The opinion of the court was delivered by: WILLIAM W. CALDWELL
There remain pending in this case three motions for summary judgment. In our Memorandum and Order of July 28, 1994, we allowed the parties to file briefs addressing two issues critical to our review of the motions. That briefing is now complete and this memorandum will resolve the motions.
I. Facts and Procedural History
In 1967, Plaintiffs William Ciccarelli and Donald Cline founded Gichner Mobile Systems of Pennsylvania ("GMS"), a company that designed and built military and commercial enclosures and shelters. In 1968, The Union Corporation ("Union") bought GMS and began to operate it as a division of Union. Ciccarelli served as division president until he retired in 1987; Cline served as division vice president until he left the company in 1989. In April, 1989, a group of investors, including Plaintiffs, entered into a leveraged buyout of the GMS division and created Gichner Systems Group ("Gichner").
Gichner, while a part of Union and after, had several federal government contracts. In July, 1989, the Defense Contract Audit Agency ("DCAA") began an audit of certain government contracts and, as a result, in March, 1991, asked Union to explain alleged pricing discrepancies.
Union then asked Gichner to assist in the investigation. Union ultimately concluded that Plaintiffs had inflated prices on the government contracts.
A. Union Retirement Agreements
During their employment at GMS, while it was a division of Union, Plaintiffs both signed agreements with Union that provided for supplemental retirement benefits. Ciccarelli signed his on July 1, 1978. It provided that
Employee agrees that, during the term of employment, he will serve the Company faithfully and will devote his best efforts to the business of the Company and to the promotion, advancement, and successful conduct thereof.
In exchange, Ciccarelli would receive compensation while he worked and $ 500 a month in deferred compensation when he retired or reached 65 years of age, whichever was later. Cline signed his agreement on January 31, 1986. It provided that
(a) Upon Employee's retirement from the Company's employ or upon attainment of age 65 (whichever last occurs) and further provided that Employee has not violated any of the provisions of this Agreement, the Company shall pay to Employee . . . an annual amount equal to twenty-one percent plus one percent for each additional year of service (and fractions thereof) of service to the Company after February 1, 1988 multiplied by the greater of [the salary average of the last three years or the average salary of the last three years of employment].
(c) It is specifically agreed and understood that the Supplemental Retirement Benefit hereunder is forfeitable by Employee, and the Company shall have no obligation therefor, in the event Employee voluntarily severs employment . . .
When he retired in 1987, Ciccarelli began receiving payments from Union under the supplemental retirement agreement. In June, 1991, because it believed that plaintiffs had been involved in fraudulent conduct, Union terminated payments to Ciccarelli.
On March 9, 1992, Cline reached age 65, but Union declined to make payment to him under the supplemental retirement agreement, claiming he had voluntarily left Union's employ and had engaged in fraudulent conduct.
At the time of the leveraged buyout of Gichner in 1989, Plaintiffs agreed to become executives of the new company and they signed senior management agreements. Ciccarelli became president and chief executive officer and Cline became vice president of marketing.
After the DCAA began investigating the government contracts and Union so notified Gichner, Gichner's board of directors engaged the law firm of Morgan, Lewis & Bockius to conduct an internal investigation. On May 2, 1991, the Gichner board suspended Plaintiffs from their employment and, on May 29, 1991, notified them that they had been discharged.
On April 30, 1993, Plaintiffs brought a 24-count lawsuit against Gichner and Union. Gichner answered and asserted 15 counterclaims, while Union answered and set forth 11 counterclaims.
By order of September 1, 1993, we dismissed Counts VII, VIII, and XI through XXIV of the complaint and Counts I and II of Gichner's counterclaim. By order of July 28, 1994, we denied certain motions for summary judgment by Plaintiffs and by Gichner and allowed the parties to file additional briefs with regard to two issues central to the remaining three motions for summary judgment. That briefing is now complete and the pending issues and motions are ripe for resolution.
The two issues on which we invited briefing were (1) whether Plaintiffs' first two counts should be liberally construed as pleading claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1100, et seq. and (2) whether the affidavit of James Woodend is competent evidence.
In our Memorandum and Order of July 28, 1994, we ordered Plaintiffs and Union to brief the question of whether Union would suffer significant prejudice if we construed the first two counts of the amended complaint to state claims under 29 U.S.C. § 1132(a)(1)(B), the ERISA provision allowing actions to recover benefits due. We did this because the literal language of those counts was as follows:
63. Pursuant to the terms of the July 1, 1978 [January 31, 1986, for Mr. Cline] Agreement between Ciccarelli and Union, and subsequent amendments thereto, Union owed and continues to owe a fiduciary duty to provide Ciccarelli with the supplemental retirement benefits and other employment benefits for which he had bargained as a Union employee.
64. Union, by and through its agents, servants, and/or employees, breached its fiduciary duties under ERISA by acting in an arbitrary and capricious manner and by failing to act in such a manner as to assure that Ciccarelli receive [sic] the supplemental retirement benefits and other employment benefits to which he is legally and contractually entitled.
65. As a direct and proximate result of Union's wilful breach of fiduciary duties, Ciccarelli has suffered, continues to suffer, and will suffer in the future, extreme financial hardship.
Because the complaint invoked the idea of a breach of fiduciary duty, Union moved for summary judgment because the plan was a "top hat" plan and therefore not subject to the fiduciary duty provisions of ERISA. Barrowclough v. Kidder, ...