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Faella v. Town of Johnston

Superior Court of Rhode Island, Providence

August 22, 2019

ALBERT A. FAELLA ANDREA DIMAIO in her capacity as the duly appointed administratrix of the Estate of John DiMaio
TOWN OF JOHNSTON and JOSEPH CHIODO in his capacity as Finance Director for the Town of Johnston ALAN ROSS

          For Plaintiff: Scott K. Demello, Esq., Michael J. Lepizzera, Timothy J. Robenhymer

          For Defendant: William J. Conley, Jr., Gina Lemay, Andrew S. Cormier



         Before the Court for decision following a nonjury trial are the consolidated matters of Albert A. Faella (Faella), Andrea DiMaio, in her capacity as the duly appointed administratrix of the Estate of John DiMaio, and Alan Ross (Ross) (collectively, with Faella and Andrea DiMaio, Plaintiffs). Faella and Andrea DiMaio bring this action against the Town of Johnston (Defendant Johnston or the Town) and Joseph Chiodo, in his capacity as Finance Director for the Town of Johnston. Ross brings his complaint against Defendant Johnston. Plaintiffs seek declaratory judgment regarding the ownership of funds that had been deposited in certain accounts organized under Internal Revenue Code (I.R.C. or the Code) § 457 (the § 457 Accounts or the Accounts).[2] The § 457 Accounts bear the names of Ross, Faella, and John DiMaio (DiMaio), former Johnston police officers and members of the International Brotherhood of Police Officers (IBPO) who retired due to injuries sustained in the line of duty. Upon their retirement, the Town placed Ross, Faella, and DiMaio on disability pension benefits pursuant to collective bargaining agreements (CBAs) between the IBPO and the Town-either the 2001-2004 or the 2005-2008 CBA, depending upon their date of retirement. However, the Town refused to remit funds in the § 457 Accounts to Ross, Faella, and DiMaio, arguing that these Accounts are merely funding mechanisms for the pensions set forth under applicable CBAs. Jurisdiction is pursuant to G.L. 1956 §§ 9-30-1, et seq. and G.L. 1956 § 8-2-14.

         I Facts and Travel

         On January 6, 2010, Ross filed a Complaint against the Town, ING, and Citigroup, while Faella and DiMaio filed a Complaint on January 15, 2010 against Joseph Chiodo in his capacity as Finance Director for the Town, ING, and Citigroup.[3] In their Complaints, Ross, Faella, and DiMaio sought distributions from certain § 457 Accounts to which they contributed during their employment with the Town. The Town responded that the Accounts were a funding mechanism for defined benefit plans governed by applicable CBAs rather than deferred compensation accounts. According to the Town, it had met-and continued to meet-its obligation to Ross, Faella, and DiMaio through its payment of their disability pension benefits.

         On December 5, 2011, the Court denied Defendant Johnston's Cross-Motion for Summary Judgment and granted the Plaintiffs' Motion for Summary Judgment, determining that a "1993 Contract" (discussed in Section B, supra) governing the police deferred compensation plan is binding upon Defendant Johnston, and not preempted by the defined benefit plans in the CBAs. Ross v. Town of Johnston, Nos. PB 10-0060, PB 10-0311, 2011 WL 6131032 (R.I. Super. Dec. 5, 2011). Under this reasoning, Ross, Faella, and DiMaio were entitled to distributions from the § 457 Accounts. Id. at *10. The decision was based, in part, on the doctrine of equitable estoppel. Id. at *5.

         Defendant Johnston appealed the decision to the Supreme Court. On March 30, 2015, the Supreme Court vacated the judgment and remanded the case, finding that factual issues precluded summary judgment for Plaintiffs on the grounds of equitable estoppel. Faella v. Chiodo, 111 A.3d 351, 357-58 (R.I. 2015). A non-jury trial ensued. Following the trial and upon the request of the Court, Defendants submitted a Memorandum of Law in Support of their Renewed Rule 52(c) Motion for Judgment on Partial Findings Pursuant to the Rhode Island Superior Court Rules of Civil Procedure, [4] and Plaintiffs submitted their Post Trial Memorandum of Law in lieu of closing arguments. The Court's findings of fact follow. See Super. R. Civ. P. 52(a) ("[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon").

         A The ING Accounts

         On April 26, 1984, Defendant Johnston entered into an agreement with ING entitled Town of Johnston Deferred Compensation Plan (the Deferred Compensation Agreement). Trial Ex. 1. This contract resulted in the establishment of a system of employee accounts under I.R.C. § 457, Deferred Compensation Plans of State and Local Governments and Tax-exempt Organizations. See id. at 80 ("Type of plan and section of the Internal Revenue Code (if any) under which plan is to qualify: 457"). Plan participants (Participants) were comprised of members of the Town's police force, and the plan allowed Participants to set aside 6% of their salary while the Town agreed to contribute a 12% match. Contributions from both Participants and the Town were held by ING in Accounts bearing the name and social security number of each Participant.

         Ross, Faella, and DiMaio voluntarily enrolled in these Accounts shortly after the commencement of their employment with the Town. Ross testified that he believed his Account to be a savings plan and that the funds would be remitted to him upon his retirement. Tr. 294-96, Oct. 17, 2017 (Vol. 4). Ross and Faella each testified that although they understood that they would receive the money in the § 457 Accounts after the conclusion of their service to the Town, they did not know how they would receive this money, be it in a lump sum or in portions. Id. at 329-30.

         At times relevant to this matter, the Town paid its invoices-including pension payment obligations-out of a general fund comprised of taxes and various fees. Tr. 43-44, July 11, 2017 (Vol. 2). However, Participant contributions to the § 457 Accounts were held by ING, separately from the Town's general fund. Vol. 6 Tr. 515. These funds were organized into two accounts: VB1965 and VB1966. Participant contributions of 6% of their salaries were held in VB1965, while the Town's 12% match was held in VB1966. Officers received quarterly statements from ING, which displayed their names and social security numbers. The funds were further organized into a "fixed account," which offered a guaranteed rate of return of 4%, as well as sub accounts that were invested in the stock market as a whole. All the Town's contributions were held in the fixed account. Participants had the opportunity to designate their 6% contributions among different accounts and received personal identification numbers (PINs) through ING that allowed them to access the Accounts to do so. This structure was unique to the Town's police force; for instance, the Town provided a pension to its firemen, the funds for which were pooled into a single account. See Tr. 213, July 12, 2017 (Vol. 3).

         Although the Accounts were set up in the employees' names and the employees selected the investment vehicles for the funds held therein, the Town was owner of all § 457 Accounts. This structure was required pursuant to I.R.C., under which § 457 deferred compensation accounts are owned by the employer until some triggering event, such as the employee's retirement or termination of his or her employment. Ross testified that he understood, this structure when he signed the paperwork to enroll in the program.

         On November 3, 2010, after a hearing upon ING's Motion for Leave to Interplead Funds, ING was ordered to pay all funds in the names of Ross, Faella, and DiMaio into the Registry of the Court (the Registry) to be held pending the adjudication of entitlement to the funds. On January 13, 2011, the Court recorded a Receipt of the following checks from ING:

No. 0014011203, $102, 400.73, Albert Faella, VB1965;
No. 0014011204, $176, 106.94, Albert Faella, VB1966;
No. 0014011205, $92, 424.09, John DiMaio, VB1965;
No. 0014011206, $169, 768.15, John DiMaio, VB1966;
No. 0014010614, $97, 278.07, Alan Ross, VB1965;
No. 0014010615, $187, 502.74, Alan Ross, VB1966.

         ING and Citigroup were dismissed thereafter. The funds at issue remain in the Registry pending a decision in this action.

         B The 1993 Document

         At trial, Faella presented a document entitled Town of Johnston Police Department Pension Plan (the 1993 Document) as evidence. However, Faella's copy was missing its first page, and a diligent search by Johnston Town Clerk Vincent P. Baccari, Jr. failed to yield the complete, original document. Vol. 3 Tr. 233. Moreover, witnesses including Faella, who signed the document in 1993, were unable to sufficiently testify to its authenticity. The 1993 Document was initially admitted de bene after the Town sought to exclude it during pretrial hearings on motions in limine, but the Court ultimately deemed it inadmissible after Plaintiffs were unable to authenticate the document. Therefore, the 1993 Document shall not be considered in the decision herein.

         C The Collective Bargaining Agreements

         At all times relevant to this action, the Town was a party to CBAs with the IBPO, which were renegotiated approximately every three years. Pursuant thereto, the Town had an obligation to provide a pension to its police force. The CBAs set forth the parameters of this pension plan including the formula used to calculate pension benefits, as well as the benefits offered for early retirement. Notably, the Early Retirement section of relevant CBAs included the same 6% and 12% contribution language as that contained in the Deferred Compensation Agreement. At trial, the parties stipulated that there was no mention in the CBAs of 6% and 12% payments from the officers or the Town, except in the Early Retirement section of the relevant CBA. See Tr. 616, Nov. 29, 2017 (Vol. 7). Disability pension benefits are also set forth in the CBAs from the time period relevant to this action; such payments are calculated as two-thirds of the full pension an officer would have received but for retirement due to a disability.

         Following the Town's adoption of the Deferred Compensation Agreement, the Town officials expressed concerns that the § 457 Accounts could create an additional retirement benefit for police officers beyond their pensions. According to Defendant Johnston's Finance Director Dennis Quaranta (Quaranta), who oversaw pension payments from 1992 through 1995, the Town made these payments from its general fund and there was no designated pension fund that he could remember. Vol. 2 Tr. 44. When the Town entered into the Deferred Compensation Agreement, Quaranta reasoned that these Accounts would create a double retirement benefit for the police officers. Id. at 72-73. When he notified Mayor aRusso of this possibility, Mayor aRusso responded that the Town "[had] it covered." Tr. 97.

         Ultimately, the Town made changes to the structure of the retirement benefits it offered its police officers, such that officers would not have the ability to establish additional savings accounts beyond the Town's pension plan. However, these changes went into effect after Ross, Faella, and DiMaio retired from service to the Town.

         II Standard of Review

         When considering anon-jury trial pursuant to Super. R. Civ. P. 39(b), this Court is subject to Super. R. Civ. P. 52(c), which provides:

"If... a party has been fully heard on an issue and the court finds against the party on that issue, the court may enter judgment as a matter of law against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue, or the court may decline to render any judgment until the close of all the evidence. Such a judgment shall be supported by findings of fact and conclusions of law as required by subdivision (a) of this rule."

         "[T]he trial justice weighs 'the credibility of witnesses and determines the weight of the evidence presented by plaintiff" when ruling on a motion pursuant to Super. R. Civ. P. 52(c). Broadley v. State,939 A.2d 1016, 1020 (R.I. 2008) (quoting Pillar Property Management, L.L.C. v. Caste's, Inc.,714 A.2d 619, 620 (R.1.1998)). Moreover, "when deciding a motion for judgment as a matter of law in a nonjury trial, unlike a jury trial, the trial justice need not view the evidence in the light most favorable to the nonmoving party." Id. (citing Estate of Meller v. Adolf Meller Co.,554 A.2d 648, 651 (R.I. 1989)). Upon a defendant's motion for judgment folio wing the close of a plaintiffs evidence, '"the trial justice may either determine the case on the record as it exists at the time the defendant files his motion or defer his [or her] judgment until both parties have completed their presentations of evidence.'" Shove Insurance, Inc. v. Tenreiro,667 A.2d 532, 534 (R.I. 1995) (considering Rule 41(b)(2), the ...

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