United States District Court, D. South Carolina, Anderson/Greenwood Division
Frederick D. Shepherd, Jr., Plaintiff,
Community First Bank, Community First Bank SERP Plan, Richard D. Burleson, Gary V. Thrift, Dr. Larry S. Bowman, William M. Brown, John R. Hamrick, James E. Turner, Charles L. Winchester, and Robert H. Edwards, Defendant.
OPINION AND ORDER
C. Coggins, Jr. United States District Judge
before this Court are the parties cross Memorandums in
Support of Judgment. ECF Nos. 98, 99. Plaintiff, Frederick D.
Shepherd, Jr. ("Shepherd") asserts entitlement to
retirement benefits pursuant to the Employee Retirement
Income Security Act of 1974 ("ERISA").
Specifically, Shepherd asserts a claim for benefits pursuant
to 29 U.S.C. § 1132(a)(1)(B), an administrative penalty
under 29 U.S.C. § 1132(c), and a claim for
attorney's fees under 29 U.S.C. 1132(g).
dispute centers on Shepherd's former employment as Bank
President at Defendant Community First Bank
("Bank"). In 2007, as Shepherd was approaching
retirement age, the Bank entered into an Employment Agreement
and Deferred Compensation SERP Plan ("Plan") to
entice him to continue working at the Bank. In order to
attain full benefits, the Plan required Shepherd to continue
employment at the Bank until 2012, when he reached 71 years
of age. After Shepherd completed working until age 71, the
Plan Administrator determined him eligible for benefits in
2012, and began making benefit payments. However, in May
2015, new Bank management terminated his Plan benefits. The
Plan Administrator stated it stopped benefits based on
alleged misconduct the Bank discovered after Shepherd
resolving the denial of benefits, the parties entered into a
Joint Stipulation agreeing that Administrative Remedies were
exhausted but disagreeing as to the appropriate Standard of
Review and the substance of the Administrative Record
("AR"). ECF No. 88. The parties, do however,
stipulate that the Court may resolve this matter based on the
Joint Stipulation, memoranda in support of their cases, and
principal issue before this Court, as in any ERISA case is:
whether the Plan Administrator's decision should be
upheld? After consideration of the parties' arguments and
memoranda, the Court finds the Plan Administrator's
decision should be reversed and grants the relief requested
to Plaintiff Shepherd.
Court makes the following findings of fact in accord with the
Administrative Record and the parties' stipulations:
Frederick D. Shepherd, Jr., was hired in 1990 to become
President and CEO of Community First Bank (Bank). In 2007,
the Bank wished to secure Shepherd's future employment.
To accomplish this, the Bank adopted a Resolution on March 2,
2007 to execute an Employment Agreement and Deferred
Compensation SERP Plan ("Plan") with Shepherd. The
Bank approved the SERP Plan without Shepherd's direct or
indirect participation, or vote.
Bank set the Plan up as a "top hat" by filing a
"Top Hat Plan Exemption" with the Department of
Labor ("DOL"). ECF 93-1. The legal effect of this
filing exempted the Bank from ERISA's reporting, funding,
and fiduciary requirements that are applicable to most ERISA
plans. Id. The Bank funded the Plan through
bank-owned life insurance, instead of funding it from the
Bank's assets. Shepherd agreed to be paid as a general
creditor out of the Bank assets. In addition, Shepherd
substituted components of his annual compensation in exchange
for the deferred compensation.
The Plan Terms
Court finds the Plan terms are clear and unambiguous. The
Bank and Shepherd, as Bank President, had equal bargaining
power and negotiated at arm's length the terms acceptable
"Whereas" clauses state the purpose of the Plan was
to "encourage the Executive [Shepherd] to remain an
employee of the Bank…" The "Whereas"
clauses also show the parties contemplated the "Golden
Parachute" regulations in the banking industry, and
found them to be inapplicable.
accrual terms state that for each year Shepherd completed,
the Plan would defer a set amount of earned compensation. If
Shepherd completed employment until retirement age, defined
by Section 1.10 as age 71, then Section 2.1 of the Plan
provided Shepherd with the full benefit amount, $210, 000 per
year for 20 years.
Plan also included four clear clauses that authorized
termination of benefit payments, each found in Article 5. The
Plan stated benefits could be stopped for: (1) a termination
"for cause;" (2) FDIC removal of Shepherd as Bank
President; (3) FDIC placing the Bank into Default; or (4)
FDIC providing "open-bank assistance." The parties
agree and the Court concurs that none of the four reasons for
termination of benefits have occurred. Section 7.1 further
provides that any terminations, "except those occurring
under Article 5," can only be accomplished by a written
agreement between the Bank and the Executive. The parties
agree and the Court concurs there have been no changes to the
2.8 governs the timing of the eligibility determination. This
section states eligibility must be determined "by the
first event to occur that is dealt with by this
agreement." Once the "first event" occurs, the
Plan sets benefits. Again, the parties do not dispute, and
the Court concurs, that the first event to occur was
Shepherd's completion of employment until age 71.
8.1 of the Plan directs that the Bank's Board of
Director's shall also serve as the Plan Administrator.
The Plan grants the Administrator general discretion to make,
amend, interpret, and enforce rules and regulations for the
administration of the agreement, as well as decide or resolve
questions and interpretations of the Plan.
the Plan as a whole, the Court finds this general grant of
discretion is specifically limited by Sections 7.1 and 2.8.
Plan Section 7.1 constrains the Administrator from using its
discretion to amend or terminate the Plan for reasons outside
of the Plan without a written agreement. Likewise, Section
2.8 places a deadline on the Administrators discretion to
determine the eligibility at the "first event to
final pertinent Plan provision is found at Section 1.14. This
section defines "termination for cause" as having
"the same meaning specified in any effective severance
or employment agreement existing on the date hereof or
hereafter entered into . . . ." Since Shepherd entered
into an Employment Agreement that defined "termination
for cause," Section 1.14 is inapplicable and the Court
must look to this Agreement to address "for cause"
the Employment Agreement, a "termination for cause"
required a procedure akin to "due process" in which
the Bank was required: (1) to hold a meeting of the Board of
Directors; (2) at that meeting adopt a Resolution, via
majority vote; containing findings of actions constituting
cause; (4) deliver said resolution to Shepherd; and (5)
notice another meeting to terminate Shepherd for cause where
he is provided an opportunity to be heard.
under either Section 1.14 of the Plan or Section 3.2 of the
Employment Agreement, the ability to terminate Shepherd
"for cause" is reserved exclusively to the Bank.
Neither section reserves the right to the Plan Administrator
to determine if "cause" exists.
Shepherd's Benefits and Retirement
completed employment at age 71 on December 31, 2011. (AR
797-98). At that time, the Plan Administrator determined him
eligible for benefits and commenced payments in 2012. Also in
2012, the FDIC conducted an audit of the Bank which included
criticisms of multiple loans, including loans to John Powell
and James McCoy. Each Bank Board Member signed the Report
acknowledging it had been received and read.
31, 2014 Shepherd attended a Bank Board meeting and gave
notice of his intent to retire due to health concerns During
the meeting, the Board questioned Shepherd extensively about
issues surrounding loans made to John Powell and James McCoy.
Id. at 1687-88. The Bank did not take action to
terminate Shepherd "for cause" at this time.
retiring six months later, Shepherd attended another Bank
Board meeting. During this meeting, on December 31 2014,
Shepherd told the Board he expected his benefits to be paid.
The Board discussed future payments, as well as FDIC issues
it discussed previously with its lawyer. Shepherd then
retired as employee of the Bank on December 31, 2014.
the Plan Administrator continued to pay benefits into
Shepherd's retirement. The Bank admits that Shepherd was
not "terminated for cause." It also concedes that
it never conducted the Employment Agreement process required
to terminate Shepherd "for cause."
The Decision to Terminate Benefits
April 2015 at a Bank Board meeting, months after he retired,
the new Bank President Richard Burleson initiated a
discussion concerning stopping Shepherd's benefits for
alleged misconduct. He acknowledged that there may be no
merit to the allegations of Shepherd's misconduct, but
pointed out that there was 2.5 million dollars of Bank
shareholders' money sitting in a retirement fund for
Shepherd. Other Board members noted the need to protect its
shareholders. The Board discussed that if it stopped
benefits, an investigation into the wrongdoing might
retroactively justify the decision so the Board wouldn't
have to prove anything.
next meeting in May of 2015, the Bank Board unanimously voted
to terminate benefit payments. The Bank minutes show the
Board neither looked at the Plan to determine if its actions
were authorized nor met in its capacity as Plan
Administrator. The Board chose to keep this decision a secret
until after the May Shareholder's meeting.
26, 2015, a law firm representing the Bank-not the Plan
Administrator- wrote Shepherd notifying him he would no
longer receive benefits. The letter mirrored the discussion
of the Bank Board, stating discontinued payments was in the
best interest of the Bank and its shareholders.
Bank's notice never referenced the Plan, the Plan
Administrator, Plan remedies, or ERISA. The correspondence
further failed to give specific reasons for the denial;
merely claiming the Bank would reduce benefits due
to "golden parachute" regulations, and, conversely,
would stop benefits entirely while the Bank
investigated possible loan misconduct involving Shepherd.
Finally, the letter failed to advise Shepherd of his ERISA
The ERISA Administrative Process
19, 2015, Shepherd made a timely claim for benefits with the
Plan Administrator. The Bank, not the Plan Administrator,
responded acknowledging Shepherd's claim on June 23,
2015. (AR 805)
August 6, 2015, since Shepherd was dealing with the Bank and
not the Plan Administrator, he submitted a document request
to the Bank as a shareholder. However, he requested documents
related to the Plan, the decision to limit or suspend
payments, and investigations into matters upon which the
suspension or denial of benefits was based. The Bank's
litigation firm promptly responded denying the request for
documents, and shortly thereafter, filed a state court
lawsuit for the Bank against Shepherd. The Bank's lawsuit
asserted claims for alleged loan misconduct by Shepherd,
Powell, and McCoy, allegations previously discussed in the
FDIC Report in 2012 and the Board meeting in July of 2014.
September 17, 2018, the 90-day time allotted under Plan
Section 6.1.2 for the Plan Administrator to respond to
Shepherd's claim expired without any response. Having
received no response, Shepherd filed a lawsuit for benefits
in state court. That lawsuit, the instant action, was removed
to this Court pursuant to ERISA.
Shepherd amended his Complaint, the Defendants filed a Motion
to Dismiss or Stay The Case that asserted Shepherd failed to
exhaust administrative remedies. Shepherd argued that the
failure to exhaust remedies was solely due to the Plan
Administrator's noncompliance and that 29 C.F.R. §
2650.503 deemed administrative remedies exhausted in these
The Plan Administrator's Arrival
the pendency of the Motion to enforce plan remedies, the Plan
Administrator submitted its first correspondence to Shepherd.
On May 16, 2016, when Shepherd had been without benefits for
almost a year due to the Bank's denial notice, the Plan
Administrator sent a second denial notice. This denial letter
differed substantially from the Bank's initial denial.
First, the Administrator claimed "golden parachute"
regulations required benefits to be terminated instead of
reduced. Next, the notice failed to mention investigations,
and now included conclusory allegations of misconduct
relating to Bank loans. The letter instructed Shepherd he had
60 days to respond.
the 60-day period, this Court held the Administrator violated
ERISA regulations by not timely responding, but noted the
Fourth Circuit remedy for the violation was a remand to the
Administrator to complete the plan remedy process. The Court
ordered a 60-day stay in accord with Section 6.2.1 of the
Plan to allow the parties to complete the "claims review
procedures of the Plan."
remand, however, the Plan Administrator returned to the
90-day "claims procedure" found in 6.1.3 and sent a
third denial letter on March 7, 2017. This denial letter
differed from: (1) the Bank's initial denial of benefits
in May of 2015; and (2) the Administrator's denial of
benefits in May 2016. It asserted new conclusory allegations
the three differing denials, Shepherd submitted
correspondence to the Plan Administrator that requested
relevant documents to aid him in his appeal. Shepherd
requested documents known to the Administrator that formed
the basis for each denial and documents that illustrated
compliance with ERISA.
response, the same litigation firm representing the Bank
wrote on behalf of the Plan Administrator and refused to
produce documents or specify which documents were known at
each denial. The law firm claimed Shepherd was in possession
of the Administrator's documents, which were produced to
him in the Bank's state court case.
this refusal, Shepherd noticed his appeal on April 7, 2017.
Shepherd argued: (1) benefits were set once he worked until
he was 71 years of age without having been terminated for
cause; (2) the Bank admitted none of the four reasons in the
Plan for terminating benefits had ever occurred; (3) that
reliance by the Bank or Administrator on section 1.14 was not
applicable due to the Employment Agreement and the
termination "for cause" process contained therein;
(4) the Bank failed to consider three legal opinions and FDIC
emails showing the "golden parachute" applications
were inapplicable; and (5) all allegations of misconduct
claimed to be newly discovered had been discussed before he
retired and therefore did not qualify as after-acquired
2, 2017, the Plan Administrator submitted its final denial of
benefits on appeal. It claimed it used its discretion to
interpret the Plan to deny benefits based on misconduct it
found after Shepherd retired that would have caused the Bank
to previously terminate him "for cause." In
addition, the Administrator claimed authority to deny
benefits based on factors outside of the Plan terms, citing
common law doctrines and FDIC Regulations. In issuing the
denial, the Administrator failed to address many of
Shepherd's arguments and documents he submitted. The
Administrator also claimed it relied on 41, 000 pages of
information in the Bank's state court lawsuit.
The Bank's State Court Lawsuit
discussion of the Bank's state court case is necessary to
understand the Administrator's claims regarding the
evidence it relied upon and the Administrative Record. The
Bank's state court lawsuit allegations against Shepherd,
Powell, and McCoy subsequently transformed into the Plan
Administrators factual determinations claimed to
justify the denial of benefits. In the Bank's initial
denial letter to Shepherd, it justified the denial of
benefits while it "investigated" wrongdoing. The
Bank used its state court lawsuit as its
"investigation" to search for reasons to justify
its previous decision to terminate benefits. This ongoing
"investigation" led to the multiple, changing
pursuing plan remedies in this ERISA case, however, Shepherd
explained to the Plan Administrator that if the documents in
the state case are possibly related, then Shepherd was
submitting documents related to the Bank's discovery
misconduct because the document production in that case was
incomplete. He further emphasized to the Administrator that
the judge in the state court believed the Bank played
discovery games, took liberties with the Rules, possibly used
the criminal system to gain an unfair advantage in its civil
case, and as a result made the Bank President sign an
affidavit concerning the completeness of the Bank's
document production under the penalty of perjury.
Administrative Record shows during the course of the state
case, the Bank, Shepherd, Powell, and McCoy were engaged in a
discovery dispute over the Bank's failure to produce
documents. In April of 2016, the Bank had only produced 8,
602 documents. After a hearing on Shepherd's Motion to
Compel further documents, the Court ordered the Bank to
produce the documents Shepherd requested. Over the course of
this ongoing discovery dispute, and pursuant to the court
Order, the Bank produced an additional 32, 000 pages over the
next 8 months. However, Shepherd contended discovery was
still incomplete and alleged the Bank failed to comply with
the Order. Therefore, Shepherd filed a Motion to Sanction the
the state court issued scathing sanctions Orders against the
Bank for discovery abuse and intentionally withholding
documents, as well as ordered it to pay $64, 920.04 in fees
and costs to Shepherd's attorneys. ECF 99-5. After
Shepherd finally compelled the production of 49, 168
documents on October 30, 2017, the Bank decided to dismiss
its lawsuit against Shepherd.
Shepherd refused to agree to a dismissal; so the Bank filed a
Motion arguing that Shepherd would not be prejudiced by a
dismissal since the Bank sought no recovery from him. As a
result, Shepherd finally agreed to let the Bank dismiss its
state court case. This dismissed case contained allegations
identical to many of the misconduct allegations asserted by
the Plan Administrator.
the parties have stipulated that the administrative remedy
process has been completed, Shepherd argues the
Administrative Record is "in doubt." Principally,
he asserts the Administrative Record should contain the
information known to an administrator at the time each
decision was made, information previously requested but never
Fourth Circuit, the administrative record consists of
"the facts known to [the administrator] at the
time" it rendered its decision. Sheppard v. Enoch
Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120,
125 (4th Cir. 1994). ERISA defines relevant documents as
those which were generated, considered, and, ultimately,
relied upon to make the benefit determination. 29 C.F.R.
§ 2560.503-1(i)(5). It also defines relevant documents
as those evidencing compliance with ERISA's procedural
and substantive regulations. Id.
The Administrative Record Submitted
outset, the Court notes that the Administrator has
continually shifted its view of the composition of the
Administrative Record. First, during the court ordered
administrative remedy process, the law firm dually
representing the Bank and Administrator claimed the documents
that formed the basis for the Plan Administrator's
determination to deny Mr. Shepherd's claim, were
produced by the Bank in the state court lawsuit by
April 2016. The law firm further contended "Mr. Shepherd
has had the documents relied on by the Plan Administrator for
nearly a year." As of April 2016, the Bank had produced
8, 062 documents. ECF 99-5. The law firm, on behalf of the
Administrator, did not provide any documents as a Record, and
further, refused to explain what documents were considered at
each of the multiple denial decisions.
at the end of the Appeal Process, the Administrator changed
its position on the documents comprising the Record. The
final denial stated "the Bank has provided in excess of
41, 000 pages of information." Similarly, the Defendants
assert "the Plan Administrator . . . provided over 41,
000 pages of documents . . . ...