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TYLER v. NEW YORK TEL. CO.

March 9, 1961

Francis Edwin TYLER, Herbert E. Stutchbury, Loren W. Van Derlyn, Edward G. Beald, John C. Christopher and Richard Cane, Plaintiffs,
v.
NEW YORK TELEPHONE COMPANY, American Telephone and Telegraph Company and Bankers Trust Company of New York, Defendants



The opinion of the court was delivered by: KAUFMAN

I. Nature of the Case

Plaintiffs are all retired employees *fn1" of the defendant New York Telephone Company. Their claim involves the construction of a non-contributory pension plan instituted by the company in 1913 for the benefit of its employees. *fn2" This plan provides for pension payments to be made to employees who retire upon reaching a certain age and after being employed by the company for a requisite number of years. Since 1940, the company has deducted amounts attributable to its statutory contributions to the Federal Social Security program from the payments made pursuant to the pension plan. The plaintiffs claim that these deductions violate the terms of the pension plan as originally established in 1913, and as amended in 1914. They seek an accounting of the funds which have heretofore been deducted from their pension-plan payments, and an injunction against any future deductions from these payments.

Plaintiffs contend that the pension plan, as established in 1913 and modified in 1914, created, at that time, vested rights in the employees to the full amount of payments as then authorized by the plan, and that these benefit cannot therefore be limited without the consent of the employees. Thus, the plaintiffs argue that the subsequent deductions constitute an infringement of their contractual rights.

 The company, on the other hand, contends (1) that the deductions for Social Security payments were in fact anticipated and authorized by provisions in the 1913 and 1914 plans, and in any event that the company's construction of the plan has been accepted for many years by its employees, including the plaintiffs in this action; (2) that the plan is merely a gratuity offered by the company, or at best an offer for a unilateral contract, and that rights vest, if at all, only upon retirement of the employee in question; and (3) that the relief sought by the plaintiffs is barred by laches and by the six-year New York statute of limitations. Civil Practice Act, § 48.

 II. The Facts

 The basic facts involved in this litigation are not in dispute. The company first instituted its pension plan on January 1, 1913. The Employees' Benefit Committee was established, to consist of five members appointed from management personnel by the company's Board of Directors. The plan empowered the committee to determine a questions arising in its administration. The original plan contained two sections, Section 9(32) and Section 13, which are most relevant to this litigation. Section 9(32) provided:

 'In case any employee or his beneficiaries shall be entitled under the laws of any State to any compensation, pension or other benefit greater than that herein provided, the amount paid to the employee shall be that prescribed by statute. The Committee are authorized to pay the amount of such liability in the manner prescribed by law instead of in accordance with the provisions contained herein. In case the statutory liability is less than the Company's liability hereunder, the Committee may make the payments required by law and shall pay to such employee or to those persons entitled to take hereunder the excess of the amount payable hereunder above the amount so paid in accordance with law. In case any statutory payment has to be made or any judgment is recovered by an employee or his beneficiaries against the Company on account of the legal liability above described or any liability for damages on account of accident or death, or on account of any liability hereunder, the amount of the statutory payment or judgment shall be chargeable to the Fund.' (Emphasis supplied.)

 Section 13 provided:

 'Change in Regulations.

 'The Committee * * * may from time to time make such changes in these regulations as in their judgment will more effectually carry out the purpose expressed therein, but such changes shall not without his consent affect the rights of any employee to any benefit, insurance or pension to which he may have previously become entitled hereunder.'

 In 1914, Section 9(32) was renumbered 9(29), and amended to provide, inter alia, that

 'In case any benefit or pension shall be payable under the laws now in force or hereafter enacted of any State or Country to any employee of the Company or his beneficiaries under such laws, the excess only, if any, of the amount prescribed in these Regulations above the amount of such benefit or pension prescribed by law shall be the benefit or pension payable under these Regulations.' *fn3" (Emphasis supplied.)

 It is not disputed that all active and retired employees received prompt notice of this and all other amendments to the plan from the company. However, the company does not contend that the consent of the employees was obtained by the company with respect to any of the relevant amendments.

 In 1927, the company entered into an agreement with the defendant Bankers Trust Company, whereby a trust fund was created for the payment of pensions pursuant to the plan. Bankers Trust Company was constituted as trustee of this fund.

 In 1935, Congress passed the Federal Social Security Act, 42 U.S.C.A. § 301 et seq. which provided for the payment of Social Security insurance benefits to persons qualifying under the Act's provisions. Taxes were to be imposed in equal amounts upon employees and employers to provide the funds for the payment of these benefits. The payments under the Act were to begin in 1942. On November 9, 1936, the company's President wrote to all its employees explaining the effect which the Social Security Act, if implemented, would have on the company's pension plan payments. The President announced that

 'No change is contemplated in the Plan on account of the Federal Social Security Act of 1935 except that if the Act shall remain in effect unchanged until 1942, when payment of Government Pensions begins under the Act, it is expected that the provisions now in the Plan that all of the pension paid by the Government shall be deducted from the pension otherwise payable under the Plan will be changed to provide that only one-half the pension paid by the Government under the Act shall be deducted. In other words, if the Act remains unchanged, the employee retiring on pension after 1941 will receive from the Government and the Company together the equivalent of his or her full pension from the Company plus one-half of the Government pension, which half represents, in effect, what the employee has contributed toward the Government Pension through the tax on his or her salary or wages.' (Defendants' Exhibit AA.)

 At approximately the same time, a memorandum describing the proposed changes in more detail was distributed to supervisory personnel of the company, for the purpose of supplying information to ...


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