Opinion
Nos. 276, 277.
Argued November 1, 1972. —
Decided November 28, 1972.
APPEALS from an interlocutory judgment of the circuit court for Racine county: HOWARD J. DU ROCHER, Circuit Judge. Reversed.
For the appellants there were briefs by Whyte, Hirschboeck, Minahan, Harding Harland, S.C., attorneys, and Victor M. Harding and Anthony W. Asmuth III of counsel, all of Milwaukee, and oral argument by Victor M. Harding.
For the respondent there was a brief by Davis, Kuelthau, Vergeront, Stover Leichtfuss, S.C., attorneys, and John G. Vergeront and John P. Savage of counsel, all of Milwaukee, and oral argument by Mr. Savage.
These are actions by certain former employees of Burlington Mills, Inc. (hereinafter the "company") to participate in the trust fund established to provide pension benefits for salaried employees. The two class actions were consolidated for trial and tried to the court without a jury.
In 1962 the company adopted a pension plan (hereinafter the "plan") for its salaried employees, and the plan was qualified under the Internal Revenue Code of 1954, as amended. Simultaneously, with the creation of the plan, the Burlington Mills Pension Trust for Salaried Employees (hereinafter the "trust") was established to provide a vehicle for funding the plan. All contributions to the trust were made by the company and to this extent were tax deductible with earnings on the contributed sums not being taxed.
The contributions made were as follows:
1962 — $18,928 1963 — 16,800 1964 — 19,000 1965 — 14,997 1966 — 800 ------- Total $70,525The last contribution to the plan was made on January 19, 1966.
As originally set up, A. J. Rueter, Richard A. Kinzer and Floyd Steffen constituted the trustees of the plan and the retirement committee which was charged with administering the plan.
Under the terms of the plan, benefits were based on two factors, namely, the amount of salary and years of service, and any salaried employee was immediately eligible to participate. The plan provided benefits to retired employees who were over sixty-five years of age with ten years of company service; over age sixty with twenty years of service; or to employees who were permanently disabled while employed after fifteen years of service. It is conceded that none of the plaintiffs-respondents fit into any of these categories.
Art. XIII of the plan related to termination and as it was originally adopted, the material part read as follows:
"Art. XIII
"13.1 Right to Terminate: The Board of Directors of the Employer, by a duly adopted resolution, may terminate the Plan at any time and may direct and require the Trustee to liquidate the Trust. In the event the Employer shall for any reason cease to exist, the Plan shall terminate and the Trust shall be liquidated, unless it is continued by a successor to all or substantially all of the Employer's assets.
"13.2 Liquidation of Trust Fund: Upon termination of the Plan, each Employee's accrued benefit, based on his Service prior to the date of termination, shall become fully vested, and the assets of the Trust shall be liquidated, after provision is made for the expenses of liquidation, by the payment or provision for the payment of benefits in the following order of preference:
"(a) to retired Employees who are receiving benefits on the date of termination;
"(b) to Employees who attained age 65 and completed 10 or more years of Service to the date of termination.
"(c) to Employees who attained age 55 and completed 15 or more years of Service prior to the date of termination; and to retired Employees who are eligible for any Early Pension but who have not received any payments thereof prior to the date of termination;
"(d) to all other Employees according to the respective actuarial values of their accrued benefits as of the date of termination.
"If the assets of the trust applicable to any of the above groups are insufficient to provide full benefits for all persons in such groups, the benefits otherwise payable to such persons shall be reduced proportionately, and no benefits shall be paid to any person in a subsequent group."
On May 4, 1965, the company's board of directors (hereinafter the "board") passed a resolution amending sec. 13.2 and, after such amendment, the section read as follows:
"Upon termination of the Plan, or a permanent discontinuance of contributions by the Employer, each Employee's accrued benefit . . . shall become fully vested. . . ." (Emphasis added.)
According to the resolution, the added language was made necessary by a requirement of the Internal Revenue Service.
In November of 1965, the board adopted a resolution to move the company's operations from Burlington, Wisconsin, to Danville, Kentucky, with the major impetus for the move coming from an adverse financial situation present in its Wisconsin operation. News of this move became known to the employees in early 1966 and was formally announced during the summer of 1966. The company's president, Richard Kinzer, testified that although most of the salaried employees were expressly offered a job in Danville, there were a few exceptions, such as where the employee's physical condition or family situation was such as to preclude a move. There was, however, testimony by five of the named plaintiffs that no offer of employment was ever made to them, and on appeal plaintiffs allege that a number of them were terminated outright when their employment was no longer needed in Burlington. Other plaintiffs, being aware of the impending relocation, sought, found and commenced different employment prior to the date on which their job would have actually shifted to Kentucky.
The move to Kentucky did not ease the adverse financial condition of the company. In the early months of 1967, efforts were made to find a buyer for the business. In order to give the officers an opportunity to either sell the company with the salaried pension plan still in effect, or to terminate the plan if the buyer was unwilling to adopt it, the board passed a resolution which authorized any officer to terminate the plan, and the plan was terminated by the officers on July 28, 1967.
At an August 24, 1967, meeting of the board, a resolution was adopted to amend the provisions of the plan dealing with termination to provide that after making provision for all retired employees and all active employees over age sixty-five, the remaining active employees should be lumped into a single category to receive a pro rata distribution of the remaining trust fund.
On August 29th, the Internal Revenue Service formally approved the proposed plan of termination with an effective date of July 28, 1967, as not disturbing the original qualification of the plan. At a meeting of the board on September 27, 1967, it was announced that the sale of the company's assets to the Standard Cotton Products Company of Flint, Michigan, had been completed and that the Pension Fund for Salaried Employees was also being closed and distributed in the near future, and this distribution, in accordance with the above amendment relating to a pro rata distribution, was completed on December 1, 1967.
The plaintiffs in these two actions are 15 former salaried employees of the company whose employment had terminated on various dates between March, 1966, and June, 1967. The defendants are the company and two of the three members of the retirement committee, and trustees under the plan. The third member is one of the named plaintiffs who left the company in August of 1966.
The thrust of the first complaint was leveled at Kinzer who, it was alleged, directly or indirectly held 92 percent of the company's stock. It was alleged that Kinzer had engineered the move from Wisconsin to Kentucky as a scheme to defraud the plaintiffs out of their pension benefits. It was further alleged that the officers of the company had selected July 28, 1967, as a termination date in order to exclude the plaintiffs from participation and to enlarge Kinzer's share.
The complaint in the second action, while alleging the same circumstances, sought pension benefits under the theory of unjust enrichment in that plaintiffs had performed services for the company in reliance upon the expectation of receiving pension benefits and, therefore, had a contract right to participate in the distribution of the pension fund. After the two actions were consolidated, the defendants moved for summary judgment. The trial court overruled the motion, stating that the plaintiffs had the right to go to trial on the question of bad faith.
The trial court found that the plaintiffs had failed to establish by clear and convincing evidence any bad faith on the part of the company or that Kinzer was unjustly enriched and that the long term salaried employees had suffered corresponding loss. Nevertheless, the court did find that the plaintiffs were entitled to recover, because of the amendment made to the plan on May 4, 1965, which provided that upon permanent discontinuance of contributions by the employer, each employee's accrued benefit became vested. The last contribution made by the company to the plan was January 19, 1966, and since it was clear that no contributions were made after that date, the court concluded that the benefits of all employees became vested as of January 19, 1966, even though the company was not aware of that fact. The court entered formal findings of fact and conclusions of law consistent with this decision and on December 1, 1971, entered interlocutory judgment providing that the plaintiffs and other salaried employees of the company who did not share in the distribution of the trust fund were entitled to interlocutory judgment against the company and against A. J. Rueter and Richard A. Kinzer, as trustees of the trust fund, and against Richard A. Kinzer, individually, jointly and severally, in an amount equal to the plaintiffs' respective proportionate share in the assets of the plan and trust as of January 19, 1966. The judgment further provided that after determination is made of what these interests in the assets of the trust were, the plaintiffs should apply to the court for a money judgment against defendants at which time the court will consider all other questions including attorney's fees and disbursements.
The defendants have appealed from the whole of the interlocutory judgment and the plaintiffs seek review and modification of that part of the interlocutory judgment which determined there was no bad faith and self-dealing, or that the company was not unjustly enriched by plaintiffs being deprived of their share of the trust fund.
Three issues are raised on this appeal:
(1) Was it error for the trial court to find that the plan terminated and the plaintiffs' right to share in the distribution of the trust, vested upon the company's last contribution to the trust on January 19, 1966?
(2) Was it error for the trial court to find that the plaintiffs had not established actual bad faith or self-dealing in connection with the plans to terminate?
(3) Was it error for the trial court to hold that as a result of the termination of the plan, the principal stockholder was not unjustly enriched to the detriment of the salaried employees?
Termination of the plan on January 19, 1966.
The trial court found that on January 19, 1966, the time when the company made its last contribution to the trust, each then participating employee's accrued benefit, based upon his prior service to that date, became fully vested in accordance with the terms of the plan as amended, and that these benefits could not, thereafter, be even innocently or inadvertently ignored and any action taken thereafter in disregard of their accrued and vested benefits would be ineffectual to divest the already assured benefits.In making the above finding the court stated in its opinion "While the phrase `discontinuance of contributions' might in certain contexts be subject to construction, it seems to the court that it may come about either by declaration or by conduct. It is abundantly clear that contributions could not be said to have continued after January 19, 1966." The trial court does not refer to any specific conduct on the part of the company to support the above finding. Clearly, the trial court erroneously concluded that a "discontinuance of contributions" takes place whenever the last payment is made. There was no evidence of any corporate intent that the plan terminate on that date.
The evidence in this case shows that the plan was at all times adequately funded and met the requirements of the Internal Revenue Service so that a "discontinuance of contributions" did not take place as of January 19, 1966. No additional contributions were necessary after January 19, 1966, to keep the plan fully funded. It is difficult to conceive how a "discontinuance of contributions" could take place when a pension plan is adequately funded to cover its employees' requirements, as actuarially computed.
We conclude that the trial court erred in holding that the plan terminated when the last corporate contribution was made on January 19, 1966.
Improper self-dealing.
The trial court found that the plaintiffs had failed to establish by clear and convincing evidence that bad faith or improper self-dealing was at the root of the decision to terminate the plan as of July 28, 1967. Although respondents do not contend that the relocation process itself evidenced bad faith or self-dealing, they do contend that the delay between the relocation and termination does evidence self-dealing.The trial court was the trier of fact, and its findings of fact prevail unless they are against the great weight and clear preponderance of the evidence. Moreover, the evidence must be viewed most favorably to the findings. Columbia Stamping Mfg. Co. v. Reich (1965), 28 Wis.2d 297, 137 N.W.2d 45.
The finding that there is no sufficient evidence of actual bad faith or self-dealing in connection with the termination of the plan is clearly supported by the evidence, i.e., that the company's labor problems in Burlington, Wisconsin, resulted in the decision to move the plant to Kentucky; that the company's loss of its experienced personnel who understandably chose to remain in Wisconsin led to unforeseen losses incurred by the corporation after the move and in having to find inexperienced personnel; that these losses led to the company's decision to find a buyer for the business; that the company acted on the premise that the existence of an ongoing and fully funded pension plan would be a definite asset to the prospective buyer who was going to take over the business and continue on with the same work force; that in negotiating with the prospective buyer, the officers of the company sought to persuade the buyer to adopt and carry on with the pension plan; and that it was only when the officers were satisfied that the prospective buyer would not do so that they exercised the authority to terminate the plan.
We conclude there is ample credible evidence in the record to support the trial court's finding on the issue of bad faith and improper self-serving.
Recovery on the theory of unjust enrichment.
Plaintiffs contend that payments to pension funds — even where the fund is created and contributions thereto are made solely at the employer's will — are in the nature of compensation for personal services and that to deprive an employee of that compensation after having accepted the employee's labor for that compensation, unjustly enriches the employer.Noncontributory pension plans are held to give rise to a contractual obligation by the employer to pay pension benefits to the employees entitled thereto under the plan communicated to the employees where the employees thereafter remain in the employer's employment and render service for the requisite period. Voight v. South Side Laundry Dry Cleaners (1964), 24 Wis.2d 114, 128 N.W.2d 411, at page 116.
Here the plaintiffs did not render services for the requisite period, since each plaintiff had terminated employment before he or she had qualified for pension benefits.
Plaintiffs further contend that when fulfillment of the conditions precedent to retirement benefits is made impossible because of the employer's actions, recovery should be allowed. The record does not support this contention. Some employees stayed with the company and some elected not to stay.
After hearing all the evidence at the trial, the trial court held that there was no evidence of fraud or bad faith.
If defendant company or its successor had decided to continue on with the business and retain the pension plan, the plaintiffs would have no right to participate. They did not meet the age and service requirements of the plan when their employment ended. We are satisfied that the laws of "unjust enrichment" and "substantial performance" are not applicable.
By the Court. — Judgment reversed with directions to dismiss the complaints.