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LICCIARDI v. KROPP FORGE DIV. EMPLES. RETIREMENT P

June 19, 1992

GERARD E. LICCIARDI, Plaintiff,
v.
KROPP FORGE DIVISION EMPLOYEES' RETIREMENT PLAN and LONE STAR FORGE COMPANY, Defendants.



The opinion of the court was delivered by: MILTON I. SHADUR

 Gerard Licciardi ("Licciardi") receives a monthly pension payment based on his peak average earnings while employed. In calculating that average, Kropp Forge Division Employees' Retirement Plan (the "Plan") and Lone Star Forge Company ("Lone Star") excluded a large lump-sum cash payment that had been made to Licciardi in settlement of claims against his employer (a company unrelated to Lone Star) at the time of Licciardi's departure. Licciardi contends that the exclusion violates the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1145. *fn1"

 Now Licciardi has moved for summary judgment under Fed. R. Civ. P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, Licciardi's motion is denied. And because the grounds for denial demonstrate that Licciardi must lose on the merits as a matter of law, this Court sua sponte grants judgment for defendants and dismisses this action.

 Facts2

 Licciardi started working for Anadite, Inc. ("Anadite") in 1951 as an hourly employee at the bottom of the company's wage scale. He rose to the top, eventually serving as Anadite's president and chief operating officer until a falling-out with the board of directors caused his departure on November 10, 1979.

 Licciardi's termination arrangements were memorialized in a six-page "Omnibus Agreement" (Licciardi Ex. A, the "Agreement"). In relevant part the Agreement read (emphasis added):

 WHEREAS, Licciardi has claimed that his past services to the Company have earned him the right to receive substantial compensation above and beyond that previously paid to him, a claim which is in dispute but which the Company believes should, in its best interest, be resolved as set forth herein; and

 WHEREAS, Licciardi and several other directors and shareholders of the Company are in substantial disagreement and are deadlocked with respect to the future management and operation of the Company, and are in dispute with respect to defining the rights and obligations of and between the parties, which the parties agree necessitates severing the employment relationship between the Company and Licciardi; and

 * * *

 4. Cash Payment. On the date hereof, Anadite shall pay to Licciardi the sum of $ 650,000 in settlement of Licciardi's claim with respect to his right to additional compensation for past services rendered and with respect to an alleged obligation to issue shares of its common stock to Licciardi as past due compensation.

 * * *

 7. General Mutual Release. The Company and Licciardi have concurrently herewith released each other from certain obligations by a General Mutual Release.

 8. Tax Treatment. The Company acknowledges that the payments to Licciardi under the consulting agreement *fn3" and the aforesaid $ 650,000 payment are compensation for services rendered and to be rendered to the Company, and will be so reported by the Company on its federal and state income tax returns. The Company further acknowledges that the payment to Licciardi for the purchase of 44,756 shares of the Company's common stock is a capital payment for the retirement or repurchase of capital stock and will be so treated by the Company in its federal and state income tax returns.

 In the General Mutual Release ("Release") referred to at Agreement P 7, *fn4" the parties stopped just short of barring themselves, their families, their best friends and the Mormon Tabernacle Choir from ever suing anybody for any reason. *fn5" Here is the relevant belt-and-suspenders language:

 1. Except for the rights, powers, privileges, duties, liabilities and obligations created by or arising out of this Mutual General Release and . . . the Omnibus Agreement and all other related documents entered into by and between the parties hereto and concurrently herewith, Anadite and Licciardi, and each of them, hereby release and absolutely and forever discharge the other of and from any and all claims, demands, damages, debts, liabilities, accounts, obligations, costs, expenses, liens, actions and causes of action of every kind and nature whatsoever, whether now known or unknown, suspected or unsuspected . . . which any of the parties ever had, now has or may hereafter have against the other, by reason of any act, contract, omission, event, services rendered or transaction whenever occurring or existing at any time whatsoever to and including the date hereof.

 * * *

 * * *

 6. This Release shall be binding upon and inure to the benefit of the respective heirs, successors, predecessors, assigns, officers, directors, shareholders, employees and agents of the parties hereto to the extent permitted by law.

 In compliance with Agreement P 8, Anadite did in fact treat the $ 650,000 payment as compensation for tax purposes. It withheld state and local income taxes from payment (Licciardi Ex. B) and included the payment on Licciardi's W-2 form for 1979 under the heading "Wages, tips, other compensation" (Licciardi Ex. C). Nothing in the Agreement spoke to the question whether the $ 650,000 payment would also be treated as compensation for purposes of calculating Licciardi's pension benefits.

 When he left Anadite in 1979 Licciardi was a fully vested participant in the Plan, *fn6" eligible to receive pension payments as of October 1, 1990 (Licciardi 12(m) P 6; Lone Star 12(n) P 6). *fn7" Plan § 1.2(a)(1) then specified *fn8" that each monthly payment would equal 1% of Licciardi's "average monthly earnings" multiplied by his years of service (Complaint Ex. A). *fn9" Plan § 1.10 defined "Earnings" as (emphasis added):

 the total amount of wages paid to a Participant by the Company, including any overtime pay, commissions, bonus payments, and any other additions to or deductions from regular compensation.

 Plan § 1.5 defined "Average Monthly Earnings" to mean, in relevant part:

 one-sixtieth of the Participant's Earnings for the 5 consecutive calendar years of his employment with the Company for which the amount of Earnings paid to the Participant during his employment with the Company was the largest.

 In 1982 and again in 1983 Licciardi asked Anadite to confirm the amount of the monthly payments that he would eventually receive. Anadite replied that he would receive $ 3,246.88 per month, a figure based on Average Monthly Earnings from 1975 to 1979--excluding, however, the $ 650,000 payment from the amount of compensation for 1979 (Mayle Decl. Ex. B). Licciardi protested the exclusion in a conversation with Tom Freborg, an Anadite executive. Freborg told him that any "accounting error" could be corrected "any time" (Licciardi Dep. 61-62).

 In 1987 Anadite sold certain property and assets of its Kropp Forge Division to Lone Star. As part of the transaction Lone Star became successor sponsor of the Plan (Lone Star 12(n) PP 17-18). It also became entitled to convert to its own use any Plan assets not needed to satisfy the Plan's obligations (id. P 19). Lone Star believed that the Plan was overfunded, a belief based in part on the projections that Anadite had shared with Licciardi in 1982 and 1983 (id. P 20).

 Treatment of the $ 650,000 payment as "compensation" for pension purposes would roughly double Licciardi's monthly payments (Lone Star 12(n) P 22). In that calculation Lone Star apparently assumes that the entire payment would be attributed to the year 1979 or at least to the 1975-79 period, with no deduction for the fact that Licciardi alleges he was owed money for his 1972-74 services as well as for the later period (Lone Star Ex. 3 at 9).

 Procedural Background

 Licciardi filed this lawsuit on July 18, 1991, charging breaches of ERISA in general and of section 1132(a)(1)(B) in particular (Complaint P 1). *fn10" Lone Star, acting in its individual capacity rather than as Plan administrator, then moved to dismiss. It argued that an action to recover benefits under Section 1132(a)(1)(B) may be brought against the Plan but not against Lone Star itself.

 This Court rejected Lone Star's motion in an opinion reported at 772 F. Supp. 1069 (N.D. Ill. 1991). Under Section 16.5 of the 1987 amendment to the Plan, Lone Star stepped into Anadite's shoes as a Plan fiduciary. When it took that step Lone Star became potentially liable for any breach of fiduciary duty under Sections 1105 or 1109--in this case, for pocketing the proceeds of the Plan overfunding while allegedly denying Licciardi the full benefits owed to him. Because the facts alleged in the Complaint supported that theory of liability, it did not matter that Licciardi failed to cite the particular statutory sections (772 F. Supp. at 1071).

 Licciardi then moved for summary judgment against both defendants. His motion is fully briefed and ripe for decision. Acting both for itself and as administrator of the Plan, Lone Star has also filed a motion for summary judgment on all claims of breach of fiduciary duty. Briefing on ...


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