Krumme v. Westpoint Stevens Inc.
143 F.3d 71 · Court of Appeals for the Second Circuit · 1998
Facts
Cluett, Peabody & Company established the Executive Permanent Insurance Program (EPI Program) for senior executives, including Robert D. Krumme and the Allen plaintiffs, providing deferred compensation benefits. WestPoint Stevens Inc. acquired Cluett. Facing a hostile takeover, WestPoint offered an EPI Amendment allowing lump sum payments upon a "Change in Control," calculated using actuarial assumptions from the Cluett Employee Retirement Plan (Cluett Plan), which specified a 5% discount rate. Krumme and the Allen plaintiffs accepted the EPI Amendment; Krumme's acceptance included a cover letter noting his understanding of the 5% rate. WestPoint later discovered the 5% rate was a drafting error and "inappropriate." The Cluett Pension Plan Committee (Cluett Committee), on its actuary's advice, adopted a 9.3% discount rate, recording it in its minutes, but the Cluett Board did not formally amend the plan. WestPoint offered participants a choice to rescind the EPI Amendment or sign a release accepting the 9.3% rate. The Allen plaintiffs signed releases and received payments calculated at 9.3% after the change in control, while Krumme refused the release and did not receive payment.
Procedural history
This is a consolidated appeal from judgments in two lawsuits, Allen and Krumme, in the United States District Court for the Southern District of New York. In Krumme, the district court initially granted partial summary judgment for Krumme on contract formation. In Allen, the district court initially dismissed the complaint, which was reversed and remanded by the appeals court. Later, the district court, after reargument, ruled that the Cluett Committee lacked authority to change the discount rate under ERISA (Allen II), which led to a judgment for Krumme on his breach of contract claim. The district court also denied WestPoint's motion to amend its answer and awarded attorney's fees to both plaintiffs. WestPoint appealed, and the Allen plaintiffs cross-appealed.
Issue
The primary legal question is whether the Cluett Pension Plan Committee had the authority under ERISA to change the discount rate for calculating lump sum retirement benefits from 5% to 9.3% through committee action, without a formal amendment by the Cluett Board of Directors. A secondary issue is whether Krumme's acceptance of the EPI Amendment, accompanied by a letter stating his understanding of the 5% rate, constituted a binding contract.
Holding
The court held that the Cluett Committee validly adopted the 9.3% discount rate by exercising its existing authority under the plan, without requiring a formal board amendment. Consequently, the Allen plaintiffs' lump sum payments were properly calculated at 9.3%. The court also affirmed that Krumme and WestPoint formed a binding contract for the EPI Amendment.
Rule
Under ERISA, an employee benefit plan committee's exercise of express authority to adopt new actuarial assumptions "from time to time" is not considered an "amendment" requiring formal amendment procedures by the plan's board of directors. Such changes, when memorialized in binding committee minutes, are incorporated into the plan as a "written instrument." New York contract law dictates that an unconditional acceptance is valid even if accompanied by a direction or request that does not limit or restrict the contract, and thus does not constitute a counteroffer.
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