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decided: June 24, 1975.


Appeal from order of Court of Common Pleas of Crawford County, Sept. T., 1972, No. 179, in case of John G. Reis v. Phillips Products Co., Inc., successor by merger and consolidation to Skyline Industries, Inc., a Delaware corporation.


Robert L. Walker, with him Thomas, Shafer, Walker, Dornhaffer & Swick, for appellant.

Daniel L. R. Miller, with him McClure, Dart, Miller, & Kelleher, for appellee.

Watkins, P.j., Jacobs, Hoffman, Cercone, Price, Van der Voort, and Spaeth, JJ. Opinion by Hoffman, J.

Author: Hoffman

[ 234 Pa. Super. Page 509]

This case raises questions concerning the respective rights and duties in both assumpsit and trespass of a corporation and its employee-participants arising out of an executed retirement plan. The present state of the record, however, and the posture of the appeal compel a remand to the trial court and prevent us from considering the substantive merits involved.

The facts of record are not in dispute. On August 28, 1958, Skyline Industries, a proprietorship owned by Noel J. Poux, and four affiliated Skyline corporations, set up

[ 234 Pa. Super. Page 510]

    a retirement plan for the benefit of certain Skyline employees. The number of employees covered by the plan does not appear of record. Plaintiff-appellee, an accountant employed by Skyline for many years, was both a participant and one of the three trustees of the plan. On April 10, 1959, the District Director of the Internal Revenue Service approved the plan as "qualified" within the then applicable provisions of the Code and Regulations issued pursuant thereto. See Internal Revenue Code §§ 401 and 402. At that time, a participant in a qualified plan was entitled to have his benefits taxed at capital gain rates if they were withdrawn in a lump sum within twelve months of the termination of employment.

In October, 1963, the proprietorship and the related corporations were consolidated into a Delaware corporation known as Skyline Industries, Inc. Skyline Industries was then acquired by Phillips Petroleum Corporation, and its name was subsequently changed to Phillips Products Company, Inc. Appellee remained an employee of the successor corporation until his retirement in September, 1968. On October 31, 1963, a duly authorized officer of Skyline Industries sent the following letter to Noel J. Poux, one of the three trustees of the Skyline Retirement Plan:

"Skyline Industries, Inc., agrees either to continue that certain Retirement Plan Agreement entered into August 25, 1958, . . . for a period of four (4) years from and after this date, or to provide Noel J. Poux, Elmer Lecompte and John G. Reis with the same benefits (before taxes) they would have received if said Agreement had been continued for such period."

Although appellee was one of the three original trustees, he never received a copy of this letter or any other notice of appellant's intention to discontinue the plan as of October 31, 1967. At a date not appearing of record, appellee was replaced as a trustee and administration of the plan was transferred to Phillips, the parent corporation

[ 234 Pa. Super. Page 511]

    of Skyline Industries. Exactly how many participants remained in the plan as of October 31, 1963, is not known. The trial court's opinion, however, states that ". . . most of the originally covered officers and employees had left employment or had been transferred into existing Phillips retirement plans. . . ." and that ". . . apparently at that time only Poux, Reis and one Lecompte were still in the plan -- see letter of October 31, 1963 . . ."

Appellee retired in September, 1968, and applied for the benefits due him under the plan. In accordance with his belief that the plan was qualified, appellee requested that the benefits be paid in a lump sum. Consequently, appellee reported the benefits on his 1968 income tax return as a capital gain. In December, 1969, however, the Internal Revenue Service notified Phillips that effective for the year 1964 and thereafter, the Skyline Retirement Plan was not deemed a qualified plan. On July 10, 1972, appellee was assessed additional taxes for the year 1968 in the amount of $4,058.88, plus interest charges. Because the plan was not qualified in 1968, appellee's lump-sum benefits were taxable as ordinary income rather than capital gains.

Appellee did not learn of the existence of the October 31, 1963 letter from Skyline Industries until March, 1972. On August 3, 1972, appellee instituted suit against appellant to recover the additional tax and interest he had been required to pay. Initially, appellee's complaint consisted only of a cause of action in trespass. Following the filing of preliminary objections, appellee submitted an amended complaint in two counts, the first in trespass and the second in assumpsit. On February 15, 1974, appellant filed a motion for judgment on the pleadings pursuant to Rule 1034, Pa. R.C.P. The lower court did not pass on the merits of appellee's contractual allegations, but held that appellant's failure to notify appellee of its intention to discontinue the plan constituted negligence. The lower court then granted judgment on the pleadings to appellee

[ 234 Pa. Super. Page 512]

    in the full amount claimed. We reverse and remand for trial.*fn1

[ 234 Pa. Super. Page 513]

The lower court had the authority to grant judgment on the pleadings to appellee even though appellant was the moving party. See Ruska v. Philadelphia Life Insurance Co., 412 Pa. 418, 195 A.2d 93 (1963); Boron v. Smith, 380 Pa. 98, 110 A.2d 169 (1955).*fn2 A motion for judgment on the pleadings, however, should be granted only in cases "which are so free from doubt that a trial would clearly be a fruitless exercise." Bata v. Central-Penn National Bank of Philadelphia, 423 Pa 373, 378, 224 A.2d 174 (1966). See also Karns v. Tony Vitale Fireworks Corp., 436 Pa. 181, 259 A.2d 687 (1969); Goldman v. McShain, 432 Pa. 61, 247 A.2d 455 (1968). Although certain basic facts are not in dispute, the pleadings themselves cannot support a judgment for appellee on a negligence theory.

The lower court did not decide whether appellee had a "vested interest" in the tax status of the plan as a matter of contractual right. In effect, however, the court held that (1) appellee "has a substantial vested interest in the Skyline Retirement Plan . . ." and "in knowing the plan was no longer a permanent ongoing plan . . .";

[ 234 Pa. Super. Page 514]

(2) appellant "had an implied obligation to notify those persons who would be affected by the company's decision to discontinue the plan" and (3) the failure to send notice constituted negligence. Although not stated, the court must have held sub silentio that appellant's negligence was the proximate cause of appellee's injuries. It must be remembered that the plan was in full force and effect at the time of appellee's retirement in September, 1968, despite the fact that appellant had previously stated its intention to discontinue the plan as of October 31, 1967, and that appellee was given all benefits to which he was entitled.

The elements of a cause of action for negligence are contained in Restatement of Torts, 2d, § 281 (1965). "The actor is liable for an invasion of an interest of another, if: (a) the interest invaded is protected against unintentional invasion, and (b) the conduct of the actor is negligent with respect to the other, or a class of persons within which he is included, and (c) the actor's conduct is a legal cause of the invasion, and (d) the other has not so conducted himself as to disable himself from bringing an action for such invasion." We can assume, for purposes of discussion only, that appellant's conduct fell below the standard of care that a reasonable man in the position of appellant would have exercised. We can also assume that appellee was not contributorily negligent. It is not at all clear, however, that the remaining subsections of § 281 were satisfied.

It is questionable whether the pleadings show convincingly that appellant had an "interest" in the continuation of the retirement plan,*fn3 but even assuming that he

[ 234 Pa. Super. Page 515]

    did, the pleadings are devoid of any proof of proximate cause. In Paragraph 6 of its complaint in trespass, appellee states: "Defendant . . . by letter dated October 31, 1963, agreed to continue the . . . Plan for a limited period of time which under the then current and presently current Regulations establishes that said Plan is not a permanent and continuing plan and, therefore, would no longer qualify as a qualified plan under the Internal Revenue Code . . ." Appellant answered: ". . . To the extent that Plaintiff's allegations in paragraph 6 are conclusions of law, they require no answer, and to the extent that such allegations are the opinions of the Plaintiff as to the meaning of the letter, Defendant denies such opinions and alleges on the contrary that the letter speaks for itself . . ." The pleadings, therefore, do not support the trial court's conclusion that "[t]he result of this letter was to un -qualify the plan as it violated existing Revenue Department rules in that a qualified plan must be a permanent and continuing retirement plan." The possibility that other reasons existed for the plan's disqualification was apparent to the trial court: "While not found in the pleadings, it was argued and not denied that the plan had become too discriminatory to be practical or to comply with Revenue regulations as most of the originally covered officers and employees had left employment or had been transferred into existing Phillips retirement plans." (Emphasis added). Such an allegation can be found in appellant's answer. It was improper to award judgment

[ 234 Pa. Super. Page 516]

    to appellee when the conduct complained of was not shown to have caused the resulting damages. On the state of this record, it is mere speculation to hold that the letter of October 31, 1963, in fact caused the plan's eventual disqualification. Appellee must prove proximate cause before he can recover.*fn4

Order of the lower court is reversed, and the case remanded with instructions to proceed to trial.


Order reversed and case remanded.

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