Baltimore Paint & Chemical Corp. v. Bloom

Hammond, C. J., delivered the opinion of the Court. The appellee, Bloom, sued the appellant, Baltimore Paint and Chemical Corporation, to require it specifically to perform a concededly valid individual employment and retirement contract by paying him in his retirement the monthly sums it had promised in the contract to pay him in such case. The company’s defense was that it had discharged its obligation to Bloom when it later included him in a general pension plan funded by an insurance company and agreed to pay him monthly the difference between what his individual contract called for and the lesser amount the insurance company would pay him. Judge Perrott, sitting in the Circuit Court of Baltimore City, received extensive evidence, oral and written, and then ruled that the paint company must pay the monthly benefits under the individual contract without credit or reduction of any nature by reason of benefits received or to be received by Bloom from the insurance company.

Judge Perrott’s reasoning was that, although the paint company did not intend Bloom to enjoy two pensions, this does not relieve it of the two separate unam ⁵³ biguous written sets of obligations to Bloom which it bindingly incurred, even though it included him in the general pension plan in the unfounded hope — or perhaps more accurately the erroneous expectation — that he would exchange his rights under his individual contract for those under the general pension plan. Judge Perrott made detailed findings of fact which the evidence fully justified and the conclusions he reached flow appropriately and properly from those findings. We adopt his opinion as the opinion of this Court and direct the reporter to print it in the report of this case. Decree affirmed, with costs.

MEMORANDUM OPINION OF JUDGE JAMES A. PERROTT Samuel A. Bloom (hereinafter called “Bloom”) entered the employment of Baltimore Paint and Color Works (hereinafter called “Company”), as its Technical Director, in November of 1948 and there was no written employment contract between the parties. At that time Company was closely held by the Shuger family. In October of 1958, however, Company was sold by the Shugers to the American Dryer Corporation; William Kane became President; Albert A. Shuger was designated Chairman of the Board and Chief Executive Officer, and other members of the Shuger family remained in various other managerial positions. On September 1, 1959, an agreement was executed between Bloom and Company.

The agreement was titled, “Retirement Plan Contract,” and was executed on behalf of Company by Albert A. Shuger. He had been authorized to act by the Company’s Board of Directors, and his authority extended to the execution of similar agreements with other employees. “Retirement Plan Contract” is an employment contract which provided a pension. Under this contract, Bloom obligated himself to continue in the fulltime employment of ⁵⁴ Company until his sixty-fifth birthday, June 22, 1969; employment beyond that date was to be by mutual agreement only. Company agreed to pay Bloom (a) annual compensation, during his continued active employment, in an amount not less than his compensation, including bonuses, for the calendar year 1959 and (b) a lifetime pension, beginning with his retirement, in an amount equal to 50% of the greater of (i) his average annual compensation for his four highest paid years with Company and (ii) his compensation for the calendar year 1959.

The pension was to begin earlier, if Bloom either became totally and permanently disabled or was discharged for any reason other than intentional failure to perform his duties or gross misappropriation of company funds. This early pension would be calculated in the same manner as the normal retirement pension, with one exception; in the case of a wrongful discharge, the pension would be subject to an offset of any annual employment earnings received by Bloom elsewhere, but only to the extent that the aggregate of those earnings and his pension (normally computed) might exceed his compensation for his highest paid year with Baltimore Paint. In addition to the benefits for disability or wrongful discharge, the agreement also gave to Bloom an option to elect a reduced normal retirement pension which would continue after his death for the benefit of his surviving spouse. Disability benefits would terminate upon Bloom’s death.

The normal retirement benefits would terminate upon his death or the death of his wife, if he had elected the survivor option, or upon his engaging in any way in any business directly or indirectly competing with Company. At the time Bloom entered into his contract, Company had in effect a qualified group pension plan which provided some limited benefits but covered only lower echelon employees. Bloom was not covered by this plan. Prior to September 1, 1959, and for a period of time thereafter, Company considered a new group pension plan which would cover all employees, and individual contract hold ⁵⁵ ers would be entitled to the benefits of both the group pension plan and the benefits provided by their individual agreements.

At least eleven individual contracts were executed. One of these was with Alex Vida. (Mr. Vida’s contract dated December 2, 1956, provided for a normal retirement pension of 40 % of his salary and did not contain any express provision for any offset of any kind against this amount (Plaintiff’s Exhibit No. 22). As the company acknowledged on several occasions following December 22, 1959, Mr. Vida was covered by the existing group pension plan, (Plaintiff’s Exhibit No. 23).

Mr. Vida has subsequently terminated his employment with Company. In 1961 control of Company passed from American Dryer to a triumvirate headed by one Edward Krock, a Worcester, Massachusetts businessman, who assumed Albert A. Shuger’s positions as Chairman of the Board and Chief Executive Officer. Mr. Shuger was replaced as President in 1963 by Eugene L. O’Brien, who has since served as President of Company to date. Mr. O’Brien learned of the limited group pension plan and of the existence of individual deferred compensation agreements with eleven employees, seven of whom (including Bloom) were still with Company.

Although Mr. O’Brien knew nothing of the circumstances under which the individual contracts had been negotiated, he immediately concluded that they were unfair and discriminatory, and that the existing group plan was inadequate. Company’s lawyers reviewed the seven surviving contracts and advised Company that they represented valid and binding obligations. Company’s independent accountants reviewed them and concluded that Company had to set up a reserve with which to pre-fund the obligations which they represented. The accountants calculated that Company’s ultimate liability on the contracts was $761,-321.00.

They determined that this amount (including $194,147.00 allocable to the period prior to 1963) should be funded in the accounts over a ten year period, begin- ⁵⁶ ning with 1963, at an annual rate of $79,300.00 (or, $19,-300.00 for the liability allocable to the period prior to 1963 and $60,000.00 for the liability allocable to 1963 and thereafter. Mr. O’Brien then approached a close friend with Massachusetts Mutual Life Insurance Company, who arranged for a preliminary study by another expert, William L. Gardner. Mr. Gardner’s report, dated November 15, 1965, was delivered to Company and reviewed by Mr. O’Brien, Sewell J. Shuger and a Vice President and Treasurer of Company, C. W. Mann, Jr. In his report, Mr. Gardner estimated that the ultimate value of the future benefits called for by the seven individual deferred compensation agreements was approximately $650,000.00; this figure was arrived at by simply calculating the cost of Company of separate annuity contracts, as each covered employee reached age 65. In addition, the report contained a schedule of the estimated annual outlay by the corporation if the seven contracts were not pre-funded in any way and the benefits were merely paid out of current funds as each installment came due; the payments shown by this schedule did not exceed $44,000.00 in any year.

Mr. Gardner informed Company that “(i)t would certainly not be practical, even if possible, to attempt to reduce the benefits which you have already established in the form of your deferred compensation contracts and your qualified pension plan.” He then went on to suggest that the seven individual contract holders be included in the group pension plan and that a separate group plan, excluding the first $5,000.00 or $6,000.00 of an employee’s annual salary from benefit treatment, be superimposed upon the existing plan. “If these two steps were taken, it would be reasonable to assume that your present individual retirement contracts could be amended so that amounts received from any pension plan would offset the obligations of the corporation under these individual contracts.” Mr. Gardner concluded his report by “most strongly recommend (ing) ... a more detailed study and actuarial review.” ⁵⁷ State Mutual first got in touch with Mr. O’Brien on December 21, 1965. From this initial contact grew the group pension plan and deposit administration fund contract, which, became effective as of September 1,1966. On January 3, 1966, Mr. Kitching of State Mutual wrote to Company stating his intention to propose a plan covering all employees, because he did not believe that the Internal Revenue Service would approve a plan on any other basis. Mr. Mann, noting his agreement that “a retirement plan should cover all employees,” sent Mr. Kitching company personnel information, on February 4, 1966, specifically indicating the employees who were not covered by the existing group plan and the seven individuals with contracts.

Mr. Kitching’s office produced its first proposal; it called for a plan which covered all employees, but, as Mr. Kitching acknowledged, did not attempt in any way to integrate benefits with those for which Company was obligated under the individual contract. Mr. O’Brien showed the State Mutual proposal to Mr. Gardner. Mr. Gardner pointed out that Company was rushing into an arrangement with State Mutual without first having a consultant make an in depth analysis of Company’s employee benefit problems and a comparative study of alternative solutions. Among Mr. Gardner’s criticisms were that the proposal provided “only a partial answer to funding your individual contractual agreements.” This was followed by restatement of the solution previously recommended, i.e., all employees should be included in the existing qualified group plan, a. second group plan providing supplemental benefits for higher salaried employees should be superimposed upon the first and Company should “(n)egotiate with employees holding retirement contracts, whereby a portion of the difference between (a) the amount provided under the two foregoing pensions and (b) the original contract (if any), would be provided by some type of funded deferred compensation agreement.” Mr. O’Brien sent Mr. Gardner’s criticisms to Mr. Krock ⁵⁸ and again asked for authority to retain a consultant.

Mr. Krock ignored the renewed plea for expert advice and sent Mr. O’Brien’s letter to Mr. Kitching. Mr. Kitching then offered to “provide 40% of salary as a benefit with the balance being funded out of payroll.” He acknowledged that he did not know whether the individual contracts were “formal or informal” and did not indicate what documentation, if any, his funding proposal would require. Mr. Mann again suggested the retention of an expert. Mr. O’Brien again reiterated this advice to Mr. Krock, and Mr. Krock did nothing about it.

On June 29,1966, Mr. Kitching forwarded to Mr. Krock a revised proposal, for a plan which would provide a retirement benefit equal to 40% of an employee’s average salary, reduced by one-fifteenth for each year of service less than fifteen. O’Brien called in, in early July of 1968, the seven individual contract holders together to explain the State Mutual proposal. His uncontroverted purpose was to convince these employees that they should relinquish their individual contracts. He told the seven that the individual contracts were discriminatory, because they had been given to only a few employees; that the State Mutual plan would be better than the individual contracts, because the plan would be funded; and that, though the individual contracts were valid, the employees would have to go to Court to enforce them, because they represented a $650,-000.00 liability which would bankrupt Company, In late July Mr. Kitching came to Baltimore to join Mr. O’Brien, Mr. Mann and Leroy W. Shuger in meeting with each of the seven individual contract holders, in turn.

The purpose of the meetings was to again seek to persuade the seven to agree to a release of their individual contracts. Bloom was told that he would not be included under the State Mutual plan unless he agreed to release Company from his individual contract; that he had to be included in the State Mutual plan before the IRS would approve it; that Company would not install a plan unless IRS ap ⁵⁹ proval was assured; and that, by refusing to release his individual contract, he would be depriving his fellow employees of the improved benefits of the State Mutual plan. Bloom expressed dissatisfaction with the proposed plan and the requested agreement to release Company. His objections were the diminution of his benefits and the loss of his protection against wrongful or capricious discharge.

Mr. O’Brien later told Mr. Kitching to increase the plan benefits from 40% to 50%. Instead, Mr. Kitching proposed a formula which provided a monthly benefit equal to 30% of the first $550.00 of an employee’s monthly salary plus 50% of the remainder. This still produced a pension benefit that would be less (about 45% of salary) than the benefits provided under Bloom’s individual contract. While State Mutual had been reworking its figures, Bloom and Mr. Levenson and Mr. Levin consulted an independent insurance