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CHAIT v. BERNSTEIN

September 8, 1986

Arnold CHAIT, et al., Plaintiffs,
v.
George K. BERNSTEIN, Defendant



The opinion of the court was delivered by: ACKERMAN

 This suit was filed in May of 1985 by Arnold Chait, acting in his alleged capacity as trustee of the employee pension plan of Ambassador Insurance Company (hereinafter "Ambassador" or "the Company"). In his verified complaint, Mr. Chait has accused the Defendant George K. Bernstein of violating the federal Employees Retirement Income Security Act of 1974 (ERISA), primarily by seeking to terminate the pension plan in a manner which provided for the reversion of excess plan funds to Ambassador upon termination.

 Plaintiff seeks to enjoin the defendant from taking any further action with respect to the Ambassador Pension Plan and from interfering with the assets of the plan. Defendant Bernstein, who has already taken steps to terminate the pension plan in accordance with pension plan provisions which he, himself, had added by amendment, seeks to have plaintiff's verified complaint dismissed with prejudice.

 This Court has jurisdiction over the subject matter of this action under Section 502 of ERISA, 29 U.S.C. Section 1132 (1982) and under 28 U.S.C. Section 1331 (1982) which provides for federal jurisdiction over civil actions arising under the laws of the United States.

 At the present time, I have before me plaintiff's motion for summary judgment and defendant's motion for judgment on stipulated facts. On April 14, 1986, the parties filed a final pretrial stipulation stating the facts of the matter on which they agreed, and further stating that no other material facts were in contest. Because defendant's motion seeks judgment based on the facts set out in the final pretrial stipulation, I treat defendant's motion as a motion for summary judgment.

 Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is not to be granted unless, after all reasonable inferences are drawn in favor of the non-moving party, there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. See Sames v. Gable, 732 F.2d 49, 52 (3d Cir.1984). Because the parties' stipulations resolve any genuine issues of material fact, I now decide these opposing motions for summary judgment in reliance on the parties' final pretrial stipulation, their briefs and arguments, and the applicable law.

 The facts relevant to the case at hand may be stated as follows: Until November of 1983, Ambassador was a property and casualty insurance company domiciled in Vermont which maintained its administrative offices in North Bergen, New Jersey. Arnold Chait, the plaintiff in this case, acted as chairman of the board, president, and chief executive officer of the company. In addition, Chait is the major stockholder of Ambassador's parent corporation, Ambassador Group, Inc. As a Vermont-domiciled insurer, Ambassador was subject to the regulatory supervision of the Vermont Commissioner of Banking and Insurance. See Title 8, Vermont Statutes Annotated.

 On December 31, 1968, Ambassador established a qualified pension plan for its employees, entitled The Ambassador Insurance Company, Inc. Pension Trust (hereinafter "the pension plan" or "the plan"). At its inception, and as of November 10, 1983, the administrator of the plan was Ambassador, and its trustees were Arnold Chait and his wife, Doris Chait. At its inception and as of November 10, 1983, the Plan contained no express provisions regarding the disposition of excess funding of the plan.

 On November 9, 1983, acting pursuant to his statutory authority, George Chaffee, then Commissioner of Banking and Insurance for the State of Vermont, filed suit in the Washington County, Vermont, Superior Court seeking to enjoin Ambassador from the further transaction of business, on the ground that the company was in "hazardous financial condition." (In re Ambassador Insurance Company, Inc., Washington County Superior Court No. S-444 Wnc).

 Pursuant to a stipulation entered into between the Commissioner and Ambassador's former management, the Vermont Superior Court on November 10, 1983 appointed the Commissioner receiver of Ambassador for the purpose of determining whether the company could be rehabilitated or must be liquidated.

 In that order, which is still in effect, the Vermont Superior Court directed the Commissioner "take possession of the property of Ambassador, wherever situated, and conduct the affairs of Ambassador, subject to the supervision of this Court, for the purpose of the rehabilitation of Ambassador." (Order of November 10, 1983, at paragraph 1.) The order further expressly provided that "Ambassador" and its "officers, directors, trustees, employees and creditors" -- thus including the plaintiff in this suit, Chait, and the Ambassador board of directors -- "are enjoined from further transaction of the business of Ambassador" (paragraph 7), and further enjoined such persons "from bringing or further prosecuting any action or proceeding of any nature whatsoever, including matters in arbitration, against Ambassador, its assets or the Commissioner as Receiver, or his agents, or from in any way interfering with the Commissioner in his possession control and conduct of the affairs of Ambassador . . ." (paragraph 9). The order further directed that the Commissioner appoint George K. Bernstein, the defendant in this litigation, as agent for the receiver "to take control of the assets and operations of Ambassador." (Paragraph 3). It was finally provided that if the Commissioner determined that rehabilitation of Ambassador was not feasible, he was to apply to the Vermont Superior Court for authority to liquidate the company. (Paragraph 5.)

 After a trial, the Vermont Superior Court on September 4, 1984, issued a ruling in which it found that Ambassador was insolvent by at least $45.6 million, and that its insolvency could well be $20 million higher than that figure. The Commissioner was ordered to submit a plan for the liquidation of the company. The liquidation of the company had been held in abeyance by the pendency of an appeal by Ambassador's former management to the Vermont Supreme Court. This Court has been informed today that on August 22, 1986, the Supreme Court of Vermont affirmed the Superior Court's September 4, 1984 liquidation ruling in all respects.

 On April 4, 1984, Ambassador's receiver executed an amendment to the Ambassador pension plan (hereinafter "the first plan amendment"). That amendment provided that there would be no further accrual of benefits in the plan after December 31, 1983. The April 4th amendment did not purport to terminate the plan.

 On December 9, 1984, after the Vermont Superior Court had directed Ambassador's liquidation, the receiver executed a further amendment to the plan (hereinafter the "second plan amendment") to ensure that a substantial amount of excess assets which would be available upon plan termination would inure to the benefit of Ambassador, rather than to plan participants and beneficiaries. The second plan amendment did not purport to affect in any way the rights of any plan beneficiaries to any of their vested benefits under the plan, but rather purported to address only the disposition of excess plan assets. As the parties have stipulated, plaintiff Chait is the principal beneficiary of the plan.

 On December 19, 1984, the receiver filed a Notice of Intent to Terminate the plan with the Internal Revenue Service and the Pension Benefit Guaranty Corporation. The notice (Form 5310) indicated that the plan was to terminate on December 31, 1984 and that, after distribution of benefits as required under the plan, approximately $500,000 in surplus plan assets would be returned to Ambassador.

 In May 1985, the Commissioner as the receiver filed a $50 million damage action in this court against, among others, plaintiff Chait, alleging fraud in Ambassador's financial reporting, negligent mismanagement, and breach ...


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