fund where the plan continued for remaining employees. See Bailey v. Rockwell Spring & Axle Co., 13 Misc.2d 29, 175 N.Y.S.2d 104 (Sup.Ct.1958); George v. Haber, 343 Mich. 218, 72 N.W.2d 121 (1955); Schneider v. McKesson & Robbins, Inc., 254 F.2d 827 (2nd Cir. 1958); Karcz v. Luther Mfg. Co., 338 Mass. 313, 155 N.E.2d 441 (1959); cf. Hudson v. John Hancock Mutual Life Ins. Co., supra.² One of the leading cases suppor...