IRVING D. ISKO v. ENGELHARD CORPORATION et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6588-04T36588-04T3

IRVING D. ISKO,

Plaintiff-Appellant,

v.

ENGELHARD CORPORATION and KATHE JADOS,

f/k/a KATHE JADOS ISKO,

Defendants-Respondents.

_______________________________________

 

Argued May 22, 2006 - Decided June 23, 2006

Before Judges Lintner, Parrillo, and Holston, Jr.

On appeal from the Superior Court of

New Jersey, Law Division, Morris County,

L-3343-04.

Benjamin E. Haglund argued the cause for appellant (Pitney Hardin, attorneys; Mr. Haglund, Glenn E. Butash, and John D. Coyle, on the brief).

Anthony Paduano argued the cause for respondent Engelhard Corporation (Paduano & Weintraub, attorneys; Mr. Paduano, on the brief).

Joseph G. Dolan argued the cause for respondent Kathe Jados (Laufer, Knapp, Torzewski & Dalena, attorneys; William M. Laufer and Mr. Dolan, on the brief).

PER CURIAM

On August 3, 2005, following argument, a Law Division judge denied a motion for partial summary judgment by plaintiff, Irving Isko, on his claim against his former employer, defendant Engelhard Corporation (Engelhard), that it breached its fiduciary and contractual obligation to him by refusing to change the payment instructions on the contingent survivorship annuity portion of his Excess Benefit Plan. Those payment instructions named his former wife, defendant Kathe Jados, as the beneficiary of the survivorship annuity. The Excess Benefit Plan was part of a Supplemental Retirement Program, in which Isko participated as an employee of Engelhard. The judge also, sua sponte, found that Jados had, as a matter of law, a vested irrevocable interest in the survivorship annuity and that Isko was barred from raising the issue of its revocability under the entire controversy doctrine because he had not raised the issue in the prior divorce proceedings between himself and Jados. On August 15, 2005, the judge entered an order memorializing his findings granting partial summary judgment in favor of Jados and Engelhard and denying Isko's motion for partial summary judgment. Isko appeals and we reverse and remand for further proceedings.

Isko held a series of executive positions beginning in 1956 with Engelhard and its predecessors. On May 20, 1981, plaintiff entered into a five-year employment contract to become President and Chief Executive Officer (CEO) of Engelhard. On July 20, 1981, in anticipation of their marriage, Isko and Jados entered into an "antenuptial" (prenuptial) agreement. The prenuptial agreement provides in part, "the separate property of each of them remain[s] separate property for all purposes during and after their marriage and . . . said separate property [is] free of any claim of the other that may arise as a result of the contemplated marriage." It also provides, "each party . . . hereby waives, releases, relinquishes and renounces any and all rights he or she may otherwise have during the lifetime of the other in such separate property of the other . . . including any right to take any of such separate property of the other by equitable distribution upon the divorce or separation of the parties."

Exhibit A of the prenuptial agreement lists Isko's retirement benefits from Engelhard as his separate property, specifically naming "a pension in an annual amount," determined by a formula. It set forth the formula used to determine Isko's pension and indicated that "[b]ecause of the requirements for qualification of the retirement plan under Federal income tax law, the full amount determined under the foregoing formula cannot be paid from the retirement plan to Mr. Isko[,] [t]he difference will be paid directly by Engelhard . . . ." The Exhibit acknowledged, "[b]ased on his 1980 compensation, [he] would have a vested right to receive retirement benefits of approximately $150,000 per year commencing at age 65," and "[h]e is expected to accrue additional retirement benefits in the future."

The prenuptial agreement also includes a provision concerning gifts between the parties that states, "[a]ll property received by a party as gifts, bequests or inheritances (whether received before or during the marriage of the parties) shall be and remain the separate property of the party receiving the property."

In February 1984, Isko retired early due to differences with members of the Engelhard Board of Directors. He received a lump sum payment of his entire salary and bonus for the balance of the term remaining on his contract and agreed that Engelhard would commence payment of his pension on May 20, 1986, equal to the amount to which he would have been entitled had he been employed in 1984, 1985, and 1986.

The Supplemental Retirement Program provided that an employee may elect that the benefits payable under the Excess Benefit Plan by filing a written application with the Committee "not less than 60 days prior to the date benefits payable to the employee and his beneficiaries . . . commence to be paid . . . ."

On March 3, 1986, more than sixty days prior to the June 1, 1986, commencement date for payment of his pension, Isko sent Engelhard's Compensation and Benefits Manager a fully executed "set of spouse consents for the Retirement Application" and "Payment Instructions for amounts payable under or with respect to the Excess Benefits Plan." The Retirement Application form, which was signed by Isko and Jados as "consent[ing] to the elections made by my spouse," provided, "for Excess Benefits Plan, only, 100% joint and survivor annuity for participant and surviving spouse." (emphasis added). The Payment Instructions, a document prepared by Isko, also executed by both Isko and Jados, provides:

i. During the lifetime of Irving D. Isko . . . payment shall be made to Irving D. Isko . . . .

ii. After the death of Irving D. Isko payment shall be made to Kathe Isko . . . .

These instructions shall remain in force and effect until revoked by a writing filed with Engelhard Corporation.

In the Payment Instructions, Isko also references the Retirement Application, but stated that on the application he had elected "an annuity for his life, with a 100% survivorship annuity for the life of his wife, Kathe Isko." (emphasis added). Although not included in the appendix on appeal, a subsequent payment instruction was filed with Engelhard, changing the survivor annuity from 100% to 95%. At oral argument on appeal, counsel for Isko confirmed that the change in the payment instructions was also signed by both Isko and Jados.

Respecting the "Interest of Employees and Others," the Excess Benefit Plan states, "[n]o employee, spouse, child, beneficiary or other party shall have any interest in amounts due and payable under the Excess Benefit Plan . . . until such amounts are actually distributed . . . ." The Plan does not specifically state whether the Payment Instructions or the survivorship annuity are subject to change during the payment of benefits to the plan participant.

Jados filed the divorce complaint in January 2003 after more than twenty years of marriage. The divorce proceedings were before the same judge who entered the order that is the subject of this appeal. In those proceedings, the judge determined that the prenuptial agreement was fair and equitable, and incorporated it into the Dual Judgment of Divorce entered on July 2, 2004. Pursuant to the prenuptial terms, because the marriage lasted for more than three years, alimony was set at $75,000 per year for the rest of Jados' life and she received a lump sum payment of $800,000. Jados did not receive any part of Isko's pension as a result of the divorce.

On November 21, 2003, as part of a revised estate plan due to the pending divorce and Isko's heart condition, Isko sent a letter to Engelhard requesting a change in the payment instructions of the survivorship annuity from Jados to a trustee. Isko wanted the annuity monies to be paid to the trustee, who would fund his $75,000 per year obligation to Jados during her lifetime, pursuant to the prenuptial agreement, and pay the balance to their daughter Susan on his death. He attached a legal opinion from his attorney stating that his request was allowed under the plan. He indicated that, even if Jados reacted poorly to the change or opposed it, there would be no legal basis for her opposition because she had waived her right to all Plan benefits.

On December 5, 2003, Engelhard responded to Isko's counsel, refusing to make the change because "the Plan does not provide for payment under any annuity option to any person or entity other than the participant and the beneficiary upon whose life the survivor annuity is calculated." The letter advised that the Committee responsible for administering the pension plan must approve his request. Engelhard also pointed out that it had no reason to believe that the change has been agreed to by Jados or approved by the court as part of the pending divorce proceedings. Subsequent letters explaining Isko's position were sent to Engelhard on July 7 and 17, 2004. On October 14, 2004, Engelhard again rejected the request.

Meanwhile, at the divorce trial, on April 5, 2004, during Isko's cross-examination, the following colloquy took place.

Q. By the way, you have an Engelhard pension, correct?

A. I have a pension from Engelhard . . . yes.

Q. And it pays you about $160,000 per year?

A. $160,044 a year.

Q. And who is the beneficiary on that pension as of now?

A. Me.

. . . .

Q. Did you change it recently?

A. No.

Q. Was [Jados] ever the beneficiary on that pension?

A. No . . . there is a different pension . . . which is a survivorship pension that she has a survivorship on, prior to this waiver effect, so --

Q. And is she still on that?

A. Nothing has changed.

Q. [I]s she in fact the irrevocable beneficiary?

A. I don't know that it's irrevocable.

Q. You don't know the answer to that?

A. No.

Q. Do you remember when I deposed you I asked you to find that out and you were going to provide us with information?

A. I forgot quite frankly.

Q. So as of right now, you don't know whether she's the irrevocable beneficiary or not?

A. She is a beneficiary, now you're asking me a legal question about revocation and revocability and off the top of my head I can't answer that.

COURT: What's the benefit, do you know?

A. The benefit is 95 percent . . . of mine. It was a 95 percent survivorship thing.

. . . .

COURT: . . . The issue is is it revocable or not? Is that it?

A. [T]here may be other issues. . . .

The judge then asked Isko's attorney whether the survivorship benefit was revocable, to which counsel responded that he did not know. Isko's counsel added it was his position that "Mr. Isko has the right to change that beneficiary at any time he wants because the pension was mentioned in the prenuptial agreement as being his property . . . ." Jados' counsel replied, "I understand that, but the bottom line is if in fact it was done, something was done during the marriage to make it irrevocable, I think it's relevant and I don't know the answer to that." The judge then said, "I guess that's going to be an issue which will just also continue on in this case," indicating that it "depends [on] who revokes it first." Jados' counsel then pointed out that following the divorce "if [Isko] can revoke it he will." The judge then said that was "[p]robably a likely alternative."

It is against this factual backdrop that we address the issues raised. On appeal, Isko argues that (1) contrary to the judge's decision, his retirement application did not name Jados, but instead was for a "surviving spouse," the identity of whom can only be determined at his death; (2) although the payment instructions contained Jados' name, they were revocable; (3) the judge erred in finding that Jados had a vested interest because it was contingent on survivorship; (4) because the Excess Benefit Plan provides the employee with the right to elect the beneficiary, it is his property to do with as he wants, including revise the beneficiary at any time before his death; (5) res judicata applies because the judge previously ruled in the divorce action that the prenuptial agreement was fair and equitable and Jados waived her claim to Isko's retirement entitlements; (6) the judge erred in applying the entire controversy doctrine; (7) Isko was entitled to partial summary judgment because Engelhard committed a breach of fiduciary duty and an anticipatory breach as a matter of law; and (8) he was denied procedural due process because the judge raised issues not addressed in the motion papers.

In response, Jados asserts that the record established that her survivorship annuity was an interspousal gift and that Isko's election was an absolute and irrevocable relinquishment of his ownership interest in the survivorship annuity and not subject to unilateral revocation. She also argues that the judge correctly found that if Isko wanted her removed from the survivorship annuity, that claim should have been raised by him during the divorce proceedings. Engelhard also asserts that the judge properly applied the entire controversy doctrine and correctly denied Isko's affirmative motion for summary judgment.

We first address the entire controversy doctrine and its applicability. The entire controversy doctrine has continually evolved from common law. Prior to its confirmation in article VI, section III, paragraph 4 of the 1947 Constitution, it was recognized as a basic principle of common law. Cogdell v. Hospital Ctr. at Orange, 116 N.J. 7, 15 (1989); Smith v. Red Top Taxicab Corp., 111 N.J.L. 439, 440-41 (E. & A. 1933). In Cogdell, the Court recognized that the doctrine "encompasses a mandatory rule for the joinder of virtually all causes, claims, and defenses relating to a controversy between the parties engaged in litigation." 116 N.J. at 16 (emphasis added). The doctrine is intended to be applied to prevent a party from voluntarily electing to hold back a related component of the controversy in the first proceeding by precluding it from being raised in a subsequent proceeding. Wm. Blanchard Co. v. Beach Concrete Co., Inc., 150 N.J. Super. 277, 292-93 (App. Div.), certif. denied, 75 N.J. 528 (1977). It thereby prevents "the evil of . . . 'piecemeal litigation of fragments of a single controversy.'" Id. at 293 (quoting Falcone v. Middlesex County Med. Soc., 47 N.J. 92, 94 (1966)). "Failure to comply with the entire controversy doctrine may preclude a party from maintaining a subsequent action." Oltremare v. ESR Custom Rugs, Inc., 330 N.J. Super. 310, 315 (App. Div. 2000).

R. 4:27-1 provides that "[s]ubject to R. 4:30A," a plaintiff "may join . . . as many claims . . . as he or she may have against an opposing party." Thus, R. 4:27-1 allows permissive joinder unless the entire controversy doctrine is triggered. R. 4:30A codifies the preclusion sanction imposed by the entire controversy doctrine in the event that a party fails to join claims that are required to be joined. The sanction of preclusion, however, should be applied only as a remedy of "last resort." Olds v. Donnelly, 150 N.J. 424, 446 (1997). "[C]ounsel should also inform the court of other potential claims that it may have against the same party. One of the goals of the entire controversy doctrine is the efficient judicial administration of multiple claims." Vision Mortgage Corp. v. Patricia J. Chiapperini, Inc., 156 N.J. 580, 584-85 (1999). The entire controversy doctrine gives the trial court an opportunity to manage multiple claims. Id. at 585. The administrative objectives of the doctrine are to afford complete and final disposition of cases by avoiding piecemeal litigation, to foster efficiency by the reduction of delay and to avoid waste. Cogdell, supra, 116 N.J. at 15. The purpose behind the 1998 changes in R. 4:5-1(b)(2), which requires "a certification as to whether the matter in controversy is the subject of any other action pending . . . or . . . contemplated," was the implementation of the same administrative philosophy. Pressler, Current N.J. Court Rules, comment 2.1 on R. 4:5-1 (2006).

Preclusion under the entire controversy doctrine is an affirmative defense, which, accordingly, must be pled and is considered waived if not timely raised. Kopin v. Orange Prods., Inc., 297 N.J. Super. 353, 375 (App. Div.), certif. denied, 149 N.J. 409 (1997). The entire controversy doctrine is predicated on equitable considerations, thus requiring judicial fairness in its application. Ibid. "'[T]he polestar for the application of the [entire controversy] rule is judicial "fairness."'" K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 74 (2002) (second alteration in original) (quoting Reno Auto Sales, Inc. v. Prospect Park Sav. & Loan Ass'n, 243 N.J. Super. 624, 630 (App. Div. 1990). Mandatory joinder is not meant to encourage joinder of claims that are either premature or unaccrued. Ibid. A trial court has the right to direct reservation of a claim against an existing party for later action in which case the entire controversy doctrine is inapplicable. DiIorio v. Structural Stone & Brick, Co., 368 N.J. Super. 134, 139 (App. Div. 2004). "[A] party whose constituent claim arises during the pendency of the action risks its loss unless he apprises the court and his adversary of its existence and submits to judicial discretion the determination of whether it should be joined in that action or reserved." Brown v. Brown, 208 N.J. Super. 372, 382 (App. Div. 1986).

Applying these principles, we initially note that preclusion under the entire controversy doctrine was not pled by Jados in her answer. More importantly, the colloquy between divorce counsel and the judge on April 5, 2004, reveals that the issue, although discussed, was left for another time. Isko, who was in the process of attempting to change the payment instructions at the time he testified, was less than fully candid with the court and, presumably, his divorce counsel in failing to advise them of his actions. When he was asked whether he had changed the annuity, he could have advised the court and divorce counsel that he was in the process of changing it and of Engelhard's response. Nevertheless, Isko's counsel made it clear that it was their position that Jados' survivorship interest was revocable, while Jados' counsel took the opposite view. The judge responded, and counsel concurred, that the issue was not ripe until Isko tried to revoke the payment instructions, presumably following entry of the divorce judgment. Had Isko been more forthright, the issue could have been joined at that time.

To be sure, it would have been better to dispose of the question of how to treat the Excess Benefit Plan's survivorship annuity under the prenuptial agreement during the divorce proceeding. At that time, the court could have determined, without joining Engelhard, which had already taken the position that it would abide by a court order, whether it was Isko's separate pension property or a contingent property interest gifted to Jados during the divorce proceedings. If witnesses from Engelhard were necessary, they could have been presented.

Under the totality of the circumstances, however, it would be unfair to preclude a claim that both counsel and the court believed was premature at the time it was discussed. We are satisfied that the judge mistakenly relied on the entire controversy doctrine to preclude Isko's claim. We are likewise satisfied that Isko's reliance on res judicata lacks procedural and substantive merit because the issue of his right to revoke Jados' interest in the survivorship annuity was not decided during the matrimonial litigation, but was left for future determination. See Selective Ins. Co. v. McAllister, 327 N.J. Super. 168, 172-73 (App. Div.), certif. denied, 164 N.J. 188 (2000); see also Lubliner v. Bd. of Alcoholic Beverage Control for Paterson, 33 N.J. 428, 435 (1960).

We next focus on the issues raised respecting the nature of the survivorship annuity, whether it is Isko's or Jados' separate property and whether it is revocable. Isko challenges the judge's determination that Jados had a vested interest in the survivorship annuity. He claims that because Jados' interest does not arise until his death, she does not have a vested interest. Isko argues that because the Retirement Application identifies the holder of the annuity as his surviving spouse, Jados has no right to it and her rights are proscribed by the prenuptial agreement because the survivorship annuity is a portion of his pension, which remains his separate property and revocable unilaterally by him. Jados counters, asserting that the survivorship annuity was an interspousal gift to her and thus her "separate property" under the prenuptial agreement or, at the very least, subject to equitable distribution under N.J.S.A. 2A:34-23h.

"Vested" is defined as "[t]hat has become a completed, consummated right for present or future enjoyment; not contingent; unconditional; absolute . . . ." Black's Law Dictionary 1557 (7th ed. 1999). Because the survivorship annuity is a future contingent interest, it is not vested, but dependent upon Isko predeceasing Jados. Indeed, the Excess Benefit Plan specifically provides, "[n]o employee, spouse, child, beneficiary or other party shall have any interest in amounts due and payable . . . until such amounts are actually distributed . . . ." Our agreement with Isko's contention that the judge mistakenly found that the survivorship annuity had vested, however, does not end our discussion.

Whether vested or contingent, the survivorship annuity nevertheless is a property right that can be gifted, thus negating a donor's subsequent ability to revoke, absent consent by the donee. In order for there to be a valid gift, the donor is required to (1) "perform some act constituting the actual or symbolic delivery of the . . . gift," (2) "possess the intent to give," and (3) relinquish "'ownership and dominion over the subject matter of the gift.'" Pascale v. Pascale, 113 N.J. 20, 29 (1988) (quoting In re Dodge, 50 N.J. 192, 216 (1967)). Additionally, the donee must accept the gift. Ibid. Isko asserts, essentially, that the Retirement Application's identification of "100% joint and survivor annuity for participant and surviving spouse" establishes, as a matter of law, that he did not possess the requisite donor intent or perform an act of delivery establishing a gift to Jados. We disagree.

Although the Retirement Application references surviving spouse, the Payment Instructions, prepared by Isko, references the application, stating that he had elected "an annuity for his life with a 100% survivorship annuity for the life of his wife, Kathe Isko." The initial Payment Instructions, signed by both parties, indicates that they were to "remain in force and effect until revoked . . . ." There is nothing signifying that the Payment Instructions can be unilaterally revoked by one party. Indeed, the subsequent change in those instructions decreasing Jados' contingent interest to 95% was signed by both parties, thus lending credence to Jados' claim that Isko relinquished his control over the survivorship interest. Moreover, the signature of both parties on the Application and Payment Instructions further evidences a symbolic delivery of a gift. The record does not indicate whether Engelhard required two signatures on the Payment Instructions.

We are convinced from our review of the record that the factual circumstances surrounding the creation of the survivorship annuity differ, depending upon whose version is accepted. Simply put, there are sufficient factual issues presented to require resolution by a trier of fact whether Isko gifted a contingent survivorship interest to Jados and, if gifted, whether it is Jados' separate property under the prenuptial agreement or subject to equitable distribution as an interspousal gift under N.J.S.A. 2A:34-23h. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995). Accordingly, we reverse the order entering summary judgment in favor of Jados and remand to permit a plenary hearing on these issues.

Likewise, we are constrained to reverse the summary judgment order entered sua sponte dismissing Isko's breach of contract and bad faith claims against Engelhard. Although it would appear on this record that Engelhard was merely a stakeholder seeking direction from either the court or consent of the parties, Isko's assertions of bad faith and breach of contract are necessarily somewhat dependent upon the factual determination respecting Jados' survivorship interest and whether Engelhard was legally or factually obliged to honor that interest as originally documented.

Reversed and remanded.

 

Isko is a participant in two pension plans. The first is the Retirement Income Plan For Salaried Employees of Engelhard Corporation, which is subject to the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. 1001-1461, and to Section 415 of the Internal Revenue Code, which the parties and the Excess Benefit Plan refer to as the "Pension Plan." The second, the Excess Benefit Plan, is part of the Supplemental Retirement Program of Engelhard Corporation, which encompasses both the Excess Benefit Plan and the Supplemental Executive Retirement Plan. The Excess Benefit Plan is not subject to ERISA and its purpose "is to provide certain salaried employees with a pension benefit payable from employer funds, notwithstanding the limitations of Section 415 of the Internal Revenue Code . . . ."

Neither Engelhard nor Jados filed motions for summary judgment. Engelhard took no position on Isko's assertion that he was entitled to change the payment instructions so long as he obtained either a court order or consent from Jados. The judge also denied, without prejudice, Engelhard's cross-motion to dismiss counts two, four, and six of Isko's complaint, which asserted that Engelhard miscalculated certain pension payments made to Isko.

Isko later voluntarily dismissed the remaining claims against Engelhard. At oral argument on appeal, Isko represented that its dismissal was with prejudice, thus rendering the order of August 15, 2005, final.

Although Isko's Separation Agreement with Engelhard indicated his pension payments would commence on May 20, payment of the benefits did not begin until June 1.

That decision was affirmed on appeal in an unpublished opinion on June 8, 2005 (A-6137-03T3).

The $800,000 payment was calculated using terms in the prenuptial agreement, which specified that Jados shall receive $200,000 "[m]ultiplied by the number . . . of the full five-year periods during which the marriage of the parties shall have continuously existed in good faith living together as man and wife and without fault on the part of [Jados]." Thus, as the marriage lasted for approximately twenty-three years, or four full five-year periods, Jados received four times $200,000 or $800,000.

Jados filed an affidavit in opposition to Isko's summary judgment, asserting that the survivorship interest was an irrevocable gift and that it was her belief and understanding as expressed by Isko at the time that the annuity was created that it was an irrevocable gift.

(continued)

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A-6588-04T3

June 23, 2006