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Matz v. Household International Tax Reduction Investment Plan

United States District Court, N.D. Illinois, Eastern Division

March 26, 2014

ROBERT J. MATZ, Individually and on Behalf of All Others Similarly Situated, Plaintiff,


JOAN B. GOTTSCHALL, District Judge.

Plaintiff Robert J. Matz brings this action on behalf of himself and all similarly-situated former employees of Household International, Inc. ("Household"), who were participants in the Household International Tax Reduction Investment Plan ("the Plan") and whose matching pension benefit contributions from Household were forfeited when their employment was terminated. Matz alleges that the Plan violated the Employee Retirement Income Security Act of 1974 ("ERISA") by failing to declare a "partial termination" of the Plan, which would have resulted in the full vesting of matching contributions made by Household to the individual retirement accounts of the Plan participants. The Plan now moves for summary judgment. Because Matz has failed to demonstrate a genuine issue of material fact as to whether a partial termination of the Plan occurred, requiring full vesting of all matching contributions, the motion is granted.


Summary judgment is appropriate when the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Smith v. Hope Sch., 560 F.3d 694, 699 (7th Cir. 2009). "[A] factual dispute is genuine' only if a reasonable jury could find for either party." SMS Demag Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365, 368 (7th Cir. 2009). The court ruling on the motion construes all facts and makes all reasonable inferences in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment is warranted when the nonmoving party cannot establish an essential element of its case on which it will bear the burden of proof at trial. Kidwell v. Eisenhauer, 679 F.3d 957, 964 (7th Cir. 2012). A party will be successful in opposing summary judgment only if it presents "definite, competent evidence to rebut the motion." EEOC v. Sears, Roebuck & Co ., 233 F.3d 432, 437 (7th Cir. 2000).

A brief discussion of the rules governing summary judgment motions in this district is warranted here. In addition to complying with the Federal Rules of Civil Procedure, the parties must also adhere to the Local Rules for the Northern District of Illinois and this court's Standing Order. Local Rule 56.1 provides that the moving party shall serve and file:

1) any affidavits and other materials referred to in Fed.R.Civ.P. 56(e);
2) a supporting memorandum of law; and
3) a statement of material facts as to which the moving party contends there is no genuine issue....
The statement referred to in (3) shall consist of short numbered paragraphs, including within each paragraph specific references to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth in that paragraph.

L.R. 56.1(a). All argument must be contained in the party's brief, not in the Rule 56.1 statement. Standing Order at 1-2. The court disregards any argument contained in the Rule 56.1 statement.

The party opposing summary judgment is required to respond with its own supporting evidence, memorandum, and "concise response to the movant's statement...." L.R. 56.1(b). The opposing party's Rule 56.1(b) statement should also contain "any additional facts that require the denial of summary judgment." Id . The opponent must include references to its supporting materials. Id . Failure to respond to a statement results in the court admitting the statement as true. See Raymond v. Ameritech Corp., 442 F.3d 600, 608 (7th Cir. 2006).


For purposes of the motion for summary judgment, the court takes the following facts from the parties' Local Rule 56.1 Statements of Facts ("SOFs"), to the extent that they are supported by admissible evidence and relevant to issues raised in the motion. Where facts are disputed, the court takes no position as to which version of the disputed matter is correct. See Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003). Facts not supported by the cited evidence or irrelevant to the motion for summary judgment have been excluded from this summary.[1]

A. The Plan

The Plan is a defined contribution employee pension benefit plan sponsored by Household (now known as HSBC Finance Corporation) for the benefit of the eligible employees of Household and its subsidiaries. The Plan is intended to be a qualified profit sharing plan under Internal Revenue Code § 401(a), 26 U.S.C. § 401(a).

The Plan is governed by the Plan Document. The Plan assets are held, administered, and managed by the Vanguard Fiduciary Trust Company (the "Trustee") in accordance with the terms of a Trust Agreement. The Trust Agreement provides that, although Household may amend the Agreement at any time, no amendment may divert any of the Plan's assets to any purpose other than providing benefits to Plan participants and their beneficiaries or defraying the expenses of administering the Plan.

The Plan provides for individual accounts for each employee who elects to participate by making contributions to the Plan. Household makes matching contributions to the accounts of all contributing Plan participants every month. The contributions are made directly to the Trustee; Plan participants may direct the Trustee to invest the amounts allocated to their accounts into various Funds. Benefits under the Plan are based solely on the amounts contributed to each participant's account and any income, expenses, gains, and losses allocated to the account.

Under the Plan, participants were always fully vested in the amounts credited to their accounts that were attributable to their own contributions. Prior to September 30, 1995, the Plan contained a five-year graded vesting schedule for the matching contributions made by Household. Participants gained a vested interest in the matching contributions at the rate of twenty percent per year, becoming fully vested after five years of service.

For participants who separated from employment before September 30, 1995, the Plan provided that, if the participant's employment was terminated for reasons other than death, disability, or retirement, the participant would not receive the unvested portion of the account balance attributable to the employer's matching contributions. These matching contributions, and earnings on the contributions, were forfeited by the participant and remained in the Plan for the benefit of the remaining Plan participants. Forfeited amounts could be used only for the benefit of active Plan participants by either: (1) restoring unvested account balances of Plan participants who had returned to their jobs with the Plan sponsor; or (2) reducing the sponsor's future matching contributions to the accounts of the remaining Plan participants.[2] Matching contributions could be returned to Household only if the contributions were made based on a mistake of fact or if the deduction for the contribution were disallowed. No earnings on the contributions could be returned. During the period at issue, no Plan assets reverted to Household; all assets remained in the Plan for the benefit of the Plan participants.

Before September 30, 1995, the Plan provided for full vesting of employer matching contributions if the Plan was terminated or partially terminated. Effective September 30, 1995, the Plan was amended to eliminate the five-year vesting schedule; as a result, after that date, any participant whose employment terminated for any reason was considered fully vested in his or her Plan account, including Household's matching contributions, and received a distribution of the full account balance. Thus, after September 30, 1995, forfeiture of benefits was not possible.

B. Matz's Plan Participation and Legal Claims

Matz, an individual residing in Wilmette, Illinois, is a former Plan participant. Matz was employed by Hamilton Investments, Inc. ("Hamilton Investments"), a wholly-owned subsidiary of Household, from March 28, 1989, until August 31, 1994. His employment was terminated when Household sold substantially all of Hamilton Investments' assets. As an employee of Hamilton Investments, Matz elected to make payroll contributions to the Plan, and Household made matching contributions to his account. At the time his employment was terminated, Matz was sixty-percent vested in the matching employer contributions made to his account. He received a distribution from the Plan in the amount of $27, 914.10, the full amount of his vested account balance, but he did not receive a distribution of the remaining forty percent of matching contributions to his account, valued at $7, 288.92.

In February 1996, Matz filed a complaint, on behalf of himself and others similarly situated, seeking the non-vested portion of the employer matching contributions, pursuant to § 501(a)(1)(B) of ERISA, 29 U.S.C. § 1131(a)(1)(B). Matz claims that he is entitled to the matching contributions because a "partial termination" of the Plan occurred, requiring the contributions to become fully vested. This court has jurisdiction to adjudicate the dispute under § 502(e) of ERISA and 28 U.S.C. § 1331. Venue is proper pursuant to § 502(e)(2), 29 U.S.C. § 1132(e)(2), because the Plan is administered in this district, and the facts alleged occurred here.

C. The Alleged "Reorganization" of Household

Whether a partial termination of the Plan occurred depends in part on the percentage of Plan participants who lost coverage. That, in turn, depends upon which events are considered to be relevant in calculating the number of employees who were terminated. In this case, the parties dispute whether the only relevant event is the sale of Hamilton Investments, Matz's employer, or whether the sale of other Household entities is also relevant. A series of events resulting in terminations may be aggregated to determine whether a partial termination occurred if the evidence demonstrates that the events were related. See Rev. Rul. 2007-43, 2007-28 I.R.B. 45, 2007 WL 1816726 (IRS RRU) (June 26, 2007); Matz v. Houshold Int'l Tax Reduction Inv. Plan, 227 F.3d 971, 977 (7th Cir. 2000); Weil v. Ret. Plan Admin. Comm., 750 F.2d 10, 12 (2d Cir. 1984).

Matz alleges that his participation in the Plan was terminated as a result of a "reorganization" of Household that "began on or about August 1, 1994 and ended on or about June 30, 1996." The alleged reorganization was implemented pursuant to a "policy adopted in (or before) 1994." The alleged reorganization consists of the following transactions: (1) the sale of Hamilton Investments on or about August 31, 1994; (2) the sale of Household's residential mortgage business, known as Household Mortgage Services ("HMS"), in or about December 1994; (3) the sale of the branches of Household Bank, fsb ("Household Bank") located outside of Illinois between February and September 1995; (4) the sale of a life insurance subsidiary, Alexander Hamilton Life Insurance Company ("AHLIC"), on October 6, 1995; (5) and the sale of the Illinois branches of Household Bank on or about June 28, 1996. Matz claims that these transactions were so "related" as to constitute a single corporate event, which he alleges resulted in a partial termination of the Plan. Matz contends that other activities during this time period, including the consolidation of corporate operations, also formed part of the reorganization.

1. Household's Pre-1994 Divestments

In 1985, Household began to restructure its operations away from being a diversified conglomerate. Household disposed of its merchandising business in 1985, its transportation business in 1986, and its manufacturing businesses in 1989 and 1990. Employee terminations resulting from the sale of these businesses are not part of Matz's alleged reorganization.

2. The "Strategic Think" Process

Matz argues that his employment was terminated as a result of a restructuring process that began in 1993, under then-CEO Don Clark. Clark had begun transitioning away from the active management of the Company, but when the person chosen to succeed him as CEO died suddenly in April 1993, he stayed on as a placeholder while Household selected his successor.

During this interim period, under Clark's direction, Household's management conducted a series of what were known as "Strategic Think" meetings to evaluate the competitive strengths and weaknesses of Household's business units. Four meetings were held in 1994. Household's management used an outside consultant, the Boston Consulting Group, to study the profitability and strategic positioning of each of Household's businesses. The meetings also allowed Clark to reacquaint himself with management issues and to evaluate internal candidates for CEO. David Schoenholz, who served as Household's chief financial officer from 1994-2002, testified that the Strategic Think process resulted in no formal conclusions or recommendations.

During the meetings held in 1994, Schoenholz testified, a consensus was reached to continue in the consumer finance and credit-card lending businesses and to strengthen them if possible, as those were Household's strongest businesses. (Def.'s SOF Ex. G (Schoenholz Dep.) 32:4-11.) Schoenholz testified that, during the meetings, management attempted to establish criteria to identify which businesses had competitive advantages and that the "criteria were evaluated on a case-by-case basis" with respect to each business. ( Id. at 155:9-17.)

3. The 1994 and 1993-1996 Strategic Plans

Household prepared one and three-year strategic and operating plans that were presented to its Board of Directors each year. The 1994 Strategic Plan presented to the Board at the January 11, 1994, Board meeting asked, "[W]hat businesses should we be in and why?" It noted that the Strategic Think meetings were designed to address that question. The 1993-1996 Strategic Plan stated that Household had "[d]ominant market positions in the consumer and credit card segments" and "synergies... among business units." It identified "Liquidating Commercial Lines and Canada" as "[p]roblem businesses" and noted a "[l]ack of critical mass in some key markets and/or business units, " as well as "[l]ess than satisfactory profitability in [the] individual life business, and an "[i]nability to fully utilize deposit funding from Household [B]ank." (Pl.'s Ex. 17 (1993-96 Strategic Plan) at HO230970-HO230971.) The document identified as "corporate strategies" "[growing] new and existing businesses which generate consistently superior returns, " "address[ing] these units which have not or may not meet these criteria, " and "focus[ing] on our problem businesses and returning them to profitability." ( Id. at HO230972.)

4. The Sale of Hamilton Investments Household's 1993-96 Strategic Plan identified Hamilton Investments as a business that lacked "critical mass." ( Id. at H0230971.) Meetings and studies in February 1994 addressed whether Household "want[ed] to be in the retail brokerage business." (Pl.'s SOF Ex. 93 (Strategic Study).) Clark informed the Executive Committee of the Board of Directors that management intended to pursue options regarding Hamilton Investments, including a possible sale. The decision to sell Hamilton Investments was approved by the Board of Directors on July 12, 1994, and the sale occurred on or about August 31, 1994. Randall Raup, who was the head of Household's planning department and reported to Schoenholz, testified that the decision to sell Hamilton Investments was made "primarily because Hamilton Investments was a relatively small player, and... given the size of the competition and [the fact that Hamilton Investments] was a very small business, we didn't see how that could fit into the overall long-term strategy." (Def.'s SOF Ex. F (Raup Dep.) 93:21-94:2.)

5. William Aldinger Becomes Household's CEO

William F. Aldinger replaced Clark as Household's CEO on September 13, 1994, after the sale of Hamilton Investments. Aldinger testified that he "had nothing to do with" the sale of Hamilton Investments. (Def.'s SOF Ex. A (Aldinger Dep.) 39:8-9.) He explained that he was not "part of [the] decision-making" with respect to the sale ( id. at 40:2-3), and that he "didn't have a clue as to what [management's] reasoning was" ( id. at 41:1-2). Aldinger accepted the offer to become CEO on July 27, 1994 but did no work at Household until September 13, 1994.

When Household hired Aldinger to succeed Clark as CEO, there was no requirement that he share Clark's strategic vision for the company. Board of Directors member Robert Darnall, who served on the Board committee that recommended hiring Aldinger, testified that he believed the company was "getting a fresh perspective on the business." Household told Aldinger when he interviewed for the position that the Board was looking for someone with a "broad financial services background, " who could be a "change agent" and who "could potentially increase [Household's] stock price and increase the earnings and the trajectory of those earnings."

Clark continued to receive reports about Household's management, but Aldinger testified that after he was installed as CEO, Clark did not influence his decisions regarding the strategic direction of the company:

I think we had differences, but he would not step in and interfere. He made it very clear to me that when I took over, whatever I decided to do as CEO, he would support. And so I made decisions and didn't consult with him on those other than as a board member.... [T]o his credit, he stuck to his word and let us execute the way I saw fit.

(Aldinger Dep. 63:2-13.) Aldinger testified that he was "not aware of any specific evaluation of [Houshold's] businesses before [he] arrived" and that he "wanted a fresh look at everything."

Aldinger did not continue the Strategic Think meetings that had been conducted under Clark.[3] He testified that "in the early stages, " he could recall Clark being present at only one management team meeting, "in October or November" of 1994. ( Id. at 23:6-24:3.) Regarding the Strategic Think meetings, he testified:

Before I arrived, I knew nothing [about strategic meetings conducted under Clark]. After I arrived, it may have been mentioned to me that [Clark] had a method and approach, and I had one meeting my first month on the job, ... which was the last meeting that he came to, had the consultants in it which never happened again, because I didn't include them in the meetings.
So that's the extent of what I knew about [Clark's strategic meetings]. And in my approach in the beginning based upon my discussion with him [Clark] was, I'm in charge. I do it my way. I wasn't really interested in what they had done before... because I had a different view of the world, and I didn't think that the performance... was knock out.... [M]y perception was twofold. One, the results were lousy.... And, two, my role was to do it my way, and I didn't want to be encumbered by, locked into, or biased by other actions. Period. I wanted to look at it fresh.

( Id. at 96:20-98:1.)

With respect to the strategic decisions made by Household during the alleged "reorganization" period, Raup testified, "I guess I would break it into kind of two different buckets.... before Bill Aldinger joined in his role versus after he joined." (Raup Dep. 92:18-24.) Raup further testified:

[W]hen Don [Clark] was in charge, there were two specific units we identified as [not]... part of our long-term strategy, and that would have been the Australian unit and Hamilton Investments.... Then when Bill Aldinger came on board and he was looking across all business units [, ]... he ha[d] a different viewpoint in terms of what it was going to take for us to be successful....

( Id. at 110:11-111:2.)

As CEO, Aldinger emphasized cost efficiency and economy of scale. He testified that his "stamp would have been to execute and to emphasize being a low cost producer" and to invest in the company's most profitable business rather than treating all of the businesses equally. (Aldinger Dep. 44:14-45:11.) To that end, Aldinger introduced the concept of the efficiency ratio-a measurement calculated by dividing expenses by revenue-as a criterion for evaluating Household's businesses. Schoenholz testified that Aldinger emphasized "cost structure" and "which businesses had the... potential to be the most efficient in their competitive market space, " criteria that "got added to the other elements as we began evaluating individual businesses on a one-by-one basis." (Schoenholz Dep. 155:19-156:10.)

Aldinger wrote a letter to Household employees on October 26, 1994, stating that "Low cost producers win, " and that the company needed to "increase revenues and reduce costs." (Pl.'s SOF Ex. 147 (Oct. 26, 1994 Aldinger Letter).) He stated, "Beginning immediately, we will be looking for ways to streamline operations and remove redundancies. Unfortunately, some employees will be displaced.... Household will continue its commitment to place as many employees as possible in other areas of the company." ( Id. )

Schoenholz testified that Aldinger "focused very quickly on efficiency and reducing head count across the board." (Schoenholz Dep. 154:10-11.) On November 11, 1994, Aldinger wrote to all Household employees: "I have just completed my first Strategic Plan review as your CEO.... As we reviewed the strategies for each business unit, we agreed upon the needed changes to position ourselves for the future. Over the last week you have heard about some of these initiatives, which include consolidation and downsizing of some units." (Pl.'s Ex. 148 (Nov. 11, 1994 Letter).)

Aldinger testified that, within the first six months of his tenure, he grouped Household's businesses into three broad categories: (1) core businesses including the consumer finance and credit-card subsidiaries; (2) businesses that warranted further investment, including AHLIC and the Illinois branches of Household Bank; and (3) businesses whose performance and profitability were not considered to be up to Household's standards, including HMS and the non-Illinois branches of Household Bank.[4] Aldinger testified that, early in his tenure, he expected the Illinois branches of Household Bank to be "part of our core business, " but that "they would have to improve their performance" and "efficiency ratio." (Aldinger Dep. 98:14-18.) He testified ...

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