C. G. Ball (Margaret Eliza Ball, Temporary Administratrix, Etc., Substituted in Place of C. G. Ball, Deceased) v. Victor Adding MacHine Company

236 F.2d 170

• Court: Court of Appeals for the Fifth Circuit
• Decided: September 12, 1956
• Docket: 15883_1
• Status: Published

Opinions

JOHN R. BROWN, Circuit Judge.

Ball (now succeeded by his widow), a long-time, 33-year veteran employee of McCaskey Register Company (merged in 1953 with Victor), sought by money judgment and injunction against Employer to compel the Employer to take steps necessary to secure to him the admitted “reserve liability attributable to him” of $8,260.98 under an approved Retirement Pension Trust (adopted in 1947), as a result of his having been discharged for medical disability.

The Pension Plan followed the typical format for an employer-contributing trust. An Ohio bank, appointed Trustee by the Board of Directors of the Employer with absolute right to remove and appoint successor trustees, had the obligation to receive Employer contributions, invest and disburse trust funds, but payments of benefits could be made only upon express direction of the Retirement Committee comprising three employees again named by the Employer’s Board of Directors to serve “during the pleasure of the Board” giving the employer thus the absolute right of removal and appointment of successor Committee members. And, of course, the Employer expressly agreed to pay all expenses of the Trustee and Retirement Committee, to indemnify them fully against all costs and losses, and provide and pay for all legal services.

Ball’s efforts to obtain what he claimed was due him met with no success. The Employer, three months after its formal letter discharging him “due to the state of your health”, laid down its policy that he was not entitled to benefits because (a) he had been discharged for cause, i. e., inefficiency as Division Sales Manager for the Dallas, Texas territory, and (b) in any case, having gone on a commission basis when he accepted that position, he was no longer a “participant” under the Plan. The Trustee declined to pay or rule on the matter because (and it is agreed that this position was sound) it could pay only upon express direction of the Retirement Committee. The Retirement Committee in effect denied the claim because his commission status excluded him as a “participant.” And when he sought a determination by a Court of whatever rights he might have under this detailed agreement between his Employer and all employees included under it, he was met by the Employer’s defenses (1) disputing his right under his contract of employment and the Plan to any benefits because (a) he was not a “participant” and (b) had been discharged for cause (not medical disability), and contending (2) that the Employer had no further personal liability after its contributions were made, and (3) that the Trustee and Retirement Committee were both indispensable parties. To this the District Court, after a trial which convincingly established that Ball became totally disabled (and for which reason the Judge apparently thought he was discharged), adding one with no record foundation that Ball had failed to exhaust his claim against both Trustee and Retirement Committee so that relief by Court action was premature, then dismissed the complaint “without prejudice to an action in a Court of competent jurisdiction against the Trustee and Retirement Committee under the Retirement Trust * * * ” of the Employer. (Emphasis added.)

The trouble is that this is not only to deny relief altogether but to deny even the opportunity for a Judge to determine what, if any, legal rights Ball had and the scope and nature of any permissible Court review of action by Employer, Trustee and Retirement Committee. This is so because, with the Trustee in Ohio and the Retirement Committee composed of Illinois citizens residing and located" there, simple geography makes the condition impossible to meet. Moreover, wherever the employee goes to pursue the Retirement Committee, the Employer can defeat it by the simple expedient of naming a new Committee composed of citizens of another state or, to make it more complex, of citizens of three different states.

The question then is whether a Federal Court of equity with admitted jurisdiction over the Employer in a diversity action brought by the employee has, and should exercise, power to assure that a forum is available to determine what, if any, rights an employee may have to have decisions under the Pension Plan reexamined by a Court.

The inquiry is not a mere academic one. For while Ball’s acceptance of the position of Division Sales Manager may have put him in a commission status (and not, as claimed by him, a minimum guaranty more like a salary with commission bonus incentives) so that he may not have been a “participant” as to his subsequent continued employment with the Employer, the Plan contains no provision remotely working a forfeiture of “the reserve liability then attributable” and then accrued to him from contributions already made by the Employer up to the time of any such asserted change from salaried to commission status. And yet that was the effect of the Retirement Committee’s “Ruling.” Whether a Retirement Committee has the right to make so decisive and possibly so wrong a decision without some Court reexamination presents a substantial question.

In pursuing this inquiry, it is important to emphasize that this does not involve a request that a non-resident court (in Texas) undertake direction, supervision, or control over the management of a Trust which, of necessity, must answer alone to the courts of the state (Ohio) where it is maintained, Hobbs v. Lewis, 1954,197 Tenn. 44, 270 S.W.2d 352; Kane v. Lewis, 1953, 282 App.Div. 529, 125 N.Y.S.2d 544; People v. First National Bank, 364 Ill. 262, 4 N.E.2d 378, 108 A.L.R. 277. There is really no controversy between Ball and the Trustee. The Trustee will not pay, but -solely because the Retirement Committee has not made the certification indispensable to payment under Section 9.3(b), “If by reason of disability * * * a participant shall cease to be employed by the company, the Committee shall certify that fact to the trustee, and such disabled participant shall be entitled to receive from the trustee an amount equal to the reserve liability then attributable to him.” Moreover, if it is ultimately held that Ball’s claim is correct, it will have no effect on the internal accounting, solvency or position of the Trust since it was stipulated that the funds for the precise amount sought are, in effect, earmarked as the “reserve liability then attributable to him.” And in any case it is the Employer, not the Trustee, who would be required under the Plan to make such further contributions of “such amounts of money as may be necessary from time to time * * * to provide the benefits to which participants * * * are entitled under the plan.” Nor is this affected by the provision in the Plan that in “any * * * judicial proceeding affecting the trust, it shall be necessary to join as parties only the Trustee, the company and the committee.” It it applies at all to this particular situation it seems clear that this is intended to specify the maximum parties required. Its principal function is to eliminate doubt as to other possible parties, such as all of the affected employees, the corporation, its Board of Directors, etc.

And with the Pension Trust itself providing that, “This agreement and the trust hereby created shall be construed, administered, and governed in all respects under and by the laws of the State of Ohio”, a state which holds the view that pension plans are enforceable contractual incidents of employment, Wilson v. Rudolph Wurlitzer Co., 1934, 48 Ohio App. 450, 194 N.E. 441; Sigman v. Rudolph Wurlitzer Co., 1937, 57 Ohio App. 4,11 N. E.2d 878, the relevance and application of the Texas cases discussing the nature of the Court review of the Employer’s actions under plans making decisions conclusive (no such provision exists in this case), Magnolia Petroleum Co. v. Butler, Tex.Civ.App., 86 S.W.2d 258, error dismissed; Webster v. Southwestern Bell Telephone Co., Tex.Civ.App., 153 S.W.2d 498, error refused; Aston v. Magnolia Petroleum Co., Tex.Civ.App., 241 S.W.2d 306, error refused; Spiner v. Western Union Telegraph Co., Tex.Civ.App., 73 S.W.2d 566, error refused, so strongly pressed by the Employer, not to defeat jurisdiction for want of essential parties, but again in its role as an adversary refuting the existence of any legal liability on the merits, seems highly doubtful.

And the idea that a Pension Trust expressly approved, as was this one, by the Internal Revenue Service as a plan qualified under Section 165, 1939 Code, 26 U. S.C.A. § 165; 1954 Code, § 401, 26 U.S. C.A. §§ 401, 402, is a mere gratuity or charitable enterprise beyond even the barest scrutiny by its sole beneficiaries (the employees) is completely out of keeping with the philosophy and purpose of such plans as the means of paying additional compensation to the covered employees in a way to afford substantial and immediate tax advantages to the Employer and substantial tax and monetary benefits to the employees. See, Law of Federal Income Taxation, Mertens, 1942 Vol. 4, § 25.69, page 440, §§ 25.70 to 25.76, inch, and full historical background, 1954 Pocket Supplement, §§ 25.70 to 25.-75. A pension trust is no will of the wisp for “ * * * within the meaning of section 165(a) [it] is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement * * Federal Tax Regulations, § 39.165-1 (a) (2). And see, §§ 39.165-1 (a) (3), 39.-165-4(e). So much so is it for the employees that the statute, Sec. 165(a), requires that the Pension Trust be “for the exclusive benefit of [the] employees” with distribution of corpus and income of such trust limited to “such employees or their beneficiaries” with an absolute prohibition against use or diversion of any such funds to “purposes other than for the exclusive benefit of [the] employees or their beneficiaries”. It must be non-discriminatory as to employees, Regulations, §§ 39.165-l(a), 39.165-4, and forbid diversions, § 39.165-2; and the Employer’s contributions are in no sense a gift for they are deductible, “ * * * only to the extent that they are ordinary and necessary expenses * * * in carrying on [the] trade or business and are compensation for personal services actually rendered * * *” and together with all other compensation paid to the employee constitutes “a reasonable allowance for compensation for the services actually rendered * * Regulations, § 39.23 (p)-l-(b), see, e. g., Farnsworth & Co. v. Commissioner, 5 Cir., 203 F. 2d 490. “It surely cannot be seriously disputed but that such [a pension agreement] on the part of the company forms a part of the consideration for work performed * * *. In this view, the pension thus promised would appear to be as much a part of his ‘wages’ as the money paid him at the time of the rendition of his services.” Inland Steel Co. v. N. L. R. B., 7 Cir., 170 F.2d 247, 253, 12 A.L.R.2d 240, certiorari denied 336 U.S. 960, 69 S.Ct. 887, 93 L.Ed. 1112.

Since the Pension Trust inaugurated to qualify under the statute was, and had to be, established for the sole and exclusive benefit of the covered employees, it is unrealistic to say that the Employer ceases to have any connection with it merely because contributions have been made. It, as the payor of the intended additional compensation, and the covered employees, as the ultimate and exclusive beneficiaries, continue to be the parties most directly interested. When the Plan, under its terms, is to be effectually administered by a Committee of employees designated and appointed alone by the Employer and subject to its absolute removal and replacement, it does no violence to the Plan and its purpose to require that the Employer having this wide power over such appointees make them available as parties over whom the Court can then exercise traditional power to adjudicate the merits. This does not subject the Employer to a personal liability beyond its contributions (or those it has clearly agreed to make so long as the plan remains effective). Nor does it assume that the right of removal and replacement of the Retirement Committee degrades the Committee to a mere selfish tool of the Employer. However, the opportunity for this to occur and, the Committee by paraphrasing the Employer’s earlier similar letter of a year before, may have done so here, affords an additional reason why equity is achieved by reading this reasonable requirement into the Plan. Inquiring into the propriety of the Committee’s decision, this enables the Court to determine whether this was an independent decision or one dominated largely by Employer wishes or considerations.

And, in doing this a Federal District Court, exercising jurisdiction conferred by Congressional Act (here diversity), has the full power of a court of equity, for “Jurisdiction in Chancery is inherent and original, comprehending now almost every exigency of human disagreement, for which there is not an adequate remedy at law”, Williamson v. Berry, 8 How. 495, 536, 12 L.Ed. 1170, 1187; Guaranty Trust Co. of New York v. York, 326 U.S. 99, 106, 65 S.Ct. 1464, 89 L.Ed. 2079, 2084, 2085; Ex parte Peterson, 253 U.S. 300, 312, 313, 40 S.Ct. 543, 64 L.Ed. 919, 925, and once again, this demonstrates the dynamic, ageless, timeless capacity of equity to respond to the peculiar changing needs of advancing civilization: “ * * * in the increasing complexities of modern business relations, equitable remedies have necessarily and steadily been expanded, and no inflexible rule has been permitted to circumscribe them. As has been well said, equity has contrived its remedies ‘so that they shall correspond both to the primary right of the injured party, and to the wrong by which that right has been violated,' and ‘has always preserved the elements of flexibility and expansiveness, so that new ones may be invented, or old ones modified, in order to meet the requirements of every case, and to satisfy the needs of a progressive social condition, in which new primary rights and duties are constantly arising, and new kinds of wrongs are constantly committed.’ Pom.Eq.Jur. § 111.” Union Pacific R. Co. v. Chicago, R. I. & P. R. Co., 163 U.S. 564, 600, 601, 16 S.Ct. 1173, 1187, 41 L.Ed. 265, 278. “ * * * the Chancellor always has had, and always must have, a certain power and freedom of action, not possessed by the courts of law, of adapting the doctrines which he administers. He can extend those doctrines to new relations, and shape his remedies to new circumstances, if the relations and circumstances come within the principles of equity, where a court of law in analogous cases would be powerless to give any relief. In fact there is no limit to the various forms and kinds of specific remedy which he may grant, adopted to novel conditions of right and obligation, which are constantly arising from the movements of society. * * Vol. I, Pomeroy’s Equity Jurisprudence, 5th Ed. (1941), § 60, page 78. See also, Tower Hill-Connellsville Coke Co. of West Virginia v. Piedmont Coal Co., 4 Cir., 64 F.2d 817, 91 A.L.R. 648; Bowen v. Hock-ley, 4 Cir., 71 F.2d 781, 94 A.L.R. 856.

With this nascent power, equity can shape its sanction, Sprague v. Ticonic National Bank, 307 U.S. 161, 164, 165, 167, 59 S.Ct. 777, 83 L.Ed. 1184, 1186, 1187; Alexander v. Hillman, 296 U.S. 222, 239, 56 S.Ct. 204, 80 L.Ed. 192, 199, 200, to meet the unique requirements of the cause. And here that need not take the full scope of the injunction sought, but will be satisfied by the Employer, who has already agreed to provide and pay for legal counsel and expenses of the Retirement Committee, taking the steps which are so clearly within its actual power to assure that the Retirement Committee members and their successors become parties for further and not inconsistent proceedings on the merits. We do not, of course, express any views on the availability of various types of relief by judgment, injunction, declaration or otherwise, or the relief, if any, which ought to be granted.

By this means equity takes its creature —the trust agreement — and rescues it from a geographical impasse with consequent legal frustration. In the meantime, it preserves all of the essential characteristics of the Trust with its delineation of legal obligations and rights of settlor, Trustee and cestui que trust.

Reversed and remanded.