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VINK v. SHV NORTH AMERICA HOLDING CORP.

October 8, 1982

NICHOLAS VINK, Plaintiff, against SHV NORTH AMERICA HOLDING CORP., et al., Defendants.


The opinion of the court was delivered by: CARTER

CARTER, District Judge

This case involves a faithless employee who is seeking the protection of the law to force his former employer to remain faithful in its pension obligations to him. The plaintiff, Nicholas Vink, appearing pro se, has brought suit under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., to compel the defendants, SHV North America Holding Corporation ("SHV"), his former employer, and Leo Wiest, trustee of SHV's pension plan, to pay him the pension benefits that he asserts are due him. SHV has refused to make pension payments to Vink because Vink was convicted of defrauding an SHV subsidiary, of which he was president. In addition, SHV has counterclaimed to compel Vink to disgorge both illegal kickbacks he received from SHV customers and profits he made by diverting SHV business to dummy corporations that he had set up. Vink has moved for summary judgment on his pension claim. *fn1"

 From August 1974 through October 1979, Vink was employed by Geveke & Co. International, Inc. ("Geveke"), which became a subsidiary of SHV in 1972. Upon learning of Vink's fraudulent schemes, SHV dismissed Vink from his post as president of Geveke.SHV then cooperated with an investigation by the United States Attorney's office, which obtained an indictment of Vink. Vink ultimately pleaded guilty to mail fraud and making a false statement on a loan application to a federally insured bank. Specifically, Vink pleaded guilty to having received an illegal $25,000 kickback and bribe from a Geveke customer and supplier and to having represented falsely on a bank application that Geveke's board of directors had agreed to guarantee repayment of a $95,000 personal loan that Vink sought. Judge Pierre Leval of this court sentenced Vink to 14 months in prison.

 SHV has refused to make pension payments to Vink out of its Deferred Profit Sharing Retirement Benefit Plan, stating that Vink forfeited his pension rights through these fraudulent activities. Moreover, SHV asserts that in addition to the above specified felonies, Vink received many more thousands of dollars in illegal kickbacks and diverted more than three million dollars of SHV business to dummy corporations that he had set up with his wife as sole shareholder. SHV contends that Congress, in passing ERISA, could not have possibly intended to require a company to make pension payments to an employee as faithless as Vink.

 One of Congress' principal concerns in enacting ERISA was to make secure the vested rights of employees in pension plans, Winer v. Edison Brothers Stores Pension Plan, 593 F.2d 307, 310 (8th Cir. 1979). In ERISA's declaration of policy, Congress expressed concern that "despite the enormous growth in such plans many employees with long years of employment are losing anticipated retirement benefits owing to the lack of vesting pensions in such plans." 29 U.S.C. § 1001(a). Thus when Congress passed ERISA, it acted to limit severely the circumstances in which pensions would be forfeitable. It thus worte into law that but for a very few circumscribed exceptions, "[e]ach pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age." 29 U.S.C. § 1053(a) (emphasis added). *fn2" The Conference report underlined this fact, noting that "except as outlined below [referring to the limited exceptions discussed in note 2, supra], an employee's rights, once vested, are not to be forfeitable for any reason." H.R. Conf. Rep. No. 93-1280, 93d Cong., 2d Sess. 271 (1974), reprinted in III Legislative History, 4538, U.S. Code Cong. & Admin. News, 1974, p. 5052 (emphasis added). The language of ERISA and its legislative history caused the Supreme Court to conclude "that Congress through ERISA wanted to ensure that 'if a worker has been promised a defined pension benefit upon retirement--and if he has fulfilled whatever conditions are required to obtain a vested benefit--... he actually receives it.'" Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 510, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981), quoting Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 375, 64 L. Ed. 2d 354, 100 S. Ct. 1723 (1980). The Court added that "[f]or this reason, the concepts of vested rights and nonforfeitable rights are critical to the ERISA scheme." Id.

 Congress coupled ERISA's nonforfeitability provision with a section barring assignment of vested benefits: "Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated." 29 U.S.C. § 1056(d). In addition, the regulations that the Internal Revenue Service promulgated pursuant to ERISA state "that benefits provided under the plan may not be... assigned... alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process." 1 FTR § 1.401(a)(13)(b)(1)(1980). Taken together, these provisions prohibit both the voluntary and involuntary assignment of vested pensions. Cody v. Riecker, 454 F. Supp. 22, 24 (E.D.N.Y. 1978), aff'd, 594 F.2d 314 (2d Cir. 1979); Helmsley-Spear, Inc. v. Winter, 74 A.D.2d 195, 426 N.Y.S.2d 778, 780-81 (1st Dep't. 1980), aff'd, 52 N.Y.2d 984, 419 N.E.2d 1078, 438 N.Y.S.2d 79 (1981). It is unclear whether SHV in refusing to make pension payments to Vink has employed a species of forfeiture or of involuntary assignment of Vink's benefits back to the pension fund. Whichever the case may be, ERISA's nonforfeitability and nonassignability provisions clearly cover it.

 Before ERISA was enacted, perhaps the most common situation in which employees forfeited their right to pension payments was when employers invoked "bad boy" clauses. See generally Lee, ERISA's "Bad Boy": Forfeiture for Cause in Retirement Plans, 9 Loy.U.Chi.L.J. 137 (1977). Such clauses generally provided that employees who were dishonest, engaged in acts of misconduct, or competed with his former company after leaving it would forfeit their pension benefits. Even though SHV apparently had no "bad boy" clause in its pension plan, the company is in effect invoking such a clause to deny Vink pension payments.

 In passing ERISA, Congress aimed to overcome the effects of all such forfeiture clauses. During the floor debates on ERISA, Congressman Dent, Chairman of the General Subcommittee on Labor of the House Committee on Education and Labor and one of the bill's principal sponsors, stated that "[a]nother issue dealt with in the conference report is the policy against what has been described as 'bad boy' clauses." 120 Cong. Rec. 29197 (1974), reprinted in III Legislative History, 4669, quoted in Winer, supra, at 311. The House Committee on Ways and Means also made clear its intent to erase the effect of these clauses. It stated:

 With the limited exceptions noted above [referring to the exceptions described in note 2, supra], no rights, once they are required to be vested, may be lost by the employee under any circumstances.... For example, a vested benefit is not to be forfeited because the employee later went to work for a competitor, or in some other way was considered "disloyal" to the employer.

 H.R. Rep. No. 93-807, 93d Cong., 2d Sess. 60 (1974), reprinted in II Legislative History 3180 (footnote omitted) (emphasis added). One court analyzing ERISA's effect on such clauses stated that "[t]he legislative history is clear... that § 203(a) [29 U.S.C. § 1053(a)] was designed, in part, to prevent further enforcement of 'bad boy' clauses." Winer, supra, at 311; Fremont v. McGraw-Edison Co., 606 F.2d 752, 757-58 (7th Cir. 1979), cert. denied, 445 U.S. 951, 63 L. Ed. 2d 786, 100 S. Ct. 1599 (1980). One academic writer on the subject concluded that "[a]n examination of the legislative history of ERISA[ ] and the PUBLIC POLICY UNDERLYING [IT] WILL SHOW THAT [THE COURTS] SHOULD DECLARE UNENFORCEABLE ALL BAD BOY CLAUSES...." Lee, ERISA's "Bad Boy": Forfeiture for Cause in Retirement Plans, supra at 145. See also Pollock v. Castrovinci, 476 F. Supp. 606, 614 n.7 (S.D.N.Y. 1979) (Goettel, J.), aff'd, 622 F.2d 575 (2d Cir. 1980) ("Prior to ERISA, pension plans commonly provided for a forfeiture of benefits in the event a former employee entered into competition with the sponsoring employer. ERISA... proscribes such practices").

 Notwithstanding the plethora of nonforfeitability language in the statute, in the case law, and in academic commentary, SHV urges the court to imply a "fraud" exception into the nonforfeitability provisions of ERISA. SHV argues that inasmuch as the Second %circuit has seen fit to imply a "family support" exception into ERISA's nonforfeiture, nonassignment provisions in order to further the public policy of enforcing family support orders, American Tel. & Tel. Co. v. Merry, 592 F.2d 118 (2d Cir. 1979); accord Cody v. Riecker, 594 F.2d 314 (2d Cir. 1979), the court should imply another exception in the case sub judice because of the public policy against rewarding fraud. In Merry, there were four strong reasons for implying an exception into ERISA, none of which exists in this case.

 First was the proper mode of interpreting federal statutes that trench upon areas traditionally regulated under the state's police powers.The Merry court wrote:

 the "generalized proscriptions" of ERISA's anti-alienation and assignment provision and the statute's preemption clause were "not sufficient to infer that Congress meant to preclude the ancient family law right of maintenance and support and the issuance of process to enforce that right."... This construction is consistent... with the "fundamental principle of statutory interpretation [whereby] courts have presumed that the basic police powers of the States, particularly the regulation of domestic relations, are not superseded by federal legislation unless that was the clear and manifest purpose of Congress."

 Maerry, supra at 122, quoting Cartledge v. Miller, 457 F. Supp. 1146, 1154 (S.D.N.Y. 1978) (Weinfeld, J.). Similarly, in Cody v. Riecker, 454 F. Supp. 22, 24 (E.D.N.Y. 1978), aff'd, 594 F.2d 314 (2d Cir. 1979). Judge Nickerson refused to presume congressional intent under ERISA to preempt and prevent court-ordered enforcement of the state-created spousal obligation "in the absence of an unambiguous declaration of intent." Here, Congress' declaration that vested pension benefits are nonforfeitable does not usurp "the basic police ...


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