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Brasley v. Fearless Farris Service Stations

April 26, 2010


The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge



The Court conducted a bench trial in this matter on January 4-5, 2010. The parties then submitted their post-trial briefs. The Court now enters its Findings of Fact, Conclusions of Law and Order.



1. Prior to November 18, 2002, Fearless Farris Service Stations, Inc. ("Fearless") was owned by Farris S. Lind, Kent Lind and H. Kent Johnson ("Lind/Johnson").

2. Sometime in the 1980s, Fearless established a retirement plan, referred to as the Fearless Farris Service Stations, Inc. Deferred Compensation Plan (the "Plan").

3. The only documents evidencing the Plan were certain letters and memoranda distributed to Plan participants over the years, or in some cases placed in company files.

4. According to these letters and memoranda, the Plan underwent several changes over the years, with a final written version on December 19, 1995. (Joint Ex. No. 4.)

5. The December 19, 1995 version includes the words "Summary and Revision of the Plan" in the reference line. (Joint Ex. No. 4.)

6. The December 19, 1995 Summary and Revision of the Plan explained that Fearless was implementing the following revised policy:

a. The Plan "will pay to the qualified employee or his surviving beneficiary, upon reaching the retirement age of 65 and having completed a minimum of 20 years of service to the Company, a monthly sum of 25% of the average of his/her last 5 years of service for a period of 15 years. In the case of an employee pre-deceasing the retirement age of 65 years, but still meeting the 20 year service requirement, the Company will pay to the surviving beneficiary 50% of the employee's last 5-year average income, paid monthly for 15 years." (Joint Ex. No. 4.)

b. It went on to state that the new Plan "addresses events that may occur in either early retirement or if the length of service is not the full 20 years required by the Plan." (Joint Ex. No. 4.)

c. A second page was attached to the letter which generally described by example how a participant would qualify for benefits and how benefits in the form of retirement pay would be determined under the Plan. (Joint Ex. No. 4.)

7. The former owners of Fearless purchased whole life insurance policies on the lives of participants in the Plan.

8. Fearless paid the premiums on those policies and those policies accumulated a cash surrender value.

9. Fearless was the beneficiary and owner of the insurance policies at all times.

10. At one point, in the late 1990's or the year 2000, the insurance policies then existing on the lives of most Plan participants were pledged as collateral by Fearless for its operating line of credit with Wells Fargo Bank.

11. Sometime during 1998-2000, Fearless stopped making premium payments on the policies, allowing the cash surrender value and earnings on the policies to pay the premiums.

12. On November 18, 2002, certain purchasing entities formed by Defendants Charley Jones and Shawn Davis ("Jones/Davis") purchased the common stock and assets of Fearless Farris Service Stations, Inc., Fearless Farris Wholesale, Inc., and their various subsidiary entities.

13. As a result of the purchase agreement, Jones/Davis became the sole shareholders and owners of Fearless and its subsidiaries.

14. All of the whole life insurance policies remained assets of Fearless except the policies of the three original owners, Kent Johnson, Scott Lind and Kent Lind.

15. Within the Stock and Asset Purchase Agreement, Schedule 4.23 identified the then thirty participants in the Plan and referred to them as follows:

a. "The following employees are participants in a non-qualified Deferred Compensation (Retirement) Plan Adopted and Revised December 19, 1995." (Joint Ex. No.3.)

16. Charley Jones is a certified public accountant by education, practiced public accounting for a period of time following graduation from college, and was a corporate officer of Stein Distributing Company before he and Davis purchased Fearless.

17. While employed with Stein Distributing Company, Jones had experience with what he believed was a deferred compensation plan similar to the Fearless Plan.

18. Jones testified that he originally believed that both the Fearless Plan and the Stein plan were non-qualified plans which were, in essence, "golden handcuffs" plans for a small number of employees.

19. At the time they purchased Fearless, Jones/Davis paid Wells Fargo Bank to release its security interest in the insurance policies.

20. Shortly following their purchase of Fearless, Jones/Davis also discovered that various unpaid expenses of Fearless existed, which were contrary to the accounting records provided by Fearless prior to the sale.

21. Jones testified that there were insufficient funds to pay the expenses when he and Davis bought Fearless, and it was necessary for Fearless to take out an additional line of credit to pay them.

22. Jones/Davis liquidated many of the life insurance policies for their cash surrender value and paid that amount toward the line of credit.

23. Jones/Davis retained the insurance policy of Loren Pratt, who was terminally ill. They received a pay out on that policy when Mr. Pratt died.

24. Jones and Davis later discussed the Plan and concluded they could terminate it, at least as to some participants.

25. In two group meetings, Jones advised the Plan participants of the decision to terminate the Plan effective July 22, 2003.

26. Jones provided the meeting attendees with a memorandum stating that the "Plan is terminated effective 7/22/03." (Joint Ex. No. 6.)

27. The memorandum further stated that "[t]he Company will make every effort to pay benefits to existing retirees and those close to retirement (within five years). This commitment will stretch the financial resources of the Company and will only be fulfilled if the Company prospers in the long term." (Joint Ex. No. 6.) It went on to state that "[i]f future financial conditions require it, those payments may be suspended or terminated." (Joint Ex. No. 6.)

28. The memorandum also stated that "[t]he company has no financial obligation to you as a result of the plan termination." (Joint Ex. No. 6.)

29. Plaintiffs Brasley, Wayment and Newell attended the July 23, 2003, meeting.

30. Each of the participants attending the meeting acknowledged receipt of the memorandum by signing an acknowledgment page.

31. Plaintiff Elliott did not attend the meeting because he had been terminated from Fearless a few weeks earlier.

32. At the time the memorandum was distributed, one retired Plan participant had already begun receiving monthly benefits under the Plan, which payments have continued.

33. After the July 2003 meeting, four additional Plan participants who retired later in 2003 and 2004, and had reached age 65, began and have continued to receive monthly retirement benefits under the terms of the Plan.

34. All of these benefit payments have been made from the general funds of Fearless.

35. To date, Fearless has paid approximately $560,000 to Plan participants in the form of monthly retirement payments or by way of lump sum settlement payments, all of which have been made from the general funds of the company.

36. In approximately June 2007, Fearless and its subsidiary entities were merged into Stinker Stores, Inc. ("Stinker").

37. Stinker is a successor to Fearless and all above-referenced benefit payments or settlements have been subsequently made from the general funds of Stinker.

Roberts Case

38. In an earlier, related case, one of the Plan participants, Ted Roberts, sued Lind/Johnson, Jones/Davis and Fearless in this Court.

39. Ted Roberts was a Plan participant whose benefits Fearless intended to terminate pursuant to the July 22, 2003 memorandum.

40. Roberts was terminated as an employee from the Company in August 2003.

41. The case -- Roberts v. Fearless Farris Service Stations, Inc., CV-05-472-S-WFN ("Roberts Case") -- was handled by Judge William F. Nielson from the Eastern District of Washington, sitting by designation.

42. In his law suit, Roberts alleged that the Plan was subject to ERISA requirements, that Roberts was entitled to benefits under the Plan, and that Fearless and the current and former owners were liable for either a lump sum distribution of early retirement benefits or an order compelling the defendants to establish and fund the means to provide Roberts with full retirement benefits under the Plan.

43. The Court concluded that the Plan was subject to ERISA.

44. The Court also concluded that Fearless, Lind/Johnson and Jones/Davis were all fiduciaries under the Plan, and that all breached their fiduciary duties to follow ERISA requirements for the Plan.

45. However, the Court determined that although Lind/Johnson breached their fiduciary duties by failing to follow ERISA requirements in creation and maintenance of the Plan, no damages arose from their breach.

46. Therefore, Lind/Johnson were not held liable for any damages resulting from their breach of fiduciary duties.

47. The Court concluded that Jones/Davis and Fearless were the liable parties.

48. The matter was appealed to the Ninth Circuit, but the parties settled the case during mediation before the Ninth Circuit issued a decision.

49. In an earlier Memorandum Decision and Order, this Court determined that Judge Nielsen's findings of fact and conclusions of law in the Roberts Case have a preclusive effect in this matter to the extent Judge Nielsen made determinations generally applicable to the Plan.

50. Relevant binding findings of fact and conclusions of law from that case include the following:

a. The Plan was not a "Top-Hat" plan, which is a "plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employed." 29 U.S.C. §§ 1051(2), 1081(a)(3), 1101(a)(1).

b. Because the Plan is not a "Top-Hat" plan, it is subject to the substantive requirements under ERISA. For example, once an employee satisfies 7 years of service, their right to their normal retirement benefit is nonforfeitable. 29 U.S.C. § 1053(a)(2)(A)(iii). Consequently, the Plan could not be terminated as to those participants who as of July 2003 had not yet reached retirement or early retirement age and who otherwise have met the requirements under the Plan for payment of benefits.

c. Stinker (formerly Fearless), Charley Jones and Shawn Davis are fiduciaries under the Plan.

Current Litigation

51. On April 17, 2008, Plaintiff Edward Brasley filed the Complaint in this case against Defendants Fearless, Westpoint Transportation, Inc., the Plan, Charley Jones, and Shawn Davis.

52. On September 8, 2008, Plaintiff filed a First Amended Class Action Complaint, adding four additional individual Plaintiffs, Todd Wayment, Vernon Elliott, Katherine Ryan, and Betty Newell.

53. Plaintiffs never actually sought class certification.

54. The Amended Complaint also added Stinker as a named Defendant.

55. Plaintiff Katherine Ryan's claims were subsequently settled out of court.

56. The remaining named Plaintiffs assert that Defendants breached their fiduciary duties under the Plan.

57. Plaintiffs seek equitable relief granting them their benefits under the Plan.

58. Plaintiffs also assert a claim for statutory penalties under ERISA for Defendants' alleged failure to provide information, including a summary plan description, a summary annual report, and a participant benefit statement under the Plan.

59. The parties spent significant time during this litigation trying to reach agreement on a remedy.

60. In December 2009, Defendants requested IRS approval of an ERISA qualified plan to establish certain benefits to all remaining eligible plan participants. (Joint Ex. No. 1.)

61. The IRS has not yet responded to that request.

62. The new plan is entitled The Fearless Farris Wholesale Deferred Compensation Plan and Trust ("Wholesale Plan") (Joint Ex. No. 2.)

63. Plaintiffs and/or their attorneys participated in the preparation of the Wholesale Plan.

64. Plaintiffs agree with much of the Wholesale Plan, but request some revisions.

65. Plaintiffs and Defendants both favor the profit sharing plan as the appropriate means for paying the benefits promised under the Plan because it has tax advantages for both parties.

66. The Wholesale Plan includes Plan participants who are still employed with Fearless, as well as participants who are not.

Betty Newell

67. Plaintiff Betty Newell is one of the ...

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