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HARRIS TR. & SAV. v. JOHN HANCOCK MUT.

July 12, 1991

HARRIS TRUST & SAVINGS BANK, AS TRUSTEE OF THE SPERRY MASTER RETIREMENT TRUST NO. 2, PLAINTIFF,
v.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, DEFENDANT. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, THIRD-PARTY PLAINTIFF, V. CHASE MANHATTAN BANK, N.A., COUNTERCLAIM DEFENDANT, AND SPERRY CORPORATION AND THE RETIREMENT COMMITTEE OF SPERRY CORPORATION, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.

  OPINION AND ORDER

Defendant John Hancock Mutual Life Insurance Company ("Hancock") moves pursuant to Rule 56 of the Federal Rules of Civil Procedure and the Agreed Statement of Facts stipulated by the parties on November 23, 1988 (hereinafter "A.S.F. ¶ ___") to dismiss the remaining claims of plaintiff's amended complaint. By its opinion and order dated September 26, 1989, this Court dismissed plaintiff's claim asserted under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"). This motion relates to plaintiff's contract and common law claims.

The claims in this action arise out of or relate to Group Annuity Contract No. 50 ("GAC 50"), which was first entered into in 1941 by the defendant and Sperry Corporation ("Sperry") and covered non-bargaining unit employees of Sperry Gyroscope, Sperry Division.*fn1 A.S.F. ¶ 5; Hirschberg Tr. 18. Pursuant to GAC 50's original terms, Sperry purchased on an annual installment payments basis deferred annuities from Hancock payable for life to Sperry employees or their beneficiaries to the extent that the employees and beneficiaries would be entitled to such a payment upon the employees' retirement, according to the terms of Sperry's retirement plan. A.S.F. ¶ 6. In other words, once a covered employee's benefits vested under the plan, Hancock would guarantee those benefits. Id. ¶ 10. By agreement between the parties, GAC 50 has undergone substantial changes since 1941. Most relevant to this motion are those that occurred in 1968 and 1977.*fn2

Effective January 1, 1968 GAC 50 was converted by amendment from a deferred annuity form of participating contract under which Sperry purchased deferred annuities from Hancock on an annual basis for the non-bargaining unit of the Sperry Gyroscope Division to a Retrospective Immediate Participation Guarantee form ("Retro-IPG") under which it guaranteed benefits for each eligible employee under GAC 50 for that employee who was also eligible under the terms of the Sperry Rand Retirement Trust No. 2 (the "Plan" or the "Sperry Trust"). A.S.F. ¶ 23.

Hancock IPG contracts are participating contracts in that the purchaser shares in the aggregate of the contract's mortality, expense and investment experience to the extent that that experience is more favorable than the experience assumed in the contract's purchase rates. Id. ¶ 11. Net investment income from Hancock's General Account allocated to an IPG contract is directly credited on an annual basis to that contract's Pension Administration Fund ("PAF").*fn3 The amount of the PAF depends in part on the investment performance of Hancock's General Account and the allocation of that performance to the IPG.*fn4

Pursuant to the 1968 amendment, annuities purchased for certain employees up to December 31, 1967 were "cancelled," but Hancock continued to guarantee benefits to those employees and their beneficiaries. A.S.F. ¶ 32. The 1968 amendment also established a method for the provision of additional guaranteed benefits to be payable for the period after December 31, 1967 as more fully described in this Court's earlier opinion. In essence, if GAC 50's PAF exceeded its Minimum Operating Level ("MOL"), which was equal to 105% of the Liabilities of the Fund ("LOF"), Hancock would guarantee the payment of the additional guaranteed retirement benefits to those employees.*fn5 Id. ¶ 39.

Effective August 1, 1977 GAC 50 was converted to a Retrospective Immediate Participation Guarantee/Prospective Deferred Liability form of contract ("Retro-IPG-PDL") under which the employees retiring thereafter received some benefits guaranteed by Hancock and relied on Plan assets for the remainder. Under the 1977 amendment GAC 50's LOF would not be increased automatically upon the subsequent retirement of any employee and new retirement benefits would not be guaranteed automatically by Hancock. A.S.F. ¶ 80. The Sperry Retirement Committee ("SRC") could request that Hancock establish guaranteed benefits in addition to the benefits already guaranteed, but it did not do so. Id. ¶ 81. The 1977 amendment also permitted Sperry to designate employees eligible for non-guaranteed benefits and provided for the payment of such benefits by Hancock from the PAF or its Contingency Account within Hancock's General Account. Although the Sperry Retirement Committee did not request Hancock to pay any new guaranteed benefits subsequent to the effective date of the 1977 amendments, the Committee did designate that monthly payments of non-guaranteed benefits be paid to certain employees in 1977 and Hancock paid such non-guaranteed benefits through June 1982, when it gave Sperry 31 days notice in writing that it would no longer pay non-guaranteed benefits.

Hancock contends that it at all times fully performed its obligations under GAC 50 and its amendments and is entitled to summary judgment dismissing plaintiff's breach of contract claims. It further claims that plaintiff's claims for breach of fiduciary duty and for breach of an implied covenant of good faith and fair dealing must also be dismissed since all obligations of Hancock to the plaintiff arise solely from and are defined by the provisions of GAC 50.*fn6

I. Contract Claims

Where the language of a contract is unambiguous the question of interpretation is one of law to be answered by the court without reference to extrinsic evidence. See Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985). If the language of a contract is otherwise plain, the parties cannot create a genuine issue of material fact simply by urging different interpretations. See Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989).

  1.  Did Hancock Improperly Retain Excess Funds Allocated to
      GAC 50?

In or about May 1982 Hancock denied a request from the Sperry Retirement Committee for a transfer of assets under what the parties had come to refer to as a "rollover procedure." Hearing Exh. 2.

It is necessary to refer to the history of GAC 50 to understand the reason for the dispute.

By the 1977 amendment, an employee who retired after 1977 had those benefits which had accrued prior to 1968 guaranteed by Hancock and those non-guaranteed benefits which accrued thereafter were funded only by the Plan's assets.*fn7 The Committee wanted to move so-called "excess funds" out of Hancock's General Account. It was in this context that Hirschberg explored ways with Hancock as to how a removal of excess funds might be achieved without incurring the contract's Asset Liquidation Adjustment ("ALA"). As an example, in 1977 the GAC 50 had an excess of funds in the General Account, whereas the GAC-1150, another Sperry guaranteed benefit contract, required a transfer of funds into its pension administration fund in the General Account to satisfy its annuity funding requirements. The Committee did not want to liquidate its equity portfolios in the separate accounts at Hancock to meet GAC-1150's shortfall. (Id. at 19) To meet this problem, so-called "excess funds" in GAC 50 were transferred by agreement of the parties to the separate accounts and then to GAC-1150 for its pension administration fund in the General Account. Hearing Exhs. L, T.*fn8 The net effect was to leave the balance of the General Account unchanged and no asset liquidation charge was imposed.

Hirschberg continued at meetings between representatives of both companies to press for the reduction of funds in GAC 50's General Account. Thereafter in 1979 and 1981 Hancock permitted the Committee pursuant to so-called "rollover arrangements" to withdraw certain amounts of "excess" funds from the PAF without the ALA required under GAC 50. Hearing Exhs. 4, 5, 11; Jefferson Tr. 46; Hirschberg Tr. 50. Hancock acknowledges it had a "rollover" policy which it offered to General Account customers whose balance of funds in that account exceeded liabilities by 20 percent and some other criteria, whereby the excess of cash inflow over cash outflow, plus 4% of the beginning fund balance of a PAF, could be transferred out of the General Account.*fn9 A.S.F. ¶ 77. In 1979 a rollover was offered to Hirschberg and accepted. In 1980 Hancock altered its policy and eliminated rollovers, except for "grandfathered" customers. (Penney Tr. 137) In 1981 Sperry asked for a rollover for 1980 and received it. Subsequently in 1981 Hancock eliminated rollovers for all customers. (Id. at 139)

Plaintiff maintains that these rollover withdrawals were by contract amendment pursuant to oral agreement of the parties and that it had a contractual right to such rollovers for every subsequent year. As evidence of that agreement plaintiff relies not on language of the contract or any formal written amendment thereto but on oral understandings which all witnesses for the defendant deny. To support its claim, plaintiff relies on two Hancock internal memoranda, Exhibits 10 and 12, a memorandum dated March 28, 1977 and a memorandum dated December 31, 1981, respectively. Exhs. 10 & 12, Plaintiff's Exhibit Binder Submitted in Opposition to Defendant's Motion to Dismiss filed Mar. 23, 1990 (hereinafter "Pl.Exh. Binder").

Although both these memoranda make reference to rollover arrangements and plaintiff's participation in them, they do not constitute amendments to the contract requiring a continuation of such rollovers.

In the first place, it is highly unlikely that any officer of either company expected a contract of this complexity and involving the amounts in question to be amended orally. Other amendments were made in writing. Furthermore, there are no references to amending the contract in either exhibit. Without such references and without an indication that Hancock was seeking to be bound contractually to permit future rollovers, the Statute of Frauds is not satisfied.

Neither exhibit contains expressly or by reasonable implication all the material terms of the agreement. Nor is there any indication of a continuing obligation with respect to "rollovers."*fn10 Under these circumstances the exhibits are insufficient proof of an agreement to be bound in futuro under the Statute of Frauds. See Fort Howard Paper Co. v. William D. Witter, Inc., 787 F.2d 784, 791 (2d Cir. 1986); Scheck v. Francis, 26 N.Y.2d 466, 472, 260 N.E.2d 493, 311 N.Y.S.2d 841 (1970); Morris Cohon & Co. v. Russell, 23 N.Y.2d 569, 575, 245 N.E.2d 712, 297 N.Y.S.2d 947 (1969).

Plaintiff argues that partial performance removes the agreement from the Statute of Frauds. Plaintiff points to the 1979 and 1981 "rollovers" as evidence of partial performance of the continuing obligation to provide rollover as satisfaction of Hancock's Statute of Frauds defense. "The doctrine of part performance may be invoked only if plaintiff's actions can be characterized as `unequivocally referable' to the agreement alleged." Anostario v. Vicinanzo, 59 N.Y.2d 662, 663, 450 N.E.2d 215, 463 N.Y.S.2d 409 (1983). See Tribune Printing Co. v. 263 Ninth Ave. Realty, Inc., 88 A.D.2d 877, 878-79, 452 N.Y.S.2d 590 (App. Div. 1st Dep't), aff'd, 57 N.Y.2d 1038, 444 N.E.2d 35, 457 N.Y.S.2d 785 (1982). Here plaintiff's requests for withdrawals are explainable as a response to Hancock's alleged notification in August 1979 of the existence of the rollover as a generalized procedure. Pl.Mem. in Opp. at 35. They are not "unequivocally referable" to an amendment of the contract.

The Court also notes that New York Jurisprudence 2nd states that for the doctrine of partial performance to apply, "[t]he acts of part performance must have been done by the person insisting upon the contract." 61 N.Y.Jur.2d Statute of Frauds § 254 at 396 (1987). Here the claimed acts of part performance are by Hancock who disavows any such modification of the contract.

As for plaintiff's argument that promissory estoppel applies, that claim does not lie because plaintiff alleges no acts that were taken by it in reliance on the alleged oral promises of Hancock. See Republic Nat'l Bank of New York v. Sabet, 512 F. Supp. 416, 426 (S.D.N.Y. 1980), aff'd, 681 F.2d 802 (2d Cir. 1981), cert. denied, 456 U.S. 976, 102 S.Ct. 2241, 72 L.Ed.2d 850 (1982). Accordingly, the Court finds as a matter of law that the Statute of Frauds bars plaintiff's claim to a right to rollover for the years subsequent to 1980.

2. Termination of Non-Guaranteed Benefits

This dispute between the parties centers on the meaning of the 1968 and 1977 amendments and actions relating thereto. Plaintiff claims the failure of Hancock to continue to pay non-guaranteed benefits after June 1982 constitutes a breach of contract.*fn11

A significant event which preceded Hancock's alleged breach occurred in May 1982 when Hancock was notified by the Committee that the Committee had amended the Sperry Plan by expanding it to include retired employees of Sperry's Univac Division within the category of employees entitled to receive non-guaranteed benefits under GAC 50 and was requesting payment of non-guaranteed benefits to such employees.*fn12 A.S.F. ¶ 84. Hancock at first took the position that the Sperry Plan only contemplated payment of non-guaranteed benefits, such as cost-of-living adjustments, to employees already covered by the Plan. (Hirschberg Tr. 41). When Sperry demurred, Hancock took the position that it was entitled to discontinue unilaterally payments of all non-guaranteed benefits under the terms of Article IV, Section 9, paragraph (c) of GAC 50 and gave the Committee 31 days notice in writing that it would terminate all such payments. Exh. 4, Pl. Exh. Binder.

Plaintiff maintains that Hancock was only entitled to give notice of termination of such payments if the amount of the Pension Administration Fund became insufficient to support the making of "Non-Guaranteed Benefit" payments.

The provision relied on by Hancock reads as follows:

SECTION 9. Payment of Non-guaranteed Benefits

  Non-guaranteed Benefit payments shall be payable
  to a payee, provided the Pension Administration
  Fund is sufficient for the purpose, upon written
  notice from the Sperry Rand Retirement Committee
  to the Company. Such notice shall specify the
  payee's Benefit Commencement Date and the amount,
  form and manner of such ...

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