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Fenster v. Tepfer & Spitz

August 30, 2002

FREDERIC A. FENSTER AND NOLAN S. FRANK, PLAINTIFFS-APPELLANTS,
v.
TEPFER & SPITZ, LTD., RONALD O. SPITZ, DAWN C. MAGLIOLA, AND TEPFER & SPITZ, LTD. 401(K) PROFIT SHARING PLAN AND TRUST, ET AL., DEFENDANTS-APPELLEES.
RONALD O. SPITZ, AS A TRUSTEE OF THE TEPFER & SPITZ, LTD. 401(K) PROFIT SHARING PLAN & TRUST, PLAINTIFF-APPELLEE,
v.
ARTHUR H. TEPFER, FREDERIC A. FENSTER, AND NOLAN S. FRANK, DEFENDANTS-APPELLANTS.



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 97 C 7093 & 96 C 5844--Harry D. Leinenweber, Judge.

Before Flaum, Chief Judge, Manion, and Diane P. Wood, Circuit Judges.

The opinion of the court was delivered by: Diane P. Wood, Circuit Judge.

ARGUED DECEMBER 7, 2001

This is the second time this court has had to consider the fractious battle between two former business partners over their firm's pension plan. Once again, Ronald Spitz, the owner of a consulting firm and trustee of a 401(k) plan, is before this court in an Employee Retirement Income Security Act (ERISA) action against his former co-owner, Arthur Tepfer, and two of the firm's employees, Frederic Fenster and Nolan Frank. The district court has again granted summary judgment in Spitz's favor on all claims except for one, and it has awarded Spitz attorneys' fees, collectable jointly from Tepfer, Frank and Fenster. This time, we affirm the district court's judgment. *fn1

I.

We will assume familiarity with the account set forth in our prior opinion in this matter and will repeat only what is necessary for this appeal. See Spitz v. Tepfer, 171 F.3d 443 (7th Cir. 1999) (Spitz I). Spitz and Tepfer were equal co-owners of a retirement-plan-consulting business, Tepfer & Spitz, Ltd. (T&S). They were its sole directors and officers: Spitz was president and Tepfer was secretary. In January 1991, T&S established a 401(k) profit-sharing plan (the Plan). Under the Plan, an employee could not vest until she had completed six years of service with T&S. On June 9, 1995, Tepfer left T&S, leaving quite a wake behind him. In addition to filing an unsuccessful suit in state court to force the dissolution of T&S, Tepfer formed another corporation, Tepfer Consulting Group, Ltd., where he served as president and sole shareholder. Fenster and Frank also left T&S to become employees of Tepfer Consulting Group. In addition, without telling Spitz, Tepfer executed a document entitled the Fourth Plan Amendment. This document was never adopted, ratified, or approved by the T&S Board of Directors. It generously provided that all participants in the T&S Plan would become 100% vested by January 1, 1995, and that all employees were guaranteed to receive their allocation of the T&S annual contribution to the Plan, even if they were not actively employed with T&S on the last day of the year. Finally, and most importantly for this appeal, Tepfer withdrew $48,000 on June 2, 1995, from the Plan without Spitz's knowledge, pursuant to another mysterious document entitled "Participant Loan Program." No one apart from Tepfer himself approved the incorporation of the Participant Loan Program into the Plan, nor did anyone authorize the alleged loan he took out under that alleged program.

These actions did not endear Tepfer to Spitz. To the contrary, on September 12, 1996, Spitz filed an action in the district court, requesting among other things that the court declare that the Fourth Plan Amendment and the Participant Loan Program were invalid. Spitz also sought an order requiring Tepfer immediately to repay the loan to the T&S Plan and a judgment declaring that Tepfer, Fenster and Frank were not fully vested in the T&S Plan and therefore not entitled to contributions to their 401(k) accounts for 1995. Fenster and Frank initiated a separate action against Spitz and T&S, claiming that T&S violated ERISA's information requirements. The district court consolidated the two cases (dubbing them the "Spitz" litigation and the "Fenster" litigation for convenience), granted summary judgment in favor of Spitz in both, and denied both sides attorneys' fees and costs.

This court affirmed the district court in part and reversed and remanded in part for further findings regarding the existence and scope of the loan program. See Spitz I. We also found that Spitz would be entitled to attorneys' fees under ERISA should he prevail again.

On remand, Spitz sought two things: first, a finding that the Plan administrator (basically, Spitz himself by that time) did not abuse his discretion when he determined that the Participant Loan Program was invalid and second, an order requiring Tepfer immediately to repay the loan with interest. The district court again granted summary judgment in Spitz's favor. With respect to the Fenster case, the district court ruled in favor of Spitz on all matters with one exception. It decided sua sponte to grant summary judgment for the Fenster plaintiffs on the claim that T&S had violated ERISA by failing to respond within 30 days to Fenster's and Frank's request for a benefits statement. This was a largely symbolic victory, however, as the court also decided that the violation was so trivial that penalties would not be assessed. Finally, the district court awarded Spitz $67,406.90 in attorneys' fees, costs, and litigation expenses. The attorneys' fees portion of this sum, the court concluded, could be offset against Tepfer's pension benefits pursuant to 29 U.S.C. § 1056(d)(4)(a)(ii). Tepfer, Fenster and Frank appeal the district court's orders.

II.

Before we proceed to the merits of this appeal, we pause briefly to note that our appellate jurisdiction is now secure. Initially, there was a finality problem because Tepfer filed his notice of appeal prior to the entry of a final order on his motion for reconsideration. Recognizing this error, however, he has since requested and received a final order from the district court. As this was only a technical defect that has been cured, we have jurisdiction to review the district court's judgment. See Spitz I, 171 F.3d at 448.

A. Tepfer's Loan

In Spitz I, this court held that genuine issues of fact remained regarding the scope of the loan program that were critical to the question of whether Tepfer properly applied for the loan. 171 F.3d at 449. On remand, Tepfer tried to show that his loan and the Participant Loan Program were validly executed pursuant to § 7.4 of the Plan. Section 7.4 states that loans "shall be made pursuant to a Participant loan program . . . . Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan."

Tepfer's point is fairly simple: the only document looking like a § 7.4 loan program was his Participant Loan Program; ergo, his loan must be valid. The district court found otherwise. Tepfer wants us to review that decision de novo, which is the standard that applies if an ERISA plan does not give discretionary authority to the administrator to construe its terms. See O'Reilly v. Hartford Life & Accident Ins. Co., 272 F.3d 955, 959 (7th Cir. 2001). It is well established, however, that if the administrator has such discretion (as this one did), we look only to see whether the administrator's determination is arbitrary or capricious. Id. As this court noted in Spitz I, 171 F.3d at 449, "Spitz is the only person left at T&S who matters" when interpreting the Plan as the only remaining administrator at T&S. He ...


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