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In re New Valley Corp.

July 15, 1996

IN RE:

NEW VALLEY CORPORATION,

DEBTOR

SENIOR EXECUTIVE BENEFIT PLAN PARTICIPANTS; RICHARD L. CALLAGHAN; ALEXANDER J. CHISHOLM; W. LEE ELKINS; ROBERT M. FLANAGAN; ROBERT F. GARBARINI; ARTHUR A. GARMAN; WALTER GIRARDIN; DELMAR HARMON; J. WILLIAM HARRINGTON; JOHN P. HUNT; JOHN A. HOLLANSWORTH; GERALD P. KENT; D. D. LLOYD; RUSSELL W. MC FALL; JOHN W. R. POPE, JR.; HERBET SALTER, ESTATE OF; STEVE SMISZKO; PHILLIP SCHNEIDER; BERNARD WEITZER

v.

NEW VALLEY CORPORATION

SENIOR EXECUTIVE BENEFIT PLAN PARTICIPANTS AND WALTER E. GIRARDIN, ALEXANDER J. CHISHOLM, S. E. SMISZKO, JOHN A. HUNT, ARTHUR GARMAN, GERALD P. KENT, DELMAR HARMON, ROBERT R. GARBARINI, WALTER L. ELKINS, WALTER E. GIRARDIN, PHILIP SCHNEIDER, J. WILLIAM HARRINGTON, JOHN A. HOLLANSWORTH, BERNARD WEITZER, JOHN W. R. POPE, JR., ROBERT M. FLANAGAN, DOUGLAS D. LLOYD, H. E. SALTER/BARBARA ORR SALTER, RICHARD L. CALLAGHAN, AND RUSSELL W. MCFALL,

APPELLANTS.



On Appeal from the United States District Court for the District of New Jersey

(D.C. Civil Action No. 94-cv-02405) Argued December 11, 1995

Before: BECKER, ROTH and LEWIS, Circuit Judges

ROTH, Circuit Judge

(Opinion Filed July 15, 1996)

OPINION OF THE COURT

Appellants, participants in two top hat pension plans, filed claims in bankruptcy court seeking benefits after their employer had been declared bankrupt and terminated the plans. The bankruptcy court dismissed their claims, relying on a clause in the plan documents that reserved the company's right to amend or terminate the plans "at any time for any reason." The bankruptcy court found this language clear and unambiguous, and it refused appellants' proffer of extrinsic evidence to show that the clauses did not represent the original understanding of the parties. The district court affirmed. We will reverse and remand.

We conclude that the record in this case, viewed in the light of the special nature of top hat plans, distinguishes this case from prior decisions in which we have held a clause reserving the right to terminate or amend unambiguous and controlling. See In re Unisys Corp. Retiree Medical Benefit "ERISA" Litig., 58 F.3d 896 (3d Cir. 1995); Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1163-64 (3d Cir. 1990). Therefore, we hold on the facts of this case that the bankruptcy court should have permitted the appellants to present extrinsic evidence in support of their allegations. We will remand to the district court with instructions to remand to the bankruptcy court to conduct the necessary evidentiary hearing.

I.

Appellants are former executives and highly paid personnel of Western Union Corporation ("Western Union") who participated in two top hat plans designed to provide deferred retirement income and other retirement benefits to a select group of employees. As discussed more fully below, top hat plans represent a special category of benefit plans created under ERISA to provide these types of benefits to select employees. After the employees had retired, Western Union's successor, New Valley Corporation ("New Valley"), terminated the plans. Appellants responded with this action for benefits. The facts are essentially undisputed.

In the mid-1970s, the first rumblings of technological revolution were felt in the communications industry. Western Union had suffered financial reverses in the early part of the decade, and its Board of Directors ("Board") perceived a need to attract new executives to the company and to retain the key executives that it had. The Board viewed an enhanced benefits and compensation package as the principal means to that end.

In early 1977, the Board began discussing a supplemental benefits package entitled the Senior Executive Benefit Plan ("SEBP" or "SEB Plan"). The SEB Plan would provide a select group of high-level employees with supplemental pension benefits, deferred compensation benefits, and supplemental medical benefits. The plan was designed to achieve the previously identified goal of retaining Western Union's top management personnel and luring talented candidates to the company.

The initial draft of the plan was prepared by Gerald Kent, then Vice President-Employee Relations, in a form that substantially resembled the "SEBP Plan Summary" later distributed to the executives selected to participate. This document described the plan benefits in some detail but made no mention of any reservation of the company's unilateral right to amend or terminate the plan. Based on this summary, the Board approved the plan on August 23, 1977. The Board's minutes similarly omitted any mention of a right to amend.

After the Board's action, Western Union distributed copies of the Plan Summary to potential participants. As noted, the Plan Summary contained nothing indicating that Western Union reserved the right to amend or terminate the plan. Western Union also held meetings with the participants to discuss the plan. Appellants allege that at these meetings they were informed that they would earn the promised benefits by continuing their employment with Western Union until retirement and that the benefits could not be taken away after retirement. Throughout the initial stages of plan proposal, development, adoption, negotiation, and acceptance, no reservation of the right to amend or terminate existed.

Western Union's General Counsel, Richard C. Hostetler, drafted the formal plan. The formal plan document, introduced five months later at a board meeting on February 28, 1978, included an article which reserved the right to amend or terminate the plan at any time. The text of this article, Article 12, reads:

12. Amendment and Termination. The Board of Directors may amend or terminate the Plan at any time for any reason and thereafter Participants and their estates and dependents shall have only such rights under the Plan, if any, as shall be specifically provided for by the Board of Directors under the Plan as amended or terminated.

All subsequent versions of the plan contained this provision. However, none of the versions of the plan contained an integration clause.

Appellants are prepared to offer Mr. Hostetler's testimony that Article 12 was included in the SEBP formal document as "boiler plate" language that had been contained in all of Western Union's employee benefit plan documents. Mr. Hostetler would also testify that at the Board meeting where Article 12 was discussed, the general understanding was that the provision could not be used to change or terminate benefits after retirement. Appellants further allege that during a series of meetings held to discuss particular provisions in the Plan which might be of concern, Mr. Kent told them Article 12 could not be used to change or terminate their benefits after retirement. Appellants likewise contend that this understanding was conveyed to executives recruited by the company. Accordingly, although the plans as adopted contained the termination "at any time" language, the appellant's understanding of that provision was informed by these representations.

In 1979, a separate plan was created for Walter E. Girardin ("Girardin Plan"). The motivation for the Girardin Plan was much the same as for the SEBP, to retain a key executive. At the time, Western Union faced a potentially difficult transition from its long-standing Chairman and CEO, Russell McFall, to his successor, Robert M. Flanagan. Girardin, who had worked for Western Union for more than 40 years, had been passed over for the CEO position. When Girardin announced his decision to retire, the Board decided that he should be kept on for at least a year so that his skill and experience could help in the transition. Western Union offered Girardin an enhanced benefits package to induce him to remain with the company. After some negotiating, Girardin accepted. Although the Girardin Plan was adopted separately and at a date later than the SEB Plan, its substantive provisions were identical. It ultimately met the same fate as the SEBP. Both plans will be discussed together.

After appellants had retired, New Valley terminated the plans, relying on Article 12 for its authority. Appellants believe that, under the original agreement underlying the plan documents, such action was impermissible. Appellants therefore contend that New Valley breached the SEBP and Girardin contracts. Alternatively, appellants urge that New Valley be estopped from terminating their benefits because of the promises Western Union made to the plan participants. Appellants allege a variety of damages from the breach of contract, framed alternatively as detrimental reliance on Western Union's promise. Their claims include leaving secure employment with other companies to join Western Union, declining employment offers from other companies to remain at Western Union, uprooting families and moving to New Jersey to become eligible for the SEBP, taking early retirement based on plan benefits, and declining to pursue other retirement options because of the plan.

The procedural history of this case began in the bankruptcy court. At the time New Valley terminated the plans, its creditors had placed it in Chapter 11 bankruptcy. Appellants therefore responded to the denial of benefits by filing proofs of claims in the bankruptcy proceeding, rather than by following the traditional course of a suit in district court for benefits under 29 U.S.C. Section(s) 1132(a). In pursuing their claims, appellants argued that Article 12 had to be considered in the context in which it was created and that, when taken in that context, it was ...


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