Sanders v. Gravel Prod.s Inc.

790 N.W.2d 733

2010 ND 218

Terry SANDERS, Plaintiff and Appellant

v.GRAVEL PRODUCTS, INC., Defendant and Appellee.

No. 20090318.

Supreme Court of North Dakota.

Nov. 9, 2010.

COPYRIGHT MATERIAL OMITTED.

Leo F.J. Wilking (argued) and Mark Vincent Larson (on brief), Minot, N.D., for plaintiff and appellant.

Lawrence E. King (argued) and Kara Jean Johnson (appeared), Bismarck, N.D., for defendant and appellee.

KAPSNER, Justice.

[¶ 1] Terry Sanders appeals from the district court judgment dismissing his claim for enforcement of a deferred compensation agreement with Gravel Products, Inc. We hold Gravel Products complied with the plain and unambiguous language of the deferred compensation agreement, and we affirm.

I

[¶ 2] The relevant facts for this case are set forth in Sanders v. Gravel Products, Inc., 2008 ND 161, ¶¶ 2-5, 755 N.W.2d 826 (“ Sanders I ”), and we will repeat them here only as necessary to resolve the issues properly raised in this appeal. Sanders began working for Gravel Products in 1980 as an office manager, eventually becoming company president in the early 1990s. In December 1996, when Sanders was 39 years old, he entered into a deferred compensation agreement with Gravel Products. The agreement provided that, from age 60 through 75, Sanders would receive annual benefits from Gravel Products, with the amount of annual benefits increasing the longer Sanders remained employed with the company. A table for the annual benefits described benefits ranging from $8,500 per year if Sanders was terminated at age 41, up to $170,000 per year if he was terminated at age 60. The agreement also stated:

At the option of the Corporation or Employee, if Employee's employment is terminated on or after the Employee shall have reached the age of 41 for a reason other than death or the Company is sold or liquidated, the insurance policy purchased by Corporation to fund this plan may be assigned to Employee as full payment of all obligations created by this plan. The transfer shall be completed within 30 days of termination and Employee shall be responsible for all tax consequences.

(Emphasis added.) In May 1997, Gravel Products purchased a “Flexible Premium Adjustable Variable Life Insurance Policy” to fund the plan. The policy named Sanders as the insured, and Gravel Products began paying $14,000 in annual premiums for the policy.

[¶ 3] In October 2003, Gravel Products terminated Sanders' employment, when he was 46 years old. Under the table for annual benefits in the deferred compensation agreement, Sanders would have been eligible to receive $51,000 per year for 15 years when he turned age 60. However, Gravel Products opted to assign the life insurance policy to Sanders under the terms of the agreement. The policy was transferred to Sanders in 2004, with a net cash surrender value of $114,072.83.

[¶ 4] Sanders sued Gravel Products for breach of contract, alleging Gravel Products failed to assign the insurance policy to him within 30 days of his termination. He also asserted a claim under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001-1461, alleging Gravel Products had failed to fully fund his retirement plan under the deferred compensation agreement.

[¶ 5] In Sanders I, 2008 ND 161, ¶¶ 11-12, 755 N.W.2d 826, we affirmed the district court's dismissal of Sanders' breach of contract action, concluding as a matter of law Sanders' request to delay the transfer of the insurance policy for personal tax purposes constituted a waiver of the 30-day period for assignment of the policy. We held, however, the district court erred in granting summary judgment dismissal of Sanders' ERISA claim for alleged failure to fully fund his retirement plan under the deferred compensation agreement. Id. at ¶ 24. We concluded Sanders had raised a genuine issue of material fact whether his agreement with Gravel Products was an ERISA plan. Id. at ¶ 23. We remanded to the district court with instructions to decide whether Sanders' deferred compensation agreement was an ERISA plan and, if it was, to consider the merits of Sanders' ERISA claim. Id. at ¶¶ 24-25.

[¶ 6] On remand, Sanders and Gravel Products stipulated that Sanders' deferred compensation agreement was an ERISA plan and, further, that it was a “top-hat” plan, which we described in Sanders I, 2008 ND 161, ¶ 20, 755 N.W.2d at 826, as “ ‘a pension plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly trained employees.’ ” (Citation omitted.) After trial, the district court rejected Sanders' contention that as a unilateral contract the agreement could not be amended, holding Gravel Products did not impermissibly amend the agreement when Gravel Products assigned the insurance policy to Sanders more than 30 days after Sanders was terminated. The court decided Sanders freely entered into the top-hat plan and “[t]he Agreement clearly and unambiguously gives both parties the option of choosing an annual payout beginning at age 60 or the assignment of the insurance policy to Sanders.” The court also rejected Sanders' argument that ERISA law prohibited any variation from the agreement for payment of benefits, even if the variation was allegedly authorized in a waiver granted by the plan recipient.

II

[¶ 7] Sanders argues the unambiguous language of the deferred compensation agreement required Gravel Products to fully fund his plan with sufficient money to pay him benefits according to the amount specified in the table for annual benefits. He alternatively argues that if the deferred compensation agreement is ambiguous about the level of funding, the agreement must be construed against the drafter, Gravel Products, to provide funding sufficient to pay the amount specified in the table for annual benefits.

[¶ 8] The issues raised in this case involve the interpretation of the top-hat plan in the deferred compensation agreement in the context of ERISA. We first consider our standard of review of the district court's decision disposing of Sanders' ERISA claims, as it pertains to a top-hat plan. Here, the deferred compensation agreement provides Gravel Products' board with broad authority to interpret and administer the agreement:

The Board shall have full power and authority to interpret, construe, and administer this Agreement and the Board's interpretations and construction thereof, and actions thereunder, including any valuation of the Deferred Compensation Account, or the amount or recipient of the payment to be made therefrom, shall be binding and conclusive on all persons for all purposes.

[¶ 9] The Supreme Court has held that where an ERISA plan does not provide otherwise, a court should apply a de novo standard of review to an administrator's interpretation of the plan and determination of benefits. See Sznewajs v. U.S. Bancorp Amended and Restated Supplemental Benefits Plan, 572 F.3d 727, 733 (9th Cir.2009) (citing Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 2346, 171 L.Ed.2d 299 (2008), and Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). However, if a plan grants the plan administrator discretionary authority to construe the plan's terms, the appropriate standard of review is an abuse of discretion, and a plan administrator's conflict of interest is included as a factor in deciding whether that discretion has been abused. Sznewajs, 572 F.3d at 733. In Sznewajs, at 733, the court of appeals discussed a conflict of interest:

As MetLife explained, a conflict of interest commonly arises when a plan administrator serves the “dual role” of “both determin[ing] whether an employee is eligible for benefits and pay[ing] benefits out of its own pocket.” 128 S.Ct. at 2346 (emphasis added). The “informed” element of the informed abuse of discretion standard reflects the possibility that the plan administrator might be influenced to interpret the plan to favor its own financial interests. The possible bias that results from such a conflict of interest is, not surprisingly, a contentious issue in many ERISA benefits lawsuits.

In Sznewajs, the court also analyzed a circuit split in applying Supreme Court precedent to top-hat plans:

Neither Firestone nor MetLife involved top hat plans. As we noted in Gilliam [ v. Nevada Power Company], 488 F.3d [1189] at 1194 [ (9th Cir.2007) ], the Third and Eighth Circuits have carved a top hat exception out of Firestone by reviewing de novo the benefit determinations by administrators of top hat plans despite the existence of discretion-granting clauses in the pension plans at issue in these cases. See Goldstein v. Johnson & Johnson, 251 F.3d 433, 442-43 (3d Cir.2001); Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir.2006). Both Goldstein and Craig emphasized, however, that application of a de novo standard of review did not materially change the outcome in either case, since ordinary contract principles require a reviewing court to give full effect to the entire pension plan, including any provisions granting the administrator discretionary interpretation. Goldstein, 251 F.3d at 436, 443-44; Craig, 458 F.3d at 752.

We do not believe, and have found no cases to suggest, that applying a different standard of review under these circumstances would lead to a materially different result. We conclude that importing “de novo” language into the standard of review simply because the plan involved is a top hat plan would create unnecessary confusion. We will therefore continue to adhere to the framework established by the Supreme Court in Firestone and MetLife for all covered plans, top hat or otherwise. Where, as here, there was no conflict of interest that tainted the Plan's determination, the Plan's decision should be upheld unless it constituted an abuse of discretion.

572 F.3d at 734.

[¶ 10] Although the Ninth Circuit in...