Romacho v. Stanley

• Decision Date: 21 July 1983
• Docket Number: No. 82 Civ. 211.,82 Civ. 211.
• Citation: 567 F. Supp. 1417
• Parties: Michael Don ROMACHO, Plaintiff, v. Edmund A. STANLEY, Jr.; Victor Simonte, Jr.; Franz Von Ziegesar; and Carl R. Pite, Individually and in their capacity as Trustees of the Bowne Profit-Sharing Trust; and Bowne Profit-Sharing Trust, Defendants.
• Court: U.S. District Court — Southern District of New York

567 F. Supp. 1417

Michael Don ROMACHO, Plaintiff, v. Edmund A. STANLEY, Jr.; Victor Simonte, Jr.; Franz Von Ziegesar; and Carl R. Pite, Individually and in their capacity as Trustees of the Bowne Profit-Sharing Trust; and Bowne Profit-Sharing Trust, Defendants.

No. 82 Civ. 211.

United States District Court, S.D. New York.

July 21, 1983.

Hertzog Calamari & Gleason, New York City, for plaintiff; Loretta A. Preska, New York City, of counsel.

Simpson Thacher & Bartlett, New York City, for defendant; John W. Ohlweiler, New York City, of counsel.

OPINION FINDINGS OF FACT AND CONCLUSIONS OF LAW

EDWARD WEINFELD, District Judge.

Plaintiff, Michael Don Romacho, a former employee of Bowne of New York, Inc. ("Bowne"), commenced this action against the Trustees of the Bowne Profit-Sharing Plan and Trust (the "Plan") pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA")¹ because of their refusal to accelerate distribution of his vested interest in the Plan's fund ("Fund") on the termination of his employment. Two other former employees of Bowne brought similar actions against the Trustees in this Court with differing results.² This Court, upon the totality of the record before it, concludes that the Trustees' denial of plaintiff's claim for immediate payment of his retirement benefits, which are not due until his 65th birthday, was not arbitrary or capricious and that their determination was rationally made and in good faith.

Bowne is a New York corporation with subsidiaries in various locations in the United States. It engages primarily in financial and corporate printing.³ Plaintiff was employed in the production department of the New York subsidiary from May 5, 1968 to July 11, 1980, when, at the age of 33, he voluntarily resigned to accept employment with Pandick Press, Inc. ("Pandick"). Pandick is a direct competitor of Bowne, located in the same building.

Approximately two weeks before plaintiff resigned, John Morse, Vice President of Sales and one of the most successful salesmen at Bowne, accepted employment with Pandick. Morse took with him to Pandick a large volume of Bowne's business, the Unit Investment Trust Work, a profitable account with revenues of between two and two and one-half million dollars per year. After Morse's move to Pandick, the Bowne customers moved their business there and because of Romacho's familiarity with the Unit Investment Trust Work, Morse, shortly after his own resignation recruited Romacho to join him at Pandick. Morse later recruited another Bowne employee, Robert Cohen, to join Pandick, also to work in part for those same clients who had switched from Bowne to Pandick when Morse made his move. Cohen, whose position at Bowne was pricing analyst, joined Pandick in March 1981.

The Bowne Plan is a deferred profit sharing plan funded by contributions from the profits of participating Bowne subsidiaries. There is no employee contribution. The Plan was established in 1961 and amended several times thereafter. The 1972 version of the Plan contained a "forfeiture provision," which in substance provided that if a participant in the Plan left the employ of Bowne to enter into competition with it or became an employee of a direct competitor, he ceased to be a participant in the Plan and forfeited his interest therein, whether vested or not.⁴ To comply with the requirements of ERISA, the Plan was restated in June 1977 and the forfeiture provision was deleted.

Plaintiff was a participant in the Plan at the time of his resignation and had a vested interest in the sum of $47,481.59. The Plan then in effect provides that vested profit-sharing benefits shall be paid within sixty days after the later of:

(a) the earlier of the participant's Normal Retirement Date (age 65), or Early Retirement Date (at least age 60 upon completion of 30 years of service);

or

(b) the date of the participant's termination from employment.⁵

When Romacho left Bowne's employ he was 33 years of age and had twelve years' service. Thus, he is not entitled to receive his vested benefits until age 65, his normal retirement age. However, the Plan provides that the Trustees may establish procedures to make distribution of benefits to a terminated participant at a date prior to an employee's attainment of age 65 or earlier retirement date.⁶ The Plan further grants authority to the Trustees to construe and interpret the provisions of the agreement and provides that

any decision or act made or done by the Trustees pursuant to any provision of the Plan shall be in their sole and absolute discretion.⁷

A summary booklet entitled "Highlights of the Bowne Profit Sharing Plan for Employees of Participating Companies of Bowne & Co., Inc." (the "Summary") was distributed to all Plan participants, including Romacho. In addition to describing the mandatory payment provisions at normal and early retirement dates, the Summary states that "the method and time of making payment shall be determined by the Trustees in their sole discretion...."

From the time of the restatement of the Plan in 1977 until Romacho and Morse sought acceleration, seventy-nine Plan participants who left Bowne requested and were granted accelerated payment of the vested amount in their Plan account. The amounts paid to these former employees ranged from $45.92 to $70,236.83. Nine of the former employees received payments in excess of $10,000. Whether any of these nine were employed by "direct competitors" of Bowne is a matter of dispute between the parties, which will be discussed hereafter.

Shortly after his resignation, plaintiff asked the Trustees to exercise their discretion to grant him immediate lump sum payment of his account balance. On September 3, 1980, the Trustees met to consider plaintiff's request as well as Morse's. On September 25, 1980, the Trustees denied both applications. On that same day, one of the Trustees, Carl Pite, notified plaintiff that his request had been denied due to his immediate subsequent employment with a competitor. Romacho sought and was granted a review of the decision. Pite, on January 5, 1981, informed him that the Trustees reaffirmed their original denial because it was their policy, in their discretion, not to accelerate payments in cases where a former employee has joined a competitor. Romacho responded that he knew of several former Bowne employees who, in his view, had gone to work for competitors but nonetheless received accelerated distribution under the Plan. Pite replied on January 28, 1981 that the "trustees have not in the past approved accelerated payment of account balances to former employees who had in excess of $10,000 due and who left the employ of Bowne to work for a competitor." Thereafter, plaintiff commenced the instant action.

The Plan's provision which mandates the distribution of plaintiff's interest only upon reaching age 65 complies with ERISA.⁸ "It does no violence to the scheme of the Act ... to withhold benefits from plaintiff until plaintiff reaches age sixty-five."⁹ So, too, the grant of broad discretion to the Trustees to authorize payment earlier than the latest date mandated by ERISA and the Plan is consistent with ERISA.¹⁰ Plaintiff advances a variety of arguments as to why he is entitled to his benefits now despite the Trustees' denial of his request pursuant to their lawful discretion. First, he contends that the Trustees had adopted a policy and practice of consistently granting accelerated distributions upon the request of terminated employees and thus in refusing plaintiff's request they failed to comply with the established procedures and to administer the Plan according to its terms in violation of section 404(a)(1)(D) of ERISA.¹¹ The argument is without merit. Under the express terms of the Plan, as outlined earlier, distribution of plaintiff's benefit is mandated only when he reaches 65. Earlier payment is a matter of discretion with the Trustees. The Plan does not specify guidelines as to when the Trustees are to invoke or deny acceleration. The exercise of discretion favorably to terminated participants in the past does not constitute a waiver of the Trustees' discretion, expressly vested in them by the Plan, to deny earlier distribution in those instances where in their judgment upon the particular facts it would be detrimental to the Plan and to the interests of other participants. To hold otherwise would read out of the Plan discretionary powers expressly granted to the Trustees and would impair the flexibility necessary for proper management of pension plans.¹²

Thus we reach plaintiff's further contention that the Trustees' denial of his request was arbitrary and capricious. Our Court of Appeals has recently stated the standard applicable to reviewing the discretionary decisions of pension plan administrators as follows:

In order to avoid excessive judicial interference with pension plan administration, the federal courts of appeals have generally applied an `arbitrary and capricious' standard of review in actions challenging the decisions of plan administrators .... We have stated that the lawful, discretionary acts of a pension committee should not be disturbed, absent a showing of bad faith or arbitrariness.¹³

Plaintiff contends that the Trustees' denial of his request was arbitrary and capricious because every similarly situated participant who left Bowne from 1977, following the restatement of the Plan, until his and Morse's departures in 1980 received accelerated distribution upon request. The Trustees contend that none of these persons was similarly situated to Romacho in that they either did not have more than $10,000 in their accounts or, if they did, they did not immediately enter the employ of a company which the Trustees considered an "effective" or "major" or "direct"¹⁴ competitor. The issue here is who is properly considered a "competitor" of Bowne. As stated by one of the Trustees, "it's the Trustees who determine whether...