Def. Mem., p. 4. In addition, to resolve the remaining dispute concerning the value of Barrett’s
deferred compensation account, Fox & Grove now stipulates that it is valued at $61,434. See
Stipulation, DX 4. In that regard, Fox & Grove concedes that prior to the firm’s dissolution,
Barrett was entitled to two monthly payments totaling $2,052.80 but was only paid $1,440.86.
Accordingly, the firm delivered to Barrett’s counsel a check in the amount of $611.94 to make up
the difference. Def. Facts (35. Fox & Grove also asks that the Court decline to exercise
supplemental jurisdiction over Barrett’s breach of contract claim if we grant judgment in the
firm’s favor on the ERISA claim.
DISCUSSION

Summary judgment is proper when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(c). In determining whether a genuine issue of material fact exists, a
court must construe all facts and draw all reasonable and justifiable inferences in favor of the
non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
A. ERISA Claim

It is undisputed that when Barrett resigned from Fox & Grove in December 2000, he
started receiving benefits under the Plan; indeed, the firm paid him two monthly installments on
March 1, 2001. It is also undisputed that Fox & Grove amended the Plan on May 15, 2002,
retroactive to March 31, 2001, to provide that participants would not receive any benefits until

the firm paid off all other creditors. The only question is whether the amendment was valid and,

if so, whether it has rendered Barrett’s claim for benefits moot.



In sum, reasonable persons could reach different conclusions about the meaning of the
Plan’s ambiguous language and it is for a factfinder to resolve that ambiguity. See Otto v.
Variable Annuity Life Ins. Co., 134 F.3d 841, 848 (7 Cir. 1998) (quoting DeLathouwer v.
Kewanee Boiler Corp., 94 Ill. App. 3d 802, 419 N.E.2d 688, 692 (1981)) (“if the meaning of the
contract is uncertain in light of the extrinsic evidence, then the intent of the parties to the contract
must be determined as a question of fact by the jury or by the court in a trial without a jury”).
Thus, Fox & Grove’s Motion to Dismiss Count 1 as moot is denied.
B. Breach of Contract Claim

The only basis for Fox & Grove’s motion to dismiss Barrett’s breach of contract claim is
the Seventh Circuit’s “usual practice” of dismissing state law claims when all federal claims have
been dismissed prior to trial. Def. Mem., p. 6 (citing Groce v. Eli Lilly & Co., 193 F.3d 496, 501
(7" Cir. 1999)). Having found that genuine issues of fact preclude dismissal of Barrett’s ERISA
claim, the Court will not dismiss his supplemental state law breach of contract claim.

CONCLUSION

For the reasons stated above, Fox & Grove’s Motion to Dismiss (Docket Entry #25-1) is

denied. Barrett’s Motion to Strike Portions of the Affidavit of Kenneth J. McGrath (Docket

Entry #31-1) is denied as moot.

ON nn (2 D I tn
NAN R. NOLAN
United States Magistrate Judge

Dated: December 2, 2002


those who have retired prior to any given amendment depends upon the clarity with which the
plan reserves that right”).

Fox & Grove claims that the May 23, 2001 amendment was proper because the Plan
stated that it could be amended or terminated “at any time.” Plan §§8.1, 8.2, Ex. A to Cmplt.
According to the firm, this language clearly allowed it to amend the Plan even after performance
was completed and benefits had vested. Reply Mem., p. 2. Thus, the firm says, the amendment
effectively made Barrett’s claim for benefits moot. Def. Mem., p. 4. Barrett argues that Fox &
Grove’s interpretation of the “at any time” language is unreasonable because it would render the
Plan illusory. Pl. Mem., pp. 5-6. Whether Fox & Grove had the ability to amend the Plan to
affect vested benefits depends on the language of the Plan itself. Barrett maintains that the Plan
is ambiguous and, thus, the Court should consider extrinsic evidence on this issue — namely, a
May 13, 1999 memorandum stating that the Plan document “formalizes the obligation to pay you
your ‘capital account’ at termination of your partnership.” Pl. Mem., p. 4; Memo of 5/13/99, Ex.
A to Cmplt. Fox & Grove insists that the Plan clearly permits retroactive amendment but does
not directly address the issue of ambiguity.

A contract is ambiguous when the parties suggest different, yet reasonable
interpretations.” Central States, Southeast and Southwest Areas Pension Fund v. Kroger Co., 73
F.3d 727, 732 (7" Cir. 1996). At least one court has found that the seemingly clear phrase “at
any time” is not unambiguous in this context. In Jn re New Valley, the top hat plan at issue
contained language that it could be terminated at any time. 89 F.3d at 151. The Third Circuit
found that allowing the employer to terminate the benefits even after an employee retired — i.e.,

after the benefits vested — would make the contract illusory. The court explained that


The Plan at issue is an ERISA “top hat plan” — an unfunded plan that an employer
maintains “primarily for the purpose of providing deferred compensation to a select group of
management or highly compensated employees.” 29 U.S.C. §§1051(2), 1081(3), 1101(a);
Garratt v. Knowles, 245 F.3d 941, 946 n.4 (7" Cir. 2001); Pl. Mem., pp. 3-4; Def. Reply, p.2.
As such, it is exempted from ERISA’s vesting, participation, funding, and fiduciary rules but is
subject to ERISA’s enforcement provisions. Garratt, 245 F.3d at 946 n.4 (citing Olander v.
Bucyrus-Erie Co., 187 F.3d 699, 604 (7 Cir. 1999)); Koenig v. Waste Management, Inc., 76 F.
Supp. 2d 908, 913-14 (N.D. Ill. 1999). “Federal courts . . . treat top hat plans as unilateral
contracts, which create a vested right in those employees who fulfill the plan’s requirements.”
Koenig, 76 F. Supp. 2d at 913-14. See also Aiena v. Olsen, 69 F. Supp. 2d 521, 532-33
(S.D.N.Y. 1999) (a top hat plan “is treated as a unilateral contract offer that is accepted upon
retirement, at which point it becomes irrevocable”); Kemmerer v. ICI Americas Inc., 70 F.3d 281,
287 (3d Cir. 1995) (“[a] pension plan is a unilateral contract which creates a vested right in those
employees who accept the offer it contains by continuing in employment for the requisite number
of years”). Once performance is completed, an employer cannot terminate or modify the plan
unless it has explicitly reserved the right to do so. Lund v. Citizens Financial Group, Inc., No.
CV 97-183-M, 1999 WL 814341, at *20 (D.N.H. Sept. 30, 1999); Kemmerer, 70 F.3d at 287-88
(“even when a plan reserves to the sponsor an explicit right to terminate the plan, acceptance by
performance closes that door under unilateral contract principles (unless an explicit right to
terminate or amend after the participants’ performance is reserved)”); In re New Valley Corp., 89

F.3d 143, 151 (3d Cir. 1996); Aiena, 69 F. Supp. 2d at 533 (“the sponsor’s ability to amend as to


contemplated by the Plan. According to the firm, Barrett is only entitled to his “capital account,”
the value of which is “unascertainable at the present time because the true amount of capital
cannot be determined until liquidation is complete.” Def. Reply, pp. 3-4. But Fox & Grove has
stipulated that the value of Barrett’s capital account as of his resignation date was $61,434, and
‘he Plan itself says nothing about recalculating that value upon liquidation or otherwise. At
most, Fox & Grove has raised a question of fact as to whether the value of Barrett’s capital
account was subject to recalculation and possible reduction under the Plan if the firm decided to
cease operations.

The mere fact that Fox & Grove claims to have acted in good faith based on its desire to
prevent “the inequity of Plaintiff or any other participant from being paid a greater percentage of
his calculated share than the amounts to be paid other participants” in no way demonstrates that
the firm acted in accordance with its contractual obligations under the Plan. Def. Reply, p. 2.
See, e.g., Kemmerer, 70 F.3d at 289 (employer who amended plan in order to protect the
participants’ unfunded balances was still bound by the terms of the plan); Kinesoft Development
Corp. v. Softbank Holdings Inc., 139 F. Supp. 2d 869, 894 (N.D. Ill. 2001) (covenant of good
faith and fair dealing aids in construction of a contract but “[cJourts will not . . . interpret the
covenant to make a better contract for the parties than they made for themselves, nor will courts
construe the covenant to establish new, independent rights or duties not agreed upon by the
parties”). And the fact that other Plan participants have chosen not to challenge Fox & Grove’s
decision to amend the Plan in a manner that affects vested benefits does not establish that it was

authorized to do so, or that Barrett is now contractually bound by that amendment.


2

Minute Order F arm (06/97)

United States District Court, Northern District of Hlinois

Name cf Assigned Judge Nan R. Nolan Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 015910 DATE 12/2002
CASE Barrett vs. Fox and Grove, Chartered
TITLE

[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

ql)

MOTION:

DOCKET ENTRY:

aM a Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

@) a Answer brief to motion due___. Reply to answer brief due__.

(4) o Ruling/Hearingon____setfor__—_att

(5) a Status hearing[held/continued to] [set for/re-set for]on__ssetfor__at.

(6) im) Pretrial conference[held/continued to] [set for/re-set for]on__—ssetfor__-—s—sat_—

(7) Qo Trial[set for/re-set for]on__at

(8) oO [Bench/Jury trial) [Hearing] held/continued to __at

(9) im) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) OlLocal Rule 41.1 OFRCP41(aX1) OFRCP41(a)(2).

do) =f [Other docket entry] Enter Memorandum Opinion and Order. Fox and Grove’s motion to dismiss

[25-1] is denied for the reasons stated in the attached order. Barrett’s motion to strike portions of the

affidavit of Kenneth J. McGrath [31-1] is denied as moot.

1 | [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required, umber of notices

Notices mailed by judge's staff. ‘ .
Notified counsel by telephone. DEC 09 2 a
Docketing to mail notices.
Mail AO 450 form.

Copy to judge/magistrate judge. 44n03 43 LAs la"s‘a “mm =
courtroom ' C136 HY 9- 930 20 date mailed notice
= inti v=
O Bat hiche ody
central Clerk's Office mailing deputy initiats



[a]lthough parties are free to enter into illusory agreements, the

unlikelihood that they will do so when significant benefits are at

stake may render a term ambiguous. In this context, the

unlikelihood that the [plaintiffs] agreed to allow [defendant] to

terminate their retirement benefits at its whim, coupled with

{plaintiffs’] reasonable alternative interpretation of “at any time”

(until performance), supports the argument that the term is

ambiguous.
dd. The court noted that the defendant had made oral representations that the plan could not be
terminated after retirement and held that the plan was ambiguous. As a result, the court found
that the plaintiffs should have been allowed to present extrinsic evidence to clarify its meaning.
dd. at 152. See also Carr v. First Nationwide Bank, 816 F. Supp. 1476, 1493-94 (N.D. Cal.
1993) (language permitting amendment of top hat plan “at any time or from time to time” was
inconsistent with other mandatory provisions in the plan; defendant’s “reserved power to amend,
modify or terminate the Plan [did] not entitle the [defendant] to avoid its express contractual
obligations” with respect to vested benefits).

In this case, similarly, the Plan’s language permitting amendment “at any time” is
ambiguous to the extent that it would allow Fox & Grove to take away Barrett’s vested benefits
despite language in the Plan that each participant “shall be entitled” to benefits which “shall be
paid” when the participant leaves the firm. Plan §§3.1, 5.1. Fox & Grove’s May 13, 1999
memorandum “formaliz{ing] the obligation to pay” benefits does not clarify this ambiguity. Fox
& Grove points out that it is merely deferring, as opposed to terminating Barrett’s payments.
Def. Reply, p. 2. However, by the amendment’s own terms, Barrett’s benefits could be

substantially reduced or eliminated altogether if the firm does not have sufficient assets

remaining after it pays off its creditors. Fox & Grove suggests that this result is expressly


tne time of the meeting, the firm had not yet ascertained all of its creditors or fully paid those
creditors of which it was aware. Def. Facts 429. Barrett insists that a December 18, 2001
raemorandum to the firm’s shareholders shows that Fox & Grove was “awash in cash and
collectible receivables.” Pl. Mem., p. 2; PX A (stating that the firm’s December 31, 2001
financial statement showed a net income of $511,000 and $175,300 in cash). Fox & Grove
claims that the federal taxes on the $511,000 would amount to $173,740, which only confirms
that the firm “had inadequate cash to meet tax obligations and to fund current operations.” Def.
Reply, p. 5.

In any event, it is undisputed that the directors were uncertain whether the firm would be
able to pay all Plan participants the entirety of their deferred compensation accounts after
repaying all outstanding debts. Thus, the directors determined that no individual participant
should receive any payments unless all other participants received a proportionate share. Def.
Facts 431, 32. To accomplish this result, the directors amended the Plan on May 21, 2002,
retroactive to March 31, 2001, to provide that no participant would receive any payment of
deferred compensation “until such time as the [Plan] Committee, in its reasonable judgment,
decides that all debts of the [firm] other than obligations under the plan have been paid or
settled.” DX A $5.1(b); Def. Facts 432. The Plan Committee consists of the three individuals
with the largest deferred compensation accounts who are responsible for administering the Plan.
id. 733.

Fox & Grove now claims that the retroactive amendment to the Plan defeats Barrett’s
claim for any further payment until the liquidation process is complete; that is, “he will now be

treated on an equal basis with all other participants who are abiding the liquidation process.”



At the time of his resignation, Barrett was an equity partner and a participant in Fox & Grove’s
Deferred Compensation Plan (the “Plan”). The Plan is an unfunded ERISA plan which Fox &
Grove maintained as “a vehicle for, among other things, repaying to its participants the amount
of their respective ‘capital accounts’ at Fox & Grove.” Cmplt. #9, 10. Under the terms of the
Plan, any participant that died, became disabled or left the employ of Fox & Grove would be paid
his or her deferred compensation account, as well as consideration for Fox & Grove stock and
any notes payable from Fox & Grove, over a five-year period in 60 equal monthly installments,
without interest. Jd. 710.

Following his resignation, Barrett received two monthly deferred compensation payments
totaling $1,440.86 by a single check dated March 1, 2001. On March 31, 2001, however, Fox &
Grove ceased its operations, terminated the employment of all of its attorneys, and commenced
liquidation. As of that date, eleven individuals, including Barrett, were entitled to payment under
the Plan. With the exception of one participant who erroneously received four months of
deferred compensation after the firm ceased operations, no other Plan participant received any
such compensation after March 31, 2001.

On or about March 23, 2001, Barrett filed an action in the Circuit Court of Cook County
alleging that Fox & Grove failed to fulfill its contractual obligation to pay his deferred
compensation under the Plan. Barrett subsequently dismissed that action and on August 1, 2001
filed the instant lawsuit alleging a state law contract claim for unpaid wages and an ERISA claim
based on the firm’s (1) failure to pay him any installments of deferred compensation after March
31, 2001, and (2) erroneous calculation of the total value of his deferred compensation account.

Barrett’s lawsuit led to a meeting of the firm’s Board of Directors. Fox & Grove claims that at


IN THE UNITED STATES DISTRICT COURT Loe,
FOR THE NORTHERN DISTRICT OF ILLINOIS METEy

EASTERN DIVISION UEC g 3
2p
‘WILLIAM HENRY BARRETT, )
Plaintiff, )
vs. } Case No. 01 C 5910
FOX AND GROVE, CHARTERED, }
Defendant. ;

MEMORANDUM OPINION AND ORDER
NAN R. NOLAN, Magistrate Judge:

Plaintiff William Henry Barrett filed suit against defendant Fox & Grove, Chartered
(“Fox & Grove”) to recover monies allegedly owed him under an ERISA deferred compensation
plan (Count 1) and unpaid wages and compensation (Count 2). The parties have consented to the
jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. §636(c). This matter is
now before the Court on Fox & Grove’s Motion to Dismiss.’ For the reasons set forth below,
Fox & Grove’s motion is denied.

FACTUAL BACKGROUND
Fox & Grove was a Chicago-based law firm founded in approximately July 1979. Barrett

is a licensed Illinois attorney who worked at Fox & Grove until he resigned in December 2000.

! Fox & Grove’s motion, which was filed at the close of discovery, is more properly

styled a motion for summary judgment. Fox & Grove submitted a Local Rule 56.1 statement of
tnaterial facts, including supporting affidavits and exhibits outside the pleadings, to which Barrett
had the opportunity to respond. Fed. R. Civ. P. 12(c); Tierney v. Vahle, 304 F.3d 734, 738 (7%
Cir. 2002) (“when the judge considers evidence outside the pleadings he must convert the
defendant’s motion to dismiss , . . to a motion for summary judgment’).

BS