Siegel v. First Pennsylvania Banking and Trust Co.

• Decision Date: 21 December 1961
• Docket Number: Civ. A. No. 29583.
• Citation: 201 F. Supp. 664
• Parties: Norman SIEGEL v. The FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, Trustee under Food Fair Stores, Inc. Incentive Bonus & Retirement Plan, and Food Fair Stores, Inc.
• Court: U.S. District Court — Eastern District of Pennsylvania

201 F. Supp. 664

Norman SIEGEL v. The FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, Trustee under Food Fair Stores, Inc. Incentive Bonus & Retirement Plan, and Food Fair Stores, Inc.

Civ. A. No. 29583.

United States District Court E. D. Pennsylvania.

December 21, 1961.

Robert D. Abrahams, of Abrahams & Loewenstein, Philadelphia, Pa., argued the case for plaintiff.

Walter I. Summerfield, Jr., of Shapiro, Rosenfeld, Stalberg & Cook, Philadelphia, Pa., argued the case for defendants.

JOSEPH S. LORD, III, District Judge.

This is an action by plaintiff against his former employer, Food Fair Stores, Inc. (Company) and against the Trustee of Company's Incentive Bonus & Retirement Plan (Plan) to establish his rights in the Plan and for judgment in that amount. Defendants, asserting that the complaint fails to state a claim upon which relief can be granted, have moved to dismiss under Fed.Rules Civ.Proc. 12 (b) (6), 28 U.S.C.A., and have filed affidavits alleging certain facts dehors the pleadings. Where matters outside the pleadings are presented to the court, the motion becomes one for summary judgment under F.R.Civ.P. 56 (6 Moore's Federal Practice § 56.08, p. 2048), and we so treat this motion.

This Plan is a non-contributory profit-sharing plan voluntarily established by the Company for the benefit of its executive officers and certain other salaried employes. Under the Plan the Company has agreed to pay to a fund a certain percentage of its profits annually so long as the Plan remains in effect. This fund is held by a trustee and administered by an Advisory Committee consisting of five members, three appointed by the Company and two by participating employes. The fund is invested through the purchase of annuities, the purchase of insurance contracts on the lives of the employes and in other investments. The employe's beneficial holdings are typically paid to him at his retirement, or to his beneficiary if death occurs prior to retirement. The Plan does, however, provide (II, 6):

"The interest of each participant shall become vested in him after ten (10) years of participation in the Plan, including as part of the ten (10) years the sixty (60) month period or eligibility for admission to the Plan; and shall be paid over to him or for his account at the times and in the manner stipulated herein."

The Plan further provides that the Committee has the right to terminate the interest of any beneficiary under the Plan upon a finding that he has, among other things, participated in any fraud or dishonesty toward the Company, or has "intentionally done any other act materially inimical to the interests of the Company."

It is under this last quoted section that the dispute here arises. Plaintiff having been employed by the Company for fourteen years, resigned and took employment in a similar line of business. The Committee found that plaintiff's employment was in competition with the Company; that this was "materially inimical to the interests of the Company"; and that plaintiff's rights under the Plan were forfeited.

To protect his interests in the annuity contracts purchased for him, plaintiff was allowed to purchase these from the Trustee, giving his obligation for their cash values. Plaintiff now alleges that the action of the Committee was improper. He seeks the cancellation of his indebtedness and a judgment for the amount of his interest in the fund.

Defendants' main contentions are: (1) the pension plan does not establish a contract upon which the plaintiff may base his cause of action; (2) under the terms of the Plan, assuming it establishes a contract, plaintiff has no standing in court to question the Committee's determination, since the Plan provides that all decisions of the Committee shall be final and conclusive; (3) the plaintiff's action is barred by a specific provision in the Plan whereby a participant agrees not to subject the Company, Committee or Trustee to any suit, and releases them from liability.

Contract or Gratuity

Defendants urge that we view the pension plan as a gratuity which Company voluntarily grants to its employes, and not, as contended by plaintiff, as a contract enforceable according to its terms. From a consideration of present day labor relations, we think it is a fair generalization to say that most pension plans involve at least offers of contractual obligations by employers in attempts to obtain decreased labor turnover, and, to quote from the Plan in question, to obtain "a finer esprit de corps and a greater interest in and loyalty to the Company." We, of course, recognize that a plan might be set up or worded in such a manner so as to exclude any construction other than that of a gratuity, or to require the conclusion that an employe has no rights until he has cash in hand.¹

Analyzing the Plan here in question, the most that can be said for defendants' position is that the Plan partakes somewhat of both views. The Company has promised to pay a certain amount annually to the Trustee. Thereafter, the fund thus accumulated is to be held for the benefit of its employes under terms specified in the Plan. If the suit before us were one to force the Company to make the promised payments to the fund, the Company might well point to Article I, 2, of the Plan and say that no obligation exists which is enforceable against it. This section provides in part:

"* * * However, the Company shall be under no obligation or liability whatsoever to continue to make division of profits or to make payments to the trust fund, and nothing contained in the Plan or in the Trust Agreement shall be construed as giving rise to any implication or presumption that the directors shall be required to allocate any portion of the Company's profits for distribution to the participants hereunder."

This issue we need not decide. We are involved only with the question of rights in amounts that have already been turned over to the Trustee, and as to these amounts we cannot realistically view the Plan as a gratuity. The Company has divested itself of the money paid to the Trustee and has clearly specified that none of the funds can return to it.² Although the Committee must direct the payment of any benefits, specific standards of eligibility are set forth. At the least, we view the Plan as a unilateral offer by the Company to its employes of an interest in the fund, such offer to be accepted by performance, i. e., employment for the requisite period. The realities of the Internal Revenue Code, that is, the tax benefits the Company has obtained in deducting its payments under the Plan, and the vesting requirements of the Code,³ lend further support to our conclusion that this pension plan is a contract rather than a gratuity.

The above discussion is sufficient to distinguish Hughes v. Encyclopaedia Britannica, 1954, 1 Ill.App.2d 514, 117 N.E.2d 880, cited by defendants as establishing the proposition that the Plan does not constitute a contract. The object of the suit in Hughes was to force the employer to purchase annuity contracts promised in its plan. The court, although holding there was no contractual obligation on the part of the company, did state that:

"* * * In a proper case plaintiffs as third party donee beneficiaries could enforce the contract against the insurance company in the event that it refused to pay annuities which had been purchased for the employees by the defendant." 117 N.E.2d at 881.

Similarly, in the instant case, plaintiff can enforce his rights in amounts already paid to the Trustee. See also Hughes v. Encyclopaedia Britannica, D.C.N.D.Ill., 1952, 108 F.Supp. 303 (judgment vacated on other grounds, 7 Cir., 1952, 199 F.2d 295); Cowles v. Morris & Co., 1928, 330 Ill. 11, 161 N.E. 150.

Defendants have cited cases holding that no contract existed where the employe had not fulfilled the necessary service requirements of the Plan or had left employment prior to retirement. These cases are clearly distinguishable. Where a specific requirement of eligibility for benefits has not been complied with, obviously there is no contract for the employe to enforce. This, however, is for the reason that there has been no acceptance of the offer; not because there has been no offer of a contract. Despite the "no contract" language found in these cases, the courts have not stated that under no circumstances would the plans constitute enforceable contracts. Rather, they reviewed the provisions of the plans and found that for one reason or another, there had been no fulfillment of some particular provision of the plan, or that the denial of benefits had not been arbitrary. See Menke v. Thompson, 8 Cir., 1944, 140 F.2d 786; Magnolia Petroleum Co. v. Butler, Tex.Civ.App., 1935, 86 S.W. 2d 258; In re Missouri Pac. R. Co., D.C. E.D.Mo., 1943, 49 F.Supp. 405; Kravitz v. Twentieth Century-Fox Film Corp., 1957, 5 Misc.2d 368, 160 N.Y.S.2d 716.

We do not stand alone in holding that a pension plan constitutes a contract: Schofield v. Zion's Co-op. Mercantile Institution, 1934, 85 Utah 281, 39 P.2d 342, 96 A.L.R. 1083; Cantor v. Berkshire Life Ins. Co., 1960, 171 Ohio St. 405, 171 N.E. 2d 518; Psutka v. Michigan Alkali Co., 1936, 274 Mich. 318, 264 N.W. 385; Wilson v. Rudolph Wurlitzer Co., 1934, 48 Ohio App. 450, 194 N.E. 441; David v. Veitscher Magnesitwerke Actien Gesellschaft, 1944, 348 Pa. 335, 35 A.2d 346.

The defendants, to distinguish those cases in which a contract was found to exist, have characterized them in their brief as "cases in which the employee had served to retirement age, thus making it relatively easy for the court to determine that the employe had, by staying on the job till retirement, given consideration for the contractual obligation to pay him a pension." But it is obvious that the present case is different only in degree and not in kind. In the Company's Plan there is no necessity for the employe to stay on the job until retirement. Article II, 6A, provides that an...