Blossom v . Bank of NH CV-02-573-JD 07/16/04 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Charles N . Blossom, J r .

v. N o . 02-573-JD Opinio n N o .

Bank of New Hampshire

O R D E R

The plaintiff, Charles N . Blossom, Jr., seeks a declaratory

judgment that the anti-alienation provision of the Employee

Retirement Income Security Act (“ERISA”) voids the assignment of

his annuity payments to the defendant, Bank of New Hampshire.

The bank responds that the annuity does not constitute an

employee benefit plan for ERISA purposes, or alternatively, that

Blossom received the payments under a “top hat” plan exempted

from the anti-alienation provision. The parties have cross-moved

for summary judgment.

Background

Blossom and Concord General Mutual Insurance Company entered

into a written compensation agreement on April 1 5 , 1982. At that

time, Blossom had worked for Concord General for nearly seventeen

years and was the president of one of its affiliates. The

agreement recited Blossom’s “efforts, abilities and

accomplishments . . . as an important member of management” and the company’s recognition that “his future services are vital to

its continued growth and profits and that the loss of his

services would result in substantial financial loss.” The

agreement also expressed Concord General’s “willingness to

provide post-retirement benefits and/or post-death benefits” to

Blossom “in order to retain [his] services.” Specifically, the agreement entitled Blossom o r , after his

death, any of his designated beneficiaries, to a monthly payment

of $3,888.66 from Concord General to commence after he turned

sixty-five and retired and to continue for the next fifteen

years. If Blossom died while younger than sixty-five and still

in the company’s employ, his designated beneficiaries would have

received the same monthly payment from the company for the next

fifteen years. The agreement also provides that Concord General shall be under no obligation whatever to purchase or maintain any contract, policy or other asset which the [company] may utilize to assure itself of the funds to provide the benefits hereunder and shall not serve in any way as security to [Blossom] for the [company’s] performance under this Agreement. The rights accruing to [Blossom] or any designated beneficiary hereunder shall be solely those of an unsecured creditor to the [company].

The agreement also states that neither Blossom nor any designated

beneficiary “shall have any right to sell, assign, transfer, or

otherwise convey the right to receive any payments hereunder.”

Four other key executives entered into agreements with

2 Concord General which were essentially the same as Blossom’s. At

that time, the company purchased a whole-life insurance policy on

each of the executives, naming itself as the beneficiary.

Concord General intended to use the surrender value of each

policy to purchase an annuity for the insured executive at the

time of his retirement. The annuity would be used to meet Concord General’s obligation to make post-retirement payments

under the agreements.

Blossom retired from Concord General in 1996, at the age of

sixty-one. The parties amended their agreement to allow Blossom

to start receiving the post-retirement payments within one month

of his retirement even though he had not yet turned sixty-five.

On August 2 7 , 1996, Concord General purchased a single-premium

annuity from The Northwestern Mutual Life Insurance Company.

The annuity contract provides that Northwestern will pay “the Annuitant,” identified as Blossom, the sum of $3,888.66

every month for the fifteen-year period ending on August 1 , 2011.

If Blossom dies before then, the remaining payments will be made

to “the direct beneficiary,” identified as Blossom’s wife. The

annuity contract entitles “the Owner,” identified as Concord

General, to exercise “[a]ll policy rights . . . without the

consent of any beneficiary.” These rights include changing the

beneficiary at any time except during the sixty-day period

3 following Blossom’s death but do not include stopping or reducing

the monthly payments or redirecting them during his lifetime.1

Concord General purchased a separate annuity for each of the

executives who had entered into the agreements. The payments

from each annuity went directly from Northwestern to the

executives. Joseph Desmond, the chairman and chief executive

officer of Concord General since 1991, testified in his

deposition that he decided to purchase the annuities instead of

paying the executives out of the company’s general fund so that

“they would be protected if Concord General went under.” He also

said that he purchased the annuities so that “Northwestern now

had the obligation to pay the monthly benefit.”

Blossom borrowed $375,000 from Bank of New Hampshire on

September 2 6 , 1996. The “Loan Agreement” between the parties

provided that “the payment of the loan shall be made from the

monthly annuity payments under [the annuity] which Blossom, as Annuitant, is contemporaneously assigning to Bank.” If Blossom

died before repaying the loan in full, “the Annuity benefits

. . . payable under the Annuity shall be paid to Bank up to the

full amount of the outstanding obligation . . . and, accordingly,

1 Concord General could, however, demand a refund of the premium and a cancellation of the contract within ten days of receiving it from Northwestern

4 Blossom shall cause his spouse . . . to execute the assignment of

annuity benefits.” Upon repayment of the loan, the Bank must

notify Northwestern “that the Assignment is terminated.”

Blossom and his wife signed an “Assignment of Annuity

Policy” through which they purported to “assign and transfer all

of their rights under the Annuity including but not limited to the right to receive monthly benefits and/or lump sum payment

under the Annuity to Bank of New Hampshire . . . .” Blossom also

executed a “Commercial Pledge Agreement” identifying the

collateral for the loan as “an assignment of deferred compensaion

[sic] plan to provide guaranteed monthly payments . . . and an

assignment of pension plan.”

Concord General signed an “Assignment of Annuity Proceeds as

Collateral” on October 1 , 1996, purporting to “assign, transfer,

and set over” the annuity to the bank. Although Concord General’s right to change the beneficiary of the annuity was

excluded from the assignment, the Blossoms and Concord General

had agreed not to change the beneficiaries of the annuity without

the bank’s authorization during the pendency of the loan in a

written “Beneficiary Agreement” dated September 2 6 , 1996.

Concord General also signed another document, entitled simply

“Agreement,” purporting to assign “all of its rights, title, and

interest” in the annuity to the bank as security for its loan to

5 Blossom. Concord General executed the assignment at Blossom’s

request. Per the assignment, Northwestern issued subsequent

payments under the annuity by joint check to Blossom and Bank of

New Hampshire, although the checks were mailed to the bank.

Blossom filed for bankruptcy on June 2 0 , 2002. At that

point, he still owed Bank of New Hampshire nearly $290,000 on the loan. Blossom commenced this action after the bankruptcy court

granted the bank’s motion for relief from the automatic stay to

cash the joint checks it held at the time and to assert sole

control over future payments under the annuity.

Standard of Review

On a motion for summary judgment, the moving party has the

burden of showing the absence of any genuine issue of material

fact. See Celotex Corp. v . Catrett,

1 7 , 323 (1986).

If the movant does s o , the court must then determine whether the

non-moving party has demonstrated a triable issue. Anderson v .

Liberty Lobby, Inc.,

4 2 , 256 (1986). In performing

this analysis, the court must view the entire record in the light

most favorable to the non-movant, “‘indulging all reasonable

inferences in that party’s favor.’” Mesnick v . Gen. Elec. Co.,

(1st Cir. 1991) (quoting Griggs-Ryan v . Smith,

1 2 , 115 (1st Cir. 1990)). Still, “[o]n issues where

6 the nonmovant bears the ultimate burden of proof, he must present

definite, competent evidence to rebut the motion.”

; see also Invest Almaz v . Temple-Inland Forest Prods.

Corp.,

7 , 76 (1st Cir. 2001). Where, as here, both

sides have moved for summary judgment, the court applies this

analysis to each motion in turn. See Wightman v . Springfield Terminal Ry. Co.,

2 8 , 230 (1st Cir. 1996).

Discussion

In his complaint, Blossom asks the court to declare “that

the assignment made by Concord General and Blossom is invalid

under ERISA and the terms of the plan, that benefits paid to Bank

of New Hampshire must be returned to Blossom, and that Bank of

New Hampshire is not entitled to receive any future payments from

the annuity policy pursuant to the assignment.” He requests

summary judgment on the basis of either ERISA’s anti-alienation

provision or the terms of the compensation agreement itself.

Bank of New Hampshire seeks summary judgment on the ground

that the annuity does not constitute a plan governed by ERISA.

In the alternative, the bank argues that even if the annuity does

qualify as an ERISA plan, it is exempt from the statutory anti-

alienation provision by virtue of

(2). The bank

concedes that the compensation agreement, but not the annuity,

7 constitutes an “employee benefit plan” so as to fall within the scope of ERISA generally.2 See

(3). The bank

also disclaims any reliance on Blossom’s purported assignment of

his rights in the compensation agreement. The bank contends,

however, that the anti-assignment language in the compensation

contract does not apply to the annuity.

ERISA’s anti-alienation provision states that “[e]ach

pension plan shall provide that benefits provided under the plan

may not be assigned or alienated.”

(d)(1). The

provision erects “a broad statutory bar” against “the assignment

or alienation of pension benefits.” Patterson v . Shumate,

(1992). ERISA defines “pension plan” as

any plan, fund, or program . . . established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program–– (i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered

2 In the jargon of ERISA, the term “employee benefit plan” refers to a plan which is a benefit plan, a welfare plan, or both.

(3). ERISA’s anti-alienation provision applies only to pension plans and not to welfare plans. Mackey v . Lanier Collection Agency & Serv., Inc.,

(1988). Thus, the bank’s concession that the compensation contract is an “employee benefit plan” does not necessarily implicate the anti-alienation provision, regardless of whether

(2) applies. Nevertheless, there is no dispute that the compensation contract is a pension plan, not a welfare plan, within the meaning of ERISA. See

(2)(A).

8 employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

(2)(A).

The Department of Labor has promulgated a regulation

clarifying the statutory definition of “employee benefit plan.”

(a). The regulation provides that “the term

‘employee benefit plan’ shall not include any plan, fund or

program . . . under which no employees are participants covered

under the plan, as defined in paragraph (d) of this section.”

§ 2510.3-3(b). Paragraph ( d ) , in relevant part, states

An individual is not a participant covered under an employee benefit plan or a beneficiary receiving benefits under an employee pension plan if–- (A) The entire benefit rights of the individual–- (1) Are fully guaranteed by an insurance company, insurance service or insurance organization . . . and are legally enforceable by the sole choice of the individual against the insurance company, insurance service or insurance organization; and (2) A contract, policy or certificate describing the benefits to which the individual is entitled under the plan has been issued to the individual . . . .

Id. § 2510.3-3(d)(1)(ii). This regulation recognizes a plan’s

ability to “buy out” its continuing obligations to a beneficiary

by purchasing an annuity. Mahoney v . Bd. of Trs., Boston

Shipping Ass’n,

6 8 , 974 (1st Cir. 1992); Kuntz v .

Reese,

(9th Cir. 1986) (interpreting

regulation as “pertain[ing] to situations in which a pension plan

9 purchases annuities for former plan beneficiaries and

participants”);

(b) (“when a pension plan

purchases an annuity from an insurer as a distribution of

benefits, it is intended that the plan’s liability for such

benefits is transferred to the annuity provider”).

The annuity contract and the amended compensation agreement entitle Blossom to all of the same benefit rights, namely, the

payment of $3,888.66 each month for a fifteen-year period

beginning within one month of his retirement. As Blossom points

out in his summary judgment brief, the annuity contract calls for

Northwestern to make the payments to him, rather than to Concord

General. The contract also does not allow Concord General to

stop or reduce the payments during Blossom’s lifetime. Blossom’s

benefit rights are therefore fully guaranteed by and legally

enforceable against Northwestern by his sole choice under the annuity contract. Finally, Blossom does not dispute that

Northwestern qualifies as an insurance company and that he

received a copy of the annuity contract, which he attached as an

exhibit to his complaint in this action.

Because the annuity meets the requirements of

(d)(ii)(A), Blossom does not qualify as “a participant

covered under an employee benefit plan. The annuity therefore

constitutes “a plan, fund or program . . . under which no

10 employees are participants covered under the plan as defined by

paragraph (d)” of the regulation.

(b).

Accordingly, the annuity falls outside the statutory definition

of “employee benefit plan.” See

Another court reached the same conclusion in Thompson v .

Prudential Ins. C o . of Am.,

(D.N.J. 1992), aff’d without opinion,

(3rd Cir. 1993). There, the

plaintiffs were participants in a retirement income plan that

their employer had terminated after purchasing an annuity. Id.

at 1340. The employer and the annuity provider later entered

into a “formal group annuity contract” and the provider issued

annuity certificates to the participants in the retirement plan.

Id. The certificates stated that the provider “guarantee[d] to

make the payments . . . under the terms” of the plan and the

annuity contract. Id. When the employees did not begin receiving annuity payments at age sixty as they believed they

should have, they sued both their employer and the annuity

provider, claiming a violation of ERISA. Id. at 1341. The

court, however, concluded that the annuity did not constitute an

ERISA plan due to

(b) and (d)(2)(ii).

This court concurs with the court in Thompson that an

annuity purchased by an employer which entitles an employee to

the same benefits provided under an employee benefit plan does

11 not itself amount to an employee benefit plan, provided the

annuity meets the requirements of

(d)(2)(ii).

The Northwestern annuity passes that test. As Blossom emphasizes

in his summary judgment brief, Desmond explained that he decided

to purchase the annuity “so that Northwestern now had the

obligation to pay the monthly benefit.” The applicable

regulations recognize that an employer’s decision to do so does

not create an ERISA plan. See

. The

statutory anti-alienation provision therefore does not apply to

the annuity.3 See Thompson,

.

Blossom also suggests that the anti-alienation provision

contained in the compensation agreement itself invalidates the

assignment of the annuity to Bank of New Hampshire. As the bank

argues, however, the annuity contract does not contain any such

language.4 Furthermore, neither Northwestern nor Concord General

objected to Blossom’s assignment of his rights under the annuity. Because the annuity contract omits any anti-alienation clause,

the inclusion of such a provision in the compensation agreement

3 Accordingly, the court need not decide whether the annuity qualifies as a “top-hat plan” under

(2). 4 In fact, a restriction on Blossom’s ability to assign his rights under the annuity is conspicuous by its absence, given that the contract provides that “no amount payable under this policy will be subject to the claims of creditors of a beneficiary,” rather than those of the Annuitant.

12 is immaterial.5 C f . Davidowitz v . Delta Dental Plan of Calif.,

Inc.,

, 1481 (9th Cir. 1991) (holding that “ERISA

welfare plan payments are not assignable in the face of an

express non-assignment clause in the plan”).

Blossom has failed to demonstrate that the annuity

constitutes a plan within the meaning of ERISA, potentially

triggering the statutory anti-alienation provision, or that the

annuity contract contains its own restriction on alienation.

Accordingly, his motion for summary judgment is denied, insofar

as he seeks to invalidate the assignment of the annuity or his

rights under i t . Bank of New Hampshire has shown as a matter of

law that there is no anti-alienation provision applicable to the

annuity, and Blossom has failed to come forward with any evidence

disputing that proposition. The bank’s motion for summary

judgment is therefore granted with respect to the annuity.

Because the bank has conceded in its objection to Blossom’s

motion that it could not have taken an assignment of Blossom’s

rights under the compensation agreement itself, however, his

motion for summary judgment is granted to the extent he seeks to

invalidate his assignment of those rights as independent from his

rights under the annuity.

5 Nor does the annuity contract indicate that it is subject to the terms of the compensation agreement.

13 Conclusion

For the foregoing reasons, Blossom’s cross-motion for

summary judgment (document n o . 34) is denied except to the extent

he seeks to invalidate his assignment of his rights under the

compensation agreement to Bank of New Hampshire as independent

from his rights under the annuity. Bank of New Hampshire’s motion for summary judgment (document n o . 32) is otherwise

granted. The clerk of court shall enter judgment accordingly and

close the case.

SO ORDERED.

Joseph A . DiClerico, J r . United States District Judge July 1 6 , 2004

cc: Marc W . McDonald, Esquire William D. Pandolph, Esquire

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