Rockney v. Pako Corp.
| Decision Date | 20 April 1988 |
| Docket Number | Civ. No. 3-86-549. |
| Citation | 734 F. Supp. 373 |
| Parties | Erling W. ROCKNEY, Kenneth M. Knopf, Glendon K. Olson and Marvin E. Diers, Plaintiffs, v. PAKO CORPORATION, a Delaware corporation, a wholly-owned subsidiary of Delblo Enterprises (Minnesota), Inc., a Delaware corporation; Gerard M. Blohorn; Oliver A. Kimberly, Jr.; Robert Gauthier; William H. Alvord; Thomas J. Nicoski; and Does 1 through 10, inclusive, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Denis E. Grande of Arthur, Chapman & McDonough, P.A., Minneapolis, Minn., for plaintiffs.
R. Scott Davies and Robert E. Woods of Briggs and Morgan, St. Paul, Minn., for defendants.
Before the Court are the summary judgment motions of defendants Gerard M. Blohorn and Oliver A. Kimberly.1 Following a hearing held on January 13, 1988, the Court requested additional briefing and took the matter under advisement. Based on the opinion which follows, summary judgment will be granted as to both defendants.
This is an action by four retired employees of Pako Corporation ("Pako") to collect benefits due them under two unfunded "Top Hat" retirement plans adopted and approved by Pako's board of directors in 1977 and 1981.
Plaintiffs are all former middle-to-upper level managers of Pako. All four are covered under the 1977 pension plan. Only plaintiffs Diers and Rockney are participants under the 1981 plan.
Pako is a Delaware corporation, incorporated in 1921 and has historically been engaged in the manufacture and marketing of photographic, graphic arts and x-ray processing equipment and film.
In October, 1980, Pako entered into a Merger Agreement with Delblo Enterprises (Minnesota), Inc. ("Delblo-MN").2 As a result of the merger, Pako ceased to be a publicly held corporation but was, in its new form, obligated to fulfill the contractual obligations of the old Pako. Article V, paragraph 5.01 of the Merger Agreement.
Defendant Gerard Blohorn is a French citizen who was elected Chairman, a director and CEO of Pako post-merger. Blohorn has similar connections to numerous Delblo entities. He apparently never had a direct ownership interest in Pako and did not participate as an investor in its acquisition. At the same time, however, Blohorn testified that he made most important decisions regarding Pako and negotiated on behalf of the Company on matters associated with financing, refinancing and sales of the various Pako divisions which occurred between 1980 and the present.
Defendant Kimberly has been a seven per cent shareholder of Delblo-MN, and an advisor and confidante of Blohorn. Like Blohorn, Kimberly has been a Pako director since December, 1980. It appears that Kimberly was the individual who brought Pako to the attention of Andre Blohorn, Gerard's father, in the first step toward acquisition of Pako by Delblo entities.
On May 24, 1977, Pako's board of directors adopted Plan No. 1, a nonfunded pension plan. Defendants Blohorn and Kimberly were not, at that time, board members. The May, 1977 plan included the following language:
(Emphasis added).
On June 3, 1981, Pako's board of directors adopted Plan No. 2, a supplemental pension plan for upper level management. By this time, defendants Blohorn and Kimberly were board members. They voted in favor of the plan.
Paragraph 9 of Plan No. 2 contains language similar to that contained in Plan No. 1 relative to individual "person in control" liability:
9. This Agreement shall be binding upon the parties hereto, their heirs, legal representatives or successors. More particularly, the Corporation agrees that notwithstanding any future sale of a substantial amount of the shares of the Corporation, or the sale of substantially all of the assets of the Corporation, or any merger or other reorganization, this Agreement and its obligations shall continue to be binding upon the Corporation, any successor in interest to the Corporation, and all persons in control of the Corporation or any successor and no transaction or series of transactions shall be undertaken that has or have the effect of reducing or canceling the rights or prospective rights of the Employee under this Agreement.
(Emphasis added).
Both Blohorn and Kimberly voted in favor of adopting Plan No. 2. Moreover, on June 3, 1981, both defendants, as part of a unanimous board decision, approved a resolution specifically emphasizing control person liability.
RESOLVED FURTHER, That it is the Board's intent that such Executive Supplemental Compensation and Retirement Agreement be fully binding upon the Corporation and any successor in interest to the Corporation and all persons in control of the Corporation or any successor thereto and that no transaction or series of transactions shall be undertaken that has or have the effect of reducing or cancelling the rights or prospective rights of any officer or employee under the Plan.
(Emphasis added).
Subsequently, the company encountered increasingly difficult financial circumstances. By early 1986, apparently out of economic necessity, the workforce was reduced, salaries were cut or frozen, and the company ceased paying bills on a regular basis. In March and April, 1986, plaintiffs were notified that the supplemental deferred compensation payments called for under Plans Nos. 1 and 2 would also be suspended.
There is no direct evidence suggesting that Blohorn and/or Kimberly were personally responsible for termination of plan payments. Defendants maintain that the decision to suspend payments was made by unidentified members of Pako's operational management and only thereafter were Blohorn and Kimberly informed of the decision. Although Blohorn claims he was never consulted about the decision, he concedes, however, that he had the power to reverse the decision. Blohorn deposition, pages 48 and 49.
Plaintiffs brought the instant action in June 1986. In March, 1987, Pako filed for bankruptcy; a reorganization plan was affirmed in July, 1987.
Plaintiffs' complaint asserts two counts. Count I alleges that Plan Nos. 1 and 2 qualify as plans covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, and that defendants' inability to make payments to the plaintiffs under the plans "breached the contractual agreements and obligations entered into between the plaintiffs and defendants." Complaint, para. 14. Count II is a pendent state law breach of contract claim making essentially the same allegations.
Plaintiffs agreed to entry of judgment dismissing Count II, the pendent state law claim, as preempted by ERISA. Plaintiffs also agreed to entry of judgment dismissing all claims against corporate defendant Pako and individual defendants Robert Gauthier, William H. Alvord and Thomas J. Nicoski.
Thus, all that remains for decision are plaintiffs' claims against individual defendants Blohorn and Kimberly based on their alleged personal liability for Pako's discontinuance of pension fund contributions.
Defendants move for summary judgment arguing that ERISA does not impose "control person" liability on individual corporate officers. Defendants also argue that the defendants cannot be held individually liable based on written contracts executed by plaintiffs and corporate defendant Pako.
Plaintiffs, in contrast, maintain that under certain circumstances ERISA specifically provides for individual corporate officer liability for unpaid contributions. In addition, plaintiffs would hold the defendants personally liable for said payments pursuant to the express language of Plans Nos. 1 and 2.
The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion; the requirement is a genuine dispute of material fact. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
Plaintiffs contend that defendants Blohorn and Kimberly come within the meaning of "employer" under ERISA and are thus individually liable to plaintiffs for unpaid contributions.
Subchapter 1 of ERISA, which governs the type of ongoing pension contributions at issue here, defines "employer" as:
29 U.S.C. § 1002(9).
The weight of authority clearly holds that where the corporate form has been ignored, controlling officers/shareholders cannot escape liability for unpaid contributions merely by relying on the basic principle of limited liability at the heart of corporate law.
For example, in Alman...
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