Petr v. Nationwide Mut. Ins. Co., Civ. No. PN-87-936.

• Decision Date: 04 May 1989
• Docket Number: Civ. No. PN-87-936.
• Citation: 712 F. Supp. 504
• Court: U.S. District Court — District of Maryland
• Parties: Robert T. PETR v. NATIONWIDE MUTUAL INSURANCE COMPANY, et al.

712 F. Supp. 504

Robert T. PETR v. NATIONWIDE MUTUAL INSURANCE COMPANY, et al.

Civ. No. PN-87-936.

United States District Court, D. Maryland.

May 4, 1989.

Barry J. Dalnekoff, Dalnekoff & Mason, P.A., Annapolis, Md., for plaintiff.

Terrence M. Finn and Stephen R. Lohman, Smith, Somerville & Case, Baltimore, Md., for defendants.

MEMORANDUM AND ORDER

NIEMEYER, District Judge.

The question presented here is whether a compensation plan issued by the defendant insurance companies for their "independent agents" is governed by ERISA, 29 U.S.C. § 1001 et seq. A question of limitations is also raised.

I.

Robert T. Petr, who had been an independent insurance agent for the defendant insurance companies, filed this suit on April 16, 1987, against the defendants seeking to recover financial benefits allegedly due him under his agency agreement. He named as defendants Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Life Insurance Company, Nationwide General Insurance Company, Nationwide Property and Casualty Insurance Company, Nationwide Variable Life Insurance Company, and Colonial Insurance Company of California ("Nationwide"). Petr became licensed as an insurance agent for Nationwide in 1969, progressed to independent agent status in 1971, and reached master agent status in 1974. He remained in master agent status until his departure in April 1984.

Beginning in 1974, Petr became a participant in the "Agent's Security Compensation Plan," a post-termination compensation plan maintained by Nationwide for the benefit of its insurance agents. The plan was amended from time to time, and at the time of Petr's departure it offered various compensation benefits, two of which were the "Deferred Compensation Incentive Credits" Plan ("DCIC Plan") and the "Extended Earnings" Arrangement ("EE Arrangement"). Under the DCIC Plan, Nationwide credited to an account maintained over the years for Petr a percentage of Petr's earnings based on his original and renewal fees for insurance policies. The DCIC Plan benefits became due in installments after death, disability or termination, but in any case not before Petr reached age 50. Under the EE Arrangement, Nationwide agreed to pay Petr upon his departure a sum equal to his policy renewal fees from the prior twelve months. The EE Arrangement benefits were due 60 days after his termination, or in this case, June 17, 1984.

According to the Agent's Security Compensation Plan, Petr would forfeit his right to receive all benefits if after his departure he induced policyholders to lapse, cancel, or replace any insurance contract in force with Nationwide, or if he sold insurance within one year within a twenty-five mile radius of his original business location, or if he failed to return all company records and supplies to Nationwide within ten days of his departure.

By a letter dated April 18, 1984, Petr terminated his employment agreement with Nationwide and requested that his EE Arrangement and DCIC Plan benefits be paid out over a three year period. Nationwide responded to Petr's letter on May 1, 1984, wishing him well and stating that the company would enforce paragraphs 11 and 12 of his agency agreement. Paragraph 11 describes the Agent's Security Compensation Plan and paragraph 12 describes limitations on an agent's ability to compete with Nationwide subsequent to termination of the agreement. Two days later, on May 3, 1984, Nationwide sent Petr a form to designate whether he wanted tax withheld from his benefits. After Petr did not receive the benefits that were first due on June 17, 1984, he called and wrote to Nationwide. On July 18, 1984, Nationwide informed Petr by letter that it would not pay him any benefits because he had violated the sections of his agreement relating to post-termination competitive activity.

Petr filed this suit seeking to benefit from the terms of the Employment Retirement Income Security Act (ERISA), 29 U.S. C. § 1001, et seq. ERISA requires that an employee's right to receive retirement benefits from an employer-sponsored retirement plan must vest and become nonforfeitable after a time period determined in accordance with one of three alternative methods. 29 U.S.C. § 1053(a) (1982 & Supp. IV 1986).

In Counts I and II plaintiff urges that under ERISA his benefits vested and could not be forfeited. He seeks to recover benefits allegedly due under both the DCIC Plan and EE Arrangement. In Count III plaintiff alleges breach of fiduciary duty under ERISA for nonpayment of benefits. Finally, Count IV is a common law contract count in which plaintiff seeks recovery of certain policy renewal commissions.

Pending before the Court is a motion to dismiss filed by the defendants. Defendants contend that this action is barred by a "statute of limitations" contained in the agency agreement between plaintiff and defendants. In the alternative, defendants contend that ERISA does not apply to the payment arrangement established by the agency agreement. The Court will address the ERISA issue first.

II.

ERISA's nonforfeitability requirements apply if plaintiff is an employee and the benefit arrangement is an employee pension benefit plan under ERISA. 29 U.S.C. § 1053(a) (1982 & Supp. IV 1986). Defendants contend that plaintiff is not an employee as used in ERISA, and that ERISA does not apply because the DCIC Plan and EE Arrangement do not constitute ERISA pension plans. Defendants inform the Court that should this motion be denied, they will argue in a motion for summary judgment to be filed later that plaintiff was not an employee within the meaning of ERISA. The Court agrees with defendants that the employee issue is a fact-bound determination which would be inappropriate to make at this stage of the proceedings. Accordingly, the Court will assume for purposes of the present motion only that plaintiff is an employee within the meaning of ERISA, and therefore the Court will consider only whether the arrangements constitute a pension plan within the meaning of ERISA.

The ERISA statute defines a pension plan as follows:

Except as provided in subparagraph (B) relating to the Secretary's power to create exempt categories, the terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—

(i) provides retirement income to employees, or

(ii) 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. § 1002(2)(A) (1982).

In Fraver v. North Carolina Farm Bureau Mutual Ins. Co., 801 F.2d 675 (4th Cir.1986), cert. denied, 480 U.S. 919, 107 S.Ct. 1375, 94 L.Ed.2d 690 (1987), the Fourth Circuit considered whether a plan with terms virtually identical to the EE Arrangement at issue in Count II was a pension plan within the meaning of ERISA. The plan in Fraver, like the EE Arrangement, provided that upon termination of the agent's contract the insurance company would pay to the agent an amount equal to the agent's renewal fees for the 12 months preceding his termination. Id. at 676. The court held that the plan was not a pension plan under ERISA, reasoning that its provisions simply established a final form of compensation as a "buy-out" for the business created by the agent:

The nature of the payments is not indicative of a pension or retirement plan.... The amount of the payment is tied to only one factor, the amount of business in the last year prior to termination.... The payments are recouped from the individual's successor. In sum, the benefits are in the nature of a buy-out in which the departing agent receives payments based on what he leaves behind in the way of business for his successor. If the departing agent goes into competition with his successor, he is destroying the resource that would be used to pay him.

Id. at 678; see also Wolcott v. Nationwide Mutual Ins. Co., 664 F.Supp. 1533, 1538 (S.D.Ohio 1987) (similar EE Arrangement is not pension plan within ERISA, following Fraver). But see Plazzo v. Nationwide Mutual Ins. Co., 697 F.Supp. 1437, 1450-51 (N.D.Ohio 1988) (similar EE Arrangement is pension plan within ERISA, disagreeing with Fraver). Fraver addressed language virtually identical to that in the EE Arrangement and as the law of this circuit Fraver is controlling. Accordingly, because the provisions of the EE Arrangement do not create an employee pension benefit plan under ERISA, the Court will grant defendants' motion to dismiss Count II.

Turning to the language of the DCIC Plan, at least two district courts have considered this exact language and concluded that it does constitute a pension plan within the meaning of ERISA. In Plazzo, supra, the court reviewed the provisions of the DCIC Plan and concluded, with little analysis, that the plan was a pension plan within the meaning of ERISA. The court stated:

In view of the benefit accrual and distribution features of the Deferred Compensation Plan, the court concludes that it provides retirement income to employees and is an employee pension benefit plan under ERISA.

Plazzo, supra, 697 F.Supp. at 1450. The court in Wolcott, supra, also reviewed the DCIC Plan and concluded, with little analysis, that it provided retirement income to employees and was an employee pension benefit plan under ERISA. Wolcott, supra, 664 F.Supp. at 1538.

Plaintiff cites Darden v. Nationwide Mutual Ins. Co., 796 F.2d 701 (4th Cir. 1986), as additional support for his argument that the DCIC Plan is an ERISA pension plan. In Darden, Judge Murnaghan reviewed a plan with...