UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
February 3, 1982
Irving WEISLER, Plaintiff,
METAL POLISHERS UNION & METAL PRODUCTION & NOVELTY WORKERS UNION 8A-28A, Metal Polishers Union Local 8A-28A Pension Fund and Metal Polishers Union Local 8A-28A Welfare Fund, Defendants
The opinion of the court was delivered by: CANNELLA
After a trial on the merits of plaintiff's amended complaint and defendants' counterclaims, the Court finds for plaintiff on his claim against defendant Metal Polishers Union & Metal Production & Novelty Polishers Union 8A-28A (the "Union") for bonus pay, and for the Union on its counterclaim for $ 2,000. The Court also finds for defendant Metal Polishers Union Local 8A-28A Pension Fund and Metal Polishers Union Local 8A-28A Welfare Fund (the "Funds") on their counterclaims against plaintiff.
Plaintiff commenced this action in Civil Court, New York County on June 20, 1980. Thereafter, defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(a) and the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1144. Plaintiff is seeking damages from the Funds on the grounds that they improperly withheld from him (1) payment of part of his pension, (2) the proceeds of a deferred compensation plan, and (3) two weeks vacation pay and one week of bonus pay.
Plaintiff is also seeking to recover $ 4,000 in severance pay from the Union. The Funds have asserted several counterclaims seeking to recover portions of the salary plaintiff received from the Funds for the years 1975 to 1979 which the Funds consider excessive and therefore violative of ERISA. See 29 U.S.C. §§ 1106(b), 1109. The Union has also asserted a counterclaim seeking to recover $ 2,000 it paid plaintiff as part of his severance pay agreement.
The following are the Court's findings of fact: Plaintiff joined Local 8A of the Metal Polishers Union in August 1937
and became its President in 1939. In 1941, Local 8A of the Metal Polishers Union and Local 28A of the Metal Production & Novelty Polishers Union merged and plaintiff was elected President of the newly merged local. Plaintiff remained in that position until his retirement in 1977. During his tenure, plaintiff never faced opposition in a union election; indeed, he does not recall any individual running on his slate ever being defeated in an election.
Between 1941 and 1960 plaintiff received a salary as Union President of approximately $ 60 per week. From 1961 to 1978 plaintiff received several salary increases and when he retired in 1977 his salary was $ 24,300.
In 1948, the Union and a group of employers executed a Welfare & Pension Agreement (the "Agreement") creating both the Welfare and Pension Funds.
The Funds are managed by three union-appointed and three employer-appointed trustees (the "Trustees") who are assisted by an administrator who oversees the Funds' day-to-day operations. Plaintiff was appointed as the Funds' first administrator.
As administrator, plaintiff initially was responsible for the management and distribution of benefits, as well as for the collection of employer contributions. Plaintiff received no compensation for his work as administrator until 1961, at which time each fund began paying him a salary of $ 125 per week, for a total of $ 250.
In 1972 an agreement between plaintiff and the Funds was reached whereby the Funds were to purchase from the Travelers Insurance Company ("Travelers") on behalf of plaintiff an annuity contract as part of a deferred compensation plan.
This agreement initially provided that the Funds would contribute $ 60 per week per fund toward this plan. The first payments toward the deferred compensation plan were made on March 1 and April 1, 1974.
On October 23, 1974, the Trustees doubled the amount that the Funds contributed to plaintiff's deferred compensation plan,
and on December 5, 1979, the Trustees unanimously executed a resolution directing Travelers to pay the proceeds of the plan, which by then amounted to $ 96,336.79, to plaintiff.
On October 16, 1974, the Union's Executive Board approved a motion retaining plaintiff as nonpaid president as of January 1, 1975.
Upon leaving the presidency, the Union promised, among other things, to pay plaintiff $ 6,000 in severance pay, of which only $ 2,000 has actually been paid to plaintiff to date.
Plaintiff nevertheless continued to receive a salary from the Union until 1978.
Although he claims not to have devoted significant time to union matters from 1975 through 1978, plaintiff took direct responsibility for servicing several collective bargaining agreements and actively attempted to settle an eleven-week strike in 1977.
On October 23, 1974, in addition to doubling plaintiff's deferred compensation, the Trustees approved an increase in plaintiff's salary as administrator of the Funds to $ 350 per week per fund effective January 1, 1975.
The Trustees took this action because they believed that ERISA, which was to take effect January 1, 1975, precluded plaintiff from serving as both salaried administrator of the Funds and as a salaried union official. Moreover, after Angelo La Barbera, a Trustee of the Funds and Vice President of the Union, represented to the Trustees that the Union had discontinued payment of plaintiff's salary, his salary as administrator was increased to offset this loss in income.
On January 22, 1975, at a meeting attended by plaintiff,
the Trustees rescinded the salary increase approved for him on October 23, 1974.
Plaintiff's salary, however, was never reduced in accordance with this resolution. In fact, at plaintiff's request, it was increased by the Trustees on February 23, 1977, from $ 15,600 per fund to $ 26,000 per fund per year, retroactive to January 1, 1977.
Plaintiff sought this increase because he claimed that the requirements of ERISA had substantially increased his workload and responsibilities.
The Trustees, however, conditioned this increase upon the receipt of a letter from the Funds' accountants stating that the increase was reasonable and consistent with ERISA. On March 28, 1977, the Funds' certified accountants sent a letter to the Trustees in accordance with their request.
As administrator of the Funds, plaintiff supervised the work of three secretaries; consulted with financial advisors on the Funds' investment decisions; prepared pension calculations and submitted them to the Trustees; ensured that the actuarial information and insurance contracts of the Funds were current; co-signed and distributed checks on behalf of the Funds;
and acted as an advisor to Union members concerning their rights under the Agreement.
In addition to his other duties as administrator, plaintiff supervised the management of the building which housed both the Funds' and the Union's offices, and performed minor repairs when needed.
Although plaintiff was available at any time to handle any problem concerning the Funds, he only spent ten to twelve hours per week physically in the Funds' offices.
In 1978, because the Union had understated his income to the Internal Revenue Service, plaintiff incurred a tax deficiency of approximately $ 8,500. To cover this deficiency, plaintiff sought an increase in salary from the Funds.
Initially, the Trustees were reluctant to grant this increase because they believed it to be an unreasonable request.
On June 21, 1978, however, after plaintiff had made a number of phone calls to individual Trustees, his salary was increased by $ 7,500.
On March 7, 1979, the Trustees ratified an employment contract with plaintiff which guaranteed him a salary of $ 52,000 for the year ending December 31, 1979.
On December 5, 1979, the Trustees unanimously approved the payment to plaintiff of the proceeds of his deferred compensation plan,
but refused plaintiff's request for vacation pay.
Previously, on October 18, 1979, the Trustees approved a pension of $ 2,480.85 per month for plaintiff.
Plaintiff retired as administrator of the Funds as of December 31, 1979, and in January 1980 received his first pension check for approximately $ 1,900. He continued to receive checks for $ 1,900 until May 1980.
On April 30, 1980, the Trustees, after a review of plaintiff's payroll records, determined that he joined the Union in 1941, not 1934 as he reported in his pension application. Accordingly, after denying plaintiff seven years of service credit, the Trustees reduced his pension to $ 1,238.88 per month.
The Trustees further determined that the deferred compensation plan executed on behalf of plaintiff was excessive and therefore unanimously refused to authorize payment of its proceeds to plaintiff. On May 21, 1980, the Trustees informed plaintiff by letter of these actions.
On January 15, 1981, after plaintiff instituted this lawsuit, the Trustees reconsidered the reasonableness of plaintiff's compensation as the Funds' administrator.
At this meeting the Trustees determined that (1) for the purposes of pension calculation plaintiff became a member of the Union in August 1937 and (2) the compensation plaintiff received as administrator of the Funds for the years 1975 through 1979 was excessive and unreasonable.
The Trustees, therefore, decided that the salary plaintiff received as administrator between 1975 and 1979 could not be considered in determining his pension. The Trustees also decided that the portion of the salary plaintiff received as Union president for the years 1974 through 1978 which exceeded his Union salary for 1973 was excessive and therefore could not be considered in the calculation of his pension.
Finally, because the Trustees determined that the Education and Scholarship Fund was not a contributing member to the welfare and pension funds within the terms of the Agreement, any compensation that plaintiff received from this Fund also could not be included in calculating his pension.
The Trustees directed the Funds' administrator, Daniel Cook, to recompute plaintiff's pension, using 1973 as a base year for his salary as administrator and increasing that salary each year by the Bureau of Labor Standards Consumer Price Index for Urban Consumers in the New York-New Jersey Metropolitan Area.
Mr. Cook, following the directions of the Trustees, computed plaintiff's pension to be $ 1,109.45.
Plaintiff's pension was recalculated in June 1981 and since that time plaintiff has received a monthly pension of $ 1,138.54.
Also at the January 15, 1981, meeting, the Trustees reaffirmed their decision of April 30, 1980, not to authorize the payment of plaintiff's deferred compensation plan. The Trustees further authorized their attorneys to recoup the allegedly excessive compensation paid to plaintiff as administrator of the Funds.
Judicial review in this case is limited to determining whether the Trustees, in reducing plaintiff's pension and denying him the proceeds of his deferred compensation plan and two weeks vacation pay, acted arbitrarily or capriciously. See Haeberle v. Board of Trustees, 624 F.2d 1132, 1136 n.6 (2d Cir. 1980); Valle v. Joint Plumbing Industry Board, 623 F.2d 196, 203 (2d Cir. 1980); Nass v. Staff Retirement Plan, 515 F. Supp. 950, 958 (S.D.N.Y.1981). Moreover, ERISA does not require the Trustees to reach the best possible decision, but only one that has a rational justification. See Riley v. MEBA Pension Fund, 570 F.2d 406, 413 (2d Cir. 1977).
Plaintiff has argued that because the increases in his salary and deferred compensation had previously been approved by the Trustees, the actions they took on April 30, 1980, and January 15, 1981, were inconsistent with their prior decisions and therefore arbitrary and capricious.
Although a consistent course of conduct on the part of the Trustees is an indication of rational and justifiable action, see, e.g., Gordon v. ILWU-PMA Benefit Funds, 616 F.2d 433, 440 (9th Cir. 1980); Bayles v. Central States, Southeast & Southwest Area Pension Funds, 602 F.2d 97, 99 (5th Cir. 1979); Snyder v. Titus, 513 F. Supp. 926, 933 (E.D.Va.1981), inconsistent actions on the part of the Trustees is not per se arbitrary and capricious, see Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1260 (5th Cir. 1980); Fine v. Semet, 514 F. Supp. 34, 43-44 (S.D.Fla.1981). In short, the Court will not disturb a Trustees' decision that has a reasonable and rational basis, whether it be consistent or inconsistent with prior actions they have taken.
Furthermore, as defendants quite correctly point out, 29 U.S.C. § 1105(a)(3)
requires the Trustees to examine and if necessary rescind prior actions if such actions violated provisions of ERISA. Because the Court finds that the Trustees were justified in concluding that a number of actions taken by previous Trustees concerning plaintiff's compensation and pension were improper, the actions taken on April 30, 1980, and January 15, 1981, were reasonable and therefore not arbitrary and capricious.
Plaintiff's Claims Against the Funds
Initially, the Court notes that plaintiff is both a fiduciary and a party-in-interest within the meaning of ERISA, see 29 U.S.C. § 1002(14), (21),
and therefore subject to the prohibitions of 29 U.S.C. § 1106(b)(2).
See Gilliam v. Edwards, 492 F. Supp. 1255, 1260-63 (D.N.J.1980); M & R Investment Co. v. Fitzsimmons, 484 F. Supp. 1041, 1057 (D.Nev.1980). Accordingly, plaintiff is held to a strict standard of undivided loyalty. Not only must he not become directly involved in a transaction or decision from which he might personally benefit, but he must not allow "himself to be placed in a position where his personal interest might conflict with the interest of the (Funds)." Fulton National Bank v. Tate, 363 F.2d 562, 571-72 (5th Cir. 1966) (emphasis in original). See also Cutaiar v. Marshall, 590 F.2d 523, 529-30 (3d Cir. 1979); Marshall v. Kelly, 465 F. Supp. 341, 351-53 (W.D.Okla.1978).
The evidence adduced at trial established that plaintiff actively participated in transactions that resulted in benefits being conferred upon him. Plaintiff not only attended meetings during which questions of his compensation were discussed,
but on more than one occasion he actively lobbied both union and employer trustees to approve increases in his compensation.
Moreover, the initial calculations of plaintiff's pension, which later were determined to be in error, were performed by plaintiff himself. Although he may have been acting in good faith, plaintiff is prohibited from actively participating in a decision from which he will directly or indirectly benefit. See Iron Workers Local No. 272 v. Bowen, supra, 624 F.2d at 1261; Marshall v. Snyder, 572 F.2d 894, 900 (2d Cir. 1978); Brink v. DaLesio, 496 F. Supp. 1350, 1367-68 (D.Md.1980); Gilliam v. Edwards, supra, 492 F. Supp. at 1260-63.
The actions taken by the Trustees in reducing plaintiff's pension and denying him the proceeds of the deferred compensation plan were also justified by 29 U.S.C. § 1108(c).
Although plaintiff as administrator of the Funds was entitled to reasonable compensation, unreasonable or excessive compensation is clearly prohibited. See Marshall v. Snyder, supra, 572 F.2d at 901; Grossman v. Mushlin, 493 F. Supp. 330, 331 (S.D.N.Y.1980); M & R Investment Co. v. Fitzsimmons, supra, 484 F. Supp. at 1057. The Court finds the Trustees' determination that plaintiff's compensation as administrator was excessive to be reasonable and thus not arbitrary and capricious. Plaintiff's salary was increased in 1975 because the Trustees were led to believe that plaintiff was no longer a salaried union officer. Plaintiff, however, continued to receive his union salary in contravention of the understanding conveyed to the Trustees.
Moreover, after the Trustees rescinded plaintiff's increase on January 22, 1975, plaintiff still continued to pay himself the higher salary. Even if the Court were to find credible plaintiff's assertion that he did not know his salary had been reduced,
his good faith defense would still not prohibit the Trustees from deciding that the compensation he received was excessive. See Riley v. MEBA Pension Fund, supra, 570 F.2d at 410; Brink v. DaLesio, supra, 496 F. Supp. at 1367.
Having determined that the Trustees acted rationally in deciding that plaintiff's compensation was excessive, the Court's ability to review the Trustee's decisions is limited. The Court cannot substitute its judgment for that of the Trustees as to what constitutes reasonable compensation for plaintiff's services as administrator unless the Trustees' determination is without justification. At trial, plaintiff failed to prove that the method chosen by the Trustees to recalculate his salary was arbitrary and capricious
and the Court upon independent reflection finds that the method adopted by the Trustees was both fair and reasonable. Moreover, in view of the fact that (1) no one else was ever awarded deferred compensation and (2) the Trustees correctly decided that plaintiff's regular salary standing by itself was excessive, the Court finds that the decision to deny plaintiff the proceeds of the deferred compensation plan was both reasonable and proper.
Merely because the Trustees previously authorized the payout of the compensation plan does not mean that a subsequent group of Trustees, pursuant to 29 U.S.C. § 1105(a)(3), cannot with justification rescind that decision. See Valle v. Joint Plumbing Industry Board, supra, 623 F.2d at 203; Morrissey v. Curran, 567 F.2d 546, 548-49 (2d Cir. 1977); Gilliam v. Edwards, supra, 492 F. Supp. at 1264.
The Court also finds that plaintiff's claim for vacation pay is without merit. In a meeting on December 5, 1979, the Trustees clearly denied plaintiff's claim and the Court sees no reason to disturb that decision.
Plaintiff's Claims Against the Union and the Union's Counterclaim
Plaintiff has asserted two claims against the Union. The first claim is for $ 4,000, representing the balance allegedly due plaintiff as severance pay. The second claim is for bonus pay to which plaintiff asserts he is entitled and which the Union has failed to pay him.
The Union, in turn, has counterclaimed for the $ 2,000 in severance pay which it asserts was wrongfully paid to plaintiff. The Court finds that plaintiff has satisfied his burden of proof with respect to his claim for bonus pay but finds for the Union on its counterclaim for $ 2,000.
Plaintiff's claim for severance pay is based on an agreement reached between the Executive Board of the Union and plaintiff on October 16, 1974.
The agreement provides for the payment of $ 6,000 to plaintiff "upon leaving the presidency,"
but this payment is conditioned on plaintiff not being allowed to remain as both paid president of the Union and administrator of the Funds.
The Union maintains that because plaintiff continued to serve as salaried Union president after accepting this partial payment, the original agreement is now null and void. Although the severance pay that plaintiff seeks is something all other Union officers received upon retirement,
his entitlement to this pay was expressly conditioned upon his not serving as both salaried Union president and Funds' administrator. The evidence adduced at trial clearly established that this condition was not satisfied.
Accordingly, the Union was correct in denying plaintiff the balance of his severance pay and is entitled to recoup the $ 2,000 it previously paid to plaintiff.
The Union's failure to pay plaintiff the bonus pay given to all other Union officers is, however, unjustified. The testimony of Angelo La Barbera clearly supports plaintiff's contention that he is entitled to bonus pay,
and the Union failed to offer any evidence to dispute plaintiff's claim.
The Court, therefore, finds that plaintiff is entitled to one week's bonus pay from the Union.
The Funds' Counterclaims Against Plaintiff
The Funds have asserted ten counterclaims seeking to recoup that portion of plaintiff's salary from 1975 through 1979 which exceeded his salary as recomputed by the Trustees. The Trustees have argued that, pursuant to 29 U.S.C. § 1109,
plaintiff must repay that portion of his salary found to be excessive. See generally Brink v. DaLesio, supra, 496 F. Supp. at 1369; Grossman v. Mushlin, supra, 493 F. Supp. at 333; Gilliam v. Edwards, supra, 492 F. Supp. at 1264; M & R Investment Co. v. Fitzsimmons, supra, 484 F. Supp. at 1057-58. The Court must permit the Trustees to undo prohibited transactions to the extent possible, "but in any case, (place) the plan in a financial position not worse than that in which it would be if (plaintiff) were acting under the highest fiduciary standards." 26 U.S.C. § 4975(f)(5). See also Freund v. Marshall & Ilsley Bank, 485 F. Supp. 629, 642 n.5 (W.D.Wis.1979); M & R Investment Co. v. Fitzsimmons, supra, 484 F. Supp. at 1057. Having decided that plaintiff's compensation as administrator was excessive, the Trustees determined that plaintiff must reimburse the Fund and be denied the proceeds of the deferred compensation plan in order to restore the Fund to its former fiscal position.
The Court finds this determination to be a proper one and, therefore, finds for the Funds on their counterclaims. See 29 U.S.C. § 1109.
In accordance with the foregoing, after a trial on the merits of plaintiff's amended complaint and defendants' counterclaims, the Court finds for plaintiff on his claim against the Union for bonus pay in the amount of $ 484.63, and for the Union on its counterclaim for $ 2,000. The Court further finds for the Funds on plaintiff's claims for increased pension benefits, the proceeds of his deferred compensation plan, and vacation pay. Finally, the Court finds for the Funds on their counterclaims in the total amount of $ 91,714.47. The Court directs the Funds to determine the exact amount contributed by plaintiff to his deferred compensation plan and return said amount to plaintiff within fifteen days of the date of this Opinion.
These are the Court's findings of fact and conclusions of law. Fed.R.Civ.P. 52(a).
Defendants are to submit Judgment on notice.