Rochester Corporation v. Rochester, 15408.

• Decision Date: 05 November 1971
• Docket Number: No. 15408.,15408.
• Parties: The ROCHESTER CORPORATION, Appellant, v. W. L. ROCHESTER, Jr., Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

450 F.2d 118 (1971)

The ROCHESTER CORPORATION, Appellant, v. W. L. ROCHESTER, Jr., Appellee.

No. 15408.

United States Court of Appeals, Fourth Circuit.

Argued August 27, 1971.

Decided November 5, 1971.

Haynie S. Trotter, and R. Terrence Ney, Fairfax, Va. (Bauknight, Prichard, McCandlish & Williams, Fairfax, Va., on brief), for appellant.

James M. Thomson, Alexandria, Va., and D. French Slaughter, Jr., Culpeper, Va. (Button, Slaughter & Yeaman, Culpeper, Va., on brief), for appellee.

Before SOBELOFF, Senior Circuit Judge, and WINTER and RUSSELL, Circuit Judges.

DONALD RUSSELL, Circuit Judge:

The plaintiff (appellee) seeks a declaratory judgment, establishing the invalidity of an asserted forfeiture of his right as a former employee to retirement benefits under a voluntary, non-contributory pension plan established by his employer (defendant-appellant).

The plaintiff became an employee of the defendant in 1941 and continued as such until 1965, when he voluntarily quit. In 1943, the defendant voluntarily established a non-contributory pension plan for the benefit of its employees. Such plan provided that any "member", defined to be any "active employee of the Company", shall, if his employment be terminated after ten or more years' service, be entitled, upon attaining the retirement age of sixty-five, to receive retirement benefits calculated upon the basis of his years of service prior to termination of employment and rate of pay during such service. While the Directors of the defendant were empowered to amend the plan, that right was strictly circumscribed by the provision that no amendment adopted might "impair the interest in the Trust of any member created by or resulting from prior contributions". On July 21, 1960, acting under this power of amendment, the Board of Directors of the defendant, with the approving vote of the plaintiff in his capacity as a Director, adopted an amendment, effective January 1, 1961, which authorized the Board to declare forfeited "all rights and benefits under the Pension Plan" of any executive, administrative, engineering or sales employee who "after retirement or termination of his service" engaged in employment competitive with the defendant. Defendant asserted, and plaintiff did not seriously dispute, that plaintiff had formerly been employed in an executive position and after leaving defendant's employ had engaged in employment violative of the provisions of the 1960 amendment. As a consequence, the Pension Committee notified plaintiff that his rights to any benefits under the pension plan were forfeited. Contending that such forfeiture was illegal, the plaintiff, who has not attained the retirement age of sixty-five, brought this action to obtain a declaration of his continuing rights under the pension retirement plan.

Following trial of the issues, the District Court granted the plaintiff the relief sought, 316 F.Supp. 139. It found that, by the express terms of the pension plan itself, the power of the defendant to impair by amendment the rights of the plaintiff under the plan could only be exercised "prospectively" and that accordingly the power to declare a forfeiture under the 1960 amendment could not apply to benefits accruing to plaintiff under the plan prior to the effective date of the amendment. It proceeded, also, to hold that the 1960 amendment, insofar as it provided for forfeiture of benefits subsequent to the effective date of the amendment by reason of engaging in competitive employment, was invalid. It concluded, therefore, that the action of the Pension Committee in declaring the rights of the plaintiff under the plan forfeited was improper. From judgment to this effect, the defendant has appealed.

We affirm as to benefits accruing prior to the effective date of the 1960 amendment and reverse as to benefits accruing subsequently.

The basic contention of the defendant, in its challenge of the District Court's conclusions, is that, even though an employee such as plaintiff may have been in its employ for the ten years required for qualification or eligibility under the retirement plan, that employee has no "vested" rights "until the time that an (the) employee's employment is terminated" and accordingly that, until the qualified employee has acquired a "vested" right either by terminating his employment or by retiring, the plan may be altered or amended and the rights of the employee, acquired by service for the period of qualification, thereby legally impaired. This argument would make a basic distinction in rights between an employee, with the qualifying period of employment who has either quit or been discharged, on the one hand, and one who is still employed, on the other. In essence, the defendant urges that, if the plaintiff had quit the defendant's employment prior to the adoption of the amendment of July 21, 1960, the amendment could not have impaired his rights acquired as a result of contributions made prior to that date but that — and this is the heart of its argument — since he was in defendant's employ at the time it was adopted, the amendment could and did legally impair any claim he may have previously acquired, as well as those subsequently accruing, by reason of contributions made on his behalf to the pension fund. The District Court, in our opinion, properly rejected such contention, so far as it applied to benefits accruing to the plaintiff by reason of his employment prior to the effective date of the amendment.

We perceive no sound or logical basis for differentiating, as the defendant does, between an employee-member who has served more than ten years but is still employed and one, who has likewise served more than ten years but is not then employed, or for designating the rights of one as "vested" and the other as "inchoate". The result of adopting the defendant's argument would be that an employee serving more than ten years, who had been discharged for cause, would be protected from dilution of his right through an amendment of the plan, but one who had not been so discharged but was still employed, would not be protected. Such a distinction is obviously both unfair and unreasonable. The language of the plan, which, of course, controls, neither suggests nor supports such an inequitable result.

The pension plan provided that all employees of the defendant, if they remained in the employ of the defendant ten or more years, would be entitled, on attaining retirement age, to certain specified pension rights. While unilateral, that offer, when accepted by an employee as evidenced by rendering services for ten or more years, became "irrevocable"¹ and such employee acquired "a right no less contractual than if the plan were expressly bargained for".² By rendering service for the period required under the plan, the employee's rights to benefits under the plan are "earned no less than the salary paid to him (the employee) each pay period"³ and are "in the nature of delayed compensation for former years of faithful service".⁴ Whether the plan be contributory or non-contributory, the benefits, thus earned, are not gratuities.⁵ These conclusions, amply sustained as they are by precedents from other jurisdictions, accord with Virginia law, which, the parties apparently concede, is controlling here. Twohy v. Harris (1952) 194 Va. 69, 72 S.E.2d 329, 335-336.

The plaintiff had accordingly acquired on July 21, 1960, when this amendment was adopted, an "irrevocable" right, a right that, under appropriate circumstances, was entitled to judicial protection. He was not required to terminate his employment in order to give vitality and enforceability to that right.⁶ Under the terms of the plan, he had met the conditions of the plan by continuing employment for more than twenty years and was entitled to the benefits thereunder, exercisable when he attained sixty-five years of age.⁷ By the express terms of the plan, that accrued "right" that he as a "member" of the plan had acquired could not be impaired by any amendments subsequently made in the plan. Such amendment could only operate, as the District Court correctly phrased it, and as the plan itself so plainly provides, "prospectively".

The defendant has cited a number of cases in support of its contrary contentions. Except for Kristt v. Whelan (1957) 4 A.D.2d 195, 164 N.Y.S.2d 239, affd. 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116, which we do not find persuasive in its reasoning, such cases generally involved plans significantly different in language from that here. Thus in Finnell v. Cramet, Inc., (6th Cir. 1961) 289 F.2d 409, 413, the plan specifically provided that, "No Employee prior to his retirement" had any rights under the plan and the employer reserved the unqualified right from the beginning "to modify or amend in any respect or terminate, in whole or in part, this Pension Plan at any time for any reason whatsoever * * *." Parsley v. Wyoming Automotive Company (Wyo. 1964) 395 P.2d 291, 295, another case cited by the defendant, involved a compromise settlement of claims under a voluntary, non-contributory retirement plan. The Court held that, at the time of the settlement the rights of the employee were sufficient to provide a valuable consideration for the compromise settlement. Beyond this, the Court did no more than to advert to the various authorities and to declare that in any event the compromise settlement was valid.

To restate: In our opinion, the District Court correctly concluded that the defendant could not by its amendment of July 21, 1960, prejudice any of the rights of the plaintiff under the pension plan resulting from contributions previously made by the employer.

We think, however, the District Court erred in concluding that the plaintiff was entitled to retirement benefits accruing on account of services after the effective date of the amendment of 1960. In reaching its conclusion, that Court held that the forfeiture of retirement benefits provided...