Morse v. Stanley

• Decision Date: 23 April 1984
• Docket Number: D,Nos. 618-620,s. 618-620
• Citation: 732 F.2d 1139
• Parties: 5 Employee Benefits Ca 1602 John S. MORSE, Plaintiff-Appellant, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von Ziegesar and Carl R. Pite, et al., Defendants-Appellees. Michael Don ROMACHO, Plaintiff-Appellant, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von Ziegesar and Carl R. Pite, et al., Defendants-Appellees. Robert D. COHEN, Plaintiff-Appellee, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von Ziegesar and Carl R. Pite, et al., Defendants-Appellants. ockets 83-7615, 83-7716 and 83-7823.
• Court: U.S. Court of Appeals — Second Circuit

Page 1139

732 F.2d 1139

5 Employee Benefits Ca 1602

John S. MORSE, Plaintiff-Appellant, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von

Ziegesar and Carl R. Pite, et al., Defendants-Appellees.

Michael Don ROMACHO, Plaintiff-Appellant, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von

Ziegesar and Carl R. Pite, et al., Defendants-Appellees.

Robert D. COHEN, Plaintiff-Appellee, v. Edmund A. STANLEY, Jr., Victor Simonte, Jr., Franz Von

Ziegesar and Carl R. Pite, et al., Defendants-Appellants.

Nos. 618-620, Dockets 83-7615, 83-7716 and 83-7823.

United States Court of Appeals, Second Circuit.

Argued Jan. 12, 1984.

Decided April 23, 1984.

Thomas F. Curnin, New York City (Kenneth E. Meister, Cahill, Gordon & Reindel, New York City, of counsel), for plaintiff-appellant Morse.

Loretta A. Preska, Hertzog, Calamari & Gleason, New York City, for plaintiff-appellant Romacho and plaintiff-appellee Cohen.

John W. Ohlweiler, New York City (Gary I. Horowitz, Simpson, Thacher & Bartlett, New York City, of counsel), for defendants-appellants-appellees Stanley, et al.

Before KAUFMAN, OAKES and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge.

The trustees of a company's profit sharing plan voted to deny three departing employees' requests for accelerated payment of their vested benefits under the Plan upon their departure to work for a competitor. Each brought suit and for some inexplicable reason and despite the fact that two of the employees had the same counsel, each case was tried separately before a different district court judge. Two of the trial courts sustained the Trustees' denial of accelerated benefits, and the third found that decision of the Trustees to be arbitrary and capricious. Because these varying results may not be justified on any differences found in the records, we undertake a full review of all three cases, which have been consolidated for purposes of appeal.

The central question in each case is whether the Trustees violated their fiduciary obligations under ERISA. To resolve this issue requires an examination of the scope of discretion afforded ERISA trustees. Discretion spans the legal terrain--like a rainbow arcing overhead--and is a multi-faceted concept whose contours are just as undefined as the reflection of the sun's rays in the mist. Despite its elusiveness, we must--as these appeals illustrate--focus narrowly on the discretion exercised on the facts in this case and define the guides that measure it.

I FACTS

Bowne of New York, Inc. (Bowne) is a New York corporation engaged primarily in the financial and corporate printing business. Its headquarters are located in New York City with subsidiaries scattered throughout the United States. Plaintiffs, John S. Morse, Michael Don Romacho, and Robert D. Cohen were employed by Bowne until each voluntarily resigned in order to work for Pandick Press, Inc., (Pandick), also of New York City. Pandick also has subsidiaries in other United States cities. Pandick is engaged in corporate and financial printing and is a direct competitor of Bowne. Ironically, Bowne and Pandick have their principal offices in the same building in New York.

Morse was the first to leave Bowne to accept a position with Pandick. He had worked at Bowne for 16 years and had become a highly successful salesman for the company. When Morse left in June 1980, he was Bowne's highest paid employee and he took a substantial part of his business, valued at over two million dollars annually, with him to Pandick. The circumstances surrounding his departure included the familiar ones of his unhappiness with the compensation arrangement and his belief that Bowne was not properly responsive to the needs of his accounts. At Morse's urging, Plaintiff Michael Don Romacho also left Bowne later in June to accept employment at Pandick. Since Romacho had worked closely with Morse, he was intimately familiar with the specific peculiarities and needs of Morse's accounts. In addition to Romacho, Morse later recruited plaintiff Robert D. Cohen to work at Pandick. At Bowne, Cohen had worked as a pricing analyst, a back-office position requiring little client contact. Cohen resigned his position with Bowne on March 17, 1981.

Bowne established a Deferred Profit Sharing Plan for its employees in 1961. The Plan, to which the employees make no contribution, has been amended several times over the years. Originally, it contained a provision that an employee who left to work for a competitor would forfeit his entire accrued interest. This clause was deleted in 1977 when the Plan was recast to bring it into compliance with ERISA. See generally Lawson & Watson, Forfeiture-for-Cause "Bad Boy" Clauses: Is There Any Life Left After ERISA?--Confusion in the Arena, 60 Taxes 827 (1982). A summary booklet entitled "Highlights of the Bowne Profit Sharing Plan for Employees of Participating Companies of Bowne & Co., Inc." was distributed to all Plan participants. It described the provisions for the payment of benefits, noting specifically the general rule that a participant shall be entitled to the balance in his Between the time that the Plan was amended and restated in 1977 to comply with ERISA and the time that these employees sought distribution under it, every participant who left the employ of Bowne and requested accelerated payment of the vested amount in his plan account received that amount in full. During the period 1977 through 1980, 79 Plan participants who left Bowne prior to their early or normal retirement dates were granted accelerated distributions. The amounts of these payments ranged from $45.92 to $70,236.83. These employees, according to the Trustees, either had less than $10,000 in their accounts or did not leave to join a competitor.

account upon his retirement. The booklet is short; it is easy to read and understand. Normal, Post-Normal and Early Retirement are all described. Normal retirement is when a participant reaches his 65th birthday, at which time he is entitled to the balance of his account in a lump sum, one of several annuity options, or a combination of the two. The method of payment is selected by the participant with the Trustees' approval. Post-normal retirement applies to an employee who continues employment with Bowne beyond his 65th birthday. Such an employee continues to participate in the Plan until he retires, at which time he receives the balance of his account as just described. Early Retirement, with which we are concerned in all three cases, is described and illustrated by means of a vesting chart, and applies to those employees who leave or are discharged before normal retirement, i.e., age 65, leaving aside employees who depart on account of death or disability. Early retirees cease to be participants. Such a retiree's account vests to the extent of 10% for each full year of employment (beginning with the third year) and the account is 100% vested upon completion of 12 years of credited service with Bowne. Where an employee retires early, or otherwise leaves the employ of the company, the summary states that the participant is entitled to receive payment for his vested interest. In this circumstance, the Plan clearly provides that "[t]he method and time of making payment shall be determined by the Trustees in their sole discretion."

Of the 79 employees who left after the Plan was restated in 1977, there were four employees who plaintiffs argued left to join a competitor. Two of them had less than $10,000 in their accounts, and Lang, one of the remaining two departing employees, went to work for a company that had just opened a New York City office. Since Lang had been terminated by Bowne, the Trustees considered this factor when they decided to accelerate his payments. Anderer, the other departing employee, went to work for a South Carolina commercial printer that did not compete with Bowne.

After Morse, Romacho and Cohen resigned from Bowne, each requested that the Trustees of the Profit Sharing Plan grant them accelerated distribution of their vested profit sharing benefits. The Trustees denied these requests, relying on their policy not to grant accelerated distributions to employees who went to work for competitors in cases where the amount of the vested benefits exceeded $10,000. Under the Plan, plaintiffs Morse and Romacho had a vested interest in 100% of their accounts and plaintiff Cohen had a 50% vested interest in his account based upon seven years service. The amount of their vested interest in each of their accounts was $203,778.00, $47,481.59 and $13,759.23 respectively. The plaintiffs then challenged the Trustees' decisions separately in the district courts, claiming in effect that they were the first to be denied accelerated distributions and that the Trustees' failure to disclose their non-acceleration policy constituted a violation of ERISA, as well as a breach of their fiduciary duty to administer the Plan solely in the interest of its participants.

The district court judges, as noted, responded to these claims differently. In the first decision to be handed down, Judge Edelstein held that Cohen was entitled to his vested benefits, ruling that the Trustees' decision was arbitrary and capricious, and that the Trustees' "treatment of Cohen On their appeals, Morse, Romacho and Cohen reiterate the same arguments they made at their earlier trials: first, that the Trustees acted arbitrarily and capriciously in denying them accelerated distribution of their vested profit sharing benefits, second, that the Trustees breached their fiduciary duty to administer the plan solely in the interest of its participants and, third, that the Trustees' failure to disclose their policy regarding accelerated distributions violated ERISA.

                in departing from a consistently applied practice was improper as it was not done solely in the interests of the Plan participants."    Cohen v. Stanley, 566 F.Supp. 246, 254 (S.D.N.Y.1983).  In Morse v.

...