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FRARY v. SHORR PAPER PRODUCTS

April 24, 1980

DAVID FRARY, PLAINTIFF,
v.
SHORR PAPER PRODUCTS, INC., AN ILLINOIS CORPORATION; ROBERT SHORR, INDIVIDUALLY; AND THE SHORR PAPER PRODUCTS, INC. EMPLOYEES PROFIT SHARING PLAN AND PROFIT SHARING TRUST, DEFENDANTS.



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

  MEMORANDUM OPINION

Motion to Dismiss and Cross-motions for Summary Judgment

Plaintiff David Frary brings this action against Shorr Paper Products, Inc. (Shorr Paper), Robert Shorr (Shorr), and the Shorr Paper Products, Inc. Employees' Profit Sharing Plan and Profit Sharing Trust (the "Plan") under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001-1381.*fn1 Plaintiff was an employee of Shorr Paper from November, 1970 to November, 1978 and a participant in and beneficiary of the Plan. As of November 20, 1978, plaintiff's interest in the Plan amounted to $9,887.54. Dieter Affidavit, ¶ 12. Shorr Paper is the Manager of the Plan and Shorr is a trustee of the Plan. The jurisdiction of this Court is invoked pursuant to 29 U.S.C. § 1132(e).

The gravamen of plaintiff's complaint is that he is being treated differently than other similarly situated former employees under the Plan because he has been denied early lump sum payment of his vested, nonforfeitable interest in the Plan. Section 5.4 of the Plan, as amended, provides that when an employee's termination is for a reason other than death, disability, or normal retirement, the employee's right to distribution of his interest in the Plan shall commence during the 60 day period following the end of the Plan year during which the later of the employee's retirement or normal retirement date occurs. Plan, as amended § 5.4. Notwithstanding the foregoing, subsection (c) of section 5.4 vests with the Manager of the Plan the discretion to distribute to an employee terminated for a reason other than death, disability, or normal retirement his interest in the Plan at a time earlier than that provided for in subsection (b). Id. § 5.4(c). Subsection (c) requires that the discretion exercised thereunder by the Plan Manager be exercised in accordance with a uniform and nondiscriminatory policy. Id. When the Plan Manager decides to distribute early, it is also within his discretion, in accordance with a uniform and nondiscriminatory policy, to decide whether distribution shall be had by way of a lump sum or installments. Id.

Plaintiff does not assert that any of the Plan's provisions violate the terms of ERISA. Rather, it is plaintiff's contention that to his knowledge every other Shorr Paper employee whose termination was for reasons other than death, disability, or normal retirement has received a lump sum payment of his interest in the Plan upon his request. Plaintiff alleges that the basis for the discriminatory treatment which he has allegedly received is the fact that after he left Shorr Paper he became employed by one of its competitors. Pending before the Court is defendants' motion to dismiss or for summary judgment and plaintiff's cross-motion for summary judgment. For the reasons set forth below, defendants' motion to dismiss is denied; defendants' motion for summary judgment is granted as to defendant Shorr and otherwise denied; and plaintiff's motion for summary judgment is granted as to defendants Shorr Paper and the Plan.

Motion to Dismiss

Defendants' motion to dismiss sets forth three arguments: (1) that plaintiff's complaint fails to state a claim under ERISA; (2) that Shorr is not a proper party to this action; and (3) that plaintiff is under no circumstances entitled to recover punitive damages under ERISA. Under federal pleading practice, the requirements of stating a claim are two-fold. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). First, the allegations of the complaint must give the adverse party sufficient notice of the claim asserted. Fed.R.Civ.P. 8(a); Conley v. Gibson, 355 U.S. at 47, 78 S.Ct. at 102. As to this requirement, the Court finds plaintiff's allegations to be more than adequate.

Second, accepting all of the well-plead allegations of the complaint as true, it must state a claim upon which some relief can be afforded. Fed.R.Civ.P. 12(b)(6); Conley v. Gibson, 355 U.S. at 45-46, 78 S.Ct. at 101-102. ERISA authorizes the commencement of an action by a participant in a Plan to, inter alia, "enforce his rights under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Therefore, accepting plaintiff's allegations as true, the Court also finds that his complaint states a claim under ERISA. Plaintiff alleges that pursuant to the terms of the Plan, defendants have in the past honored the requests of terminated employees that they receive their interests in the Plan early and in a lump sum. Complaint, ¶ 9. Plaintiff further alleges that defendants' refusal to honor his request for an early and lump sum payment caused him to be treated differently under the Plan than other employees terminated under similar circumstances. Complaint, ¶ 11. Plaintiff alleges that this different treatment was in violation of both the language of the Plan calling for nondiscriminatory treatment and federal law. Id. Therefore, the Court finds that plaintiff has stated a claim to enforce his rights under the Plan.

As to the other two arguments made by defendants in connection with their motion to dismiss, since those matters are resolved in defendants' favor in the discussion below, the Court does not reach those arguments at this point. In sum, the Court thereby denies defendants' motion to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted.

Motion for Summary Judgment

Plaintiff's complaint alleges that Shorr is the Manager of the Plan. Complaint, ¶ 5. However, the record discloses that Shorr Paper is the Plan Manager and that Shorr's role with respect to the Plan is that of trustee. Dieter Affidavit, ¶ 2; Defendants' Exhibit C. While genuine factual issues may not be resolved by way of summary judgment, a plaintiff may not rest upon the bare allegations of his complaint to rebut a properly supported summary judgment motion and withstand the motion. First National Bank Co. v. Insurance Company of North America, 606 F.2d 760, 768 (7th Cir. 1979). Under the Plan, it is the province of the Plan Manager to decide whether a terminated employee shall receive early payment of his interest in the Plan. Plan, as amended, § 5.4(c). Apart from plaintiff's incorrect allegation that Shorr is the Plan Manager, plaintiff does not specifically allege that Shorr was in any way responsible for the acts of which plaintiff complains. Accordingly, defendants' motion for summary judgment is hereby granted insofar as it seeks judgment in favor of Shorr.

The Court now turns to the principal issue presented to it by the instant motions. Namely, whether defendants' refusal to distribute to plaintiff his interest in the Plan early and in a lump sum, because of his employment with a competitor of Shorr Paper after his termination from Shorr Paper, is violative of the Plan or the Act. This question appears to be one of first impression. The Court prefaces its discussion of the applicable law by noting its conclusion that there are no disputed factual issues herein which are material to the Court's resolution of this question. See Fed.R.Civ.P. 56(c).

Defendants acknowledge that plaintiff was not paid his interest in the Plan early pursuant to section 5.4(c) because after he left Shorr Paper's employ he assumed employment with one of its competitors. In support of their motion for summary judgment, defendants first argue that the Plan Manager has absolute discretion to decide whether an employee shall receive his interest in the Plan early. Alternatively, defendants assert that plaintiff's employment with a competitor of Shorr Paper's violated the terms of his employment contract with Shorr Paper.*fn2 Defendants maintain that prior to plaintiff's termination with Shorr Paper, Shorr Paper, as Manager of the Plan, had a policy within the meaning of section 5.4(c) of the Plan of declining to make early payments to employees who breached their employment contracts. Dieter Affidavit, ¶ 17. Defendants argue that such a policy is not violative of the Plan or ERISA.

First, the Court rejects as wholly untenable defendants' argument that the Plan Manager's discretion is unbridled as to whether an employee shall receive his benefits early. The Court's reading of section 5.4(c) leaves no doubt that the terms of the Plan impose a requirement upon the Plan Manager that any benefits be made in accordance with a nondiscriminatory policy. Also, while the courts recognize that they should be hesitant to interfere with the administration of pension plans, they have consistently required that any discretion vested with persons charged with administering a pension plan may not be exercised arbitrarily or capriciously. Bueneman v. Central States, Southeast Southwest Areas Pension Fund, 572 F.2d 1208, 1209 (8th Cir. 1978), and cases cited therein. Cf., Johnson v. Botica, 537 F.2d 930, 933 (7th Cir. 1976). More importantly, however, section 1104 of ERISA and section 10.3 of the Plan mandate that Plan fiduciaries ...


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