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PENSION PLAN FOR EMPLOYEES v. PRINCIPAL MUT. LIFE

August 12, 1999

PENSION PLAN FOR EMPLOYEES OF BATTENFELD GREASE & OIL CORP, ET AL., PLAINTIFFS,
v.
PRINCIPAL MUTUAL LIFE INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Siragusa, District Judge.

DECISION and ORDER

Jurisdiction in this court is based on a federal question pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(f). For the breach of contract claims, this Court has supplemental jurisdiction under 28 U.S.C. § 1332 and diversity jurisdiction under 28 U.S.C. § 1332.

The plaintiffs filed their suit September 27, 1995, and the case was originally assigned to the Honorable William M. Skretny. The parties have completed discovery. Following oral argument on the motions, Judge Skretny transferred the case to the undersigned by an order entered on December 15, 1997 (document # 26). At the suggestion of the parties, this Court heard reargument on the motions and reserved decision. For the reasons stated below, the Court denies the defendant's motion for summary judgment, and grants in part and denies in part the plaintiffs' motion for summary judgment.

BACKGROUND

The plaintiffs are Battenfeld Grease and Oil Corporation of New York ("BATCO") and Battenfeld-American, Inc. ("BATAM"). Both companies operated in Buffalo, New York, and had pension plans which met the definition of a pension plan under ERISA, 29 U.S.C. § 1002(2)(A).

Since 1989, John A. Bellanti Sr. has served as the trustee of each plan. Kent aff., at 3. The other trustee is his wife, Florence Bellanti. Kent aff., at 3. Mr. Bellanti had handled the pension funds for BATAM and BATCO since becoming BATCO's controller in November, 1956. Defendant's Statement of Undisputed Facts (May 22, 1997, document # 9) ("Defendant's Statement"), at 2. In September 1983, after having worked his way up through the ranks, Mr. Bellanti purchased both companies, BATAM and BATCO, and became president and chairman of the board of directors and the majority shareholder for both companies. He has also been a certified accountant for thirty-one years. Id., at 2-3.

The pension plans for BATAM and BATCO were funded by two contracts with the defendant*fn1. One was a group annuity contract between the defendant and the trustees of the Battenfeld Pension Plan, contract 51959. The other was between the defendant and the trustees of the Battenfeld American Pension Plan, also a group annuity contract, number 51960. Each was issued on March 17, 1981 with an effective date of January 1, 1980, and each was identical in all material respects to the other. The contracts were drafted by the defendant and were not subject to negotiation. Plaintiffs' Memorandum of Law in Support of Plaintiffs' Motion for Summary Judgment (May 23, 1997, document # 13) ("Plaintiffs' Memorandum"), at 2. Prior to signing the contracts as trustee, Mr. Bellanti reviewed them with the assistance of a lawyer, Gary Kotaska, Esq. Defendant's Statement, at 3-4.

Both contracts were supported by the defendant's General Account, about which the defendant stated, "[t]he assets held in the General Account are invested for the benefit of our insurance and retirement plan customers," and consisted primarily of bonds and other loans, such as commercial and residential mortgages. Defendant's Statement, at 4. The contracts permitted the trustees of the pension plans to withdraw funds from the contract at any time. Id.

From the inception of the plans in January 1980 until April 1994, all monies deposited pursuant to the contracts were invested in the General Asset Fund, sometimes referred to as the General Account. Plaintiffs' Memorandum, at 3. Principal reported regularly on the value of the invested funds on a "book value" basis. The book value consisted of the sum of all contributions to date, along with the sum of all interest earned to date. Id. The defendant also reported from time to time the "market value" of the investments, but did not disclose to the plaintiffs the formula for calculating this value. Id.

The contracts' Article VI, Limitation on Payments and Transfers, governed payout of the funds upon demand of the plaintiffs. Section 1, Subsection 2, Accelerated Payment or Transfer at Investment Value, reads in pertinent part,

  In lieu of the installment payments described in
  Subsection 1 above, the Contractholder may request
  that subject to the limitations of this Article any
  payment or transfer be made on an investment value
  basis. In this event, the amount of payment or the
  amount transferred will be a percentage of the amount
  deducted from the General Asset Fund. Such percentage
  adjusts for the difference between the interest rate
  currently available for new investments and the
  current Experience Interest Rate for this contract.
  The Bankers Life will inform the Contractholder in
  writing of said percentage within 30 days of the
  Contractholder's written request for payment or
  transfer.
  In any event, payment or transfer under this
  Subsection 2 will not be made until The Bankers Life
  has received written agreement from the
  Contractholder to the investment value adjustment.

Kent aff., at Exhibit F. The contracts provided that the plaintiffs could elect either installment payments, or a lump sum payment at investment value. If the latter, the amount of the payment would be adjusted by the defendant to account for the difference in interest rates for current investments and something they called the "Experience Interest Rate." ...


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