thus consciously ratifying the actions of Messrs. Kahn, Silmore and Kann.
As early as 1981, Mr. Becker-Fluegel knew of the existence of the pension fund and the amounts of contributions to it. Andrew R. Peacock, a prior Vice-President and Treasurer of Keystone, testified that, in the first quarter of 1981, he learned from Mr. Becker-Fluegel at a luncheon meeting that Becker-Fluegel and the other directors knew of the unauthorized contributions to the Plan, however, he did not believe that the time was proper for legal actions. Trial Tr. pp. 102-103.
In early August, 1981, Mr. Becker-Fluegel requested and received from Mr. Peacock, a written evaluation of the contributions to the Plan. Trial Tr. p. 81.
Mr. Becker-Fluegel, himself, testified that in early 1981 he informed the other directors that the board had not formally approved contributions to the Plan after 1975. Trial Tr. p. 85. The defendants' own pleading entitled "Defendants' Objections to Plaintiff's Proposals" states that "we agree that Becker-Fluegel knew of payments to the Plan on February 12, 1981." See, Defendants' Objections, p.5, para. 40.
All of these discoveries occurred while Mr. Becker-Fluegel was a director of Keystone. He chose to do nothing to address the situation at that time. Thus, his "passive acquiescence" gave authority to the actions of Messrs. Kahn, Silmore and Kann.
The most significant evidence supporting a finding that Mr. Becker-Fluegel and the others acquiesced to the payments is the fact that, while Mr. Becker-Fluegel was a trustee of the Plan, he and the other defendants authorized the payment of pension benefits to Mr. Silmore in 1981 and Mr. Kahn in 1982. At the time these payments were made, they knew that the contributions had not been formally authorized by the Board, yet they agreed to pay two of the men who had acted no differently than the plaintiff. In addition, if the unauthorized contributions really belong to the Company, as the defendants argue, then the Plan should be void of any money paid in after 1975, even that money which was contributed to other plan participants' accounts, because there was no formal board authorization for any such payments. Yet, Mr. Becker-Fluegel and the other defendants continue to pay other employees upon request.
In paying these other plan participants, the defendants used the contributions from the Company. This constituted a ratification of the unauthorized acts, and they may not now use original lack of authority as a defense. In the Matter of Eton Furniture Company, 286 F.2d 93 (3d Cir. 1961).
Not only did the defendants ratify the actions of Messrs. Kahn, Silmore and Kann in this way but they are equitably estopped from claiming otherwise. The Third Circuit has applied the doctrine of equitable estoppel to pension plan cases. Rosen v. Hotel & Restaurant Employees and Bartenders Union, 637 F.2d 592 (3d Cir. 1981), cert. denied, 454 U.S. 898, 70 L. Ed. 2d 213, 102 S. Ct. 398 (1981).
Before applying the doctrine of equitable estoppel, we must analyze the interplay of conduct between the parties.
As to the party being estopped, it must be shown that: 1) by acts, representations or silence, one party induced another to believe certain facts; 2) the representing party expected the other party to act upon such representations; 3) the party making the representations possessed actual or constructive knowledge of the true facts. GAF Corporation v. Amchem Products, Inc., 399 F. Supp. 647, 657 (E.D. Pa. 1975), rev'd on other grounds 570 F.2d 457 (3d Cir. 1978), and cases cited therein.
As to the party seeking the estoppel, the law requires: 1) lack of knowledge of the truth; 2) reliance upon the representation of the other party; 3) action based upon that representation which changed his position prejudicially. Id.
In applying the first set of precepts to the defendants, we find that each element has been met.
By his representation to Mr. Kann at the February, 1981 meeting that no legal action would be taken regarding the contributions not formally authorized, Mr. Becker-Fluegel expected Mr. Kann to stay on at Keystone, even though his contract had been terminated and obvious animosities existed. Mr. Becker-Fluegel made this representation even though he knew, or should have known, that the Board of Directors was angry over the situation, legal action had been seriously considered, and that such an assurance was not possible.
As for the elements of conduct regarding Mr. Kann, these also have been proven.
Mr. Kann believed that no legal actions would result regarding his pension plan benefits, in light of Mr. Becker-Fluegel's assurances. He relied upon this representation and stayed on at Keystone for two more years in spite of the growing problems and poor working relationships. Eventually the animosities proved to be too great, and Mr. Kann left, only to learn that he would not receive the vested pension benefits to which he was entitled.
For the foregoing reasons, we conclude that the defendants ratified the contributions to the Plan and are equitably estopped from claiming otherwise. Therefore, their common law defense must fall.
E. Copy of Trust Agreement
In Count II of the plaintiff's complaint, he claims a violation of Section 104(b)(4) of ERISA, 29 U.S.C. § 1024(b)(4), and seeks the statutory penalty provided for in 29 U.S.C. § 1132(c).
29 U.S.C. § 1024(b)(4) provides in pertinent part that the "Administrator shall, upon written request of any participant . . ., furnish a copy of the latest . . . trust agreement . . ."
Section 1132(c) states:
Any administrator who fails or refuses to comply with a request for any information which such administrator is required . . . to furnish to a participant . . . within 30 days after such request may in the courts discretion be personally liable to such participant . . . in the amount of up to $100 a day from the date of such failure or refusal . . .
On April 18, 1983, plaintiff, through his counsel, sent a written request for a copy of the trust agreement to the Plan administrator. On July 28, 1983, more than thirty days after the request and a day after suit was filed, Mr. Kann received a copy.
It is clear that the defendants violated, per se, the statute. However, as stated in 29 U.S.C. § 1132(c), the penalty is not automatic but is within the court's discretion.
After careful consideration of the facts and circumstances regarding the trust agreement, we do not believe a penalty is warranted in this case.
The defendants state that it took a substantial amount of time to go through the relevant documents to try and find the trust agreement. They were unsuccessful and finally had to obtain a copy from Keystone's former attorney.
Although plaintiff contends that this was a mere tactical delay and that the defendants could have contacted the company's attorney sooner in order to get a copy, we do not agree. With the recent turnover in trustees, corporate offices and files in various cities and the need to obtain new counsel, things were in a turmoil and no doubt contributed to the delay. There is no evidence that the defendants intentionally or in bad faith refused to send a copy of the trust agreement.
In addition, Mr. Kann did receive a copy of the agreement the day after his complaint was filed with this court, giving him and his counsel plenty of time to review it prior to trial. Since "there is no indication that [his] rights have been in any way prejudiced by the failure to furnish [him] with the [trust agreement], . . . the court, in its discretion, . . . will not award the penalties provided by the Act." Pollock v. Castrovinci, 476 F. Supp. 606, 618 (S.D.N.Y. 1979), aff'd, 622 F.2d 575 (2d Cir. 1980).
F. Punitive Damages
Courts have held that, in certain situations, punitive damages were appropriate in ERISA cases. See, Jiminez v. Pioneer Diecasters, 549 F. Supp. 677 (C.D. Cal. 1982); Bittner v. Sadoff & Rudoy Industries, 490 F. Supp. 534 (E.D. Wis. 1980). The plaintiff asserts that this is one of those situations.
It is the plaintiff's contention that the defendants consciously made the decision to violate their fiduciary duties, that they did not advise the plaintiff as to why his application for benefits was denied, and that the defendants' own defense is an admitted violation of their duties under ERISA. These factors, argues the plaintiff, show bad faith and malicious intent on the part of the defendants, and therefore, substantiate an award of punitive damages.
Under Pennsylvania law, before a court may impose punitive damages, it must find that the defendant committed "outrageous conduct." Olsen v. United States, 521 F. Supp. 59 (E.D. Pa. 1981), aff'd sub nom. Ford Motor Company v. Cooper, 688 F.2d 820 (3d Cir. 1982).
"Outrageous conduct" is defined as an act done with a bad motive or with "reckless indifference" to another's interests. Smith v. Brown, 283 Pa. Super. 116, 423 A.2d 743 (1980); See also, Golomb v. Korus, 261 Pa. Super. 344, 396 A.2d 430 (1978).
Though we have found that the defendants violated some sections of ERISA and that misrepresentations were made to the plaintiff by defendant, Mr. Becker-Fluegel, we do not believe that the conduct of the defendants has met the requisite test for awarding punitive damages. The defendants' conduct, especially Mr. Becker-Fluegel's, was not so shocking as to be labeled "outrageous." We, therefore, deny plaintiff's request for punitive damages.
G. Pre-Judgment Interest
Plaintiff seeks pre-judgment interest on the Plan's current account balance in his name.
Though ERISA does not specifically provide for prejudgment interest, courts have allowed it where a plan participant was wrongfully denied his pension benefits. It is within the district court's discretion to award pre-judgment interest. American Timber & Trading v. First National Bank of Oregon, 690 F.2d 781 (9th Cir. 1982).
In Dependahl v. Falstaff Brewing Corporation, 653 F.2d 1208 (8th Cir. 1981), cert. denied, 454 U.S. 968, 70 L. Ed. 2d 384, 102 S. Ct. 512 (1981), the leading case on the issue of pre-judgment interest awards in ERISA cases, the court held that pre-judgment interest is applicable in such cases and that it is "necessary in order that plan participants obtain 'appropriate equitable relief.'" Id. at 1219, quoting, 29 U.S.C. § 1132(a)(3)(B). In so finding, the court stated that, while the plaintiff was being denied his vested benefits, the defendant plan was benefitting by gaining additional interest. Therefore, in order to make the plaintiff whole, pre-judgment interest must be awarded.
Since this was a case of first impression for the Eighth Circuit, the Dependahl court had to determine what the rate of interest should be. Since the court decided that the rate of interest to apply in a case involving a federal statute, such as ERISA, is a federal question, it reasoned that it must look to the most analogous federal statute; i.e. 28 U.S.C. § 1961 (statute providing for post-judgment interest). The Eighth Circuit held that, to be consistent, the same rate used for post-judgment interest should be used for pre-judgment interest.
The Dependahl case was decided in 1981, at which time 28 U.S.C. § 1961 provided that post-judgment interest was to be awarded at the rate allowed by state law. Therefore, the court awarded pre-judgment interest based on the percentage set by state law from the date of demand.
We agree with Mr. Kann that he is entitled to pre-judgment interest. He was denied his pension benefits, even though Messrs. Kahn and Silmore received theirs. It is obvious that ill-feeling between the plaintiff and the defendants was one of the reasons for the denial. While Mr. Kann was being wrongfully deprived of his money and the substantial sum of interest he could have earned on it, the defendants had the use of it. In order that Mr. Kann may be made whole and gain complete equitable relief, we find that he must be awarded pre-judgment interest.
As for the rate, the plaintiff asks for the current commercial rate. We have found no cases in our circuit which would assist us, and believe this to be a case of first impression for the courts in the Third Circuit. We are, however, more fortunate than the Eighth Circuit because we have their well-reasoned and persuasive Dependahl opinion as a guidepost. We agree with that court that the rate of pre-judgment interest in an ERISA case is a federal question which must be governed by federal law. Therefore, we adopt the Eighth Circuit's holding that 28 U.S.C. § 1961, the analogous section for post-judgment interest, is to be applied.
Since the Dependahl case, Congress has amended § 1961. The rate for post-judgment interest is now to be computed at a
rate equal to coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty two week United States Treasury bills settled immediately prior to the date of the judgment.
28 U.S.C. § 1961(a), as amended, April 2, 1982. Since this section deals specifically with post-judgment interest, the Treasury bill rate to be used is that which was "settled immediately prior to the date of judgment." Id. In the case at bar, we must determine the rate for pre-judgment interest, therefore, in accordance with the holding in Dependahl, we will use the rate obtained immediately prior to the date of the first demand made by the plaintiff for his vested benefits, i.e. February 24, 1983.
In a memorandum addressed to all United States Clerks of Courts, dated February 18, 1983, from Dewey R. Heising, Chief of the Division of Financial Management for the Administrative Office of the United States Courts, it is stated that the rate of interest from February 18, 1983 (the rate settled immediately prior to February 24, 1983) was 8.99%. We, therefore, will direct the Clerk of Court for the Western District of Pennsylvania to compute the pre-judgment interest by applying a rate of 8.99% on the total vested benefits that Mr. Kann had in the Plan on February 24, 1983, i.e. $261,194.23.
H. Attorney's Fees
Section 502(g)(1) of ERISA, 29 U.S.C. § 1132(g)(1) provides that "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." See Ursic v. Bethlehem Mines, 719 F.2d 670 (3d Cir., 1983). Unlike most federal statutes which allow for attorney's fees, a fee award to the prevailing party in an ERISA case is not mandatory. Id. Five policy factors must be considered before a court may award such fees in an ERISA case: 1) the offending parties' bad faith or culpability; 2) the ability of the offending parties to pay the fees; 3) the deterrent effect such an award would have on the offending parties; 4) the benefit conferred on the pension plan members as a whole; and 5) the relative merits of the parties' position. Id. at slip op. p. 4, and cases cited therein.
In applying these factors to the case, sub judice, we believe an award of attorney's fees to the plaintiff is warranted.
In considering the first factor, we held the defendants to be in clear violation of several of the ERISA provisions. In addition, corporate politics and the ill-feelings which accompany such politics were a vital contributing factor in the defendants' decision not to pay the plaintiff. Definite culpability on the part of the defendants has been shown.
As for the ability of the defendants to pay the award, the corporate and Plan records introduced at trial show the defendants to be in a comfortable financial position. A reasonable award of fees will not overly tax or burden the defendants.
The third and fourth factors may be considered jointly. By ordering the defendants to pay attorney's fees, we believe the defendants will be less likely and not so quick to deny benefits to other eligible Plan participants. This will, therefore, be a deterrent factor and will benefit the other members of the Plan who will seek benefits which accrued after 1975.
The fifth factor, the relative merits of the parties' position, has been discussed at length. However, for purposes of the attorney's fees analysis, we conclude that the affirmative defense asserted by the defendants was not sufficient to overcome the proof of their violations of ERISA. Their defense was not meritorious in excusing their conduct.
We, therefore, conclude that the plaintiff is entitled to reasonable attorney's fees and expenses, and we will direct plaintiff's counsel to submit an affidavit showing a complete breakdown of fees and expenses incurred in this lawsuit.
An appropriate order will follow.
ORDER OF COURT
AND NOW, to-wit, this 6th day of December, 1983, in accordance with the foregoing Findings of Fact and Conclusions of Law, it is hereby ORDERED, ADJUDGED and DECREED that judgment be and hereby is entered for the plaintiff and against the defendants in the amount of $261,194.23.
It is further ORDERED, ADJUDGED and DECREED that:
1) The Clerk of Court of the Western District of Pennsylvania be and hereby is directed to compute prejudgment interest on $261,194.23 in accordance with 28 U.S.C. § 1961(a), to be computed from February 24, 1983.
2) Plaintiff's counsel must submit with this court a statement of attorney's fees and expenses no later than December 15, 1983.