Van Hosen v. Bankers Trust Co., No. 55046

• Court: United States State Supreme Court of Iowa
• Writing for the Court: RAWLINGS; All Justices concur, except LeGRAND
• Citation: 200 N.W.2d 504
• Parties: Hugh VAN HOSEN, Appellee, v. BANKERS TRUST COMPANY and Bankers Trust Company, Trustee under certain Pension Plan and Trust Agreements with Bankers Trust Company, Appellants.
• Decision Date: 19 September 1972
• Docket Number: No. 55046

Page 504

200 N.W.2d 504 Hugh VAN HOSEN, Appellee,
v.
BANKERS TRUST COMPANY and Bankers Trust Company, Trustee under certain Pension Plan and Trust Agreements with Bankers Trust Company, Appellants. No. 55046. Supreme Court of Iowa. Sept. 19, 1972.

Page 505

Robert A. Gamble, of Gamble, Riepe, Martin, Webster & Fletcher, Des Moines, for appellants.

Samuel G. O'Brien and Don Muyskens, of Nyemaster, Goode, McLaughlin, Emery & O'Brien, Des Moines, for appellee.

RAWLINGS, Justice.

By action in equity plaintiff Hugh Van Hosen seeks declaratory relief from the forfeiture provision of a private pension plan established by defendant Bankers Trust Company and administered by it as trustee. Trial court adjudged the controverted proviso violative of public policy, therefore void and unenforceable. Defendants appeal. We affirm.

Van Hosen worked for defendant bank almost 33 years prior to his resignation in 1967. Starting as a messenger he ultimately became a vice-president and manager of installment loans. While so employed certain pension and profit sharing plans were initiated and at times amended by the bank. Among them was the instantly involved 'Bankers Trust Company Primary and Supplemental Pension Plan and Trust Agreement'. Relevant provisions thereof will be later set forth.

Upon termination of his aforesaid employment, plaintiff sold insurance with a Des Moines agency for about 18 months. He was then offered a position in the commercial loan department of another Des Moines bank, admittedly an institution in competition with defendant bank. Thereupon Van Hosen requested a waiver by defendant of the subject pension forfeiture clause. After some apparently unavoidable delay, during which plaintiff accepted proffered employment with the competing institution, his requested forfeiture waiver was refused. Defendant bank has since withheld retirement benefits payable to plaintiff under the plan here involved. Incidentally no issue regarding trade secrets is instantly presented.

In support of their appeal defendants contend, (1) the forfeiture provision is not a part of the plaintiff's employment compensation, and not in restraint of trade, (2) the court may enforce a forfeiture provision in a pension plan to that extent reasonably necessary to protect the employer's legitimate interest without imposing undue hardship upon the employee so long as public interest is not adversely affected. We shall deal generally with these propositions.

I. Any attempt to rationalize the fractionated postulates heretofore enunciated on the subject at hand would serve to unduly extend this opinion. See e.g., Rochester Corporation v.Rochester, 450 F.2d 118 (4th Cir.1971); Muggill v. Reuben H. Donnelley Corporation, 62 Cal.2d 239, 42 Cal.Rptr. 107, 398 P.2d 147 (1965); Van

Page 506

Pelt v. Berefco, Inc., 60 Ill.App.2d 415, 208 N.E.2d 858 (1965); Kristt v. Whelan, 4 A.D.2d 195, 164 N.Y.S.2d 239, aff'd 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116 (1958); Food Fair Stores, Inc. v. Greeley, 264 Md. 105, 285 A.2d 632 (1972); 50 Cornell L.Q. 673 (1964--1965); 73 Harv.L.Rev. 625 (1959--1960); 57 Iowa L.Rev. 75 (1971); 61 Nw. U.L.Rev. 290 (1966); Annot., 18 A.L.R.3d 1246. See also Flynn v. Murphy, 350 Mass. 352, 215 N.E.2d 109 (1966).

II. Murphy v. R. J. Reynolds Tobacco Co., 260 Iowa 422, 148 N.W.2d 400 (1967), involved a problem akin to that instantly presented. In the cited case, 260 Iowa at 429, 148 N.W.2d at 403, we approvingly quoted this from Cantor v. Berkshire Life Ins. Co., 171 Ohio St. 405, 408, 409, 171 N.E.2d 518, 520, 521 (1960):

"The concept of employees' rights and of the place of the so-called fringe benefits in relationship to employees' remuneration has undergone a substantial change in recent years.

"* * *

"There has been * * * in recent years a gradual trend away from the gratuity theory of pensions. The courts, recognizing that a consideration flows to an employer as a result of such pension plans, in the form of a more stable and a more contented labor force, have determined that such arrangements will give rise to contractual rights enforceable by the employee who has complied with all the conditions of the plan, even though he has made no actual monetary contribution to the fund."

To the same effect is 1A Corbin on Contracts, § 153, at 18--20:

'A promise by an employer to pay a bonus or a pension to an employee in case the latter continues to serve for a stated period is not enforceable when made; but the employee can accept the offer by continuing to serve as requested, even though he makes no promise. There is no mutuality of obligation; but there is sufficient consideration in the form of service rendered. Indeed, the employer's offered promise becomes irrevocable by him as soon as the employee has rendered any substantial service in the process of accepting; and this is true in spite of the fact that the employee may be privileged to quit the service at any time.'

See also Restatement, Contracts, § 45.

It is thus evident plaintiff's action stands squarely in contract and this is true whether defendants' pension program be characterized as a contributory or noncontributory plan.

III. These are the relevant portions of the Agreement here involved.

Under Article III 'competing institution' is defined as a financial organization doing a correspondent bank business or any financial enterprise in Des Moines, Polk County, Iowa.

Article XI provides, in essence, a participating 'member', upon completion of 20 or more years continuous regular service with defendant bank shall, upon leaving for any reason, have a vested right under the Agreement, subject to the following material part of Article XII:

'In the event a Member shall become employed by a competing institution without the consent of the board of directors of the...