Sabey v. Howard Johnson Co.
| Decision Date | 24 July 2000 |
| Docket Number | No. 44278-3-I, No. 44382-8-I. |
| Citation | 5 P.3d 730,101 Wash.App. 575 |
| Court | Washington Court of Appeals |
| Parties | David A. SABEY, Appellant, v. HOWARD JOHNSON & COMPANY, Respondent. |
Arthur Washington Harrigan, Jr., Matthew Ryan Kennedy, Randal Thor Thomsen, Danielson, Harrigan & Tollefson, Mark J. Hentschell, Seattle, for Appellant.
Paul Renwick Taylor, Paul R. Raskin, Byrnes & Keller, Seattle, for Respondent.
In 1989, David Sabey was interested in purchasing Frederick & Nelson Acquisition Company (FNAC). At the time, Howard Johnson, Inc., an actuarial firm, was assisting FNAC in phasing out its pension plan and replacing it with a 401(k) and profit-sharing plan. Howard Johnson communicated orally and in writing with Sabey's personal counsel about the adequacy of FNAC's pension plan funding and its compliance with the Employee Retirement Income Security Act (ERISA). Sabey allegedly relied on those representations, and formed a company, F & N Holding, which purchased FNAC. Eventually, the Pension Benefits Guaranty Corporation (PBGC) determined the plan was underfunded in violation of ERISA, and notified Sabey that he and Sabey Corporation were liable for a shortfall of $3.75 million. Sabey settled with the PBGC and brought this action against Howard Johnson, seeking reimbursement on theories of negligence, negligent misrepresentation, and indemnification. The trial court dismissed all claims on summary judgment.
Considering the evidence in the light most favorable to Sabey, we hold that he has standing to seek reimbursement from Howard Johnson because he incurred personal liability under ERISA, his claims are not remote because they are based on representations made to him personally, and his common law indemnification claim is not barred by the Tort Reform Act. Finally, we hold his claims are not time barred. Accordingly, we reverse.
In 1986, Frederick and Nelson Acquisition Corporation (FNAC) hired Howard Johnson, an actuarial firm, to assist in terminating its pension plan and substituting 401(k) and profit-sharing plans.
In the fall of 1988, FNAC began formal termination of the pension plan as required under ERISA.2 In October, as FNAC's representative, Howard Johnson certified to the PBGC that "the value of the [FNAC's] plan's assets ... equals or exceeds the value of the plan's benefit liabilities." In October and November 1988, FNAC notified plan participants of the imminent termination of the plan and the benefits to be received by each participant, and requested the participants notify FNAC if they were interested in receiving lump sum payments.
Based on Howard Johnson's advice, FNAC reported in its financial statements that the pension plan was underfunded by approximately $150,000.
In February 1989, David Sabey's personal counsel began conducting due diligence for Sabey's decision about the potential purchase of FNAC. At that time, Sabey's representatives reviewed FNAC's financial statements, met with FNAC management, and secured oral and written advice from Howard Johnson regarding the FNAC pension plan.
Sabey was aware that the plan was being terminated and that Howard Johnson was acting as the actuarial consultant for the purpose of determining whether ERISA's termination requirements were met. As a result of Howard Johnson's assurances to FNAC and Sabey's personal counsel, Sabey believed plan assets were sufficient to complete the termination with no significant deficiency. Sabey's company, F & N Holding, Inc., purchased FNAC on July 11, 1989.
Meanwhile, in spring of 1989, Howard Johnson urged FNAC to make lump sum payments to plan members. FNAC expressed concern about doing so. Howard Johnson repeatedly assured FNAC that there were sufficient funds available to pay lump sum distributions, purchase members' annuities, and pay other expenses. FNAC made the lump sum distributions before receiving formal annuity bids. Howard Johnson began soliciting annuity bids in late spring of 1989. All the bids were $1.4 million or more above plan assets. On September 7, 1989, Howard Johnson informed the PBGC that the plan lacked sufficient assets.
In September 1991, FNAC filed for bankruptcy protection. FNAC and F & N Holding ceased operations and were liquidated. The PBGC paid the affected pension plan members but made no ERISA claims against FNAC.
In 1993, the PBGC began investigating which parties were liable for improper termination and underfunding of the plan. At that time, the PBGC told Sabey that he and Sabey Corporation3 were being considered as part of the FNAC "controlled group,"4 and therefore potentially liable to the PBGC. Sabey began negotiating with the PBGC.
That same year, FNAC, Sabey Corporation, and the pension plan itself brought suit against Howard Johnson and others in federal court. David Sabey was not a party. Howard Johnson moved for summary judgment, arguing that the plaintiffs had no claims until the PBGC assigned liability. The motion was never decided. In April 1995, the federal district court dismissed the suit for failure to prosecute. Under the federal local rules, the dismissal was with prejudice, but as to Sabey Corporation, the order was modified to read, "The claims asserted by plaintiff Sabey Corporation shall be dismissed without prejudice."5
In June 1995, the PBGC advised Sabey's counsel by telephone that in their view, the appropriate termination date for the pension plan would be a date between September 7, 1989 and July 1, 1993. The PBGC's position was confirmed by a letter received July 10, 1995. The PBGC asserted that Sabey and his affiliated companies were liable for the underfunding of the pension plan in the amount of $1.75 million to $3.72 million, depending on the termination date.
In February 1997, the PBGC formally notified Sabey that it would seek, under ERISA, to establish his and Sabey Corporation's liability in the amount of $3.75 million. In March 1998, Sabey agreed to pay $1.95 million to settle the claim, securing his and Sabey Corporation's release from liability.
Sabey paid the PBGC in August 1998, and brought negligence, negligent misrepresentation, and indemnification claims against Howard Johnson, seeking reimbursement of his settlement with the PBGC. Howard Johnson moved for summary judgment, arguing that Sabey lacked standing, his claims were too remote, his indemnity claim was abolished by the Tort Reform Act, and his claims were time barred. The trial court granted Howard Johnson's motion and dismissed all of Sabey's claims.6
When reviewing an order on summary judgment, the facts and law are reviewed de novo.7 Facts and all reasonable inferences from the facts are considered in the light most favorable to the nonmoving party.8 Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.9
Because Sabey's personal liability to the PBGC derives from his inclusion in the "controlled group" held responsible under ERISA for improper termination and underfunding of the FNAC's pension plan, a brief discussion of ERISA is necessary. Congress enacted ERISA "to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds had been accumulated in the plans."10 ERISA's Title IV created a mandatory insurance program covering guaranteed benefits in the event pension plans terminate with insufficient funds.11
The PBGC administers this insurance program.12 When a plan terminates without sufficient funds to pay vested benefits, the PBGC pays those benefits to the affected employees.13 Where a single employer pension plan is terminated, an employer is liable for the total amount of unfunded benefit liabilities on the plan termination date.14 The PBGC and the plan administrator issue a mutually acceptable date for plan termination,15 so where ownership changes occur close in time to the plan termination, liability to PBGC is unclear until the date is set.
ERISA provides that "all ... trades and business ... under common control shall be treated as a single employer."16 "Common control" is determined under Treasury regulations, which are made applicable to pension cases by the PBGC's regulations.17 "Common control" is "one or more chains of organizations conducting trades or businesses connected through ownership of a controlling interest."18 In the case of a corporation, a controlling interest is "ownership of stock possessing at least 80 percent of total combined voting of all classes of stock entitled to vote of such corporation or at least 80 percent of the total value of shares of all classes of stock of such corporation."19 More generally, a common control group will be found where:
(1) corporations are affiliated through overlapping 80 percent ownership (parent-subsidiary); (2) two entities belong to a brother-sister group, that is, five or fewer persons own a controlling interest (80 percent) in each organization and exercise effective control (50 percent identical ownership) over both; or (3) a combined group of three or more corporations that are members of either a parent-sub or brother-sister group and one of which is a common parent and a brother corporation.20
This is the so-called "controlled group." Members of the "controlled group" are jointly and severally liable to the PBGC.21
In summary, the PBGC apparently pursued Sabey and Sabey Corporation because on the FNAC plan termination date asserted by the PBGC, Sabey had ownership interests in F & N Holding and in Sabey Corporation such that both he and Sabey Corporation fell within the "controlled group" definition.22
The standing doctrine requires that a plaintiff must have a personal stake in the outcome of the case in order to bring suit.23 Ordinarily, a shareholder cannot sue for...
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