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Finderne Management Co., Inc. v. Barrett

November 20, 2002

FINDERNE MANAGEMENT COMPANY, INC.; ROCQUE DAMEO; AND DANIEL DAMEO, PLAINTIFFS-APPELLANTS,
v.
JAMES W. BARRETT; CIGNA FINANCIAL ADVISORS, INC.; TRI-CORE, INC.; RONALD REDFEARN; AND EPIC WELFARE BENEFIT AND TRUST, DEFENDANTS-RESPONDENTS, AND GERARD T. PAPETTI AND U.S. FINANCIAL SERVICES CORPORATION, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS.
v.
MONUMENTAL LIFE INSURANCE COMPANY D/B/A COMMONWEALTH LIFE INSURANCE COMPANY; KENTUCKY COMMONWEALTH LIFE INSURANCE COMPANY; FULBRIGHT & JAWORSKI, ESQUIRES; HOPKINS & SUTTER, ESQUIRES; DONALD R. WILLIAMS, ESQUIRE; HENRY DE VOS LAWRIE, JR., ESQUIRE; JEPSON, FRENCH & BROOKE, ESQUIRES; AUER & SYLVESTER ASSOCIATES; AND STEVEN G. SHAPIRO, ESQUIRE; GLENN C. GUERIN; AND JOHN ROSSI, C.P.A., THIRD-PARTY DEFENDANTS- RESPONDENTS. ALLOY CAST PRODUCTS, INC.; KENNETH FISHER; AND FRANK PANICO, PLAINTIFFS-APPELLANTS,
v.
LINCOLN NATIONAL LIFE INSURANCE COMPANY AS SUCCESSOR-IN-INTEREST TO CIGNA FINANCIAL ADVISORS, INC.; TRI-CORE, INC.; RONALD REDFEARN; EPIC WELFARE PLAN AND TRUST; AND STEVEN SHAPIRO, ESQUIRE, DEFENDANTS-RESPONDENTS, AND JAMES W. BARRETT AND BARRETT & BARRETT ASSOCIATES, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS.
v.
MONUMENTAL LIFE INSURANCE COMPANY D/B/A COMMONWEALTH LIFE INSURANCE COMPANY; KENTUCKY COMMONWEALTH LIFE INSURANCE COMPANY; CJA & ASSOCIATES; RAYMOND G. ANKNER; BEAVEN INTER- AMERICAN COMPANIES; BEAVEN COMPANIES; CAPITAL HOLDING AGENCY GROUP; FULBRIGHT & JAWORSKI, ESQUIRES; RIGGS NATIONAL BANK OF VIRGINIA; RIGGS NATIONAL CORP.; RIGGS NATIONAL BANK OF WASHINGTON D.C.; RIGGS BANK, N.A.; HOPKINS & SUTTER, ESQUIRES; DONALD R. WILLIAMS, ESQUIRE; HENRY DE VOS LAWRIE, JR., ESQUIRE; AND JEPSON FRENCH & BROOKE, THIRD-PARTY DEFENDANTS- RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Somerset County, L- 851-99 (A-2873-00T2); and Law Division, Union County, L-1059-99 (A-5028-00T5).

Before Judges Skillman, Lefelt and Winkelstein

The opinion of the court was delivered by: Winkelstein, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 1, 2002

In these back-to-back appeals we decide whether plaintiffs' misrepresentation claims against various insurance and other professionals are preempted under 29 U.S.C.A. § 1144(a), the preemption provision of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. §§ 1001 to -1461. Plaintiffs, small business entities and their principals, assert that certain defendants misrepresented to them the potential tax benefits of an employee benefit plan in order to induce them to fund pre-retirement and post-retirement death benefits for their employees through the purchase of life insurance. The annual contributions used to purchase the policies were supposed to be tax deductible. The Internal Revenue Service ruled that they were not. As a result, plaintiffs have brought these actions seeking damages. Defendants have raised ERISA preemption as an affirmative defense. Motion judges in Somerset and Union Counties agreed with defendants' position, respectively granting motions to dismiss the complaint in Finderne, and for summary judgment in Alloy Cast. We reverse. We find plaintiffs' claims are not preempted because they do not "relate to" an ERISA plan within the meaning of ERISA's preemption provision.

I.

These cases derive from a similar set of facts and present identical issues on appeal. The actions were brought by two closely held companies: Finderne Management Company, Inc., and its principals, Rocque Dameo and Daniel Dameo; and Alloy Cast Products, Inc., and its principals, Kenneth Fisher and Frank Panico. Finderne is a small trucking management company and Alloy Cast is a small foundry. Plaintiffs claim they were fraudulently induced to participate in an employee benefit plan known as the EPIC Welfare Benefit Plan (EPIC Plan or Plan). Plaintiffs' complaints assert state law claims for violation of the New Jersey Racketeering Act, N.J.S.A. 2C:41-1 to -41-6.1, fraud, equitable fraud, negligent misrepresentation, breach of fiduciary duty, conspiracy, and aiding and abetting.

The "insurance defendants" include James W. Barrett, of Barrett & Barrett Associates, a financial planner and licensed insurance producer in New Jersey, who acted as an agent of defendant Cigna Financial Advisors, Inc., an insurance and financial company, subsequently acquired by Lincoln National Corporation. Defendant Gerald T. Papetti is a financial planner and financial consultant, and an authorized agent of defendant U.S. Financial Services Corporation, a planning and consulting firm. Defendants Tri-Core, Inc., EPIC Welfare Benefit and Trust and Ronald Redfearn constitute the "Tri-Core defendants." Redfearn, Tri-Core's president, is an insurance salesman who created and promoted the EPIC plan; Tri-Core was set up to administer the plan. EPIC Welfare Benefit and Trust was established as a multiple employer welfare benefit trust, administered and controlled by Tri-Core. Defendant Steven Shapiro is an attorney who gave legal opinions for Tri-Core concerning the validity of the EPIC Plan and is a named defendant only in Alloy Cast. Defendants filed third, fourth, and fifth-party complaints against various attorneys and other professionals who had rendered opinions concerning the tax consequences of the Plan, insurance consultants who had designed and marketed the insurance policies used by the Plan, insurance companies who issued the policies, and Plan trustees. *fn1

After being served with the complaints, defendants in both actions removed the lawsuits to federal district court, asserting ERISA preemption. Judge Lifland, in Alloy Cast, and Judge Thompson, in Finderne, remanded the cases to state court finding a lack of federal subject matter jurisdiction. Subsequent to the remands, in September 2000, Barrett moved to dismiss the Finderne complaint. The remaining defendants and third-parties either joined in the motion or individually moved to dismiss the complaints based on the doctrine of express ERISA preemption pursuant to 29 U.S.C.A. § 1144.

In a written opinion and by order dated December 8, 2000, the court dismissed the complaint against Barrett as being preempted by ERISA. In subsequent orders the judge dismissed the complaints against the remaining defendants and third- parties.

Prior to the order dismissing their complaint, on November 29, 2000, the Finderne plaintiffs had moved to amend the complaint to include a federal RICO *fn2 count. The court never addressed the motion; it was returned to plaintiffs' counsel by the court staff on December 12 as a result of the judge's prior order dismissing the underlying case. Plaintiffs' motion for reconsideration was denied.

On December 20, 2000, the Alloy Cast plaintiffs moved to amend the complaint to add a federal RICO count. Motions for summary judgment were later filed by defendants and third-party defendants. On April 12, 2001, the Union County motion judge granted defendants' and the third-parties' motions for summary judgment, dismissing the complaints. The judge also denied as moot plaintiffs' motion for leave to file an amended complaint.

Plaintiffs in both actions appealed. *fn3 In Alloy Cast, the United States Department of Labor was granted leave to appear as amicus curiae.

II.

In 1984, Congress, concerned that employers were taking deductions for expenses which had not yet been incurred, amended the Internal Revenue Code to limit employers' deductions for contributions to welfare benefit plans. Booth v. Commissioner of Internal Revenue, 108 T.C. 524, 565-66 (1997) (citing the Deficit Reduction Act of 1984, Pub. L No. 98-369, §§ 511(a) and 512(a), 98 Stat. 484, 854 to -862 (1984)). Congress did, however, provide a tax exemption for "any welfare benefit fund which is part of a 10 or more employer plan." Id. at 567; 26 U.S.C.A. § 419A(f)(6). The amendment permits employers eligible for the exemption to deduct their contributions as business expenses so long as another entity organizes and administers the fund. See 26 U.S.C.A. § 162.

Redfearn formed Tri-Core in 1986 to market welfare benefit plans. He developed the EPIC Plan, which was intended to comply with ERISA by providing a ten or more employer plan under 26 U.S.C.A. ยง 419A(f)(6). The Plan provided a death benefit for employees by the use of a trust funded by term life insurance purchased by the employer from an insurance company designated by Tri-Core. The Plan provides pre-retirement death benefits and, post-retirement, for continuation of the death benefit and conversion to an individual policy with the ability to borrow against the policy. On behalf of the prospective insurers, Redfearn contacted insurance agents around the country to market the program. Tri-Core and the insurance agents contracted with the insurance companies. Each would receive commissions from the sale of the life insurance. ...


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