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FASCO INDUS. v. MACK

January 27, 1994

FASCO INDUSTRIES, INC., on behalf of itself, as administrator of the Supplemental Executive Retirement Plan of Fasco Industries, Inc., and as successor of H.S. Atlantic, Inc., Plaintiff,
v.
FRANK W. MACK, DALE L. BENNETT, RODERIC B. KARPEN, DAVID GRAHAM WILSON, JOHN A. NEGOVETICH, JOHN F. GOLEN, JEAN-MARIE MENZER, JOHN R. WATSON, and CONTINENTAL BANK, N.A., Defendants.


Andersen


The opinion of the court was delivered by: WAYNE R. ANDERSEN

This case is before the court on the motion of defendants Frank Mack, Dale Bennett, Roderic Karpen, David Wilson, John Negovetich, John Golen, Jean-Marie Menzer, John Watson and Continental Bank to dismiss plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. For the reasons stated below, we deny the motions to dismiss.

 Plaintiff Fasco Industries, Inc. ("Fasco") has brought this suit against Continental Bank and former officers and directors of Fasco (hereinafter referred to as "executives"), contending that these executives committed wrongdoing in connection with a deferred compensation scheme created for their benefit known as a Supplemental Executive Retirement Plan ("SERP"). This action arises from the alleged fraud and self-dealing of the executives. The executives, anticipating a takeover of Fasco's parent, allegedly created the SERP, a bonanza retirement plan of which they are the sole participants. Fasco claims that this was done without obtaining any approval from Fasco's disinterested directors (because there were none) or shareholders.

 Fasco claims that the executives camouflaged the plan's true purposes by creating a trust to fund the SERP. Fasco claims that the executives amended the SERP to strip Fasco of its rights to amend the plan or direct its investments. On the day Fasco's parent was acquired, the executives funded the trust with nearly $ 10 million dollars--more than twice what was necessary to pay their benefits in full. Within two months after the takeover, Mack resigned from Fasco. Most of the other executives followed shortly thereafter. None is presently employed at Fasco.

 The SERP at issue was executed in November, 1990. The SERP was designed to benefit the executives, all of whom were employed by Fasco at the time the SERP was executed. The SERP was prepared with the assistance of an outside financial consultant, James Cleary of the John O. Todd Organization ("Todd"). Todd prepared a report for Fasco describing purposes of the SERP, which Fasco claims incorrectly noted that it was designed to attract, retain, motivate and reward senior management of Fasco. Fasco claims that, in fact, the SERP provided exceedingly high benefits and deterred executives' continued tenure with Fasco. The report explained that the plan would provide a target retirement benefit to the officers and directors of a percentage of each executive's final income. This percentage ranged from 42-47%, with the percentage being greater the greater the executive's salary.

 According to the complaint, the plan was to be funded by corporate owned life insurance ("COLI"). Under a COLI-financed plan, according to the complaint, the corporation would insure the lives of the plan participants, i.e., the defendant executives. As these participants died, the corporation would receive a tax-free death benefit. According to the Todd report, the sum of these death benefits was intended to exceed (on a present value basis) Fasco's outlays for insurance premiums and benefit payments under the plan. The complaint notes that COLI was in fact purchased for the plan, from Northwestern Mutual Life. These COLI policies are held in trust by defendant Continental Bank as trustee.

 Fasco's complaint contains two counts. Count I, which arises under state law, seeks damages for the executives' alleged breaches of their fiduciary duties and wrongful conversion of funds. Fasco alleges that Count II arises under the federal common law of restitution under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. Defendants argue that this court lacks subject matter jurisdiction.

 DISCUSSION

 In considering a motion to dismiss, the court must accept as true all the well-pleaded material facts in the complaint and must draw all reasonable inferences from those facts in the light most favorable to the plaintiff. Perkins v. Silverstein, 939 F.2d 463, 466 (7th Cir. 1991). Further, the complaint should not be dismissed unless it appears, beyond a doubt, that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 I. The SERP is an Employee Benefit Plan Under ERISA

 An employee pension benefit plan is defined as:

 29 U.S.C. § 1102(2)(A). Because the SERP at issue in this case "provides retirement income to employees" and "results in a deferral of income" to the executives "to the termination of covered ...


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