Shaw v. Kruidenier

Decision Date14 May 1979
Docket NumberCiv. No. 76-272-2.
Citation470 F. Supp. 1375
PartiesCarole SHAW, Robert C. Allott, Harold E. Anderson, Jim Baker, Richard Bringolf, Susan E. Davenport, Wilbur E. Hamborg, Wayne Hemmen, Louis E. Weidner, Jr., and Edward E. White, Plaintiffs, v. David KRUIDENIER, Milton O. Riepe, Harold E. Baker, Alfred G. Ellick, Herbert Harris, Joseph F. Rosenfield, James W. Wallace, R. J. Fleming, C. Dean Carlson, Dewayne Ehler, and Northern Trust Company, Trustee of the National By-Products Profit-Sharing Retirement Trust, Defendants.
CourtU.S. District Court — Southern District of Iowa

Richard J. Howes, F. Richard Lyford, Richard A. Malm, Ronald L. Anderson of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, Iowa, for plaintiffs.

Brent B. Green and Carlton T. King of Gamble, Riepe, Burt, Webster & Fletcher, Des Moines, Iowa, for defendants Kruidenier, Baker, Ellick, Harris, Rosenfield & Wallace.

Paul F. Ahlers and David H. Luginbill of Ahlers, Cooney, Dorweiler, Haynie & Smith, Des Moines, Iowa, for defendants Riepe, Fleming, Carlson and Ehler.

Hearst Randy Duncan, Jr. and Steven K. Scharnberg of Duncan, Jones, Riley & Finley, Des Moines, Iowa, for defendant Northern Trust Co.


HANSON, Senior District Judge.

This matter is before the Court on cross-motions for summary judgment submitted by the parties. Plaintiffs seek to recover certain employer contributions to a profit-sharing retirement plan in which plaintiffs were participants. The Court has jurisdiction under 29 U.S.C. § 1132.

Plaintiffs were employees of Des Moines Dressed Beef, Inc. (Dressed Beef), a corporation purchased by National By-Products, Inc. (National) in July 1970 and sold in September 1975. During the interim of National's ownership, plaintiffs were permitted to participate in the National By-Products Profit-Sharing Retirement Trust (the Trust) under the terms of which contributions were made by National from its annual net profit to the Trust on behalf of plaintiffs and other participants. After the sale of Dressed Beef, plaintiffs' participation in the Trust was terminated and each was paid the amount of his or her vested interest in the Trust funds which in each case was a percentage of the total amount of employer contributions depending on the length of the individual employee's service. Under the vesting schedule established in the Trust plan, none of the plaintiffs could claim a 100% vested interest. In their complaint, plaintiffs seek the full amount of National's contributions to their accounts. With some overlap, the defendants include the successor trustee of the Trust, Northern Trust Company (Northern), the individual members of National's Board of Directors (defendants Kruidenier, Riepe, Baker, Ellick, Harris, Rosenfield, Wallace, Fleming and Carlson), and individual members of the Advisory Committee responsible under the terms of the Trust plan for administering and managing the plan (defendants Fleming, Carlson and Ehler).

Plaintiffs' amended complaint is in four counts. Counts I and II are brought against the defendant members of National's Board of Directors and Northern. Count I appears to be predicated on the operation of the Internal Revenue Code on the Trust. Plaintiffs allege, inter alia, that the sale of Dressed Beef and the consequent termination of plaintiffs as eligible employees "amounted to the termination of the Trust as to Dressed Beef and its employee-participants in the Trust, and as such required full vesting of participants' rights in accordance with the Internal Revenue Code of 1954 and regulations thereunder."1

Count II alleges that under the terms of the Trust plan itself plaintiffs were entitled to full vesting.

Count III and Count IV are substantively identical to Counts I and II, but substitute as defendants the members of the Advisory Committee.

By a second amendment to their complaint, plaintiffs have added as a prayer for relief to each count a request "for such further equitable relief as may be just and equitable in the premises."

Plaintiffs' submissions in support of their motion for summary judgment and against the defendants' various motions reveal that their legal theories are both more diverse and more complex than revealed in their complaint. Plaintiffs have framed the issues and the facts on which their cause is based in a document entitled "Plaintiffs' Contentions of Facts and Law," as amended. Plaintiffs' January 10, 1978 brief elaborates on their legal contentions:

This case is both one of contract and of a breach of fiduciary obligations. The issues in contract are:
1. Was there a termination or severance of employment under the trust agreement?
2. Did the Defendants frustrate the Plaintiffs' performance or cause a breach of contract, thereby excusing the Defendants from their performance, and requiring the Defendants to be liable for the balance of the funds extant in the respective Plaintiffs' accounts prior to the Board of Directors resolution in 1975?
In addition to the contract arguments there are fiduciary ones. Congress made all the Defendants fiduciaries effective January 1, 1975 see 29 U.S.C. §§ 1002(21), 1109, 1114(a), 1144. As such fiduciaries the Defendants owed certain obligations. . . .
Unfortunately for Plaintiffs, the substantive federal duties under ERISA do not become effective until January 1, 1976. In this year's "crack" falls the Plaintiffs' case.

January 10, 1978 Brief at 1-2. Thus plaintiffs pursue two contract theories predicated on interpretation of the contract and excuse of plaintiffs' failure to perform the requisite length of service prior to vesting; and join to their contract claims a claim of breach of fiduciary duties having its roots in the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. Plaintiffs' motion seeks summary judgment only on their contract claims.

All of the defendants have moved for summary judgment. Defendant Northern moves on the ground that the record shows that with respect to payouts of severance benefits it was subject to the direction of the Advisory Committee, that it had no discretionary authority in this regard, and under the terms of the Trust agreement its function was purely ministerial.

Defendants Kruidenier, Baker, Ellick, Harris, Rosenfield, and Wallace — all members of National's Board of Directors but not members of the Advisory Committee — similarly predicate their motion for summary judgment on the ground that they were not fiduciaries in the sense that they exercised discretionary authority or control over the Trust, see 29 U.S.C. § 1002(21)(A); and also assert that they were not parties to any contract with plaintiff or the trustee, or otherwise proper parties to the cause.

Defendants Riepe, Fleming, Carlson, and Ehler, who, with the exception of Riepe, constitute the membership of the Advisory Committee, do not, unlike the other defendants, address their motion to the question of whether plaintiffs' theories or recovery are properly directed at them. Instead, they join the legal issues with plaintiffs. They maintain, inter alia, that the uncontroverted facts show that plaintiffs' benefit rights had only partially vested at the time of the termination of their employment; that there was no obligation to permit plaintiffs to continue as plan participants until further vested; and that assuming they are fiduciaries, the facts betray no breach of fiduciary obligations.

The summary judgment record consists of affidavits, answers to interrogatories, and the deposition of defendant Carlson with exhibits. The Court has carefully reviewed the entire record and is convinced that there are no genuine issues of material fact and that all defendants are entitled to summary judgment. Because the substantive legal issues have been joined most directly by defendant Riepe and the Advisory Committee members, the Court has focused primarily on their motion as it relates to plaintiffs' cross-motion for summary judgment and resistance. It follows on the present pleadings and motions that if Riepe, Fleming, Carlson and Ehler are entitled to summary judgment, so too are the other defendants.

The Trust

In December 1962 National established the Profit-Sharing Retirement Trust. The Trust plan is embodied in an agreement between National and then trustee, Bankers Trust Company. The agreement was amended in 1975 when Northern became trustee, and effective January 1976 was amended to comply with ERISA.

As its name would suggest, the Trust is funded solely through contributions from the annual net profits of National and its subsidiaries. The Trust is intended to qualify and did qualify as a tax exempt profit-sharing trust under Subchapter D, Subtitle A of the Internal Revenue Code, see 26 U.S.C. §§ 401(a)(3), 501(a) (1970) (401(a)(3) amended 1974). National has taken tax deductions for its contributions pursuant to 26 U.S.C. § 404(a). The Trust provides benefits only for salaried employees as opposed to hourly wage earners. In addition to being salaried, to become eligible as a participant an employee must complete "not less than two fiscal years of continuous service as an employee" Art. II, ¶ 2.1(M). At the time pertinent to this litigation defendants Fleming, Riepe and Carlson served respectively as President, Secretary and Treasurer of National. Each of said defendants was a participant in the Trust. Defendant Ehler was also a plan participant.

Defendants Fleming, Ehler and Carlson comprised the Advisory Committee of the Trust, and were appointed by National's Board of Directors pursuant to a 1975 amendment to the Trust plan. Under the authority of Article IX of the Trust plan, the Committee exercised plenary authority to manage and administer the plan.

9.1 Committee to Administer Plan. The Advisory Committee shall manage and administer the Plan in accordance with the terms and provisions of this agreement and may do all acts and things

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