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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF MICHIGAN
`SOUTHERN DIVISION
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`JOHN B. DAVIDSON, et al.
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`Plaintiffs,
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`Case No. 12-cv-14103
` Honorable Gershwin A. Drain
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`v.
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`HENKEL CORPORATION,
`HENKEL OF AMERICA, INC., et al.
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`Defendants.
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` /
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`OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR
`SUMMARY JUDGMENT [#103] AND GRANTING PLAINTIFFS’
`MOTION FOR PARTIAL SUMMARY JUDGMENT [#105]
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`I. INTRODUCTION
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`On September 14, 2012, Plaintiff, John B. Davidson (“Davidson”), filed the instant class
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`action Complaint, pursuant to the Employee Retirement Income Security Act, 29 U.S.C. § 1001
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`et seq. (“ERISA”). See Dkt. No. 1. In the Complaint, Davidson alleged that Henkel Corporation,
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`Henkel of America, Inc., and Henkel Corporation Deferred Compensation and Supplemental
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`Retirement Plan (collectively “Defendants”) failed to follow the Internal Revenue Code’s
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`(“IRC”) Special Timing Rule for the withholding of Federal Income Contributions Act (“FICA”)
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`taxes on vested deferred compensation. Id.
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`On September 29, 2014, this Court granted Davidson’s Motion for Class Certification.
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`See Davidson v. Henkel Corp., No. 12-cv-14103, 2014 WL 4851759, at *22 (E.D. Mich. Sept.
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`29, 2014). The Court appointed Davidson as the Class Representative and the Miller Law Firm
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`P.C. as Class Counsel. Id. Presently before the Court are Defendants’ Motion for Summary
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`Judgment and Plaintiffs’ Motion for Partial Summary Judgment. See Dkt. Nos. 103, 105. For the
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`reasons discussed herein, the Court will DENY Defendants’ Motion and GRANT Plaintiffs’
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`Motion for Partial Summary Judgment regarding the liability of the Defendants.
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`II. FACTUAL BACKGROUND
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`John Davidson began working for Henkel Corporation in 1972. During their
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`employment, Davidson and the Class Members (collectively “Plaintiffs”) participated in
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`Defendants’ available retirement programs. One such program was the Henkel Corporation
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`Deferred Compensation and Supplemental Retirement and Investment Plan (the “Plan”); a
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`nonqualified retirement plan maintained pursuant to the IRC. The Plan is known as a “Top Hat”
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`plan within the meaning of ERISA.
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`The Plan was designed to provide a supplemental retirement benefit for a select group of
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`management or highly compensated employees. This was to be accomplished by permitting the
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`Participants to defer a portion of their compensation, which was not taken into account under the
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`normal Henkel Corporation Retirement Plan. Under the Plan, the Participants would defer their
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`compensation until the time of their retirement. Presumptively, at retirement, the Participants
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`would be taxed in a lower tax bracket, thereby decreasing their overall tax liability.
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`Davidson retired on August 1, 2003, and began receiving his monthly supplemental
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`benefit under the Plan. Eight years later, on September 15, 2011, a letter was sent from the
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`Director of Benefits at Henkel Corporation to all Plaintiffs. The letter informed Plaintiffs that:
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`During recent compliance reviews performed by an independent consulting firm,
`it was determined that Social Security FICA payroll taxes associated with your
`nonqualified retirement benefits have not been properly withheld. . . .
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`At the time of your retirement, FICA taxes were payable on the present value of
`all future non-qualified retirement payments. Therefore, you are subject to FICA
`Taxes on your non-qualified retirement payments on a “pay as you go” basis for
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`2008 and beyond, which are the tax years that are still considered “open” for
`retroactive payment purposes.
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`Dkt. No. 106-2 at 2. In the letter, Defendants also informed Plaintiffs that Defendants: (1)
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`consulted with the IRS Chief Counsel’s office to determine the best approach to rectify the
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`Defendants’ failure to properly withhold Plaintiffs’ FICA taxes; (2) remitted the full payment of
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`FICA tax owed to the IRS on behalf of Plaintiffs; (3) did not deduct the entire amount owed for
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`FICA taxes from the Plaintiffs’ accounts, and instead reimbursed themselves by reducing the
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`Plaintiffs’ monthly benefit payments for a 12 to 18 month period; and (4) planned to adjust
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`Plaintiffs’ monthly payments under the Plan, effective January of 2012. Id.
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`Davidson contacted Defendants to challenge the change to his benefits. He received the
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`following response on October 14, 2011:
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`Yes, at the time you commenced receipt of this benefit, Henkel should have
`applied FICA tax to the present value of your nonqualified pension benefit. . . .
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`Yes, this applies to the non-qualified benefit only. . . .
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`No, this benefit comes from the Henkel Corporation Supplement Retirement Plan
`payment. This is the restoration plan which provides benefits similar to the
`qualified plan, but on compensation that exceed IRS limits for qualified plans.
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`Dkt. No. 106-3 at 2. As a result of the Defendants’ response, Davidson commenced this action
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`on September 14, 2012. See Dkt. No. 1. On November 16, 2012, Defendants moved to dismiss
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`Plaintiff’s Complaint. See Dkt. No. 10. On July 24, 2013, this Court denied Defendants’ Motion
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`to Dismiss in part. Two of Plaintiff’s claims remain: (1) a civil enforcement action brought
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`pursuant to Section 502(a) of ERISA (“Count I”), and (2) an equitable estoppel claim brought
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`pursuant to Section 502(a) of ERISA (“Count III”). See Davidson v. Henkel Corp., No. 12-cv-
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`14103, 2013 WL 3863981, at *9 (E.D. Mich. July 24, 2013).
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`A.
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`Standard of Review
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`III. LAW & ANALYSIS
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`Federal Rule of Civil Procedure 56(a) empowers the court to render summary judgment
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`“if the pleadings, depositions, answers to interrogatories and admissions on file, together with the
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`affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
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`party is entitled to judgment as a matter of law.” See Redding v. St. Eward, 241 F.3d 530, 532
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`(6th Cir. 2001). The Supreme Court has affirmed the court's use of summary judgment as an
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`integral part of the fair and efficient administration of justice. The procedure is not a disfavored
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`procedural shortcut. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986); see also Cox v.
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`Kentucky Dept. of Transp., 53 F.3d 146, 149 (6th Cir. 1995).
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`The standard for determining whether summary judgment is appropriate is “‘whether the
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`evidence presents a sufficient disagreement to require submission to a jury or whether it is so
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`one-sided that one party must prevail as a matter of law.’” Amway Distributors Benefits Ass’n v.
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`Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) (quoting Anderson v. Liberty Lobby, Inc.,
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`477 U.S. 242, 251-52 (1986)). The evidence and all reasonable inferences must be construed in
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`the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith
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`Radio Corp., 475 U.S. 574, 587 (1986); Redding, 241 F.3d at 532 (6th Cir. 2001). “[T]he mere
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`existence of some alleged factual dispute between the parties will not defeat an otherwise
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`properly supported motion for summary judgment; the requirement is that there be no genuine
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`issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis
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`in original); see also National Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir.
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`2001).
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`If the movant establishes by use of the material specified in Rule 56(c) that there is no
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`genuine issue of material fact and that it is entitled to judgment as a matter of law, the opposing
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`party must come forward with “specific facts showing that there is a genuine issue for trial.”
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`First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 270 (1968); see also McLean v. 988011
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`Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations or denials in the non-
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`movant’s pleadings will not meet this burden, nor will a mere scintilla of evidence supporting the
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`non-moving party. Anderson, 477 U.S. at 248, 252. Rather, there must be evidence on which a
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`jury could reasonably find for the non-movant. McLean, 224 F.3d at 800 (citing Anderson, 477
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`U.S. at 252).
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`B.
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`Legal Analysis
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`1. Defendants’ Motion for Summary Judgment
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`The crux of Defendants’ argument is that Plaintiffs are seeking a “tax refund in disguise.”
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`See Dkt. No. 103 at 16. Defendants cite John Davidson’s deposition testimony as evidence of
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`this fact. Id. After reviewing Davidson’s deposition testimony, however, the Court disagrees.
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`For the following reasons, the Court finds that Defendants’ arguments fail to demonstrate that
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`Defendants are entitled to summary judgment
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`a. The IRC does not preclude Plaintiff’s claims.
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`Both Parties describe the issue at the center of this case as the “FICA issue.” Defendants
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`maintain that they did not violate the Plan because, “Henkel resolved the FICA issue exactly as it
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`was supposed to do under the applicable regulations.” Dkt. No. 103 at 17. Defendants also assert
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`that Davidson is arguing “that the FICA issue could have somehow been resolved more
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`favorably to him through a different approach to the issue.” Dkt. No. 103 at 17.
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`The Court does not, however, reach Defendants’ conclusion that, “[t]his is just another
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`way of saying that [Plaintiffs] want[] a tax refund from [Defendants].” Id. The Court does not
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`reach this conclusion because the Plaintiffs have repeatedly focused on how the FICA issue
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`arose, arguing that it was a result of Defendants breaching their obligations under the Plan. See
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`Dkt. No. 112 at 13-14. Defendants attempt to frame this case as one solely about the handling
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`of taxes after the FICA issue arose. However, even the Defendants acknowledge that the
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`Plaintiffs do not dispute that the taxes were handled improperly following the occurrence of the
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`FICA issue. See Dkt. No. 111 at 13 (quoting Dkt. No. 18 at 2).
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`The Court reiterates that, “Defendants have misconstrued the nature of Plaintiff's claims,
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`which do not seek to recover a tax refund based on improperly withheld FICA taxes.” Davidson,
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`2013 WL 3863981, at *4. This case is not about how Defendants resolved the FICA issue after
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`it arose, but instead about how the FICA issue came about in the first place. Intrinsically, this
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`case is not about taxes, but is instead about Defendants’ administration of the Plan.
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`Plaintiffs assert that Defendants administration of the Plan resulted in a reduction of
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`benefits. Defendants cite Davidson’s deposition testimony as evidence that Plaintiff is really
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`seeking a tax refund in disguise. After reviewing Davidson’s deposition testimony in its entirety,
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`the Court disagrees.
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`In the first portion of Davidson’s deposition testimony cited by Defendants, in response
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`to a question about the purpose of this lawsuit, Davidson states: “It’s pretty simple in my
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`viewpoint. Henkel created a mistake, Henkel created a liability for retirees that were in this plan,
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`and that’s really Henkel’s issue to deal with and they should be paying whatever FICA is
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`required.” Dkt. No. 104-1 at 4 (Davidson Dep. at 33:5-10). The second portion of Davidson’s
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`testimony cited by Defendants addresses “secret negotiations” that Davidson believes the
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`Defendants took part in, and Davidson’s apparent frustration that Defendants “never notified the
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`retiree[s] there was an issue at all with their pension tax.” Id. at 12 (Davidson Dep. 113:14–
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`115:3).
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`Upon review, the Court finds that the testimony cited by Defendants is not indicative of
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`the Plaintiffs seeking a tax refund in disguise. To the contrary, the Court finds that Davidson’s
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`testimony merely explains the position he has taken throughout this litigation. Compare Dkt. No.
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`104-1 at 4 (Davidson Dep. at 33:5-10, explaining that Defendants should be responsible for
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`Plaintiffs’ reductions in benefits as a result of Defendants’ mistake), and id. at 12 (Davidson
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`Dep. 113:14–115:3, explaining that he believes Defendants contacted the IRS, determined
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`Plaintiff’s past due FICA tax, and reduced his benefits as a result of their mistake), with Dkt. No.
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`1 at ¶¶ 59-60 (indicating, in the Complaint, that Plaintiff seeks relief on behalf of himself and all
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`others similarly situated for “Defendants’ error and wrongful removal of monies from their
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`retirement benefits arising from the error[.]”).
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`Defendants do not cite any testimony from Davidson demonstrating he believes that the
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`IRS erroneously or illegally assessed or collected his taxes. See generally Dkt. No. 103 at 17-21;
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`see also Dkt. No. 111 at 13 (quoting Dkt. No. 18 at 2). Aside from Defendants depiction of
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`Davidson’s testimony, the Court finds no difference in Defendants’ arguments advanced in their
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`Motion to Dismiss with respect to their claim that the IRC bars Plaintiffs’ claims.
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`i) Section 7422 of the IRC does not bar the Plaintiffs’ claims.
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`With respect to Defendants’ argument that Section 7422 of the IRC bars the Plaintiffs’
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`claims, the Court disagrees and confirms its conclusion from its July 24, 2013 Opinion and Order
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`Denying Defendants’ Motion to Dismiss in Part. See Davidson, 2013 WL 3863981, at *5
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`(“Plaintiff is not challenging Defendants’ withholding of FICA taxes, rather he is challenging
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`their failure to follow the special timing rule resulting in a reduction to his benefits. §7422 does
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`not bar Plaintiff’s claims.”).
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`The Court emphasizes that “[t]he mere fact that the plaintiffs' damages are calculated in
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`terms of [] taxes does not necessitate the conclusion that the plaintiffs' claim[s] must actually be .
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`. . for a federal income tax refund.” Childers v. New York & Presbyterian Hosp., No. 13 CIV.
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`5414 LGS, 2014 WL 2815676, at *8 (S.D.N.Y. June 23, 2014) (citing Mikulski v. Centerior
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`Energy Corp., 501 F.3d 555, 565 (6th Cir. 2007)).
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`ii) Sections 7421 and 3102 of the IRC do not bar the Plaintiffs’ claims.
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`With regard to Defendants’ argument that Sections 7421 and 3102 of the IRC bar the
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`Plaintiffs’ benefits claim, the Court also disagrees. Defendants argue that, “Plaintiff claims that
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`no more FICA taxes should be withheld from his benefit payments,” before concluding that the
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`Plaintiffs’ “claim is no different from a claim seeking to restrain the assessment or collection of
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`FICA taxes and it is barred by IRC § 7421.” Dkt. No. 103 at 21. Along the same lines,
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`Defendants argue that Section 3102(b) bars Plaintiffs’ claims. Dkt. No. 103 at 22-23.
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`Davidson’s deposition indicates that he feels “Henkel should be paying whatever FICA is
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`required,” because “Henkel created a mistake,” and “Henkel created a liability for retirees.” Dkt.
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`No. 104-1 at 4 (Davidson Dep. at 33:6-10). Plaintiff does not, however, state that no more FICA
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`taxes should be withheld from his benefit payments. See Dkt. No. 111 at 13 (quoting Dkt. No. 18
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`at 2).
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`This being the case, the Court reiterates its finding that IRC Sections 7421(a) and 3102(b)
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`do not bar Plaintiff’s claims. See Davidson, 2013 WL 3863981 at *5 (“Defendants’ argument
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`that 26 U.S.C. § 7421 and § 3102(b) bar Plaintiff’s claims to restrain future FICA tax collections
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`is similarly without merit. Specifically, § 7421(a) states in relevant part: ‘[N]o suit for the
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`purpose of restraining the assessment or collection of any tax shall be maintained in any court by
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`any person, whether or not such person is the person against whom such tax was assessed.’ 26
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`U.S.C. § 7421(a). In this instance, Plaintiff is not seeking to enjoin the on-going collection and
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`payment of his FICA taxes to the IRS.”) (emphasis added); see also id. (“[The] §3102(b)
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`indemnification provision has no bearing here because Plaintiff does not dispute that annual
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`FICA taxes are owed based on the distribution of his benefits. Rather, he maintains that his
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`promised benefits have been reduced.”).
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`b. Defendants do not demonstrate that Plaintiffs received the benefits that
`they were entitled to receive.
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`Defendants further contend that Davidson admitted during his deposition, that he is
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`receiving all the benefits due to him under the Plan. See Dkt. No. 103 at 15 (citing Dkt. No. 104-
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`1 at 7-8) (Davidson Dep. at 52:18-53:6). Plaintiffs maintain that “Plaintiff actually testified that
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`the only issue he had with Henkel was the ‘FICA issue’ with respect to his nonqualified benefits,
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`broadly referring to Henkel’s botched application of the Special Timing Rule. . . . Nowhere in
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`the cited testimony does Plaintiff ‘admit’ to receiving all nonqualified benefits.” Dkt. No. 112 at
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`12.
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`After reviewing the testimony cited by Defendants, the Court agrees with Plaintiffs.
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`Defense counsel specifically asked Davidson during his deposition whether “the only issue [he’s]
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`got with Henkel is this FICA issue,” to which Davidson responded: “Correct, as of today.” Dkt.
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`No. 104-1 at 8 (Davidson Dep. 53:3-6). The Parties may have different understandings of what
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`constitutes the “FICA issue,” but reviewing Davidson’s testimony in the light most favorable to
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`the non-moving party, the Court finds that Davidson did not admit that he received the benefits
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`he was entitled to receive. Whether Plaintiff did, in fact, receive all the benefits to which he was
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`entitled is a separate question that will be addressed below.
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`2. Plaintiffs’ Motion for Summary Judgment
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`Plaintiffs seek Summary Judgment on the remaining Counts in this case. First, Plaintiffs
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`assert they are entitled to summary judgment on Count I because there is no genuine dispute that
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`Defendants committed a FICA error in violation of the Plan. The Plaintiffs then maintain that
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`they are entitled to summary judgment on Count III, a theory of equitable estoppel. After
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`reviewing the Plan and the evidence presented, the Court finds that Plaintiffs are entitled to
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`summary judgment.
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`The Plan at issue is a “Top Hat” plan as defined by ERISA. See Dkt. No. 105-3 at 4. Top
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`Hat plans are “unfunded” and maintained by the employer chiefly “for the purpose of providing
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`deferred compensation to a select group of management or highly compensated employees.” 29
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`U.S.C. §§1051(2), 1081(a)(3), 1101(a)(1); see also Wolcott v. Nationwide Mutual Ins. Co., 884
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`F.2d 245, 250 n.2 (6th Cir. 1989) (quoting 29 U.S.C. § 1051(2)).
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`The Sixth Circuit has explained, “Top hat plans are basically only ‘subject to the
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`enforcement provisions’ of ERISA.’” Simpson v. Mead Corp., 187 F. App'x 481, 484 (6th Cir.
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`2006) (quoting In re New Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996)). Here, Plaintiffs have
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`brought suit pursuant to the civil enforcement provisions of ERISA, alleging that Defendants
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`have reduced Plaintiffs’ benefits under the Plan.
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`When evaluating the Plan, the Court notes that “unlike state courts, federal courts are ‘not
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`general common-law courts and do not possess a general power to develop and apply their own
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`rules of decision.’” Health Cost Controls v. Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997) (quoting
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`Milwaukee v. Illinois, 451 U.S. 304, 312, 101 S. Ct. 1784, 1789–90, 68 L.Ed.2d 114 (1981)).
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`With respect to ERISA, however, the Sixth Circuit has explained, “Congress intended that the
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`judiciary would develop and apply federal common law for ERISA claims.” Id. (citing Weiner v.
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`Klais & Co., 108 F.3d 86, 92 (6th Cir.1997)). Thus, “[i]n the realm of pensions, federal common
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`law has only been ‘fashion[ed] . . . when it is necessary to effectuate the purposes of ERISA.’”
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`Id. (quoting Singer v. Black & Decker Corp., 964 F.2d 1449, 1452 (4th Cir.1992)).
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`“A primary purpose of ERISA is to ensure the integrity and primacy of the written
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`plans.” Health Cost Controls, 139 F.3d at 1072 (citations omitted). Because this case involves a
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`dispute arising out of Plan documents, the Sixth Circuit has indicated that this Court must apply
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`“‘federal common law rules of contract interpretation in making [its] determination.’” Univ.
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`Hosps. v. S. Lorain Merchs. Ass'n Health & Welfare Benefit Plan & Trust, 441 F.3d 430, 431
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`(6th Cir. 2006) (quoting Perez v. Aetna Life Insurance Co., 150 F.3d 550, 556 (6th Cir. 1998)).
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`“‘The general principles of contract law dictate that [this Court] interpret[] the Plan's
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`provisions according to their plain meaning, in an ordinary and popular sense.”’ Id. (citation
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`omitted). Under a plain meaning analysis, “this Court gives effect to the unambiguous terms of
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`the contract.” Id. (citation and quotation omitted). “Federal common law also fills the gaps of
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`ERISA to assist in the interpretation of ERISA plans.” Health Cost Controls, 139 F.3d at 1072
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`(citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S. Ct. 1549, 1557–58, 95 L.Ed.2d 39
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`(1987)). “However, federal courts may not apply common law theories to alter the express terms
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`of written benefit plans.” Id. (citations omitted).
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`In reviewing the Plan at issue, the Parties focus on two provisions. First, the Parties
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`focus on Section 14.7 of the plan, which reads:
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`Tax Withholding. The Company or its authorized representative shall have the
`right to withhold any and all local, state, and federal taxes that may be withheld
`from any distribution in accordance with applicable law. In addition, if a
`Participant’s interest in the Plan becomes subject to local, state, or federal tax
`before distribution is made, the Company or its authorized representative shall
`have the right to withhold such taxes from the Participant’s Base Salary.
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`Dkt. No. 105-3 at § 14.7. Defendants highlight the fact that the plain language of Section 14.7
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`indicates that Henkel only has “the right” to withhold taxes in accordance with applicable law.
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`See Dkt. No. 111 at 13. Defendants emphasize that Section 14.7 “does not mandate a particular
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`type or manner of tax withholding.” Id. at 13. This being the case, Defendants maintain that they
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`complied with Section 14.7 by withholding taxes pursuant to the General Timing Rule of the
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`IRC. See id. at 14 (citing Treas. Reg. § 31.3121(v)(2)-1(d)(ii)(A)). Further, in an attempt to
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`bolster their position, Defendants contend that Plaintiffs can point to no other provision in the
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`Plan showing that Defendants did not withhold taxes in accordance with federal law. Id.
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`Plaintiffs cite federal regulations in conjunction with Section 14.7 to argue that
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`Defendants failed to withhold taxes in accordance with federal law. See Dkt. No. 105 at 23
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`(citing Federal Insurance Contributions Act (FICA) Taxation of Amounts Under Employee
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`Benefit Plans, 64 Fed. Reg. 4542-01, 4544 (Jan. 29, 1999)). According to the Plaintiffs, the
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`federal regulations mandate the use of the Special Timing Rule. Id. Consequently, the Plaintiffs
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`contend that Section 14.7 of the Plan confers a mandatory obligation upon Defendants to
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`withhold taxes pursuant to the Special Timing Rule. Id.
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`Upon reviewing the federal regulations, the Court finds nothing in the IRC mandating the
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`use of the Special Timing Rule. While the Special Timing Rule provides more favorable tax
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`treatment for deferred compensation plans, it is not mandatory. Plaintiffs focus on a portion of
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`the regulation indicating that “[t]he special timing rule is not elective.” See 64 Fed. Reg. 4542-
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`01, 4544. However, that same regulation continues on to provide alternative procedures to be
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`followed if the Special Timing Rule is not followed. See 64 Fed. Reg. 4542-01, 4544 (indicating
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`that the nonduplication rule will not apply if the Special Timing Rule is not properly used ); cf.
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`Treas. Reg. § 31.3121(v)(2)-1(d)(ii)(A) (outlining the same procedure).
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`If used properly, the Special Timing Rule would reduce taxes. However, per the terms of
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`the federal regulations, failure to take advantage of the Special Timing Rule simply results in
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`higher taxes. See Treas. Reg. § 31.3121(v)(2)-1(d)(ii)(A). The existence of additional
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`procedures that must be followed if the Special Timing Rule is not applied undermines the
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`contention that the Special Timing Rule is mandatory. Accordingly, the court finds the Special
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`Timing Rule is not mandatory and that Plaintiffs have not shown that Defendants failed to
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`withhold taxes in accordance with federal law.
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`However, even though Defendants did not violate federal law, the Court finds that
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`Defendants violated provisions of the Plan and the Plan’s purpose. As the Court emphasized
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`earlier, this case is not about how Defendants resolved the FICA issue after they learned of it, but
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`instead about how the FICA issue came about in the first place.
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`In addition to Section 14.7, the Plaintiffs also highlight Section 4.4 of the Plan. Plaintiffs
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`read Sections 14.7 and 4.4 of the Plan in conjunction with each other to argue that the Plan
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`“establishes an obligation on Defendants’ part because it gives them discretion over participants’
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`assets, including over the tax treatment of those assets, by maintaining custody of the deferred
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`compensation funds until the time of their distribution.” Dkt. No. 105 at 22. Section 4.4 of the
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`Plan reads:
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`Taxes. For each Plan Year in which a Deferral is being withheld or a Match is
`credited to a Participant’s Account, the company shall ratably withhold from that
`portion of the Participant’s compensation that is not being deferred the
`Participant’s share of all applicable Federal, state or local taxes. If necessary, the
`Committee may reduce a Participant’s Deferral in order to comply with this
`Section.”
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`Dkt. No. 105-3 at §4.4. After examining Sections 4.4 and 14.7 of the Plan, the Court concludes
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`that the Plan vests Defendants with control over Participants’ funds and required the Defendants
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`to properly handle tax withholding from those funds.
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`4:12-cv-14103-GAD-DRG Doc # 125 Filed 01/06/15 Pg 14 of 16 Pg ID 3643
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`Section 4.4 specifically indicates that the Defendants were required to “ratably withhold
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`from that portion of the Participant’s compensation that is not being deferred the Participant’s
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`share of all applicable Federal, state or local taxes.” Dkt. No. 105-3 at §4.4. In other words, the
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`Court finds that the Plan required Defendants to properly withhold the Participants’ taxes when
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`they were assessable or due.
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`The Court reaches this conclusion after examining the Plan in its entirety. When
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`interpreting the Plan, the Court “cannot interpret words in a vacuum, but rather must carefully
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`consider the parties' context and the other provisions in the plan.” In re New Valley Corp., 89
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`F.3d at 149. Considering the Parties’ context and considering all of the provisions of this Plan,
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`the Court finds that Defendants’ position in this case is inconsistent with the purpose and terms
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`of the Plan.
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`For example, Section 1.2 of the Plan indicates that the purpose of the Plan is to provide a
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`supplemental benefit based on deferred compensation. See Dkt. No. at § 1.2. The benefit of Top
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`Hat plans, like the one at issue, lies in the fact that the Participants will reap the benefit of the
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`nonduplication rule. Under the nonduplication rule, Participants’ deferred compensation from
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`their working years will be taxed only once when the Participants are in a lower tax bracket at
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`retirement.
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`Pursuant to the Plan’s design and purpose, the Defendants are required to properly and
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`timely withhold the taxes on the funds of the Plan participants while the funds were in the
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`control of the Defendants. See, e.g., Dkt. No. 105-4 at 18 (Kemper Dep. 94:19-23, “QUESTION:
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`. . . Henkel Corporation was [] responsible under the plan document to assess the appropriate
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`taxes, correct? THE WITNESS: Sorry. It took me a minute. Yes.”); Dkt. No. 105-9 at 13
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`4:12-cv-14103-GAD-DRG Doc # 125 Filed 01/06/15 Pg 15 of 16 Pg ID 3644
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`(Kingma Dep. 124:5-13, “Q. And the employee or retiree does not deduct the taxes, correct? . . .
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`THE WITNESS: They have no opportunity to deduct from a check.”).
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`The undisputed facts of this case indicate that Defendants did not timely withhold the
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`Participants’ taxes while the funds were within Defendants’ control as required by the Plan. It is
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`undisputed that Defendants sent a letter to the Plaintiffs indicating that FICA payroll taxes
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`associated with their non-qualified retirement benefits had “not been properly withheld.” Dkt.
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`No. 105-12 at 2. It is also undisputed that the Defendants did not properly withhold and pay
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`FICA taxes at the time they were initially due under the Code. Id. at 4 (“FICA withholding for
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`the OASDI tax and HI tax was not made in the year of your retirement on the value of amounts
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`to be paid to you from our non-qualified retirement plan.”); Dkt No. 105-14 at 7 (“Defendants
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`admit that, for Plaintiff and a group of retirees, Henkel did not take certain non-qualified
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`supplemental pension benefits into account as wages for FICA purposes when those individuals
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`commenced receipt of their benefits.”).
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`Rather than properly withholding the Plaintiffs taxes as required by the Plan, Defendants
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`paid these taxes at the time of each benefit payment. See Dkt. No. 102-6. Defendants
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`acknowledged that they had not properly withheld taxes. Id. Defendants then placed the
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`Plaintiffs on a pay as you go basis, which, at this point, was the only way to adhere to the law. Id.
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`This approach resulted in the Plaintiffs losing the benefit of the nonduplication rule and owing
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`more in FICA taxes than they would have owed had Defendants properly and timely paid taxes
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`when they were due. Accordingly, the Court finds that the Plaintiffs are entitled to summary
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`judgment with respect to Count I because Defendants failed to adhere to the purpose and terms
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`of the Plan resulting in a reduced benefit to the Plaintiffs.
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`IV. CONCLUSION
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`For the reasons discussed herein, the Court DENIES Defendants’ Motion for Summary
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`Judgment [#103] and GRANTS Plaintiffs’ Motion for Partial Summary Judgment [#105].
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`Because the Plaintiffs are entitled to summary judgment with respect to Count I, the Court deems
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`Count III as moot and declines to discuss or rule on its merits. The Court emphasizes that this
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`Opinion and Order only addresses the liability of the Defendants in this matter. The issue of
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`appropriate damages remains.
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`SO ORDERED.
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`Dated: January 6, 2015
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`/s/Gershwin A Drain
`Hon. Gershwin A. Drain
`United States District Court Judge
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`-16-