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GEHRHARDT v. GMC

June 27, 1977

HENRY A. GEHRHARDT, Plaintiff, against GENERAL MOTORS CORP., Defendant.


The opinion of the court was delivered by: KNAPP

KNAPP, D.J.

This is a diversity action by a former employee of General Motors Corporation against his former employer. Plaintiff had been general manager of the corporation's New York City Cadillac retail division until July, 1972 when the corporation closed down its Cadillac retail operations and liquidated this division. Prior to the closing plaintiff applied for and accepted a franchise from the corporation to be its Cadillac dealer for the Borough of Brooklyn.Upon leaving the corporation's employ plaintiff requested certain benefits available under the corporation's pension plan, generally speaking, to all terminated employees except those

 "separated... (whether by resignation or under mutually satisfactory conditions) for the purpose of becoming a distributor of, or a dealer in, some General Motors product, or of entering the employment of such a distributor or dealer..."

 The corporation, reasoning that plaintiff had left under mutually satisfactory conditions for the purpose of becoming a dealer, denied the requested benefits. *fn1" / The pension plan purported to make management's decision in pension matters conclusive on all parties concerned.

 Upon such denial, plaintiff instituted this action. A plaintiff's verdict was returned by the jury. Defendant now moves pursuant to Rule 50(b) for a judgment notwithstanding the verdict or in the alternative for a new trial. For reasons which follow, the motion is granted.

 Having at no time contended that the corporation was guilty of any fraud or overreaching, plaintiff seeks to support the verdict on two theories: First, he contends that the jury was justified in finding that the corporation had acted arbitrarily in distinguishing between him and other terminated employees who, he claims, were similarly situated but were awarded the benefits denied to him; second, he contends that the jury was justified in finding that the corporation had acted arbitrarily in concluding that plaintiff had left its employ for the purpose of becoming a dealer rather than concluding that he had applied for and accepted a dealership only because the corporation had terminated his job and had not offered him other employment.

 I

 The first contention may be summarily disposed of. Many of the retail division's employees were given jobs by dealers who took over Cadillac's retail business in New York City. Only two, plaintiff and one William T. Daly (plaintiff's partner), received a dealership in their own right. The corporation made a distinction between those who became employed by dealers and those who became dealers themselves, granting the desired benefits to the former and withholding them from the latter. It was established that the corporation had made similar distinctions in closing down its retail operations in other metropolitan areas. *fn2"

 Although the corporation may have had the right under the language of its pension plan to withhold benefits from its departing employees who took jobs with its dealers, it cannot be reasonably argued that it was arbitrary in distinguishing between employees and entrepreneurs and in being more generous to the former. *fn3"

 II

 Before plaintiff's second contention can be intelligently discussed we must determine the standard of review by which corporate action in this field is to be judged. *fn4" / The general rule is set forth in Judge Gurfein's opinion in Wyper v. Providence Washington Ins. Co. (2d Cir. 1976) 533 F.2d 57. The court there (upon facts having no similarity to those at bar) affirmed the grant of a directed verdict against an employee who had challenged a corporation's decision to deny him certain pension rights. The court ruled that although, as a matter of substantive law, a corporate pension plan may provide that the decision of management is "conclusive", the courts may still review management decisions in order to guard against caprice or fraud. The court noted, however, that the standards of such review are narrow, observing (at 62):

 "The burden is on the plaintiff to show that the board's ruling was motivated by bad faith or fraud or the result of arbitrary action."

 Among the cases cited for this proposition was the New York Court of Appeals decision in Gitelson v. DuPont (1966) 17 N.Y.2d 46, 49, 268 N.Y.S.2d 11, 13, 215 N.E.2d 336 . At the page cited, the New York court had cited the Appellate Division decision in Pasternack v. Diamond (1st Dept. 1957) 3 A.D.2d 422, 423, 161 N.Y.S.2d 277, 278, aff'd (1958) 5 N.Y.2d 770, 179 N.Y.S.2d 864, 154 N.E.2d 141 as setting forth reasoning "adopted by this court." The Pasternack court, in reversing a judgment directing an employer to honor an employee's claim to a pension, had observed (3 A.D.2d at 423, 161 N.Y.S.2d at 278):

 "The record contains proof sufficient to sustain the Board's action in denying plaintiff's application for a pension. The court may not substitute its judgment for that of ...


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