The opinion of the court was delivered by: SWEET
In the course of the trial of this action, the court made certain rulings on the proposed special verdict form and granted defendant Grolier Incorporated's ("Grolier") motion pursuant to Rule 12, F.R.Civ.P. to dismiss, at the close of his case, one of plaintiff Andre Tanuggi's ("Tanuggi") causes of action. The principal issue raised was whether the retirement benefits claimed by Tanuggi upon his termination from Grolier's retirement plan constituted a "security" and thus gave rise to a cause of action under the Securities Act of 1933, 15 U.S.C. § 77a Et seq. and the Securities Exchange Act of 1934, 15 U.S.C. § 78a Et seq. ("Securities Acts") and the rules promulgated thereunder by the Securities and Exchange Commission ("SEC"). Tanuggi's complaint also included causes of action under the Employee Retirement Income Security Act of 1974 ("ERISA") 29 U.S.C. § 1001 Et seq., and state law theories of contract, waiver, and estoppel.
The motion to dismiss the Securities Acts claim was granted and relief under the remaining claims was limited. Because of the issues implicated in its rulings the court undertook to set forth at a later time its underlying reasoning. This opinion seeks to fulfill that undertaking and to resolve certain issues relating to the final relief.
Tanuggi, a French citizen, was employed by Grolier or its subsidiaries as a European sales representative for Grolier publications, principally the Encyclopedia Americana. At his own election in 1971, the plaintiff was enrolled in the Grolier Incorporated Retirement Plan (the "Plan"), the company's shared contribution, defined benefit pension plan. In August, 1974 plaintiff's participation in the Plan was terminated over his protest. The instrument governing the Plan, a January 1, 1971 Agreement and Declaration of Trust ("Agreement") entered into by Grolier and the manager-trustees, of the plan provides that:
An employee agrees to contribute a mandatory, minimum three per cent (3%) of his annual earnings to maintain his status as a participant.
Employer contributions are made annually at the direction of the Plan's trustees, according to an actuarial determination of the amount required to maintain the overall level of anticipated benefits. The employer contributions are not made on behalf of any individual employee.
The employee-participant, after ten years of credited service, becomes entitled to a fixed annuity, payable in monthly installments upon retirement.
The amount of deferred benefits to which an employee becomes entitled is determined by a formula with two variables: the employee's number of years of credited service and his highest average salary over a five-year period. The total amount is a function of each employee's life expectancy.
Participants' benefits do not in any significant way depend on the investment skill of the Plan's trustees because the annual employer contributions account for shortfalls in earnings.
A participant risks losing his benefit under the Plan only if the employer is legally dissolved, declared bankrupt, or permanently ceases to contribute its actuarially determined share. In such event, each participant shares equally in the loss. If the employer permanently ceases its contributions, the assets of the plan are used to purchase deferred annuities for the participants in the amount of their mandatory contributions, plus four per cent (4%) annual interest. Neither this nor other of the communications from the company indicated that a participant's income would fluctuate with the Plan's investment fortunes.
The issue thus presented is whether the securities acts apply to a voluntary, shared contribution, defined benefit pension plan,
under the principles recently enunciated by the Supreme Court in International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 99 S. Ct. 790, 58 L. Ed. 2d 808 (1979) ("Daniel ").
The Daniel court held that the definitional scope of the securities acts was not broad enough to encompass interests in "non-contributory, compulsory" pension plans. Id. -- - U.S. at -- , 99 S. Ct. at 802.
Daniel involved a member of a Chicago Teamsters local whose rights to pension benefits under a collectively-bargained-for plan were extinguished for failure to meet a continuous service requirement. The pensioner sued, claiming that the alleged misrepresentations and omissions by the Union and his employer gave rise to a cause of action under the securities laws.
The Daniel court concluded that of the instruments included in the definition of a security under the Acts, only the term "investment contract" could be said to cover an interest in a pension plan. Id. -- - U.S. at -- , 99 S. Ct. at 795.
To determine whether the financial relationship represented by an employee's interest in his employer's pension plan constitutes an investment contract, the test is "whether the (pension plan) scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others." Id. -- - U.S. at -- , 99 S. Ct. at 796, Citing SEC v. W. J. Howey Co., 328 U.S. 293, 301, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946). As reaffirmed in Daniel, "The touchstone (of the Howey test) is the presence of an investment in a common venture premised on a Reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others." United Housing Corp. v. Forman, 421 U.S. at 852, 95 S. Ct. at 2060, (emphasis supplied).
The Daniel analysis of a pension plan divided the Howey test into two component parts: 1) an investment of money and 2) the expectation of profits from a common enterprise. Each element must be applied separately to the "economic realities" of the plan and in "terms of the Acts' purposes." Id. -- - U.S. at -- , 99 S. Ct. at 796. A pension plan interest cannot comport with the commonly ...