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Precious Plate, Inc v. John H. Russell

August 22, 2011

PRECIOUS PLATE, INC., PLAINTIFF,
v.
JOHN H. RUSSELL, DEFENDANT.



The opinion of the court was delivered by: John T. Curtin United States District Judge

INTRODUCTION

By order dated August 15, 2011, this case was transferred to the docket of the undersigned by order of the Hon. William M. Skretny, Chief Judge of the Western District of New York. In this action, plaintiff seeks to enforce the termination provisions of a split-dollar life insurance plan entered into between the parties. The case is currently before the court on the plaintiff's motion for summary judgment on its claims brought pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA") or, alternatively, its state law breach of contract claims. Defendant has cross-moved for summary judgment on his ERISA counterclaims (Item 33).

BACKGROUND

This case was originally filed in New York State Supreme Court, Niagara County, and was removed to this court on August 16, 2006 (Item 1). Plaintiff sought a declaratory judgment that it was entitled to all rights, title, and interests in two life insurance policies, pursuant to contractual agreements between the parties. It also sought an order compelling defendant to transfer the policies to plaintiff (Item 1, Exh. 2). In his notice of removal, defendant stated that plaintiff's state law claim was pre-empted by ERISA, that the case arises under the laws of the United States pursuant to 28 U.S.C. § 1331, and is properly removable under 28 U.S.C. § 1441(b) (Item 1).

On August 21, 2006, defendant filed its answer and interposed five ERISA counterclaims (Item 3). Specifically, defendant alleged that plaintiff violated its fiduciary duty and failed to distribute a summary plan description and other plan documents as required by ERISA. Plaintiff filed its answer to the counterclaims on September 28, 2006 (Item 11).

On December 15, 2006, plaintiff filed a motion to amend the complaint by adding two ERISA causes of action (Item 16). That motion also included a motion for summary judgment and a motion to stay discovery pending the resolution of the summary judgment motion. On February 13, 2007, plaintiff filed a supplemental motion to amend the complaint to add a breach of contract claim (Item 17). In an order dated February 28, 2007, the Hon. William M. Skretny denied the motions without prejudice and instructed the plaintiff to move to amend the complaint in a single motion, and then to file a motion for summary judgment if appropriate. On the same date, plaintiff filed a motion to amend the complaint to add the ERISA and breach of contract claims (Item 20).

In an order entered March 2, 2007, Judge Skretny granted the motion to amend the complaint (Item 22). The amended complaint was filed March 5, 2007 (Item 23). In the amended complaint, plaintiff set out five claims: declaratory judgment and specific performance pursuant to ERISA and state law, and breach of contract based on plaintiff's alleged failure to perform pursuant to a management services agreement ("MSA"). Defendant then filed, on March 30, 2007, an answer to the amended complaint with an amended counterclaim for breach of the MSA (Item 26). On April 5, 2007, plaintiff filed its answer to the amended counterclaim (Item 27).

On April 19, 2007, plaintiff filed this motion for summary judgment (Item 28). On April 20, 2007, it filed a separate motion to stay discovery pending the resolution of the summary judgment motion (Item 29). In an affidavit filed May 14, 2007, defense counsel stated that no fact discovery was necessary to respond to the motion and that defendant did not object to a stay of discovery (Item 31). Accordingly, Judge Skretny granted the motion for a stay of discovery (Item 32). Defendant filed its response to the motion on June 8, 2007, including a cross motion for summary judgment (Item 33), and plaintiff filed a reply memorandum on June 22, 2007 (Item 35). On July 5, 2007, defendant filed a sur-reply (Item 36). On July 16, 2007, Judge Skretny cancelled oral argument and determined that the motions would be taken under advisement (Item 36). The case was transferred to my docket by order dated August 15, 2011 (Item 38). For the reasons that follow, the plaintiff's motion for summary judgment is granted, and the defendant's cross motion is denied.

FACTS

Plaintiff is a New York corporation with its principal place of business in Niagara Falls, New York (Item 28, ¶ 1). At all relevant times, defendant was a Vice President and General Manager of the plaintiff corporation. He was responsible, among other things, for labor matters and employee benefits. In his 1989 application for life insurance, defendant reported an annual income of $200,000 and net worth of $750,000. Id., ¶ 2.

In 1985, the parties developed a deferred compensation plan consisting of whole life insurance. This plan was not offered to any other employee of Precious Plate, Inc. (Item 28, ¶ 3). On September 16, 1985, defendant was issued a life insurance policy from New England Financial (Item 28, Exh. A). At the same time, he executed an "Assignment of Life Insurance Policy as Collateral" to Precious Plate (Item 28, Exh. B). The parties also concurrently entered into a split-dollar agreement*fn1 entitled "New England Financial #8123115$177,316 GDB" (hereafter "the 1985 plan") dated September 16, 1985. Id., Exh. C. The split-dollar agreement was effective as of the policy date and stated that defendant had assigned the policy to the plaintiff corporation "as collateral for amounts to be advanced by the Corporation under this agreement . . . ." Id. Upon the death of the employee, the corporation agreed to "without delay, take whatever action is necessary and required of it to collect the proceeds of the Policy from the Insurance Company" and to pay $150,000 to the designated beneficiary. Id.

In June 1989, the parties implemented a second deferred compensation plan consisting of whole life insurance, again offered exclusively to defendant (Item 28, ¶ 8). Defendant was issued a life insurance policy effective June 16, 1989, and signed an assignment of the policy as collateral. Id., Exhs. D, E. On August 16, 1989, the parties entered into a split-dollar life insurance plan titled "New England Financial #8492177$117,008 GDB" (hereafter "the 1989 plan"). Id., Exh. F. The 1989 assignment and the corresponding split-dollar plan were identical in all material respects to the 1985 assignment and split-dollar plan. Id.

In the 1985 and 1989 assignments, defendant expressly agreed to "assign, transfer, and set over to" plaintiff the insurance policy and "all options, privileges, rights, title and interest therein and thereunder." (Item 28, Exh. B, E). The parties further agreed that: without detracting from the generality of the foregoing, the following specific rights are included in this assignment and pass by virtue hereof:

1. The sole right to collect from the Insurer the net proceeds of the Policy when it becomes a claim by death or maturity;

2. The sole right to surrender the Policy and receive the surrender value thereof at any time provided by ...


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