Godina v. Resinall Corp. et al
ORDER granting in part and denying in part 150 Defendants' Motion for Summary Judgment. See the attached Memorandum of Decision. Signed by Judge Vanessa L. Bryant on 12/17/09. (Engel, J.)
UNITED STATES DISTRICT COURT D IS T R IC T OF CONNECTICUT
J O H N M. GODINA, JR., P la in t if f , v. R E S IN AL L INTERNATIONAL, INC. ET AL., D e fe n d a n ts .
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C IV IL ACTION NO. 3 : 0 7 -c v-4 9 7 (V L B ) D e c e m b e r 17, 2009
M E M O R AN D U M OF DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [Doc. #150] T h e Plaintiff, John M. Godina, Jr. ("Plaintiff"), brings this action for c o m p e n s a to ry and punitive damages against his former employer Resinall Corp. a n d affiliated companies Resinall International, Inc., Resinall Mississippi, Inc., and R e s in a ll, Inc. (collectively, the "Defendants"),1 claiming violations of fiduciary re s p o n s ib ility sections of the Employee Retirement Income Security Act, 29 U.S.C. § § 1001 et seq. ("E.R.I.S.A."), specifically §§ 1103(a), 1103(c), 1104(a), 1106(b)(1), 1 1 0 6 (b )(2 ), and 1109.2 The Defendants have asserted four counterclaims against th e Plaintiff for breach of fiduciary duty, unjust enrichment, money had and re c e iv e d , and violation of the Connecticut Unfair Trade Practices Act, Conn. Gen.
Stat. §§ 42-110a et seq. Presently pending before the Court is the Defendants'
By Order dated December 1, 2009, the Court dismissed all claims against R e s in a ll International, Inc., Resinall Mississippi, Inc., and Resinall, Inc. Accordingly, although these entities are parties to the instant motion for summary ju d g m e n t, they have been terminated as Defendants to this lawsuit. The Court also d is m is s e d all claims against Resinall Corp.'s Deferred Compensation Plan and Lee G o d in a for lack of personal jurisdiction because they were not properly served with p ro c e s s . See Doc. #157. Per the Court's December 1, 2009 Order, all remaining claims asserted in th e Second Amended Complaint have been dismissed.
motion for summary judgment on all of the Plaintiff's remaining E.R.I.S.A. claims as w e ll as the Defendants' counterclaims for breach of fiduciary duty and unjust e n ric h m e n t. See Doc. #150. For the reasons set forth below, the Defendants' m o tio n is GRANTED IN PART and DENIED IN PART. I. Factual and Procedural Background O n February 27, 2007, the Plaintiff filed a six-count complaint in Connecticut S u p e rio r Court against Defendant Resinall Corp. and affiliated companies Resinall In te rn a tio n a l, Inc., Resinall Mississippi, Inc., and Resinall, Inc., alleging nonp a ym e n t of retirement benefits due under a deferred executive compensation plan a lo n g with related claims. On March 30, 2007, the Defendants removed the case to th is Court. On November 28, 2007, this Court dismissed the Plaintiff's claims for n e g lig e n t misrepresentation, breach of the implied covenant of good faith and fair d e a lin g , and violation of the Connecticut Unfair Trade Practices Act. See Doc. #34. The Defendants subsequently filed a motion for judgment on the pleadings as to the re m a in in g three counts, alleging that these claims were preempted by E.R.I.S.A.. The Plaintiff objected and attached a Proposed Amended Complaint to his m e m o ra n d u m in opposition in an attempt to cure the defects in his original C o m p la in t. On July 22, 2009, the Court denied the Defendants' motion but ordered th e Plaintiff to revise his Proposed Amended Complaint to specifically state the s e c tio n s of E.R.I.S.A. upon which he relied. See Doc. #122. The Plaintiff filed an Amended Complaint on July 24, 2009, but that Complaint c ite d the entirety of E.R.I.S.A. and failed to plead which specific sections of E .R .I.S .A. were violated by the conduct alleged. Accordingly, on September 4, 2009, 2
the Court granted the Plaintiff one additional opportunity to amend the Complaint to p ro p e rly specify the legal basis for his claims as the Court had previously ordered. See Doc. #133. On September 14, 2009, the Plaintiff filed a Second Amended C o m p la in t alleging three counts and identifying the specific E.R.I.S.A. provisions th a t he claims were violated by each of the Defendants. On October 5, 2009, the D e fe n d a n ts moved to dismiss the Second Amended Complaint. By Order dated D e c e m b e r 1, 2009, the Court granted in part and denied in part the motion to d is m is s . See Doc. #157. The Court dismissed Counts Two and Three of the Second Am e n d e d Complaint in their entirety, and dismissed the remaining claims against all d e fe n d a n ts other than Resinall Corp. The Court permitted Count One to go forward in s o fa r as it asserts fiduciary misconduct claims against Resinall Corp. The D e fe n d a n t filed the present motion for summary judgment on November 2, 2009, a n d the Plaintiff filed his opposition thereto on November 23, 2009. See Doc. ##150, 154. T h e following facts relevant to the Defendants' motion for summary judgment a re undisputed unless otherwise noted. The Plaintiff, a Florida resident, was formerly the President of Resinall Corp., th e parent corporation of Resinall International, Inc. and Resinall Mississippi, Inc. Resinall International, Inc. has it's principal place of business in Connecticut, and th e remaining defendants transact business in Connecticut. Although named as a D e fe n d a n t in this lawsuit, Resinall, Inc. is not a registered corporation in any ju ris d ic tio n . The Resinall Defendants are family owned and have common boards o f directors and officers. The Plaintiff asserts that, since its founding, Resinall 3
Corp. has controlled all the other Defendants and made all decisions concerning th e ir deferred compensation plans. See Godina Aff., ¶ 15. The Resinall Defendants w e re formerly a division of Ziegler Chemical and Mineral Corporation ("Ziegler"), w h ic h was previously known as Carolina Processing Corporation ("Carolina"). The Plaintiff first began working for Carolina in 1966 as a sales re p re s e n ta tiv e , eventually rising to the position of Vice President of sales. In 1981, th e Plaintiff helped to found Resinall Corp. and became one of the five original s h a re h o ld e rs of the company, the others being John M. Godina, Sr., Elaine Godina, L e e Godina, and Janet Godina Fairchild. He continued in his position as Vice P re s id e n t of Sales and Marketing for Resinall Corp. until 1997, at which time he was e le v a te d to the position of President. The Plaintiff served as President of Resinall C o rp . from 1997 to 2000, during which time he received a salary of $300,000 per ye a r. From 1981 to 2000, the number of employees working for company grew from a p p ro x im a te ly 50 to approximately 300. The parties offer conflicting versions of the circumstances surrounding the c re a tio n of the executive compensation plan at issue. The Plaintiff claims that, over th e course of his 35 years of employment with the Defendants and their p re d e c e s s o rs , he as well as other employees assumed responsibilities and p e rfo rm e d extra work that was not immediately compensated. Given that the P la in tiff and other key employees were not fully compensated for their efforts, b e g in n in g in 1994, the Plaintiff, along with John M. Godina, Sr., Lee Godina, Roger B u rk e , and William Zaccarelli, began planning for the creation of a deferred c o m p e n s a tio n plan or other benefit plan (the "Plan") to retain and reward key 4
employees for their past efforts. An initial draft was prepared by Attorney Arthur K ro ll in August 1999, and was presented by Lee Godina, Executive Vice President a n d Secretary of Resinall Corp. During that same month, the Board of Directors of R e s in a ll Corp. established a Pension Committee of the Board of Directors, c o n s is tin g of the Plaintiff and Lee Godina. Between August 1999 and November 1 9 9 9 , the Plan was amended as a result of the Plaintiff's concern that his and other b e n e fic ia rie s ' heirs would not receive deferred compensation in the event of their d e a th . Accordingly, the Plaintiff had Attorney Kevin O'Grady review the Plan and re c o m m e n d the inclusion of a provision for the heirs of the beneficiaries. T h e Plaintiff further claims that, on or about November 20, 1999, Arthur Kroll, a t Lee Godina's request, drafted the final version of the Plan. The Plaintiff, Lee G o d in a , and William Zaccarelli, acting as Chief Financial Officer for Resinall Corp., e a c h reviewed the Plan and deemed it appropriate. On November 23, 1999, the P la in tiff met with Lee Godina and William Zaccarelli, and they reviewed the Plan a fin a l time, then signed the Plan and had it notarized. The final version of the Plan w a s a six page document captioned, "Deferred Compensation Plan of Resinall In te rn a tio n a l, Inc." The fiduciaries of the Plan at the time of its creation were the P la in tiff, Lee Godina, and William Zaccarelli. The Defendants, on the other hand, set forth the following sequence of e v e n ts . During the 1990's, the Defendants' Board of Directors began considering m e c h a n is m s for ensuring the continued loyalty of their employees. Among the v e h ic le s considered was a deferred compensation plan for the benefit of five key e m p lo ye e s . Over the course of the next several years, meetings were held to 5
discuss various options. In late 1998, life insurance policies were taken out on the liv e s of the five key employees, not including the Plaintiff and Lee Godina, that the D e fe n d a n ts hoped to induce to continue to work for them. The insurance policies n a m e d Resinall Corp. as the beneficiary. This was a mechanism designed so that th e company would recoup some of the money paid out of the general assets in b e n e fits owed under whatever plan was ultimately adopted. Subsequently, on or a b o u t October 7, 1999, Resinall Corp. also purchased life insurance policies on the liv e s of the Plaintiff and Lee Godina, naming Resinall Corp. as the beneficiary. T h e Defendants further assert that, in or around October 1999, a draft p ro p o s a l for a deferred compensation plan was floated and the Plaintiff took the d ra ft to his attorney, Kevin O'Grady, in order to make it legally enforceable. The P la in tiff then presented it to Lee Godina for his signature on November 23, 1999. Lee presumed that the Plaintiff would obtain the approval of John M. Godina, Sr., as it was the normal course of affairs to secure his approval of major initiatives, and s ig n e d off as instructed by his brother. The Plan was then executed by the Plaintiff, L e e Godina, and William Zaccarelli. The Preamble to the Plan stated that it was "an u n fu n d e d deferred compensation arrangement for a select group of management to h ig h ly-c o m p e n s a te d employees . . ." Def. Ex. C, ¶ 1. T h e parties also contest the validity of the Plan. The Defendants claim that th e Plan was never presented for approval to or approved by the Board of Directors o r shareholders of the Defendants. The Defendants further claim that, throughout th e time period at issue, the income and benefits of the shareholders of the D e fe n d a n ts were determined by their Board of Directors and the income and 6
benefits of other employees were determined by groups of officers directly familiar w ith their contributions to the Defendants. The Defendants also indicate that the P la in tiff did not inform his parents, John M. Godina, Sr. and Elaine L. Godina, of his e x e c u tio n of the Plan or his claim for deferred compensation against the c o rp o ra tio n s they largely owned until 2006. The Plaintiff, on the other hand, asserts th a t, on the date of the Plan's execution, he and Lee Godina had been granted the a u th o rity by the shareholders, Board of Directors, and through the by-laws of the D e fe n d a n ts and their positions as President and Vice President and Secretary to a d o p t the Plan. Thus, the Plaintiff claims, the Plan became a legally binding c o n tra c t between the Defendants and beneficiaries to provide beneficiaries with d e fe rre d compensation as set forth in Schedule A of the Plan. See Def. Ex. C. There were seven beneficiaries of the Plan - the Plaintiff, Lee Godina, William Z a c c a re lli, John Johnson, Kenneth Parker, Matthew Weston, and Kenneth Cooley. Of these seven beneficiaries, only the Plaintiff and Lee Godina were shareholders a n d officers and/or directors of the Defendants. Pursuant to the Plan, the Plaintiff w a s to receive $300,000 per year for 15 years upon retirement at age 65 or $200,000 c o m m e n c in g on his sixtieth birthday should he choose to retire sooner. The c o m p a n y's obligation to pay the Plaintiff benefits prior to age 65 was conditional u p o n such payments "not adversely impacting the financial solvency of the C o m p a n y." Def. Ex. C, Schedule A.3 However, "the obligation of the Company at
This particular provision applied only to the Plaintiff and Lee Godina, and n o t to any of the other five beneficiaries. The Plan provides no indication that any p o rtio n of the benefits awarded to the other five beneficiaries were contingent upon the financial solvency of the company. 7
age 65 is absolute and shall be guaranteed by Resinall Corp., and Resinall M is s is s ip p i and any of its subsidiaries or future subsidiaries." Id. S h o rtly after executing the Plan, the Plaintiff announced his imminent re tire m e n t. The Plaintiff indicates that he decided to leave his employment with the D e fe n d a n ts due to business and personal differences between himself and John M. G o d in a , Sr. The Plaintiff retired in January 2000. Since that time, he has turned d o w n offers of employment in competing businesses. According to the Defendants, th e original and executed Plan "disappeared" when the Plaintiff retired and was h e ld in the Plaintiff's possession until he produced it during this lawsuit. Def. Local R . 56(a)(1) Statement, ¶¶ 47-48. The Defendants claim that Lee Godina began to q u e s tio n the legitimacy of the Plan after the Plaintiff retired. Therefore, he asked his fa th e r, John M. Godina, Sr., whether he had knowledge of the Plan, which John M. G o d in a , Sr. denied. Ultimately, in 2003, Lee Godina cancelled the insurance policy o n the Plaintiff that Resinall Corp. had purchased on October 7, 1999 to offset the P la n 's costs, and "reclaimed that lost money for the corporation." Def. Mem. at 9. In 2002, Resinall Corp. adopted a "Supplemental Executive Retirement Plan" (th e "New Plan").4 On November 15, 2002, notices of the New Plan were sent to key e m p lo ye e s William Zaccarelli, John Johnson, Kenneth Parker, Matthew Weston, K e n n e th Cooley and Joe LeVine. The New Plan guaranteed the same level of
Although called a "Supplemental" plan, the New Plan was sponsored by R e s in a ll Corp. rather than Resinall International, Inc., the sponsor of the original P la n . The New Plan has not been provided to the Court, and therefore it is unclear w h a t the New Plan was intended to supplement by its terms. 8
benefits as those guaranteed in the original Plan for each of the key employees with th e exception of the Plaintiff and Lee Godina, who were not beneficiaries of the New P la n . The Defendants claim that the New Plan was enacted because the five nons h a re h o ld e r beneficiaries of the original Plan had been informed of its creation and th e company had to enact the New Plan in order to avoid conflict and prevent the lo s s of these critical employees. On August 22, 2006, the Plaintiff reached age 60, and the Plaintiff's initial d e fe rre d compensation payment of $200,000 came due pursuant to the Plan. Shortly after that date, the Plaintiff met with John M. Godina, Sr., Lee Godina and o th e r key employees of the Defendants and orally requested payment. He was told a t that time that he would not be receiving any payment pursuant to the Plan. Subsequently, on November 3, 2006, the Plaintiff sent a letter to John M. Godina, Sr. fo rm a lly requesting the first payment due under the Plan. To date, no payment has b e e n made to the Plaintiff. The Defendants admit that the Plaintiff has not been paid deferred c o m p e n s a tio n pursuant to the Plan. However, they assert that he was gifted a one th ird share of Resinall International, Inc., and that he has received in excess of $1.5 m illio n from the Defendants since his retirement. The Plaintiff denies receiving $1.5 m illio n as a shareholder from the Defendants. The Defendants also assert that the P la in tiff has received insurance premiums from the Defendants since his retirement th a t he was not entitled to receive.
II. Discussion A. Legal Standard
Summary judgment is appropriate only when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). "The substantive law governing the case will identify those facts that are material, and `[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.'" Bouboulis v. Transp. Workers Union of Am., 442 F.3d 55, 59 (2d Cir. 2006) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The moving party bears the burden of showing that no genuine issues exist as to any material facts. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). If the moving party meets its burden, "an opposing party may not rely merely on allegations or denials in its own pleading; rather, its response must - by affidavits or as otherwise provided in this rule - set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e). "If the party moving for summary judgment demonstrates the absence of any genuine issue as to all material facts, the nonmoving party must, to defeat summary judgment, come forward with evidence that would be sufficient to support a jury verdict in its favor." Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 91 (2d Cir. 2002). "The non-movant cannot escape summary judgment merely by vaguely
asserting the existence of some unspecified disputed material facts, or defeat the motion through mere speculation or conjecture." Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir.1990) (internal quotations and citations omitted). A party also may not rely on conclusory statements or unsupported allegations that the evidence in support of the motion for summary judgment is not credible. Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993). The court "construe[s] the evidence in the light most favorable to the non-moving party and . . . draw[s] all reasonable inferences in its favor." Huminski v. Corsones, 396 F.3d 53, 69-70 (2d Cir. 2004). "[I]f there is any evidence in the record that could reasonably support a jury's verdict for the non-moving party, summary judgment must be denied." Am. Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315 (2d Cir. 2006).
B . Plaintiff's E.R.I.S.A. Claims T h e Plaintiff alleges fiduciary misconduct claims against Resinall Corp. p u rs u a n t to the following sections of E.R.I.S.A.: 29 U.S.C. §§ 1103(a), 1103(c), 1 1 0 4 (a ), 1106(b)(1), 1106(b)(2), and 1109. See Second Amended Complaint, ¶¶ 3340. T h e Defendants first argue that summary judgement should be granted in th e ir favor as to the Plaintiff's E.R.I.S.A. claims because the Plan was not properly a d o p te d , and that, even if it was properly adopted, it is void because it is unfair to th e Defendants. T h e first issue that the Court must address in determining whether the Plan
was properly adopted is what substantive law of corporations applies in this case. B o th the District of Connecticut and Connecticut courts apply the "internal affairs d o c trin e " to disputes among or between a corporation and its directors, officers a n d shareholders. See Resolution Trust Corp. v. Camhi, 861 F. Supp. 1121, 1126-27 (D . Conn. 1994); Ellis v. Emhart Mfg. Co., 150 Conn. 501, 508 (1963). Pursuant to th is doctrine, "the law of the state of incorporation determines issues relating to a c o rp o ra tio n 's internal affairs, providing certainty and predictability while generally p ro te c tin g the justified expectations of parties with interests in the corporation." Resolution Trust, 861 F. Supp. at 1126. Here, Resinall International, Inc., the p u rp o rte d sponsor of the Plan, is a Delaware corporation, and therefore Delaware's s u b s ta n tiv e law of corporations applies to questions of corporate governance, in c lu d in g the approval and fairness of the Plan. The Defendants argue that the Plan was not properly enacted because it c re a te s a form of executive compensation, and therefore must be approved by R e s in a ll International, Inc.'s Board of Directors. However, Delaware law clearly e m p o w e rs a board of directors to appoint committees and delegate to them a broad ra n g e of responsibilities. See 8 Del. Code Ann. § 141(c)(2) ("The board of directors m a y designate 1 or more committees, each committee to consist of 1 or more of the d ire c to rs of the corporation . . . Any such committee . . . shall have and may e x e rc is e all the powers and authority of the board of directors in the management of th e business and affairs of the corporation, and may authorize the seal of the c o rp o ra tio n to be affixed to all papers which may require it . . ."); see also
Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 127 (3rd Cir. 1998) (applying D e la w a re law) ("[U]nless otherwise provided by the certificate of corporation and s u b je c t to the limitations set forth in 8 Del. Code Ann. § 141(c), the board may freely d e le g a te the authority to manage the business and affairs of the corporation. Indeed, the ability to delegate is the essence of corporate management, as the law d o e s not expect the board to fully immerse itself in the daily complexities of c o rp o ra te operation.") (internal citations omitted). The responsibilities which may b e delegated include setting executive compensation and administering and a m e n d in g an E.R.I.S.A. plan. See In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 5 4 (Del. 2006) ("The Delaware General Corporation Law (DGCL) expressly e m p o w e rs a board of directors to appoint committees and to delegate to them a b ro a d range of responsibilities, which may include setting executive compensation. Nothing in the DGCL mandates that the entire board must make those decisions."); S c h o o n e jo n g e n , 143 F.3d at 127 (holding that board of directors properly delegated a u th o rity to administer and amend E.R.I.S.A. plan). H e re , the record suggests that the Defendants' Board of Directors began c o n s id e rin g a deferred compensation plan in the 1990's. The record further s u g g e s ts that, in August 1999, the Defendants created a Pension Committee for the p u rp o s e of administering the Plan. The members of the Pension Committee were th e Plaintiff and Lee Godina. The Plan was ultimately executed several months la te r, on November 23, 1999. It is unclear from the record what precise re s p o n s ib ilitie s were delegated to the Pension Committee prior to the Plan's
execution on November 23, 1999. Therefore, there is a question of material fact as to whether the Board of Directors delegated to the Pension Committee the authority to execute and bind the corporation to the Plan. Furthermore, "[b]eyond the board of directors, the corporation may validly a c t through its directors and officers as authorized corporate agents. In general, an o ffic e r's powers stem from the organic law of the corporation, or a board delegation o f authority which may be express or implied. Express authority to act on behalf of th e corporation is usually manifested through a statute, the certificate of in c o rp o ra tio n , the by-laws, or a board or shareholder action. Implied actual a u th o rity, which is express authority circumstantially provided, may be found th ro u g h evidence as to the manner in which the business has operated in the past, th e facts attending the transaction in question, circumstantial evidence of board d e c la ra tio n s surrounding the given transaction, or the habitual use or course of d e a lin g common to the company. Similarly, authority will be implied when it is re a s o n a b ly necessary and proper to effectuate the purpose of the office or the main a u th o rity conferred." Schoonejongen, 143 F.3d at 127-28 (internal citations o m it t e d ) . In this case, the by-laws of Resinall International, Inc. give the President of th e corporation "the general powers and duties of supervision and management u s u a lly vested in the office of President of a corporation[,]" and provide that the P re s id e n t "shall have general supervision, direction and control of the business of th e corporation." Def. Ex. I, Art. IV, Sec. 4. "Delaware courts have held that
attendant to this unqualified grant of authority, the president as general manager c o m m a n d s the power to `do anything the corporation could do in the general scope a n d operation of its business.'" Schoonejongen, 143 F.3d at 128. The Defendants c ite no evidence to suggest that the corporation lacked the ability to create an E .R .I.S .A. plan, and in fact, the record reflects that the corporation subsequently a d o p te d the New Plan in November 2002. Therefore, it appears that the Plaintiff, as P re s id e n t of the Defendants, possessed express authority to create the Plan. See id . ("It certainly follows that the broad power to fix employee compensation s u b s u m e s the authority to amend a specific type of compensation - retirement h e a lth benefits governed by ERISA - and logic would consequently dictate that the b o a rd expressly approved the CEO's authority to create, administer, or amend CW's re tire m e n t plan."). The Defendants claim that, notwithstanding the general grant of authority to th e Plaintiff as President, income and benefits were decided by the Board of D ire c to rs . However, the meeting minutes available in the record contain no e v id e n c e to substantiate this claim. Accordingly, there is a genuine issue of m a te ria l fact regarding whether the Plaintiff had express authority to create the P la n . In addition, the Plaintiff has submitted sufficient evidence from which the trier o f fact could determine that, even if he lacked express authority, he possessed im p lie d actual authority to adopt the Plan. The Plaintiff's expert, Walter C. King, re v ie w e d the Board of Directors and shareholder meeting minutes and determined
that officer compensation and employee compensation plans were not s ys te m a tic a lly approved by the Board of Directors prior to July 27, 2000. See Pl. Ex. 1 2 at 4. The Plaintiff has also submitted a waiver signed by the Board of Directors o f Resinall International, Inc. authorizing the Plaintiff as President and Lee Godina a n d William Zaccarelli as Vice President to take all actions and execute documents n e c e s s a ry to modify the terms of a loan agreement on behalf of the corporation, w h ic h tends to show that these executives had the authority to enter into contracts o n behalf of the company. See Pl. Ex. 8. Finally, the Defendants concede that the B o a rd of Directors began considering a deferred compensation plan during the 1 9 9 0 's , that they held meetings for the purpose of discussing various options in th a t regard, and that they took out life insurance policies on the individuals who u ltim a te ly were designated as Plan beneficiaries in 1998 as a means of allowing the D e fe n d a n ts to recoup some of the money that was to be paid out in retirement b e n e fits . Based upon this evidence, a reasonable trier of fact could conclude that b o th the Plaintiff and Lee Godina, as President and Vice President, had implied a u th o rity to create the Plan and bind Resinall International, Inc. to it's terms. The Defendants also argue that, even if the Plan was properly adopted, it is v o id because the Plaintiff cannot demonstrate the fairness of the Plan as required in th e event of a transaction between the corporation and a director or officer. See G o ttlie b v. Heyden Chemical Corp., 91 A.2d 57, 58 (Del. Ch. Ct. 1952). The Delaware C o d e provides that a contract or transaction between a corporation and one or m o re of its directors or officers is valid if: 1) "The material facts as to the director's
or officer's relationship or interest and as to the contract or transaction are d is c lo s e d or are known to the board of directors or the committee, and the board or c o m m itte e in good faith authorizes the contract or transaction by the affirmative v o te s of a majority of the disinterested directors, even though the disinterested d ire c to rs be less than a quorum; or" 2) "the material facts as to the director's or o ffic e r's relationship or interest and as to the contract or transaction are disclosed o r are known to the shareholders entitled to vote thereon, and the contract or tra n s a c tio n is specifically approved in good faith by vote of the shareholders; or" 3) " T h e contract or transaction is fair as to the corporation as of the time it is a u th o riz e d , approved or ratified, by the board of directors, a committee or the s h a re h o ld e rs ." 8 Del. Code Ann. § 144(a). Here, there is insufficient evidence from which the Court could conclude that e ith e r a majority of disinterested directors or the shareholders approved the Plan. Furthermore, as stated above, there is a genuine question of material fact as to w h e th e r the Board of Directors delegated the authority to create and execute the P la n to the Pension Committee; however, both members of the Committee were in te re s te d because they are Plan beneficiaries. Therefore, the Court must consider th e third option under 8 Del. Code Ann. § 144(a), whether the Plan was fair to the D e fe n d a n ts . The Defendants' second challenge, that the Plan is unfair, requires the Court to apply the "entire fairness" standard adopted by the Delaware Supreme Court w h e n examining interested officer and director transactions. See Cinerama, Inc. v.
Technicolor, Inc., 663 A.2d 1156, 1162 (Del. 1995). The entire fairness standard re q u ire s the interested officer or director to establish "to the court's satisfaction th a t the transaction was the product of both fair dealing and fair price." Id. at 1163. A "fair dealing" inquiry examines how the transaction was timed, initiated, s tru c tu re d , negotiated and disclosed, while a "fair price" inquiry examines all re le v a n t economic and financial factors. See id. at 1162-63 (quoting Weinberger v. U O P , Inc., 457 A.2d 710, 711 (Del. 1983)). As the Delaware Supreme Court has e x p la in e d , "[a] finding of perfection is not a sine qua non in an entire fairness a n a lys is . . . The standard of entire fairness is also not in the nature of a litmus test th a t `lend[s] itself to bright line precision or rigid doctrine. . . [However], entire fa irn e s s cannot be ascertained by an unstructured or visceral process. Rather, it is a standard by which the [court] must carefully analyze the factual circumstances, a p p ly a disciplined balancing test to its findings, and articulate the bases upon w h ic h it decides the ultimate question of entire fairness." Id. at 1179 (internal c ita tio n s omitted). The Defendants insist that the Plan was not fair to the Defendants because it w a s initiated by the Plaintiff when he already planned to retire, was structured in s u c h a way that he would receive a total of $4.5 million in benefits without c o n s tru c tiv e review by anyone else, and was not negotiated or disclosed to the B o a rd of Directors for approval. Clearly, what the Plaintiff intended is a question of fa c t. Further, the Defendants completely ignore their own concession that the B o a rd of Directors had been contemplating the creation of a deferred compensation
plan throughout the 1990's, and that Lee Godina and William Zaccarelli also re v ie w e d and signed the Plan. In addition, the Plaintiff has presented a conflicting v e rs io n of the facts whereby the Plan was drafted primarily at the direction of Lee G o d in a rather than himself. Finally, the Defendants present no evidence that the a m o u n t of benefits awarded by the Plan are unfair in any way, and in fact, the D e fe n d a n ts subsequently enacted the New Plan awarding the same benefits to all b e n e fic ia rie s of the original Plan with the exception of the Plaintiff and Lee Godina, w h o are not beneficiaries of the New Plan. In light of the numerous factual disputes re g a rd in g the Plan's creation, and given the Cinerama Court's instruction that entire fa irn e s s must be decided based upon a careful analysis of the factual c irc u m s ta n c e s and upon application of a disciplined balancing test, it is clear that th e issue of entire fairness is best left to the trier of fact in this case. L a s tly, the Defendants argue that summary judgement should be granted in th e ir favor because the Plan was a "top hat" plan and is therefore exempt from E .R .I.S .A.'s fiduciary requirements. Count One of the Second Amended Complaint a lle g e s that the Defendants breached their fiduciary duties by failing to pay the P la in tiff benefits to which he was entitled under the Plan. E.R.I.S.A. exempts soc a lle d "top hat" plans from it's fiduciary responsibility provisions. See 29 U.S.C. § 1 1 0 1 (a )(1 ).5 A top hat plan is defined as "a plan which is unfunded and is
Section 1101(a)(1) provides as follows: "This part shall apply to any e m p lo ye e benefit plan described in section 1003(a) of this title . . . , other than (1) a p la n which is unfunded and is maintained by an employer primarily for the purpose o f providing deferred compensation for a select group of management or highly c o m p e n s a te d employees . . ." 19
maintained by an employer primarily for the purpose of providing deferred c o m p e n s a tio n for a select group of management or highly compensated e m p lo ye e s ." Demery v. Extebank Deferred Compensation Plan (B), 216 F.3d 283, 2 8 7 (2d Cir. 2000). Thus, in order to decide whether the Plan was a top hat plan, the C o u rt must determine whether it was "(1) unfunded, and (2) maintained primarily for a select group of management or highly compensated employees." Id. With respect to the first factor, whether or not the Plan was funded, the P re a m b le to the Plan describes it as "an unfunded deferred compensation a rra n g e m e n t for a select group of management to highly-compensated employees . . ." Def. Ex. C, ¶ 1. Nevertheless, the Plaintiff argues that the Plan was in fact fu n d e d because Resinall Corp. purchased life insurance policies on the lives of the P la n beneficiaries which inured to the company. E.R.I.S.A. does not define what makes a plan "funded" for the purpose of d e te rm in in g whether the plan qualifies as a top hat plan. In general, a plan is u n fu n d e d where the "benefits thereunder will be paid . . . solely from the general a s s e ts of the employer." Demery, 216 F.3d at 287; see also Dependahl v. Falstaff B re w in g Corp., 653 F.2d 1208, 1214 (8th Cir. 1981) ("[f]unding implies the existence o f a res separate from the ordinary assets of the corporation"). The Southern D is tric t of New York has formulated the appropriate inquiry that a court must ask in d e te rm in in g whether a plan is unfunded as follows: "[C]an the beneficiary e s ta b lis h , through the plan documents, a legal right any greater than that of an u n s e c u re d creditor to a specific set of funds from which the employer is, under the
terms of the plan, obligated to pay the deferred compensation?" Miller v. Heller, 915 F . Supp. 651, 660 (S.D.N.Y. 1996). This formulation has been expressly approved by th e Second Circuit. See Demery, 216 F.3d at 287. In Miller, the deferred compensation plan at issue expressly stated that no a s s e t of the corporation secured the corporation's obligations under the plan, and th a t the rights of plan beneficiaries were those of unsecured, general creditors of th e corporation. 915 F. Supp. at 660. The Southern District of New York held that " w h e n the language of the plan expressly avoids making a direct tie between the in s u ra n c e policy and the deferred compensation plan, it must enforce the terms of th e plan regardless of the fact that the purpose of the insurance policy was to fund th e plan." Id. at 660. Thus, the Southern District of New York found that the c o rp o ra tio n 's deferred compensation plan was unfunded even though the plaintiffs o w n e d the insurance policies at issue and the corporation had purchased the in s u ra n c e policies for the purpose of financing any liabilities arising from the plan. Id. at 661; see also Belsky v.First Nat'l Life Ins. Co., 818 F.2d 661, 663 (8th Cir. 1987) (h o ld in g plan to be unfunded where its administrator purchased life insurance p o lic ie s that inured to the corporation as a means of reimbursing the corporation fo r the liability created by the plan because the plan failed to make a direct tie b e tw e e n the insurance policy and the plan such that the cash value of the policy b e c a m e a "general, unpledged, unrestricted asset" of the corporation). In this case, the relevant provision of the Plan states as follows: N o th in g contained herein shall be deemed to create a trust of any kind o r create any fiduciary relationship. The company has purchased 21
Flexible Premium Variable Life Insurance Policies or other insurance p o lic ie s to aid it in meeting its obligation hereunder. The policies shall c o n tin u e for all purposes to be a part of the general funds of the C o m p a n y and no person other than the Company shall, by virtue of the p ro v is io n s of this Plan, have any interest in such policies. To the extent th a t any person acquires a right to receive payments from the Company u n d e r this Plan, such right shall be no greater than the right of any u n s e c u re d general creditor of the Company. D e f. Ex. C, ¶ 4.05. Thus, as in Miller and Belsky, the Plan unambiguously provides th a t the insurance policies are a part of the general assets of the company and that b e n e fic ia rie s have no rights under the Plan greater than the right of any unsecured g e n e ra l creditor of the Company. The Plaintiff points to no evidence other than the e x is te n c e of the life insurance policies inuring to the corporation to establish that th e Plan was funded. Accordingly, the Court holds that the Plan is unfunded as a m a tte r of law. With respect to the second issue, the Second Circuit has identified certain fa c to rs to be considered in determining whether a plan was maintained primarily for a select group, including the percentage of employees invited to join the plan, the n a tu re of their employment, and their negotiating power. Demery, 216 F.3d at 2889 0 . The Preamble to the Plan expressly states that it is "for a select group of m a n a g e m e n t to highly-compensated employees . . ." Def. Ex. C, ¶ 1. The Plan n a m e s seven beneficiaries, while Resinall Corp. employed approximately 300 p e o p le at the time the Plan was executed. Thus, only approximately 2.3% of e m p lo ye e s were invited to join the Plan. Of these seven individuals, three were top e x e c u tiv e s - the Plaintiff was President, Lee Godina was Vice President, and William Z a c c a re lli was Chief Financial Officer. In addition, these three individuals were 22
largely responsible for creating the Plan and thus clearly possessed negotiating p o w e r with respect to the Plan. The record does not contain the job titles and job re s p o n s ib ilitie s of the remaining four beneficiaries. However, the Plaintiff has o ffe re d no evidence to suggest that these four beneficiaries lacked bargaining p o w e r so as to raise a question of material fact on this issue. See Id. at 290 (u p h o ld in g summary judgment on basis that plan was a top hat plan where it was o ffe re d to 15.34% of employees whose average salary was more than double that of a ll employees and plaintiff offered no evidence to suggest an absence of bargaining p o w e r). M o re o v e r, the Plaintiff admits that the Plan was in fact intended for a select g ro u p of management or highly compensated employees. In his affidavit in support o f his opposition to the Defendants' motion for summary judgment, the Plaintiff re p e a te d ly states that the purpose of the Plan was to compensate "key employees" fo r their past efforts. See, e.g., Pl. Ex. 15, ¶ 18 ("During the course of my e m p lo ym e n t with the Defendants I and other key employees of Resinall Corp. a s s u m e d responsibilities with the Defendant for which we were not immediately c o m p e n s a te d and it was always anticipated among the founders, corporate officers, o w n e rs and key employees of the Defendants that I and the other key employees w e re deferring part of the compensation we were due for their efforts in founding a n d building the Defendant entities and making the entities profitable.") (emphasis a d d e d ); Pl. Ex. 15, ¶ 19 ("Over the course of my 35 years of employment with the D e fe n d a n t and their predecessor I and the other key employees went over and
above what was required of us as salaried employees to build the businesses and m a k e them profitable. During the course of our employment I and the other key e m p lo y e e s were not compensated for their extra efforts.") (emphasis added); Pl. Ex. 1 5 , ¶ 20 (Given that I and the other key employees were not fully compensated for o u r efforts, beginning in 1994, I, John Godina, Sr., Lee Godina, Roger Burke, T e c h n ic a l Vice President and Bill Zaccarelli, Vice President of Finance began p la n n in g for the creation of a deferred compensation plan or other benefit plan to a w a rd key employees for past efforts and to retain key employees.") (emphasis a d d e d ). The Plaintiff also uses the term "key employees" throughout his Local Rule 5 6 (a )(2 ) statement of material facts and his memorandum in opposition to the D e fe n d a n ts ' motion for summary judgment. Accordingly, the Court holds that the Plan is a top hat plan and is thus e x p re s s ly exempted from E.R.I.S.A.'s fiduciary responsibility provisions. Therefore, th e Plaintiff's sole remaining E.R.I.S.A. claims, enumerated in Count One of the S e c o n d Amended Complaint, fail as a matter of law and Resinall Corp. is entitled to s u m m a ry judgment in its favor on these claims. C. Defendants' Counterclaims T h e Defendants also move for summary judgment on their counterclaims for b re a c h of fiduciary duty and unjust enrichment. "The essential elements [of] a cause of action for breach of fiduciary duty u n d e r Connecticut law are: 1. That a fiduciary relationship existed which gave rise to (a) a duty of loyalty on the part of the defendant to the plaintiff, (b) an obligation
on the part of the defendant to act in the best interests of the plaintiff, and (c) an o b lig a tio n on the part of the defendant to act in good faith in any matter relating to th e plaintiff; 2. That the defendant advanced his or her own interests to the d e trim e n t of the plaintiff; 3. That the plaintiff sustained damages; 4. That the d a m a g e s were proximately caused by the fiduciary's breach of his or her fiduciary d u ty." Ives Bros., Inc. v. Keeney, No. WWMCV064004952S, 2000 WL 35775696, at *5 (C o n n . Super. Ct. Oct. 27, 2009). Here, the Defendants base their breach of fiduciary c la im on the theory that the Plaintiff engaged in a self-dealing transaction to enact th e Plan that was unfair to the corporation, and that as a result of his attempted e n a c tm e n t of the Plan, the Defendants were compelled to extend similar benefits to th e ir key employees through the "Supplemental Executive Retirement Plan." However, the Court has already found that there are genuine issues of material fact re g a rd in g whether the Plan was validly adopted and whether it was fair to the D e fe n d a n ts . Accordingly, the Court denies summary judgment on this claim. Furthermore, the Court notes that it is skeptical of the Defendants' ability to e s ta b lis h this claim at trial, given the fact that the Board of Directors clearly c o n te m p la te d the creation of an executive compensation plan, it appears that the P la in tiff had both express and implied authority to adopt the Plan, and a portion of th e benefits that the Plaintiff was awarded under the Plan - namely, benefits from a g e 60 to age 65 - were contingent on the financial solvency of Resinall In te rn a tio n a l, Inc. In order to succeed on a claim for unjust enrichment under Connecticut law,
a party must show "(1) that the defendants were benefitted, (2) that the defendants u n ju s tly did not pay the plaintiffs for the benefits, and (3) that the failure of payment w a s to the plaintiffs' detriment." Vertex, Inc. v. Waterbury, 278 Conn. 557, 573 (2 0 0 6 ). The Defendants argue that they are entitled to summary judgment on their u n ju s t enrichment claim because they have paid several thousand dollars in in s u ra n c e premiums and other benefits to the Plaintiff since he retired from his e m p lo ym e n t with the Defendants. The only evidence they cite in support of this a rg u m e n t is the Plaintiff's deposition transcript. See Pl. Dep. Tr. 235-37. However, th e Plaintiff's responses to questions regarding insurance premiums are in c o n c lu s iv e and fail to establish that the Plaintiff received a benefit to which he w a s not entitled and for which he unjustly refused to pay. For instance, the D e fe n d a n ts ' counsel asked the Plaintiff, "Is Resinall obligated to pay your health in s u ra n c e coverage?," and the Plaintiff responded, "I don't know." Pl. Dep. at 2352 3 7 . Accordingly, there are questions of material fact regarding the Defendants' u n ju s t enrichment claim. Finally, the Court holds that Resinall, Inc. must be terminated from this case. The Plaintiff and the Defendants agree that Resinall, Inc. is not a registered c o rp o ra tio n in any jurisdiction and does not exist. See Def. Local Rule 56(a)(1) S ta te m e n t, ¶ 32. The Plaintiff further suggests that the inclusion of the name R e s in a ll, Inc. on a number of documents produced by the Defendants may have b e e n a typographical error. Pl. Aff., ¶ 6.
III. Conclusion B a s e d on the above reasoning, the Defendants' motion for summary ju d g m e n t [Doc. #150] is GRANTED IN PART and DENIED IN PART. The Plaintiff's re m a in in g E.R.I.S.A. claims, enumerated in Count One of the Second Amended C o m p la in t, are dismissed. In addition, Resinall, Inc. is terminated from this case. This case will proceed to trial on the remaining legal claims, to wit: Resinall C o rp .'s , Resinall International, Inc.'s, and Resinall Mississippi, Inc.'s counterclaims fo r breach of fiduciary duty, unjust enrichment, money had and received, and v io la tio n of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §§ 42-110a
IT IS SO ORDERED.
/s/ Vanessa L. Bryant U n ite d States District Judge
D a te d at Hartford, Connecticut: December 17, 2009.
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