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ALEXANDER v. PRIMERICA HOLDINGS

January 7, 1993

JUDD ALEXANDER and RICHARD EDWARDS, on behalf of themselves and as representatives of a Class of persons similarly situated, Plaintiffs,
v.
PRIMERICA HOLDINGS, INC. formerly known as PRIMERICA CORPORATION, The Board of Directors of Primerica Holdings, Inc., James Dimon, Irwin Ettinger, John Fowler, John Doe 1-10 (being individual members of the Primerica Holdings, Inc. Board of Directors), and ABC (being the administrator of the American Can Salaried Retiree Group Insurance Plan), Defendants.



The opinion of the court was delivered by: ALFRED J. LECHNER, JR.

 LECHNER, District Judge

 This is a class action brought by plaintiffs Judd Alexander and Richard Edwards on behalf of themselves and persons similarly situated (collectively, the "Plaintiffs") against defendants Primerica Holdings, Inc. ("Primerica"), the Board of Directors of Primerica (the "Board of Directors"), James Dimon ("Dimon"), Irwin Ettinger ("Ettinger"), John Fowler ("Fowler") and ABC (the "ABC") (collectively, the "Defendants"). *fn1" Plaintiffs brought suit to declare and enforce their rights to medical insurance benefits, life insurance benefits and survivor income benefits under a retirement welfare benefit plan (the "Plan") established by the American Can Company ("American Can"), a predecessor of Primerica. Plaintiffs claim Defendants have violated the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., by modifying Plaintiffs' benefits Plan.

 Plaintiffs' complaint was filed 14 December 1989. Plaintiffs' First Amended Class Action Complaint (the "Amended Complaint") was filed 9 January 1991. By consent order (the "Consent Order"), filed 13 May 1991, Plaintiffs' class was certified as consisting of:

 . . . All salaried retirees of American Can and their spouses, and the spouses of all deceased former employees of American Can, excluding those salaried retirees (and their spouses or surviving spouses) who were designated by American Can, as retirees of its "Packaging Sector" in connection with the sale of the packaging operations of American Can to Triangle Industries.

 Consent Order at 2.

 Jurisdiction is specifically alleged in the Amended Complaint under section 502 of ERISA, 29 U.S.C. §§ 1132(a)(1)(B), 1132 (a)(2) and 1132(a)(3)(A) & (B). Amended Complaint, P 2. It is presumed jurisdiction is also alleged under 29 U.S.C. § 1132(e). *fn2"

 Currently before the court is a motion by Plaintiffs for a preliminary injunction (the "Preliminary Injunction Motion") pursuant to Fed. R. Civ. P. 65. Prior to a ruling on the merits of the Preliminary Injunction Motion, the parties have jointly requested a decision on whether Plaintiffs would be required to post a bond and, if so, in what amount, if they were successful on the Preliminary Injunction Motion. *fn3" Plaintiffs Bond Brief at 4; Primerica Bond Brief at 5. For the reasons that follow, a bond would be required in the amount of $ 7,733,514 if Plaintiffs were successful on the Preliminary Injunction Motion.

 Facts

 A. The Parties and the Plan

 Primerica is a corporation organized under the laws of the State of Delaware; it maintains its principal place of business in the State of Connecticut. Amended Complaint, P 5. Dimon, Ettinger and Fowler are or were members of the Board of Directors of Primerica. Id., P 8. Primerica is the surviving entity of a merger between Primerica and Primerica Corporation in December 1988. Id., P 6. Primerica Corporation was organized under the laws of the State of New Jersey and, until April 1987, was known as American Can. *fn4" Id. Plaintiffs are either retired salaried employees of American Can or their surviving spouses. Id., PP 3-4, 11.

 Beginning in 1957, American Can maintained the Plan which is a retirement welfare benefits plan for qualified salaried employees who retired. Id., P 21. The terms of the Plan were set forth in a series of summary plan descriptions (the "SPDs") which, pursuant to ERISA, must be furnished to Plan beneficiaries. See 29 U.S.C. § 1022. The benefits under the Plan included a pension, life insurance and medical insurance. Amended Complaint, P 21. It is uncontroverted that plaintiffs are former salaried employees or their surviving spouses eligible to receive retirement benefits under the Plan. It is also uncontroverted Plaintiffs received benefits under the Plan. It is contested that, as Plaintiffs allege, "repeated representations were made to employees and retirees alike" that their retirement benefits would be provided by the company "for life." *fn5" Id., P 22.

 Plan beneficiaries are required to make mandatory monthly contributions to cover a portion of the cost of the Plan. Apparently, the amount of the monthly mandatory contributions Plan beneficiaries are required to make was, until 1 February 1989, $ 5.00 per covered Plan participant. *fn6" Id., P 30. Plaintiffs allege Primerica's predecessor, American Can, had agreed the amount of those contributions would never increase. Plaintiffs allege American Can

 promised the Plaintiffs by various means, including oral representations, publications, documents, brochures and a general course of dealing that it would provide Plaintiffs with the protection and security of the American Can Retirement Program, including lifetime pension, life insurance and lifetime medical insurance benefits upon retirement and that the lifetime medical insurance benefits would be so provided at a fixed, nominal cost to retirees.

 Amended Complaint, P 23 (emphasis added). Plaintiffs further allege these benefits were "irrevocable upon retirement" and American Can could neither unilaterally terminate any of the benefits nor unilaterally increase the cost of the medical insurance coverage. *fn7" Id., PP 25-27.

 Plaintiffs allege that American Can "at no time reserved to itself the right to unilaterally terminate" benefits under the Plan or increase the cost of those benefits. Id., P 26-27. The SPDs neither expressly prohibit nor expressly provide for the raising of the amounts of the mandatory contributions. All but one SPD, however, contained the following provision:

 The Company expects to continue this Plan indefinitely, but necessarily reserves the right to amend, modify, or discontinue the Plan in the future in conformity with applicable legislation. . . .

 Affidavit of Sal Giudice, dated 6 March 1991, Ex. A at 5.

 In addition, it appears that most employees of American Can signed one of two forms upon registering for coverage under the Plan which indicate that the contribution amount for retirees was understood to be subject to change. Affidavit of Saul P. Morgenstern, dated 15 September 1993, Ex. A; See Letter from Harry Kurzweil, dated 8 October 1992 (the "8 Oct. 1992 Letter"), at 2-3.

 The first form ("Form A"), is a one page form entitled "Deduction Authorization -- Comprehensive Medical Plan Coverage For Retirees Receiving Benefits Under the American Can Company Plan For Salaried Employees." See id. Form A contained the following paragraph:

 I understand that the monthly charge for this coverage is subject to change in the future. If the cost of this coverage is changed, I will be notified in advance and given the option of continuing my coverage at the new monthly cost or terminating my coverage.

 I request and authorize you to direct Bankers Trust Company . . . to deduct from retirement payments I receive under the . . . Plan amounts equal to the coverage I have indicated above and to pay these amounts to American Can. . . . This authorization will continue to apply until canceled by me by written notice. . . . This authorization will not remain in effect if American Can discontinues extending medical coverage to me and/or to my eligible dependant.

 Id. (emphasis added).

 The second form ("Form B") is a shorter version of Form A entitled "Deduction Authorization Card for Retired Employees who are receiving benefits under the American Can Company Retirement Plan for Salaried Employees and who desire to obtain Major Medical Insurance Plan Coverage." Id. Form B contains the statement "I want the Major Medical Insurance Plan coverage indicated by my check mark." Id. Form B then offered the retiree three options to choose from: (a) "Retiree with spouse ($ 7.10 $ 2.72 for each dependant child)," (b) "Retirees Only ($ 3.55 per month initially)" and (c) "Retiree with Spouse ($ 7.10 per month initially)." Id. (emphasis added). Form B also contained language similar to Form A:

 I request and authorize you to direct Bankers Trust Company . . . to deduct from retirement payments I receive under the . . . Plan amounts equal to charges for such Major Medical Insurance Plan coverage and to pay over such amounts to American Can. . . . This request and authorization will continue to apply until canceled by me by written notice . . . notwithstanding any changes in benefits or charges or any cessation of my coverage not communicated to you.

 Id. (emphasis added).

 On or about 9 January 1989, Primerica notified the Plan beneficiaries it was increasing the amount of monthly mandatory contributions Plan beneficiaries had to make to the group medical insurance plan. Amended Complaint, P 30. The contributions were increased from the then current amount of $ 5.00 per covered individual per month to $ 50.00 per covered individual per month. Id. The increase went into effect on 1 February 1989. Id. The contributions were and are automatically deducted from each Plan beneficiary's monthly pension check unless Primerica was notified the beneficiary intended to terminate his or her coverage. Id. Some members of the Plaintiffs' class apparently opted to terminate their coverage under the Plan rather than pay the higher costs. Subsequently, Plaintiffs commenced this suit against Defendants.

 B. The Amended Complaint

 In count one, Plaintiffs allege Primerica violated both ERISA and Federal common law and breached its contractual obligations under the group medical insurance plan by unilaterally increasing the amounts of the mandatory contributions to the group medical insurance plan. Id., PP 32-38. In Count Two, Plaintiffs allege Primerica's unilateral increase in the amount of mandatory medical insurance plan contributions was unlawful and constituted a breach of contract. Id., PP 30-44. Specifically, Plaintiffs allege the retirement benefits were vested and not subject to modification. Id. In Count Three, Plaintiffs allege Primerica, the Board of Directors, including Dimon, Ettinger and Fowler, and ABC breached their fiduciary duties under ERISA, Federal common law and the retirement benefits plans by unilaterally modifying the amount of mandatory medical insurance plan contributions. Id., PP 45-51. In Count Four, Plaintiffs allege American Can, Primerica Corporation and Primerica failed to reserve properly their rights to modify unilaterally the retirement benefits plans. Id., PP 52-54. Moreover, Plaintiffs allege that, if such a right was properly reserved, Defendants "failed to adequately convey such reservation to Plaintiffs in clear and unambiguous terms . . . calculated to be understood by the average plan participant." Id., P 53.

 Plaintiffs seek a declaratory judgment that Primerica is obligated to maintain the same level of benefits upon the terms which existed prior to 1 February 1989 for the respective lifetimes of each member of the Plaintiffs' class. Id. at 10-11, 14, 17, 20. Plaintiffs also seek to restrain Primerica from changing the retirement benefits and to permit all Plaintiffs who terminated their coverage after 1 January 1989 to reinstate their coverage. Id. ...


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