Miniace v. Pacific Maritime Ass'n

• Decision Date: 23 February 2006
• Docket Number: No. C 04-03506 SI.,C 04-03506 SI.
• Citation: 424 F.Supp.2d 1168
• Court: U.S. District Court — Northern District of California
• Parties: Joseph MINIACE, Plaintiff, v. PACIFIC MARITIME ASSOCIATION, Defendant. Pacific Maritime Association, et al., Counterclaimants and Cross-Claimants, v. Joseph N. Miniace; Jeannette Coburn; Michael E. Corrigan; Benmark, Inc.; Corrigan & Company; and Benmark West, Counterdefendant and Cross-Defendants.

424 F.Supp.2d 1168

Joseph MINIACE, Plaintiff, v. PACIFIC MARITIME ASSOCIATION, Defendant.

Pacific Maritime Association, et al., Counterclaimants and Cross-Claimants, v. Joseph N. Miniace; Jeannette Coburn; Michael E. Corrigan; Benmark, Inc.; Corrigan & Company; and Benmark West, Counterdefendant and Cross-Defendants.

No. C 04-03506 SI.

United States District Court, N.D. California.

February 23, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Katherine C. Zarate, William H. Orrick, III, Coblentz, Patch, Duffy & Bass, LLP, San Francisco, CA, for Plaintiff.

Michael J. Baker, Clara Shin, Linda Quan Foy, Patricia J. Medina, Howard, Rice, Nemerovski, Canady, Falk & Rabin, San Francisco, CA, for Defendant/Counter-claimant.

Glenn Michael Levy, Howard, Rice, Nemorovski et al., San Francisco, CA, for cOUNTER-CLAIMANT.

ORDER GRANTING PMA'S MOTION FOR SUMMARY JUDGMENT; GRANTING IN PART MINIACE'S MOTION FOR SUMMARY JUDGMENT; AND GRANTING IN PART COBURN'S MOTION FOR SUMMARY JUDGMENT

ILLSTON, District Judge.

On December 9, 2005, the Court heard argument on three related motions: a motion for partial summary judgment by defendant Pacific Maritime Association ("PMA") against plaintiff Joseph Miniace; Miniace's motion for partial summary judgment against PMA and Maritech Corporation and cross-defendant Jeanette Coburn's motion for partial summary judgment against PMA and Maritech. Having carefully considered the arguments of counsel and the papers submitted, and for good cause appearing, the Court hereby GRANTS PMA's motion in its entirety, GRANTS IN PART Miniace's motion, and GRANTS IN PART Coburn's motion.

BACKGROUND

Defendant and counterclaimant PMA is a "nonprofit mutual benefit corporation" organized and existing under California law. Second Am. Counterclaims and Cross-Claims, ¶ 1; Decl. of Linda Q. Foy in Support of PMA Mot. ("Foy Decl."), Exh. 1 at ¶ 3. PMA's members consist of maritime shipping carriers, maritime terminal operators, and stevedore companies that service ports on the West Coast of the United States. Foy Decl., Exh. 1 at ¶ 3. PMA's principal function is to negotiate and administer collective bargaining agreements that govern the workers employed by its member companies. Id. PMA is governed by a Board of Directors that consists of senior executive officers from its member companies. Id. at ¶ 4.

On May 1, 1996, PMA hired Joseph Miniace as its new President. Second Am. Counterclaims and Cross-Claims, 3; Foy Decl., Exh. 2. Miniace joined an executive team that included Thomas McMahon, PMA's Chief Financial Officer. Foy Decl., Exh. 7 at ¶ 4. Miniace served as PMA's President until March 17, 2004, when he was terminated by PMA, purportedly for cause. Foy Decl., Exh. 4; Foy Decl., Exh. 6 at ¶ 4; Decl. of James McKenna in Support of PMA Mot. ("McKenna Decl."), ¶ 5. Miniace's termination, and events related to it, are the grounds for this litigation.

I. Miniace's Termination

Miniace's termination was put in motion in early March 2004, when PMA's Board was advised that its senior executives, including Miniace and McMahon, had received benefits that had not been formally disclosed to the Board. See Foy Decl., Exh. 6 at ¶ 5; Foy Decl., Exh. 13 at ¶ 5. In response, PMA's Board hired a private attorney, John C. Cook, to investigate the matter. Foy Decl., Exh. 13 at ¶ 6; Conf. Decl. of John C. Cook in Support of PMA Mot. ("Conf. Cook Decl."), ¶ 3. Cook reported his findings to the Board on March 17, 2004, and issued another report on April 14, 2004. Conf. Cook Decl., ¶ 4; Conf. Decl. of William H. Orrick in Oppo. to PMA Mot. ("Conf. Orrick Decl."), Exh. D at 57; Conf. Decl. of Glenn M. Levy in Support of PMA Mot. ("Conf. Levy Decl."), Exh. 8 at 9; Foy Decl., Exh. 13 at ¶ 5. His investigation revealed a number of benefits that Miniace and others had received without formal Board approval. Conf. Cook Decl., Exh. A at ¶¶ 3-6; Conf. Levy Decl., Exh. 8 at 7-9. These benefits are not in dispute. See Conf. Levy Decl., Exh. 6 at PMA 61-64 (document that Miniace provided to PMA Board summarizing benefits).

A. Secured Executive Benefit Plan

Shortly after Miniace started at PMA, he implemented a "Secured Executive Benefit Plan" ("SEBP") for PMA's senior executives. Foy Decl., Exh.9. According to Miniace, the plan was created to provide retiring executives with a retirement benefit equivalent to 66% of their salary. Conf. Levy Decl., Exh. 5 at 10 (Miniace Claim for Severance Pay). On November 14, 1996, Bradley Mulholland, a member of PMA's Board, signed a resolution authorizing the creation of the SEBP. Conf. Orrick Decl., Exh. 70. Miniace asked Michael Corrigan, an insurance agent and close personal friend of McMahon, to create the policy. Foy Decl., Exh. 8 at 22-23, 33-34 45-46; Conf. Levy Decl., Exh. 18. On December 5, 1996, Miniace and McMahon signed documents that established the SEBP. Foy Decl., Exh. 9. McMahon was named as administrator of the SEBP. Id.

The SEBP was implemented as a "reverse split-dollar" policy. Foy Decl., Exh. 8 at 45-46, 51-52. Under the plan, PMA would purchase life insurance for its senior executives and would make payments exceeding the actual cost of the insurance. Foy Decl., Exh. 10 at 46-49. The excess payments resulted in a rapid build-up of cash value, which was then invested to fund retirement benefits for retiring executives. Id. If a covered executive died before retirement, the death benefit of the policy would be split between PMA and the executive's heirs. The executive's heirs would receive the "accumulated value" of the policy—the cash contributions in excess of the cost of insurance combined with the earnings on those contributions. Foy Decl., Exh. 9. PMA, on the other hand, would receive the "recoverable amount" from the insurance proceeds, defined as the total death benefit of the insurance policy less the "accumulated value." Id. Given the large amounts of insurance that PMA purchased for its executives through the SEBP, the "recoverable amount" was significantly greater than the "accumulated value." For example, a document provided by Corrigan to McMahon in 1998 showed that if McMahon had died in 1998, the life insurance purchased under the SEBP would yield an approximate death benefit of $13.3 million, $188,000 of which was "accumulated value" payable to McMahon's wife, and the remaining $13.1 million of which would be payable to PMA. Conf. Levy Decl., Exh. 19; Foy Decl., Exh. 8 at 172-73. PMA's contributions to this scheme were substantial; from 2000 to 2003 PMA contributed approximately $160,000 per year to Miniace's SEBP, almost half of his base salary. Conf. Levy Decl., Exh. 6 at PMA 00061.

In 2002, the IRS issued Revenue Notice 2002-8 which for the first time allowed employee participants to receive the "recoverable amount" under the policy, rather than the employer. Decl. of Susan J. Harriman in Support of Coburn Mot. ("Harriman Decl."), Exh. 39; Harriman Decl., Exh. F at ¶ 28-132. Later in 2002, McMahon revealed to Miniace that he was terminally ill with cancer. Foy Decl., Exh. 8 at 124-25. In response, Miniace and McMahon thereafter met with Corrigan, PMA's insurance agent, to discuss amending the SEBP. Id. at 126, 131 Miniace and McMahon later executed an amendment to McMahon's SEBP policy, providing that in the event of his death McMahon's beneficiary would receive the bulk of the policy's death benefit, while PMA would recover its premiums. Foy Decl., Exhs. 11, 12. These amendments were backdated to January 15, 2002, because they needed to occur before a "drop-dead" date in order to be effective. Foy Decl., Exh. 8 at 130, 158-59. Miniace admits that he executed this amendment without discussing it with the Board. Id., Exh. 3 at 191. He contends that he had authority to execute the amendment, however, because the original intent of the SEBP was to benefit the employee, and he was bringing McMahon's policy into compliance with that intent. Id.

McMahon died on May 3, 2002. His wife, Jeannette Coburn, received over $10.1 million in death benefits, while PMA received $986,383. Foy Decl., Exh. 5 at If 26; Exh. 7, at ¶ 28. It is undisputed that these figures would have been reversed had the amendment not been executed.

B. Maritech Director's Fees

Maritech is a wholly-owned, for-profit subsidiary of PMA. Decl. of Craig E. Ep person in Oppo. to Coburn and Miniace Mot. ("Epperson Oppo. Deel."), ¶ 8. It was incorporated in Nevada in 1998 to perform payroll processing for PMA and other companies. Id. at ¶¶ 5-9. Maritech's Board of Directors was initially comprised of three officers from PMA: Miniace, McMahon, and Craig Epperson, PMA's General Counsel. Id. at ¶ 11. At a January 27, 2000, Board meeting at which they were the only directors present, Miniace and McMahon voted to pay Maritech's directors and officers a $25,000 bonus per Board meeting.¹ Id.; Conf. Decl. of Susan Harriman in Supp. of Coburn Mot. ("Conf. Harriman Decl."), Exh. N. Maritech's directors and officers continued to receive this fee for attending Board meetings throughout 2001, 2002, and 2003. Conf. Harriman Decl., Exhs. O, P; Conf. Levy Deel., Exh. 6 at PMA 61-64. PMA's Board members were not told of the director's fee until 2004. Decl. of Jon Hemingway in Oppo. to Coburn Mot. ("Hemingway Oppo. Decl."), ¶ 6.

C. Other Benefits

Miniace's offer letter stated that he was entitled to the following non-monetary benefits: a leased company car equivalent to a Buick Le Sabre; membership in one "luncheon club" in San Francisco; and participation in "PMA's health and welfare, retirement, disability and life insurance plans." Decl. of Glenn M. Levy in Oppo. to Coburn Mot. ("Levy Oppo. Decl."), Exh. 66. Similarly, McMahon's offer letter stated that he was entitled to "a company car and the customary benefit plans—life insurance, health and dental, long-term disability and pension." Conf. Decl. of Glenn M. Levy in Oppo. to Coburn Mot. ("Conf. Levy Oppo. Decl."), Exh. E. In early 2002,...