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Becker v. Weinberg Group

May 21, 2008

KAREN BECKER, PLAINTIFF,
v.
THE WEINBERG GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

This is a complex case brought under the Employment Retirement Insurance Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. Plaintiff, a former employee of The Weinberg Group, Inc., sued the Defendants*fn1 for breaches of fiduciary duty and a failure to pay pension benefits. After extensive briefing, the Court decided several dispositive motions which brought the case to conclusion.

At this time, three matters are pending before the Court: (1) Plaintiff's Application for Attorneys' Fees [Dkt. #21], which relates to her successful opposition to the Defendants' Motion to Dismiss [Dkt. #3]; (2) Plaintiff's Application for Attorneys' Fees [Dkt. #87], which relates to the Court's Memorandum Opinion of February 13, 2007 [Dkt. #86], denying Plaintiff's Motion for Partial Summary Judgment [Dkt. #38] and Plaintiff's Motion for Partial Summary Judgment on the Disputed Benefit Amount [Dkt. #58], and granting Defendant Weinberg Group Pension Trust's Motion for Summary Judgment on Plaintiff's Claim for Benefits [Dkt. #59], Defendants' (The Weinberg Group, Inc. and Individual Defendants) Motion for Partial Summary Judgment [Dkt. #60], and Defendant Pension Benefit Guaranty Corp.'s Motion to Dismiss [Dkt. #73]; and (3) Defendants' Petition for Award of Attorneys' Fees [Dkt. #88], which also relates to the Court's Memorandum Opinion of February 13, 2007. Thus, all pending requests concern the issue of attorneys' fees.

I. BACKGROUND*fn2

The Company provides testing and research services primarily to businesses seeking regulatory approval for their products or operations. It also helps customers improve manufacturing processes and defend their products in court and the media. It has approximately 75 employees. Myron Weinberg was the Chief Executive Officer of the Company until 1997. His son, Michael Weinberg, succeeded him as ECO. Arlyne Weinberg was the President of an affiliated company that also participated in the Company's benefit plan ("the Plan").

Plaintiff was employed with the Company from September 1, 1990 until February 28, 2002. She was 47 years old when she left. According to her Affidavit, her income from employment with the Company ranged from $352,297.52 to $852,145.10 between 1996 and 2001. From 1998 until 2002, Plaintiff was employed as a director and officer of the Company. As a Company employee, she was a participant in the Company's Plan. The Company served as the Administrator of the Plan.

The Plan is a defined benefit plan. Under a defined benefit plan, an employee is entitled to a fixed payment upon retirement, the amount of which is determined based on a formula incorporating factors such as salary history and duration of employment.*fn3 See 29 U.S.C. § 1002(35). Because the payments are fixed, beneficiaries are not entitled to any plan assets exceeding the amount of their benefits.

Under the terms of the Company's Plan, each participant is entitled, upon retirement or termination, to vested benefits that accrue based on compensation and years of service, as well as certain other factors not relevant to these proceedings. The Plan documents provide several options for distribution of benefits to participants, including a lump sum distribution upon termination of employment with the Company.

On December 11, 1998, the Company adopted Plan Amendment No. 3 ("Amendment No. 3"), which states:

BE IT RESOLVED that effective as of December 31, 1998, all benefits accrued to Plan participants as of such date will be frozen and no further benefits will accrue under the Plan to participants after such date.

Dkt. #58 Ex. D. On December 19, 1998, the Company issued a notice to all Plan participants stating:

This notice is to inform you that benefits attributable to the Weinberg Consulting Group, Inc. Pension Trust will be frozen effective December 31, 1998. This means that services performed only through December 31, 1998 will be included in the calculation of your accrued benefit. Thereafter, no further benefits will be earned under the Pension Trust, and hours of service performed and compensation earned after December 31, 1998, will not be included in the calculation of your accrued benefit.

Dkt. #58 Ex. F.

Each year since 1998, the Statement of Plan Benefits provided to Plan participants reiterated that Plan benefits were frozen as of December 31, 1998, and stated, with minor variations, that "[t]he amount of [a participant's] Accrued Benefit depends upon [the participant's] years of service and the history of [the participant's] compensation with The Weinberg Group through December 31, 1998." Dkt. #59 Weinberg Decl. ¶ 4.

Plaintiff claimed that between 1996 and 2000, the Company and individual Defendants made improper benefit payments to Myron Weinberg, Arlyne Weinberg, and ten other Plan participants. See Dkt. #38 Ex. E. She claimed that in 1994, the Company and Myron and Arlyne Weinberg entered into an agreement to segregate $2,488,293 of the Plan's assets into a separate account for the sole benefit of Myron and Arlyne Weinberg. Plaintiff argued that creation of this separate account violated the Internal Revenue Code, and therefore was a breach of the individual Defendants' fiduciary duties to the Plan. She further maintained that the creation of the separate account constituted a "prohibited transaction" under ERISA. Accordingly, Plaintiff argued that the assets in the separate account continued to be Plan assets that were required to be available to provide benefits for all Plan participants, including Plaintiff herself.

In November 1999, the Plan assets in the separate account were paid to Myron and Arlyne Weinberg. Plaintiff claimed these payments were made without first ensuring compliance with the Treasury regulations governing distributions to highly-compensated employees and without application of the relevant Treasury regulation restrictions on lump sum distributions to highly-compensated employees.*fn4 Plaintiff also contended that at the time the distributions were made, the amount of assets in the Plan, after subtracting the amount of the distributions, did not equal or exceed 110 percent of the Plan's current liabilities, as required by Section 14.04 of the Plan's governing documents. The Company represented in a letter to the Internal Revenue Service ("IRS"), dated October 7, 2002, that there were at least ten lump sum distributions made to other highly compensated employees between 1996 and 2000. Plaintiff argued that all of these distributions violated the fiduciary duties of the Company and the individual Defendants, and constituted prohibited transactions under ERISA.

In a staff meeting on February 15, 2002, Matthew Weinberg informed all employees that the Company would no longer make any lump sum distributions of benefits to Plan participants, because, according to Plaintiff, "the Pension Plan had paid out a significant ...


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