UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Donald Rhodes, Plaintiff

v. Case No. 16-cv-35-SM Opinion No.

Holden Engineering & Surveying, Inc.; Holden Engineering & Surveying, Inc. Incentive Compensation Plan; and Peter Holden, as Plan Administrator, Defendants

O R D E R

Donald Rhodes was employed by Holden Engineering &

Surveying, Inc., from 1984 until 1995. During four of those

years, he participated in Holden Engineering’s “Incentive

Compensation Plan” - a deferred compensation plan administered

for the benefit of Holden’s highly compensated employees. This

litigation arises out of the Plan Administrator’s refusal to pay

Plan benefits, in the amount of $60,000, to which Rhodes says he

is entitled under the plan.

Pending before the court are the parties’ cross motions for

judgment on the administrative record. For the reasons

discussed, Rhodes’ motion is granted in part and denied in part.

Holden Engineering’s motion is denied.

1 Before turning to the parties’ arguments on the merits, a

fundamental problem must be addressed. Rhodes has not sued

either the Plan or the Plan Administrator. In a case involving

ERISA benefits, the proper party defendant is the “party that

controls administration of the plan.” Terry v. Bayer Corp.,

(1st Cir. 1998). See also Barkin v. Patient

Advocates, LLC,

(D. Me. 2007). Here,

because the Plan is entirely funded by Holden Engineering, Inc.,

those entities share an identity of financial interests: Plan

liability to pay benefits will be borne directly by Holden.

Perhaps that explains why Holden has not addressed Rhodes’

failure to name the Plan or the Plan Administrator as parties,

or sought dismissal on that basis.1

Given that circumstance, the court will presume that Rhodes

intended to name the Plan and Plan Administrator as defendants.

The court also presumes that Holden has no objection to deeming

the Plan as well as Peter Holden, in his capacity as Plan

1 Rhodes’ failure to name the Plan or the Plan Administrator may also be explained by language in the Plan itself. In section 8.1 (entitled, “Enforcement”), the Plan provides that, “The Employer shall have the authority to enforce this Plan . . . [and] the Employer shall be the only necessary party” to any enforcement action. Perhaps the parties interpret that section of the Plan to mean that only Holden Engineering need be named as a defendant when a Plan Participant sues to enforce his or her rights under the Plan.

2 Administrator, as named defendants in this litigation. If

Holden (or the Plan or the Plan Administrator) does object, a

written objection may be filed, stating in detail the basis for

that objection, as provided below. Otherwise, the complaint

will be deemed amended by agreement to name the Plan and Plan

Administrator as defendants.

Standard of Review

The parties agree that Holden’s deferred compensation plan,

frequently known as a “top hat” plan, is governed by the

provisions of the Employee Retirement Income Security Act

(“ERISA”),

et seq. See also

(2). When, as here, an ERISA-governed plan reserves to

the plan administrator the discretion to interpret the plan and

determine benefits eligibility, a benefits decision under the

plan will be upheld unless it was “arbitrary, capricious, or an

abuse of discretion.” O’Shea v. UPS Retirement Plan,

(1st Cir. 2016) (citation omitted). Under that standard,

a reviewing court “asks whether a plan administrator’s

determination is plausible in light of the record as a whole,

or, put another way, whether the decision is supported by

substantial evidence in the record.” Colby v. Union Sec. Ins.

Co.,

(1st Cir. 2013) (citation and internal

quotation marks omitted). See also Niebauer v. Crane & Co., 783

, 922–23 (1st Cir. 2015) (applying the court’s “typical

deferential standard of review” to an ERISA-governed “top hat”

plan). See generally McCarthy v. Commerce Group, Inc.,

(D. Mass. 2011) (noting that even if benefits

eligibility decisions under a top hat plan are subject to de

novo review, when the plan administrator is vested with

discretion, the court need only determine whether it exercised

that discretion reasonably and in good faith; hence, the court’s

review is deferential and “the debate over the standard of

review is much ado about not much”).

Background

Rhodes worked at Holden Engineering from 1984 to 1995.

During four of those years, he participated in Holden’s

“Incentive Compensation Plan” - an ERISA-governed, deferred

compensation plan administered for the benefit of Holden’s

highly compensated employees. See Complaint, Exhibit 1

(document no. 1-1), “Holden Engineering & Surveying, Inc.

Incentive Compensation Plan” (the “Plan”). Rhodes claims that

under the terms of the Plan, he was entitled to $15,000 in

deferred compensation for each of those four years, to be

distributed to him upon one of the Plan’s four “Events of

Distribution.” Under the Plan, one of those events of

4 distribution was triggered when Rhodes turned sixty-five, on

December 13, 2014.2

About a week after he turned 65, Rhodes wrote to Holden

asking that the Plan Administrator distribute $60,000 in

benefits to which he was entitled, along with any accrued

interest. He also requested an accounting of his deferred

compensation account. In response, Peter Holden, President of

Holden Engineering and administrator of the Plan, denied Plan

benefits. But, the reasons articulated for that denial seemed

completely untethered to any benefits eligibility criteria

described in the Plan. Peter Holden (presumably speaking as the

Plan Administrator) stated that the Incentive Compensation Plan

was intended to serve as a means by which to encourage employee

retention; it was not designed to be a “retirement plan.”

Moreover, he added, Rhodes’ rights under the plan “terminated”

when he left the company’s employ. Finally, Holden stated that

“[t]his is a position that I am more than willing to defend.”

Letter dated May 15, 2015, from Peter Holden (document no. 1-6)

2 When Rhodes resigned from Holden in 1995, the Plan Administrator, in the exercise of his discretion, elected not to distribute Rhodes’ deferred compensation at that time. See Plan at section 4.3 (defining one of the “Events of Distribution” as follows: “In the Plan Administrator’s discretion, the termination of the Participant’s employment with the Employer.”).

5 (the “Denial Letter”). The Plan Administrator plainly took the

position that Rhodes was entitled to nothing under the Plan.

This litigation ensued.

One can only assume that upon receiving notice of Rhodes’

suit, Holden consulted with an attorney who quickly realized the

factual and legal errors in the Plan Administrator’s Denial

Letter. Indeed, in its Answer to the Complaint (document no.

8), Holden offered an entirely different interpretation of the

Plan than described in the letter to Rhodes. Holden now

acknowledges that Rhodes’ rights under the deferred compensation

plan did not “terminate” when he left Holden’s employ, and it

concedes that Rhodes is entitled to benefit payments under the

Plan.

The only significant point of contention remaining is

whether Rhodes is entitled to the full $60,000 in deferred

compensation as a lump sum, or whether the Plan Administrator

may distribute at least a portion of that money to him in equal

payments, on an annual basis. Also at issue is Rhodes’

assertion that he is entitled to interest earned on the $60,000

in benefits over roughly 30 years, as well as the parties’

cross-motions for an award of reasonable attorney’s fees.

6 Discussion

A. The Plan Provisions.

Holden established the Plan in 1988, but it was made

retroactively effective as of August 1, 1986. Generally

speaking, the Plan provided that each year the Plan

Administrator could designate an eligible employee as a

“Participant” in the Plan for that year. The Plan, at section

2.3. The Plan Administrator would also set the amount of

deferred compensation to which the participating employee was

entitled. In essence, the Plan allowed Holden to award annual

bonuses to select employees, while offering those employees the

option of either taking that bonus “immediately” at the end of

the current year, or deferring it until a later date (when,

presumably, the Participant would be in a lower federal tax

bracket). But, because the Plan was established in 1988, it

provided that participants could not elect an immediate payout

for the years 1986 and 1987. Those years had already passed and

one might infer that Holden did not want to allocate the cash

necessary to make “retroactive” payouts of year-end bonuses for

those earlier years.3

3 Moving forward, however, the Plan required Holden to set aside a “separate fund or funds” each year in an amount necessary to meet its financial obligations under the Plan. The Plan, at section 3.3. See also

at section 3.1. The Plan

7 Consequently, under the Plan's terms, deferred compensation

payments for 1986 and 1987 could only be taken upon an “Event of

Distribution” (though, critically, the Plan is silent as to

whether those payments may be taken as a lump sum, or whether

they must be taken in annual installments over some

indeterminate period of time). The relevant section of the Plan

provides as follows:

For any Plan Year with the exception of the 1986 and 1987 Plan Years, any Participant may elect to receive as an immediate cash payment rather than as a deferred future benefit all or any part of the amount which may thereafter be allocated to him for such Plan Year; provided, however, that such election shall be made by the Participant by completing Part II of the Notice and delivering the same to the Plan Administrator prior to the commencement of such Plan Year.

Plan, at section 4.1 (emphasis supplied). The “Notice”

referenced in the Plan was provided to Rhodes in April of 1988.

It, too, had an exception for certain Plan Years. Specifically,

it provided that:

1986, 1987, and 1988 Plan Years. You have been credited with $15,000 with respect to Deferred Incentive Compensation for each of the years 1986- 1988, inclusive. You will not have any election with regard to the form of distribution of this Deferred Incentive Compensation upon the occurrence of an Event of Distribution as regards any Deferred Incentive Compensation for each of these years. You will, however, have the elections indicated in paragraph B

contemplated that those funds could be invested or held in a cash account, in the discretion of the Plan Administrator.

8 below with respect to all plan years beginning in 1989 or thereafter for which you were designated as a Participant.

Notice to Participants Under Holden Engineering Plan (document

no. 1-2) at 1 (emphasis supplied). The Notice then provided

that for Plan Years 1989 and thereafter, the Participant could

make a one-time election to receive payment of his or her

deferred compensation: (a) immediately, at the end of each year;

(b) in equal annual installments for a period not to exceed ten

years, commencing upon occurrence of an Event of Distribution;

or, finally, (c) as a “lump sum,” upon occurrence of an Event of

Distribution. Rhodes elected to receive his deferred

compensation for 1989 (and any following years in which he might

be a Participant) in the form of a lump sum.

In a separate section, the Plan establishes what might be

called a “default” payout mechanism. It provides that if a

Participant fails to file a timely Notice regarding the method

of distribution he or she has elected for the year 1989 (and

subsequent years), the Plan Administrator “shall elect for such

Participant the payout schedule . . . . as if the Participant

had elected the ten (10) year installment payout.” The Plan at

section 4.2. But, as noted above, Rhodes did not fail to

complete and submit the Notice in which he elected the form of

9 payout he wished to receive. Instead, as for the Plan year 1989

(and all subsequent years), he elected to receive a lump sum

upon one of the Events of Distribution. Consequently, that

“default” payout option over a period of 10 years does not apply

to Rhodes. It bears repeating that the Plan does not specify

how the Administrator would make payouts of deferred

compensation for the years 1986, 1987, and 1988 - the years at

issue in this case.

B. The Plan Administrator’s Decisions.

The Plan Administrator’s initial refusal to acknowledge

Rhodes’ rights under the Plan, as well as his litigation-

inspired reinterpretation of the Plan, fall squarely within the

realm of “arbitrary and capricious” decisions. His assertion

that “when an employee left the employ of the company their

rights in this retention plan terminated,” Denial Letter at 1,

was wholly without legal merit and entirely inconsistent with

the Plan's terms. While the Plan Administrator’s recent

concession that Rhodes is entitled to $15,000 immediately (for

the 1989 Plan year) is consistent with Plan provisions and

Rhodes’ elections, his assertion that Rhodes is entitled to the

balance of his deferred compensation in “ten annual installments

of $4500 beginning one year from the date of this [court’s]

10 Order,” Defendant’s Memorandum at 19, is entirely without

support in the Plan.

According to Holden, the Plan is not obligated to begin

paying Rhodes deferred compensation for the years 1986-88 until

one year from now, notwithstanding that the “Event of

Distribution” triggering the Plan's payment obligations occurred

nearly two years ago. That interpretation of the Plan language

is unarguably arbitrary and unreasonable. It is neither

“plausible in light of the record as a whole,” nor does it find

“substantial evidence in the record.” Colby,

.

As noted earlier, the Plan fails to address how

distributions are to be made to Participants for the years 1986,

1987, and 1988 (other than stating that for two years - 1986 and

1987 - “immediate” payout is unavailable, and noting that for

three years - 1986, 1987, and 1988 - Participants cannot elect

their preferred method of payout). The Plan Administrator’s

notion that the Plan may defer payments to Rhodes over a ten-

year period is drawn from entirely unrelated language in the

Plan (which, as discussed below, may or may not be a defensible

exercise of discretion). But, his assertion that the Plan need

not begin making those annual payments until one year after this

11 court resolves the pending motions lacks any support in the Plan

and is, in a word, arbitrary.

Even if, in the absence of specific Plan language, the Plan

Administrator retained the discretion to make equal annual

distributions to Rhodes over ten years - essentially borrowing

the “default” payout scheme from another section of the Plan -

those payouts would not be timed to this court’s resolution of

the parties’ dispute. Instead, the first installment would have

become due upon Rhodes having turned 65 - the “Event of

Distribution” of which Rhodes made the Plan Administrator aware

nearly two years ago. So, even if the court were to endorse (as

a permissible exercise of discretion) the Plan Administrator’s

proposed ten-year payout scheme, Rhodes would (as of December

13, 2016) be entitled to the immediate payment of $28,500 (the

$15,000 lump sum all agree he is due, plus $13,500 representing

three payments of $4,500 to which Rhodes was entitled in

December of 2014, 2015, and 2016). And, each year thereafter,

beginning on December 13, 2017, Rhodes would be entitled to an

additional $4,500. See, The Plan, at section 4.3 (“The Plan

Administrator shall commence distributions to any Participant

. . . upon the earliest to occur of the following Events of

Distribution.”) (emphasis supplied). Nowhere in the Plan is

there any suggestion that the Plan Administrator may delay

12 making benefit payments for two or three years after the Event

of Distribution. And, there is certainly nothing that would

authorize the Plan Administrator to delay making such payments

until one year after ordered to do so by a court of competent

jurisdiction.

C. Interest.

The next question presented is whether Rhodes is entitled

to interest on his deferred compensation from the date on which

it vested through the present. The Plan is decidedly vague on

that point. Section 3.2 provides that “Funds set aside or

earmarked to meet the Employer’s obligations hereunder may be

kept in cash, or invested and reinvested, in the discretion of

the Plan Administrator.” It then goes on to provide that if

those funds are invested in stocks, bonds, or other securities,

the Plan Administrator will allocate among the various

Participants’ accounts the costs associated with maintaining

those investments, as well as any investment gains or losses, on

a pro rata basis. It does not, however, speak to “interest”

that might be earned if the funds were kept in “cash” (say, in

the form of a bank account).4

4 Of course, the Plan’s silence on that point may be easily explained: funds deposited into an interest bearing account would not have any “losses” or administrative fees that would have to be allocated across various Participants’ accounts; only

13 Elsewhere in the Plan, however, reference is made to

“interest” earned on those retained funds. Section 5.1 of the

Plan provides that the “Employer shall maintain accurate and

detailed records of each Participant’s Bookkeeping Account.”

That section of the Plan goes on to require the Employer to

provide “to each Participant, within ninety (90) days following

close of each Plan Year, a written account” which shall include

“the amount of [deferred incentive compensation] and interest

credited to such Bookkeeping Account” as of the last day of the

Plan year.

(emphasis supplied).5

The record does not reveal how those “separate funds” were

held, other than counsel’s representation that the Plan

Administrator “elected not to invest funds credited to

Plaintiff.” Defendant’s memorandum at 7-8. See also

Defendant’s Statement of Disputed Facts (document no. 14), at

interest, at a uniform rate, would have to be credited to those accounts.

5 Holden erroneously suggests that, because the deferred compensation funds owed to each Participant were not held in an investment account, the Plan Administrator was not required to maintain “Bookkeeping Accounts” for each Participant, nor was he required to provide Participants with an annual accounting. See Defendant’s Statement of Facts (document no. 14) at para. 9. That claim is entirely inconsistent with the Plan language. See The Plan, at section 5.1. See also

at sections 1.1.2, 2.3, 4.2.1, and 4.4.

14 para. 3. But, if those funds were deposited into an interest

bearing account of some sort, Plan Participants would likely be

entitled to any interest earned, net of any related expenses.

At a minimum, the Plan Administrator is obliged to disclose to

Rhodes precisely how he held those funds (presumably, it was

done in compliance with the requirements of the Plan), and he

must provide Rhodes with the (required) accounting he requested.

See The Plan, at section 5.1.

D. The Appropriate Remedy.

Under ERISA, if a court concludes that a plan administrator

has acted arbitrarily and/or capriciously in denying a claim for

benefits, it has the discretion to either award those benefits

immediately or to remand the matter to the plan administrator

for “a renewed evaluation of the claimant’s case.” Cook v.

Liberty Life Assur. Co.,

(1st Cir. 2003). The

unique facts presented in each case will typically dictate which

resolution is more prudent. See generally Quinn v. Blue Cross &

Blue Shield Ass’n,

(7th Cir. 1998) (collecting

cases in which courts concluded that remand is appropriate when

the factual record is undeveloped, the plan administrator

misconstrued the terms of the plan, and/or when the proper

interpretation of the plan is uncertain).

15 Here, given the circumstances presented, the court

concludes that remand to the Plan Administrator for further

factual development and evaluation is appropriate. For example,

it would be helpful to know how the Plan Administrator has

historically interpreted the Plan and addressed requests like

Rhodes’ - that is, how he has distributed deferred compensation

to other Plan Participants for the years 1986, 1987, and 1988.

Moreover, because the Plan Administrator denied Rhodes’ claim

for benefits, Rhodes never had the opportunity to persuade the

Plan Administrator to exercise his discretion regarding the

timing of payments in a particular manner. Additionally, Rhodes

needs to know how the Plan Administrator held those funds and,

if they were held as cash, whether they were segregated into an

interest-bearing account.

As noted earlier, the Plan is silent as to how the Plan

Administrator should (or may) distribute Rhodes’ deferred

compensation for the years 1986, 1987, and 1988, but, in a

different context - when a Participant has failed to notify it

of his or her payout preferences for the years 1989 and forward

- the Plan adopts a ten-year annual payment scheme as a sort of

“default option.” See Plan at section 4.2. Consequently, it is

possible that such a payout scheme would lie at the outer limits

16 of the Plan Administrator’s discretion with respect to Rhodes’

claim for benefits for the years 1986, 1987, and 1988.6

But, of course, the Plan Administrator may have

consistently exercised his discretion differently in the past

under identical circumstances, and such information may be

relevant in determining the limits of his discretion in this

case. For example, if in all prior cases the Plan Administrator

disbursed deferred compensation from 1986, 1987, and/or 1988 to

Participants in a lump sum, it might arguably amount to an abuse

of discretion should he elect to treat Rhodes differently,

depending on the reasons articulated to support the exercise of

his discretion in that manner. All of this is, of course,

speculative and reflects that the record is undeveloped on these

important issues.7

6 Because the Plan is silent, limits must necessarily be inferred. The Plan Administrator could not, for example, sustainably decide to pay Rhodes’ benefits over, say, 100 years.

7 Parenthetically, the court notes that the fact that Peter Holden acted as both the President of Holden Engineering and the Plan Administrator, coupled with the fact that the Plan is unfunded, present a structural conflict of interest. See, e.g., McCarthy,

. Yet, neither party has addressed how (if at all) that might affect the Plan Administrator’s discretion or limit his ability to distribute Rhodes’ deferred compensation over a substantial period of time.

17 On this record, the outer limits of the Plan

Administrator’s permissible discretion in distributing to Rhodes

his deferred compensation for the years 1986, 1987, and 1988

simply cannot be determined. Nor is it apparent how the Plan

Administrator held those funds over the intervening years, and

whether interest accrued on those funds. Consequently, the

court concludes that remand to the Plan Administrator for

further proceedings, including full disclosure of all relevant

information to the beneficiary, is appropriate.

E. Attorney’s Fees.

Both parties have moved for an award of reasonable

attorney’s fees. Holden invokes a provision of the Plan that

says it shall be entitled to such fees should it “substantially

prevail” in any action in which a Participant challenges any

provisions or operations of the Plan. The Plan, at section 8.4.

Rhodes, on the other hand, invokes ERISA’s fee-shifting

provision, which states that “the court in its discretion may

allow a reasonable attorney’s fee and costs of action to either

party.”

(g)(1). See also Hardt v. Reliance

Standard Life Ins. Co.,

(2010) (“[A] fees

claimant must show ‘some degree of success on the merits’ before

a court may award attorney’s fees under § 1132(g)(1). A

claimant does not satisfy that requirement by achieving ‘trivial

18 success on the merits’ or a ‘purely procedural victory,’ but

does satisfy it if the court can fairly call the outcome of the

litigation some success on the merits without conducting a

lengthy inquiry into the question whether a particular party’s

success was ‘substantial’ or occurred on a ‘central issue.’”)

(citations and internal punctuation omitted).

Holden’s request for attorney’s fees is denied. The Plan

Administrator’s denial of Rhodes’ application for benefits under

the Plan was not only incorrect, it was plainly arbitrary and

capricious. And, it forced Rhodes to hire legal counsel and

file this action in order to vindicate his clearly established

rights under the Plan. Holden cannot be said to have

“substantially prevailed” in this action. Rhodes, on the other

hand, has secured a reversal of the denial of his benefits

request, an immediate award of a portion of those benefits, and

remand to the Plan Administrator so he may fully and carefully

consider how he will distribute the remaining deferred

compensation to which Rhodes is entitled. It is beyond doubt

that Rhodes’ victory was substantially more than “trivial” or

“purely procedural.” Hardt,

.

19 Conclusion

Rhodes was forced to bring this action when the Plan

Administrator denied that he had any rights under the Plan, and

expressed his intent to defend that decision. The initial

denial of Rhodes’ application for deferred compensation

benefits, as well as the Plan Administrator’s latest

(unsupported) interpretation of the Plan language, are arbitrary

and capricious positions that Rhodes should not have had to

challenge by seeking legal counsel and bringing suit.

In light of the foregoing, Holden Engineering’s motion for

judgment on the administrative record (deemed a motion by the

Plan and Plan Administrator as well) (document no. 19) is

denied. Rhodes’ motion (document no. 17) is granted in part,

and denied in part, as follows.

This matter is hereby remanded to the Plan Administrator

for further proceedings consistent with this order. While a

final interpretation of the Plan language must await those

proceedings on remand, this much may be said with certainty:

even if the outer limits of the Plan Administrator’s discretion

would permit him to distribute Rhodes’ deferred compensation in

10 equal, annual payments, Rhodes is still entitled to the

immediate payment of $28,500. That sum breaks down as follows:

20 $15,000.00 1989 Plan year deferred compensation, payable in a lump sum upon Rhodes’ 65th birthday, December 13, 2014.

$4,500.00 First of ten equal annual payments, also due on December 13, 2014.

$4,500.00 Second of ten equal annual payments, due on December 13, 2015.

$4,500.00 Third of ten equal annual payments, due on December 13, 2016.

Accordingly, on or before December 14, 2016, the Plan

Administrator of Holden Engineering & Surveying, Inc. Incentive

Compensation Plan shall pay to Rhodes the sum of $28,500.00.

Additionally, the Plan Administrator shall provide Rhodes with

an accounting of his deferred compensation account and shall

disclose to him the manner in which the Plan held those funds

during the years between 1986 and the present.

Rhodes is also entitled to an award of costs and reasonable

attorney’s fees and he shall present his request for the same to

the Plan. If the parties cannot agree on a reasonable award of

costs and attorney’s fees prior to January 10, 2017, Rhodes

shall submit a well-supported motion for such an award to the

court. The Plan may file an objection within 10 days

thereafter.

21 The Clerk of Court shall amend the case caption to include

as named defendants both “The Holden Engineering & Surveying,

Inc. Incentive Compensation Plan” and “Peter Holden, as Plan

Administrator.” If any party objects, it shall file a written

objection on or before December 23, 2016.

The Clerk of Court shall enter judgment in accordance with

this order and close the case (subject to reopening, upon motion

of either counsel, if necessary).

SO ORDERED.

____________________________ Steven J. McAuliffe United States District Judge

December 5, 2016

cc: Benjamin T. King, Esq. James E. Higgins, Esq.

22