The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.:
The Plaintiffs in this action are former executives of Cluett Peabody & Co. ("Cluett"), an apparel manufacturer which was acquired by Defendant WestPoint-Pepperell, Inc. ("WestPoint") in 1986. WestPoint is a Georgia corporation conducting business in textile, apparel and bed products. Cluett was merged into WestPoint in January 1989 and operated as a division of WestPoint until March 1990, when Cluett was sold to Bidermann Industries, Inc.
Defendant D. Michael Roark ("Roark") was Vice President of Human Resources for Cluett at all relevant times until 1986, and then Vice President of Human Resources for WestPoint until May 1989. Defendant C. Powers Dorsett ("Dorsett") was, at all relevant times, WestPoint's General Counsel. Defendant Barry F. Shea was Assistant Treasurer and then Treasurer of WestPoint, and a member of the Cluett Retirement Plan Committee. Patrick Walsh ("Walsh"), not a party to this action, was, at all relevant times, Assistant Treasurer of Cluett, and the day-to-day administrator of the Executive Permanent Insurance Program ("EPI Program").
In 1975, Cluett established for its senior executives an employee benefit program known as the EPI Program. This program consists of retirement and life and health insurance benefits, including a deferred compensation agreement which provides supplemental pension benefits. Plaintiffs are participants in the EPI program and are parties to a deferred compensation agreement under that program.
On July 29, 1987, WestPoint's Compensation Committee recommended that Cluett's Board adopt a "Change in Control" amendment to the EPI Plan (the "EPI Amendment"), which would provide EPI participants with a lump sum payment upon a "Change in Control" of WestPoint. Cluett's Board approved the EPI Amendment on July 30, 1987, although it was not finalized until November 1988. On November 11, 1988, the EPI Amendment was circulated to the EPI participants; within a few weeks, Plaintiffs all returned executed copies of this Amendment.
In late 1988 and early 1989, WestPoint took steps to change the discount rate used to calculate the lump sums that EPI participants would receive if a "Change in Control" occurred. The EPI Amendment referred to the actuarial assumptions contained in the Cluett Employee Retirement Plan ("Cluett Pension Plan"), which provided for a 5% discount rate. WestPoint sought to make this rate conform to that used in the West Point Employee Retirement Plan ("WestPoint Pension Plan"), which provided for a discount rate based on rates published by the Pension Benefit Guaranty Corporation ("PBGC"). Accordingly, the Cluett Pension Plan Committee ("Cluett Committee") met on February 16, 1989 and purported to adopt a PBGC-based rate for the Cluett Pension Plan.
In an Opinion and Order dated November 2, 1995, I held that the Cluett Committee had no authority under ERISA to change the discount rate contained in the Cluett Pension Plan. See Allen v. West Point-Pepperell, Inc., 908 F. Supp. 1209, 1222 (S.D.N.Y. 1995). "Accordingly, the 5% discount rate printed in the Cluett Pension Plan was never validly changed and was at all relevant times one of the actuarial assumptions 'contained in' the Cluett Pension Plan for purposes of the EPI Amendment." Id. at 1222-23.
The Allen Plaintiffs now seek rescission of the releases they executed in early 1989. They contend that rescission is appropriate because the releases were the product of a "mutual mistake" on the part of WestPoint and themselves concerning the discount rate contained in the Cluett Pension Plan. In addition, both the Allen Plaintiffs and Robert Krumme seek attorneys' fees pursuant to a provision contained in the EPI Amendment which provides that an executive will be paid or reimbursed for fees "if at any time upon or after a change in control there should arise any dispute" concerning an interpretation of the EPI Amendment.
On January 27, 1987, the WestPoint Board of Directors discussed the possibility of amending its employee benefit plans to protect participants in the event the company experienced a change in control. The Board instructed management to review all employee benefit plans and to report back to the Board with its recommendations. See Minutes of January 27, 1987 Board Meeting, Def. Ex. A. After management conducted such a review, Dorsett, WestPoint's General Counsel, presented his report and recommendations to the WestPoint Board's Compensation Committee on June 23, 1987. See Minutes of June 23, 1987 Compensation Committee Meeting, Def. Ex. KK. The Compensation Committee approved management's recommendations and resolved to present them to the full Board. See id.
The Compensation Committee reported management's recommendations to the Board on June 24, 1987. With respect to the EPI Program, management recommended that "the present value of the benefit be paid by way of lump sum upon a change in control." Compensation Committee Report, Def. Ex. B. No specific method of determining present value was mentioned in management's recommendations; the intent was simply to provide "the fair present value that would be properly calculated with a realistic interest rate." Testimony of C. Powers Dorsett, General Counsel of WestPoint, Trial Transcript ("Tr.") 913.
In the month following the June 24, 1987 Board meeting, draft amendments to several of WestPoint's benefit plans (including the EPI Program) were prepared. These amendments were presented to, and approved by, the WestPoint Compensation Committee at a meeting on July 29, 1987. See Minutes of July 29, 1987 Compensation Committee Meeting, Def. Ex. C. At this time Cluett, although owned and controlled by WestPoint, still had its own Board of Directors. The Compensation Committee thus recommended to the Cluett Board that it adopt the proposed amendment to the EPI Program permitting lump sum payments in the event of a change of control. Tr. 916. On July 30, 1987, the Cluett Board authorized management to enact such an amendment. See Action of Cluett Board, Pl. Ex. 119.
A. Drafting of the EPI Amendment
Ronald Heller, then General Counsel of Cluett, prepared the initial draft of the EPI Amendment. Tr. 916. The draft provided for participants to receive, upon a change in control, the present value of their accrued EPI benefit, defined as the "actuarial equivalent" of that benefit. Section 4A(1)(c) of the draft EPI Amendment defined "actuarial equivalent" as follows:
The term "Actuarial Equivalent" means, with respect to an Accrued Benefit, any Deferred Compensation (or contingent Deferred Compensation, as the case may be) benefit provided under the terms of this Agreement which has the same present value as the Accrued Benefit. For the purpose of establishing whether a benefit is the Actuarial Equivalent of another benefit the actuarial assumptions contained in Cluett's Employee Retirement Plan shall be employed for so long as that Plan remains in existence and if such Plan is no longer in existence, the actuarial assumptions last used by such Plan shall be used.
This language was based on a change in control amendment to the WestPoint Supplemental Executive Retirement Plan (the "SERP Amendment"), which Heller used as a model in drafting the EPI Amendment. Tr. 918-19. Indeed, the definition of "actuarial equivalent" in the two amendments is identical except in one respect: where the SERP Amendment refers to the actuarial assumptions contained in ...