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BERG v. BCS FINANCIAL CORPORATION

June 6, 2005.

WENDELL H. BERG, Plaintiff,
v.
BCS FINANCIAL CORPORATION; SUPPLEMENTAL RETIREMENT PROGRAM FOR CERTAIN EMPLOYEES OF BCS FINANCIAL CORPORATION; and BCS FINANCIAL CORPORATION APPEALS COMMITTEE, Defendants.



The opinion of the court was delivered by: AMY J. ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Wendell H. Berg ("Berg"), filed a four-count complaint against Defendants BCS Financial Corporation ("BCS"), BCS Financial Corporation Appeals Committee (the "Appeals Committee"), and the Supplemental Retirement Program for Certain Employees of BCS Financial Corporation (the "Plan Defendant").*fn1 Berg brings Counts I and II against all Defendants alleging that each is liable under ERISA Section 502(a)(1)(B) for wrongly denying benefits due under the SRP. Count III, brought against BCS only, seeks statutory penalties under ERISA Section 502(c) for BCS's alleged failure to comply with certain federal regulations. Count IV, also brought against BCS only, asserts a state law breach of contract claim alleging that BCS failed to perform its obligations under its employment agreement with Berg. BCS and the Appeals Committee (together "Defendants") move to dismiss Counts I and II under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, and BCS moves to dismiss Count III on the same basis. BCS further moves, under Federal Rule of Civil Procedure 12(b)(1), to dismiss Count IV for lack of subject matter jurisdiction. The Plan Defendant answered the Complaint. For the reasons set forth below, Defendants' Motion to Dismiss (the "Motion") is granted in its entirety.

BACKGROUND

  For purposes of this Opinion, the Court accepts the following allegations as true.

  I. Berg's Employment with BCS

  On March 16, 1982, BCS hired Berg as Vice-President and General Counsel. At the time of his resignation, just over 21 years later, Berg served as BCS's Executive Vice-President, General Counsel and Secretary and as Executive Vice-President, General Counsel and Secretary and a Director of BCS Insurance Company and BCS Life Insurance Company, which are subsidiaries of Defendant BCS. (R. 1-1; Compl. at ¶ 10.) For the last fifteen years of his tenure, Berg worked under Edward Baran, BCS's Chairman, President and Chief Executive Officer. (Id. at ¶ 12.) Baran retired from BCS on March 31, 2003, the same date as Berg's last day of employment. (Id.) Daniel Ryan, a Vice President with BCS since 1980, succeeded Baran as BCS's President and CEO. (Id. at ¶ 13.)

  In 1998, Berg entered into an employment agreement (the "Employment Agreement") with BCS, (id. at ¶ 11), which set forth the terms of Berg's employment, including his base salary, (id. at ¶ 14), and further described the employee benefit plans in which Berg was eligible to participate, including the SRP. (Id. at ¶ 15.) The Employment Agreement also described the payments Berg would receive upon his termination. (Id. at ¶¶ 20-27.) Specifically, under Section 6(a), if Berg's employment "terminate[d] by reason of: (i) resignation . . . without Good Reason . . ., or (ii) termination by the Company For Cause*fn2 . . . then [BCS] shall pay [Berg] his base salary through the termination date plus all accrued vacation and any unreimbursed expenses as of [his] Termination Date." (R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. B at ¶ 6.)*fn3 Section 6(b), in contrast, provides that if Berg's "employment terminates by reason of: (i) termination by [BCS] without Cause, [or] (ii) resignation by [Berg] within six (6) months after an event constituting Good Reason*fn4 occurs . . . then [BCS] shall pay [Berg] . . . in addition to the amounts described in Section 6(a) . . . a severance allowance (the `Severance Amount') . . . in the amount of two (2) times the sum of (i) [Berg's] regular Base Salary as of [his] Termination Date, (ii) the Amount payable on an annual basis to [Berg] pursuant to Section 4(d) [i.e. the executive allowance discussed below] . . ." along with certain other amounts that are not at issue here.*fn5 (R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. B at ¶ 6.) BCS and Berg agreed that "payment of two-thirds of the Severance Amount . . . shall be made by [BCS] in consideration of the covenants of [Berg] contained in Section 8 . . .," which, in turn, contains non-compete and non-solicitation clauses, and a clause prohibiting Berg from revealing BCS's proprietary information. (Id. at ¶¶ 6, 8.) BCS was not obligated to pay the remaining one-third of the Severance Amount unless Berg executed a waiver and release of claims against BCS, which he did on February 28, 2003. (R. 1-1; Compl. at ¶ 23.) In addition, Section 6 of the Employment Agreement also provides that upon termination without Cause, BCS would have to pay "matching and catch-up contributions" to Berg's 401(k) plan. (Id. at ¶ 22; R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. B at ¶ 6(b)(y).)

  A. Berg's Rights Under Section Four of the Employment Agreement

  Pursuant to Section 4 of the Employment Agreement, Berg received a monthly allowance (initially, $1,000 per month) to cover, among other things, the costs of Berg's country club monthly dues. (R. 1-1; Compl. at ¶ 16; R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. B at ¶ 4.) At his departure, Berg's executive allowance had increased to $2,000 per month. (R. 1-1; Compl. at ¶ 16.) Beyond the strict terms of this contract provision, BCS typically reimbursed its executives for country club capital and operating assessments pursuant to Section 4 of the Employment Agreement, at the discretion of BCS's Chairman, President, and CEO. (Id. at ¶ 17; cf. R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. B at ¶ 4.) For instance, in March 2002, Cress Creek Country Club ("Cress Creek") offered Berg a membership conditioned upon Berg agreeing either to execute a promissory note for a $25,000 "building fund obligation" (which Cress Creek advised would likely be called for payment within six months) or pay $24,000 currently in full satisfaction of that obligation. (R. 1-1; Compl. at ¶ 18.) Baran, then BCS's Chairman, President and CEO, agreed on behalf of BCS that Berg should pay $24,000 currently to satisfy the obligation. (Id. at ¶ 19.) Berg received and endorsed a BCS check directly to Cress Creek to satisfy the building fund obligation. (Id.) One year later, due to a delay in building, Cress Creek returned $22,000 of that assessment to Berg. (Id.) Two months later, in May 2003, Cress Creek reassessed the $22,000 building fund obligation, which Berg promptly repaid. (Id.) Berg did not retain any of the monies given to him to cover the building fund obligation. (Id.)

  B. Berg Participated in BCS's Supplemental Retirement Program

  At some point, the Complaint does not allege when, Berg enrolled in BCS's SRP. (Id. at ¶ 68.) The SRP describes its purpose as:
[P]rovid[ing] benefits for employees of [BCS] whose benefits under the Retirement Program are restricted by the limitations of Section 401(a)(17) and 415 of the Internal Revenue Code ("Code"). Accordingly, that part of the Supplemental Program that provides in excess of the limitations of benefits in Code section 415 shall constitute an "Excess Benefit Plan," as defined by 3(36) of the Employment Retirement Income Security Act, as amended ("ERISA"), and that part of the Supplemental Program that provides benefits based on compensation in excess of the compensation limitation in Code section 401(a)(17) shall constitute a plan that is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of Title I of ERISA. It is intended that the Supplemental Program remain at all times an unfunded program.
(R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. A at 1.)

  It is unclear from the Complaint and the SRP how the Plan calculates the SRP benefits amount. The controlling section, Section 2.2 (defining the "Amount of Excess Benefit"), states only that the Participant's benefit shall be the "Actuarial Equivalent" of the amount of benefit payable to the participant under the Retirement Program. (R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. A at ¶ 2.2.) The Complaint does not indicate how benefits are administered under the Retirement Program. Apparently, the amount of Berg's "annual earnings" factors into the calculation of SRP benefits. (R. 1-1; Compl. at ¶ 47.)

  In any event, Section 3.2 of the SRP grants ample discretion to the Plan Administrator in administering benefits under the Plan: "The Administrator shall administer the Supplemental Program in accordance with its terms and purposes and shall have authority to interpret the Supplemental Program, to make any necessary rules and regulations, and to determine benefits under the Supplemental Program." (R. 7-1; Defs.' Mot. to Dismiss Compl. Ex. A at ¶ 3.2.) Likewise, the Plan Administrator maintains discretion under Section 2.9 of the SRP, which sets forth the conditions that can cause a forfeiture of benefit: "the amounts to which a Participant . . . would be entitled under this Supplemental Program shall be forfeited if (i) the Participant is discharged from Employment with [BCS] for acts which, in the sole judgment of the Administrator, constitute embezzlement of funds, or (ii) the Participant's Employment terminates by dismissal for cause and the circumstances surrounding such dismissal are such that the Administrator, in its sole discretion, determines that forfeiture of the benefit otherwise payable under the Supplemental Program is warranted." (Id. at ¶ 2.9.)

  C. The Events Surrounding Berg's Departure

  In 2002, Baran informed Berg that he and the BCS Board of Directors had agreed that Baran would retire at the end of 2002. (R. 1-1; Compl. at ¶ 30.) Among the executives seeking to succeed Baran were Berg and Ryan. (Id.) The Board opted to promote Ryan. (Id. at ¶ 31.) Thereafter, on February 10, 2003, BCS's Executive Committee unanimously authorized Berg to resign for Good Reason and BCS to terminate his employment without Cause, as defined in Sections 6(b) and (d) of the Employment Agreement. (Id. at ¶ 32.) That same day, Baran circulated to the BCS Board of Directors a memorandum explaining what prompted the Executive Committee's action: "[a]s you know, Wendell [Berg] and Dan [Ryan] have philosophical differences such that neither would want, nor would it be advisable for one to work for the other after I leave . . . Wendell and Dan have asked for an early decision on the matter so that an orderly process can take place in a manner that will permit Wendell to exit on March 1st with dignity." (Id. at ¶ 33.) Baran further explained that the Executive Committee voted unanimously to allow Berg to resign for Good Reason and to terminate him without Cause and requested that the Board of Directors affirm the Executive Committee's determination at the next board meeting. (Id.)

  On February 28, 2003, the Board of Directors held a special telephonic meeting and unanimously ratified the Executive Committee's action, thus authorizing Berg to resign with Good Reason and to terminate him without Cause. (Id. at ¶ 34.) Berg did not attend this meeting, but Baran did, filling in as secretary due to the absence of the Board of Directors' usual secretary. (Id. at ¶ 35.) After the meeting, Baran gave his handwritten notes from the meeting to Berg and asked Berg to draft the minutes for the Board of Directors based on those notes. Berg did so, and Baran reviewed, approved and signed the minutes as drafted by Berg. (Id.) Berg then forwarded the approved minutes to another BCS employee, Ms. Sandra Strutz (whom the Board subsequently elected as BCS's Secretary), assuming that she would circulate these minutes to the Board of Directors prior to the March 2003 meeting for the Board's approval.*fn6 (Id. at ¶ 36.)

  Also on February 28, 2003, Baran issued a bulletin to all BCS employees stating that Berg "has done an outstanding job in every area I have asked him to handle and has been very instrumental in helping to build BCS Financial into the successful company that it is today. Please join me in thanking [Berg] for a job well done." (Id. at ¶ 39.)

  Around the same time, Ryan sent a letter to Mr. James Mead, BCS's new Chairman, stating that he believed the minutes of the February 28, 2003 Board meeting, as approved and signed by Baran, did not correctly reflect the terms of Berg's separation. (Id. at ¶ 40.) Ryan enclosed alternative minutes, which stated that he did not believe Berg could adequately fulfill his job duties going forward after Ryan assumed his role as CEO and that a planned reorganization likely would diminish Berg's duties. (Id.) Ryan's draft minutes also granted him the power to investigate whether any facts or circumstances existed that would allow BCS to determine that Berg breached his obligations under his ...


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