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BLACK v. BRESEE'S ONEONTA DEP'T STORE

March 16, 1996

KENNETH A. BLACK, Plaintiff, against BRESEE'S ONEONTA DEPARTMENT STORE, INC. SECURITY PLAN and BRESEE'S ONEONTA DEPARTMENT STORE, INC., Defendants. BRESEE'S ONEONTA DEPARTMENT STORE, INC. SECURITY PLAN and BRESEE'S ONEONTA DEPARTMENT STORE, INC., Third-Party Plaintiffs, -against- GARY P. DICRESCE, Individually and doing business as GARY P. DICRESCE AND ASSOCIATES, Third-Party Defendant.


The opinion of the court was delivered by: MCAVOY

 DECISION & ORDER

 Plaintiff Kenneth A. Black filed this action pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. ยง 1001 et seq., claiming that certain pension plan benefits owed and due from defendant Bresee's Oneonta Department Store, Inc Security Plan were not paid by his employer, defendant Bresee's Oneonta Department Store, Inc. By a decision from the bench on June 23, 1995, this Court granted plaintiff's Motion for Summary Judgment against defendant Bresee's, concluding that Bresee's was in fact obliged to fulfill its obligations to plaintiff Black under Bresee's Security Plan. An order granting plaintiff Black's Motion for Summary Judgment was entered on July 6, 1995.

 In turn, Bresee's filed a third-party Complaint against Gary P. DiCresce, the insurance agent who conceived of, designed and serviced Bresee's Plan, claiming under various theories that third-patty defendant DiCresce was actually liable for Bresee's obligations and liabilities under the Plan.

 I. FINDINGS OF FACT

 1. On July 1, 1979, Bresee's Oneonta Department Store, Inc. ("Bresee's") adopted the Bresee's Oneonta Department Store, Inc. Security Plan (ex. D-1) ("Plan"). Under the Plan as adopted in 1979, a participant became entitled to a full retirement benefit upon (a) completing 5 years of service with Bresee's, (b) contributing over 10 years to the Plan, and (c) attaining the age of 65. Employees terminated before retirement had their benefits determined under portability provisions, subject to continued contribution for the balance of the required 10 years. Effective July 1, 1985, the Plan was amended to require 5 years of participation by employees age 60 and over, and increased the vesting schedule under the portability provisions. (ex. D-4). That amendment also increased the retirement benefit for Class G participants to $ 800 per month for 15 years. Benefits were guaranteed for 10 years in the event of the death of a participant following retirement. Benefits were to commence upon the retirement date, which was to be the first date of the month following the participant's 65th birthday.

 2. The Plan also had a provision which purported to give Bresee's the right to modify or discontinue the Plan as required. The provision stated:

 
FUTURE OF PROGRAM - Although this plan would not have been adopted if it were not expected to be continued indefinitely, the right to modify or discontinue the plan has been reserved by our company. For example, it may become necessary to conform to regulatory changes or interpretations, adjust to any significant variations in actuarial assumptions, or to protect against future conditions not now foreseen.

 3. Plaintiff Kenneth Black ("plaintiff") began his employment with defendant Bresee's Oneonta Department Store, Inc on October 3, 1977. Black enrolled in the Plan as a Class G participant which initially entitled him to a retirement benefit of $ 700 per month for 15 years. Under the aforementioned 1985 amendment plaintiff's retirement benefit was increased to $ 800 per month for 15 years (as admitted in Deft. Bresee's Answer, P 2). Plaintiff contributed to the Plan for 10 years in the aggregate amount of $ 14,560 as required for Class G members. In May of 1993, plaintiff advised Bresee's of his intent to retire. Plaintiff was then notified that Bresee's intended to terminate the Plan. The Plan was in fact terminated in June of that year, and plaintiff was given back approximately the amount he had contributed to the Plan.

 4. It was not disputed anywhere in the record, at oral argument on plaintiff's Motion for Summary Judgment, or at trial, that plaintiff had fulfilled all conditions for retirement as embodied in the terms of the Plan. *fn2" (See I, P 1).

 5. At trial, third-party plaintiff Bresee's presented the testimony of two witnesses: Mark Bresee, a Bresee's family member and a twenty-seven year Bresee's employee who was president of the corporation at the time it discontinued business, and Phillip Bresee, another Bresee family member and long-time employee and former president of the corporation. Bresee's also introduced thirty-one documentary exhibits. Third-party defendant called no witnesses and introduced no exhibits. The Court finds that the evidence at trial established the following conduct by third-party defendant DiCresce:

 
(a). In 1979, DiCresce approached Bresee's and proposed to establish for its employees a non-qualified pension plan to be funded through Bresee's purchase and maintenance of life insurance policies on those employees as sold by DiCresce (R. at 5, 35-37, 76-77). DiCresce prepared and submitted documentation to Bresee's in support of his proposal (R. at 5-17; Ex. D1-D4);
 
(b). In making that offer, DiCresce held himself out to have professional expertise and knowledge of pension plans and ERISA requirements (R. at 8-9, 17);
 
(c). In the course of that proposal and throughout the existence of the Plan, DiCresce represented that the plan was: 1) nonqualified (i.e., not eligible for favorable tax treatment under the Internal Revenue Code); (2) exempted from ERISA; (3) self-funding (following Bresee's initial investment in the life insurance policies) and (4) terminable unilaterally and retroactively (R. at 6, 9, 14, 17, 22, 25, 76-78).
 
(d). DiCresce maintained ongoing involvement in the plan by:
 
(i) preparing all plan documents, including cost information and a summary benefit and contribution schedule and arranging for weekly deductions;
 
(ii) informing employees of the plan and enrolling new employees. DiCresce sold life insurance policies for each employee, which were purchased by Bresee's;
 
(iii) preparing and explaining to employees the plan summary document;
 
(iv) preparing and issuing certificates of participation for employees;
 
(v) calculating each employee's necessary contribution to the plan and collecting required insurance premiums from Bresee's and in some instances financing premiums owed on policies;
 
(vi) At Bresee's request, preparing and implementing amendments and modifications to the plan in 1983, 1985 and 1990.

 6. The record further establishes that Bresee's adopted the Plan relying, at least in part, on DiCresce's representations that it could at all times terminate the plan at no detriment to itself. Bresee's did, however, have its independent accountants review the proposal, at least regarding the tax consequences of the Plan. (R. at p. 52, 53-54, 69-70; compare R. at 14-16). Bresee's also sought advice from their attorneys during the Plan's existence, at least at the point when they sought to terminate the plan. (R. at 55-56).

 7. DiCresce modified the plan in 1983 and 1985 at Bresee's request and in an attempt to reduce the Plan's carrying costs, which exceeded DiCresce's initial representations (R. At 24-27). DiCresce made modifications to the financial structure of the plan and the underlying insurance policies in 1990 as well, again at the request of Bresee's (R. at 58-60).

 8. In 1992-93, as a result of the fact that the plan had never fulfilled its self-funding promise, and because the cost of maintaining the plan to Bresee's was far higher than DiCresce had estimated, Bresee's again sought a meeting with DiCresce to discuss modifications. At that time DiCresce repeated his assertion that Bresee's could do anything it wanted with the plan, including termination (R. at 43). DiCresce suggested that once again Bresee's redo the insurance policies in an attempt to reduce plan costs. At that point Mark Bresee decided to fund the plan through another insurance agent. Bresee's ultimately did so, resulting in a large cost reduction. Bresee's continued to maintain some policies with DiCresce, however, but only because by that time certain participating employees were otherwise uninsurable (R. at 43-46; Ex. D-13).

 9. Bresee's last contact with DiCresce in relation to administration of the plan was sometime in 1992-93 (R. at 55). In June of 1993, after consulting with their attorney, Bresee's discontinued the Plan by refunding to participating employees their paid-in contributions. (R. at 9, 35-38, 62). At this time Bresee's also attempted to deny plaintiff Black his vested benefits under the Plan. Bresee's did not consult with DiCresce regarding ...


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