Labor Department Participation in ERISA Litigation and Significant Issues in Litigation

Compiled by the Plan Benefits Security Division Office of the Solicitor

Calendar Year 2020

Table of Contents

1. Employer Stock
2. Financing the Employer
   1. Collection of Plan Contributions and Loan Repayments
   2. Insurance Rebates
   3. Miscellaneous
3. Financing the Union
4. Prudence of Investments
5. Preemption
6. Participants' Rights and Remedies
7. Section 510
8. Participant Loans
9. MEWAs
10. Financial Institution and Service Provider Cases
11. Orphan Plans
12. Contempt and Subpoena Enforcement
13. Bankruptcy
14. Miscellaneous

Table of Cases

 

 

 

 

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A. Employer Stock

Scalia v. Belfer Group, Inc. (D.N.J.)

On May 31, 2020, the Secretary filed a complaint alleging that, since 2017, Belfer Group, Inc., Bruce D. Belfer, Elaine Belfer Raucher, and Myles Merling had failed to forward employee contributions to the Belfer Group, Inc., Employee Profit Sharing Plan. On November 18, 2020, the Secretary requested a certificate of default, which was entered later that day. New York Office

Scalia v. Data Access/Data Patch, Inc. (D.N.J.)

On February 27, 2020, the Secretary filed a complaint against Data Access/Data Patch, Inc., and Lee W. Tardivel, alleging that, since 2017, they had failed to remit employee contributions to and failed to administer the Data Access/Data Patch, Inc. 401(k) Profit Sharing Plan. On November 13, 2020, Tardivel filed his answer. New York Office

Diamond Antenna and Microwave Corp. ESOP (D. Mass.)

Reliance Trust Company and its successor, Argent Trust Company, were trustees of an ESOP that owned the ESOP’s sponsoring company, Diamond Antenna and Microwave Corporation (“Diamond”). Private plaintiffs sued the ESOP trustee for its failure to bring a shareholder derivative suit on behalf of the ESOP against Diamond’s board of directors to contest certain self dealing transactions between Diamond and Roltran LLC, a spin-off company wholly-owned by Jeffrey Gilling, who was the CEO and a director of Diamond. The private plaintiffs alleged that, as a Diamond officer and director, Gilling violated his corporate fiduciary duties of loyalty and care; and that, by failing to monitor the ESOP Trustee, which he had authority to hire and terminate, he breached his fiduciary duties under ERISA §§ 404 and 405. The Department of Labor investigated these transactions.

Also in this case, former Diamond employees filed a private class action alleging, in part, that they were retaliated against for exercising their rights under ERISA. When the Department concluded its investigation, it entered into joint negotiations to seek a global settlement with all parties. The parties in the private lawsuit agreed. In the Department’s settlement agreement with Argent Trust Company, Argent agreed to pay $95,000 to the ESOP and $9,500 in § 502(l) penalties. In his settlement agreement with the Department, Gilling agreed to pay $50,000 to the ESOP and $62,500 in § 502(l) penalties. After extensive negotiations and mediation (in which the Department participated) in the private class action suit, the insurance companies for Diamond and Gilling, Chubb, and Great American, agreed to pay $725,000 to the ESOP participants (except Gilling). In all, $870,000 was paid to the ESOP as restitution. In other related settlement agreements, Gilling agreed to resign from his office and directorship with the Company. Finally, the insurers agreed to make payments to the private litigants for claims of retaliatory discharge.

On October 22, 2020, the district court approved the master settlement agreement, which incorporated all terms, and entered final judgment, which barred all further claims. Boston Office

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Secretary v. Farmers National Bank of Danville (S.D. Ind.)

On February 28, 2020, the Secretary filed a complaint alleging that the Farmers National Bank of Danville (“Farmers”), the independent fiduciary, violated ERISA when it caused the Weddle Bros. Construction Co. Employee Stock Ownership Plan (“ESOP”) to pay more than adequate consideration for Company stock in an ESOP transaction that closed on March 1, 2013. Also on February 28, 2020, the Secretary filed a consent order and judgment resolving the matter with Farmers. Pursuant to the consent order and judgment, Farmers agreed to restore $545,454 to ESOP participant accounts and pay $45,545 in § 502(l) penalties. The consent order and judgment also requires Farmers to adhere to a Process Agreement in order to ensure that Farmers acts prudently in future ESOP transactions. In addition, the consent order and judgment provides that the selling shareholders will reduce the purchase price by $100,000 for both the Company loan and the ESOP loan. The consent order and judgment was entered on April 3, 2020. Chicago Office

Secretary v. Heritage (D. Haw.)

On April 27, 2018, the Secretary filed a complaint against Nicholas L. Saakvitne, Brian Bowers, and Dexter Kubota, fiduciaries of the Bowers and Kubota Consulting ESOP, alleging that in 2012 they caused the plan to purchase 100% of the Bowers + Kubota Consulting Company's stock for $40 million, which was far in excess of the stock's fair market value at the time of the purchase. On June 12, 2018, Bowers and Kubota filed a motion to dismiss. On July 10, 2018, Saakvitne answered the complaint. On September 5, 2018, the Company filed a motion to dismiss based on its claim that it is not a necessary party. On September 28, 2018, the Department filed two opposition briefs responding to Defendants' motions to dismiss the case. On October 9, 2018, Saakvitne's counsel filed a suggestion of death, stating that Saakvitne had died. On October 12, 2018, the district judge recused himself from hearing the case, and on October 13, 2018, the new judge postponed the oral arguments for the pending motions to dismiss to January 2019. On January 18, 2019, the court ruled in the Secretary's favor, denying the two separate motions to dismiss.

An initial case scheduling hearing was held on January 29, 2019. A scheduling order was issued the next day. On February 1, 2019, the Secretary secured a stipulation from the widow of Nicolas Saakvitne, Sharon Heritage, in which she agreed to be substituted as a Defendant. On May 7, 2019, the court issued an order declining to enter a proposed protective order that the Secretary opposed. The court agreed with the Secretary that the definition of "confidential" contained in the proposed protective order was overly broad and inconsistent with FOIA. The court also agreed with the Secretary that the proposed protective order conflicted with DOL's FOIA regulations because it did not allow the Department to be the decision-maker on whether disclosure is appropriate under FOIA and because it provided that all documents produced would be deemed confidential for six weeks. Defendants filed a motion to compel. On November 22, 2019, the court granted, in part, Defendants' motion to compel discovery responses. The court affirmed the Magistrate Judge’s ruling on June 1, 2020.

On May 7, 2020, the Magistrate Judge issued an order denying the Defendants’ request to compel the Secretary to produce unredacted documents, but also determined that the Secretary was not substantially justified in withholding certain documents and ordered the Secretary to pay Defendants’ attorneys’ fees and costs. Both parties filed objections with the court. On July 21, 2020, the court affirmed the Magistrate Judge’s denial of Defendants’ motion to compel, finding the Secretary properly asserted the applicable privileges. The court also affirmed the Magistrate Judge’s decision to award attorneys’ fees and costs, but modified the award by reducing the amount of attorneys’ fees.

On July 2, 2020, the Secretary filed a motion to compel Defendants to produce the documents they had withheld or redacted. On July 27, 2020, Defendants filed their opposition to the Secretary’s motion to compel. The court ordered Defendants to produce the documents at issue for in camera review. On September 28, 2020, the court granted the Secretary’s motion in part and denied it in part. After reviewing the documents in camera, the court ordered Defendants to produce a number of documents that fell within the fiduciary exception to the attorney-client privilege.

On July 29, 2020, the Secretary filed a motion for entry of a protective order, requesting that the court preclude Defendants from seeking information and documents previously deemed by the court as outside the scope of discovery, protected from disclosure by the investigative files privilege, irrelevant, and not proportional to the needs of the case. Defendants filed their opposition on August 3, 2020. On August 31, 2020, the parties filed simultaneous letter briefs regarding the Secretary’s request for a second protective order to preclude Defendants from asking deposition questions that have been previously deemed by the court as outside the scope of discovery and that are the subject of the Secretary’s motion for protective order.

On September 16, 2020, the Magistrate Judge issued two orders that largely granted the Secretary’s motion for a protective order by significantly limiting Defendants’ broad written discovery requests and by prohibiting Defendants from asking deposition questions regarding certain topics. Fact discovery is now closed, and the parties are engaging in expert discovery, which is scheduled to close February 19, 2021. Chicago Office

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Scalia v. Indian Mills Contracting, Inc. (D.N.J.)

On December 7, 2020, the Secretary filed a complaint alleging that, from 2015 to 2016, Indian Mills Contracting, Inc., Joshua Ferrell, Christopher Ferrell, and Jennifer Ferrell failed to remit employee and employer contributions to the Indian Mills Contracting 401k Plan; that defendants were failing to administer the plan; and that defendants had failed to obtain a fidelity bond. New York Office

Scalia v. Maine Oxy-Acetylene Supply Company, Daniel Guerin, Bryan Gentry and Carl Paine (D. Me.)

On September 15, 2020, the Secretary filed a complaint alleging that the fiduciaries of the terminated Maine Oxy, Inc. ESOP participated in a scheme to pay significantly less than fair market value for the Maine Oxy shares owned by the ESOP, thereby facilitating complete ownership of the company by new purchasers, including a corporate insider. As a result, upon termination of the ESOP in the fall of 2013, the workers who built the company into a growing and prosperous enterprise received significantly less for the shares they owned than what was required under ERISA. A class of former participants also filed suit. The parties are engaged in settlement discussions, and some of the defendants have filed a motion to consolidate the two cases for discovery and trial. Boston Office

Scalia v. Professional Fiduciary Services, Inc. (S.D.N.Y.)

On August 22, 2019, the Secretary filed a complaint against the trustee of the Contractors Register, Inc. ESOP, alleging that they caused the ESOP to purchase employer stock for millions of dollars in excess of the stock's fair market value. The Secretary alleges that Professional Fiduciary Services LLC (“PFS”), as the trustee charged with determining the fair market value of the stock, ignored obvious errors in the valuation report and failed to determine whether the financial information provided by the plan sponsor was reliable. PFS filed its answer on November 5, 2019.

On March 9, 2020, the court held an initial conference and entered a scheduling order. On November 27, 2020, the parties sought a two-week extension of fact discovery, which the court granted on November 30, 2020. The court held a settlement conference on December 4, 2020. New York Office

Scalia v. Reliance Trust Company (D. Ariz.)

This case involves the purchase by the RVR Inc. ESOP of 100% of the shares of RVR, Inc., in May 2014 (the “Transaction”). On May 16, 2019, the Secretary filed an ERISA enforcement suit against Reliance Trust Company (“Reliance”) (the ESOP’s trustee in the Transaction) and the sellers of the RVR stock – RVR’s principal officers, sole shareholders, plan fiduciaries, Randall Smalley (“Smalley”) (through three trusts (the ”Smalley Trusts”)), Robert Smalley, Jr. (“Smalley Jr”), and Eric Bensen (“Bensen”) (collectively “Sellers”). The Secretary also named the Plan and RVR as Rule 19 defendants. The Secretary alleged that Reliance caused the Plan to purchase RVR’s stock from the Sellers for more than fair market value, paying $105 million for stock that was worth tens of millions of dollars less, and that Reliance violated its fiduciary duties of prudence, loyalty, and adherence to the terms of the Plan and engaged in a transaction prohibited by ERISA by causing the Plan to purchase the RVR stock in the Transaction.

The Secretary alleged, among other things, that Reliance: failed to hire a truly independent appraiser, given the prior business dealings and referral relationships between and among Reliance, the appraiser, and the Sellers’ representative; failed to provide its appraiser with complete information necessary to produce a reliable valuation report; failed to adequately scrutinize and critically question the appraiser’s valuation reports; and did not negotiate in good faith over the stock purchase price and other terms of the Transaction. The Secretary also alleged that, in allowing Reliance to enter into a transaction prohibited by ERISA, Smalley, Smalley Jr, and Bensen violated their duties of prudence, loyalty, and adherence to plan documents, and that Smalley, Smalley Jr., and Bensen failed in their duty to monitor Reliance and consequently have co fiduciary liability for Reliance’s fiduciary breaches. The Secretary further alleged that the Sellers knowingly participated in Reliance’s ERISA violations.

The Sellers and RVR filed a motion to dismiss on July 29, 2019, arguing generally that the Secretary’s complaint failed to allege any facts to support what they described as conclusory allegations. The Secretary filed an opposition to the motion to dismiss on August 12, 2019, arguing, among other things, that the motion ignored controlling Ninth Circuit authority, misstated the law on the fiduciary duty to monitor, and glossed over the complaint’s detailed factual allegations that sufficiently alleged the ERISA violations; that RVR is a party necessary to ensure that the Secretary may obtain complete relief for parties harmed by ERISA violations; and that all parties are able to represent their interests with respect to this action. The Sellers and RVR filed their reply in support of their motion on August 19, 2019. Reliance filed an answer to the complaint on July 30, 2019.

The court denied the Sellers’ and RVR’s motion to dismiss on February 18, 2020. Mandatory Initial Discovery Responses were served on Thursday, April 2, 2020. The Rule 26 conference was held April 7, 2020. A Rule 26(f) Report and Proposed Case Management Plan was filed on April 30, 2020. The court held a telephonic Rule 16 Scheduling Conference on May 7, 2020, and issued a Scheduling Order that extends into April 2022. The court also granted the parties’ motion to bifurcate the trial into separate liability and remedies phases, with corresponding discovery: if the Secretary prevails on the merits of any claim, there will be a discovery period following the court’s merits based order, during which the Secretary may conduct discovery related to Defendants’ assets, including tracing funds in Defendants’ accounts. The court also entered the Protective Order agreed to by the parties. Discovery is ongoing. Fact discovery ends July 17, 2021, and expert discovery begins. No trial date has been set. Plan Benefits Security Division

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Secretary v. Reliance Trust Company (D. Minn.)

On October 4, 2017, the Secretary filed a complaint against Reliance Trust Company and Steven Carlsen, Paul Lillyblad, and Kelli Watson, Board members of Kurt Manufacturing Company, Inc. and fiduciaries of the company's ESOP. Reliance became the trustee of the ESOP in connection with the ESOP's October 5, 2011, $39 million purchase of all outstanding shares from Kurt's sole shareholder. The complaint alleged that Reliance caused the ESOP to pay more than adequate consideration for company stock and that Carlsen, Lillyblad, and Watson failed to monitor Reliance's determination to have the ESOP purchase employer securities for more than adequate consideration. On December 1, 2017, the court granted Defendant's request for an extension of time to file an answer or otherwise plead until February 5, 2018.

In response to stipulations filed by the parties, the court extended to July 31, 2018, Defendants’ time to respond to the complaints. On July 10, 2018, the parties participated in a mediation, which did not result in a resolution of the case. On July 31, 2018, Carlsen, Lillyblad, and Watson filed their answer to the complaint. On August 17, 2018, the Secretary filed a Motion to Strike Affirmative Defenses of Defendants Carlsen, Lillyblad, and Watson. On August 20, 2018, the Secretary filed an amended complaint. On September 4, 2018, Reliance filed a Motion Pursuant to Rule 12(b)(7), or Alternatively, to Join Party under Rule 21. On September 4, 2018, Carlsen, Lillyblad, and Watson filed an answer to the Secretary’s amended complaint. On September 11, 2018, the Secretary filed a Memorandum in Opposition to Defendant Reliance’s Motion Pursuant to Rule 12(B)(7), or Alternatively, to Join Party under Rule 21. On September 26, 2018, the parties filed their Rule 26(f) Report. On October 3, 2018, the parties attended a Pretrial Conference and Hearings on Defendant Reliance’s Motion Pursuant to Rule 12(B)(7), or Alternatively, to Join Party under Rule 21 and Secretary’s Motion to Strike Affirmative Defenses of Defendants Carlsen, Lillyblad, and Watson. At the hearing, the court denied the Secretary’s Motion to Strike Affirmative Defenses but required Carlsen, Lillyblad, and Watson to amend their answer and make it more specific. On October 10, 2018, Reliance filed a Supplement Memorandum to its Motion Pursuant to Rule 12(B)(7), or Alternatively, to Join Party under Rule 21. On October 11, 2018, Carlsen, Lillyblad, and Watson filed an amended answer to the Secretary’s amended complaint. On October 22, 2018, the Secretary filed its Reply to Reliance’s Motion Pursuant to Rule 12(B)(7), or Alternatively, to Join Party under Rule 21. On October 29, 2018, the court issued an Amended Pretrial Scheduling Order. On November 15, 2018, the parties exchanged their Initial Disclosures. On December 18, 2018, the parties filed a Joint Proposed ESI Protocol setting forth each parties’ proposed language. On December 21, 2018, the court held a telephonic hearing on the parties’ disputed ESI Protocol. On December 26, 2018, the court issued an ESI Protocol.

On January 7, 2019, the court denied Reliance’s Motion to Dismiss Pursuant to Rule 12(b)(7), or Alternatively, to Join Party under Rule 21. On January 28, 2019, Reliance filed its answer and affirmative defenses to the Secretary’s amended complaint. On February 5, 2019, Reliance filed a third-party complaint against Gretchen Kuban Rode, who is a member of Kurt’s board of directors and also is the selling shareholder’s daughter. On March 13, 2019, Carlsen, Lillyblad, and Watson also filed a third-party complaint against Gretchen Kuban Rode. On May 7, 2019, Gretchen Kuban Rode filed a motion to dismiss both third-party complaints. Also on May 7, 2019, Carlsen, Lillyblad, and Watson filed a Motion for Judgment on the Pleadings. On May 28, 2019, the Secretary filed an opposition to the Motion for Judgment on the Pleadings. On August 9, 2019, the court denied the Motion for Judgment on the Pleadings and granted Rode’s motion to dismiss both third-party complaints.

On August 19, 2019, the parties filed a Stipulation to Modify the Corrected Pretrial Scheduling Order, which was granted in part on August 20, 2019, and which extended fact discovery to December 31, 2019. The parties engaged in written discovery, and the Secretary conducted approximately 8 depositions from September through December, 2019. The Secretary also brought four discovery disputes to the Magistrate Judge for informal dispute resolution. On December 16, 2019, the Secretary filed a Motion to Compel Defendant Directors to Produce Documents and a Privilege Index and to Compel Compliance with Subpoena for Production of Documents Directed to Third−Party Thomas M. Hughes, LTD.

On May 5, 2020, the court issued an order denying most of the relief sought in the Secretary’s Motion to Compel Defendant Directors to Produce Documents and a Privilege Index and to Compel Compliance with Subpoena for Production of Documents Directed to Third Party Thomas M. Hughes, Ltd. The parties conducted discovery of the valuation and prudence experts, including depositions, May through July 2020. The parties attended a settlement conference with the Magistrate Judge on May 20, 2020; no settlement was reached.

On July 27, 2020, the Secretary filed a motion for partial summary judgment against Reliance Trust Company and the three individual board-member Defendants – Steven Carlsen, Paul Lillyblad, and Kelli Watson. Reliance filed a motion for partial summary judgment, and the individual Defendants filed a motion for summary judgment on all issues on the same date. The Secretary filed responses to Reliance Trust’s and the individual Defendants’ motions for summary judgment on August 26, 2020 and filed replies to their responses to the Secretary’s motion on September 9, 2020.

On July 27, 2020, the Defendants filed a Joint Motion to Exclude Expert Testimony of Dr. Mark Johnson, the Secretary’s prudence expert. The Secretary filed a response on August 17, 2020 and the Defendants filed a reply on September 1, 2020. On August 5, 2020, the Secretary filed a Motion to Exclude Expert Testimony of Corey Rosen. The individual Defendants filed a response on August 26, 2020, and the Secretary filed a reply on September 9, 2020. On September 15, 2020, the court held oral argument on the summary judgment motions and the motions to exclude experts. Decisions on all of these motions are still pending. A trial date has not been set. Chicago Office

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Perez v. TPP Holdings Inc. (W.D.N.C. and 11th Cir.)

On December 30, 2014, the Secretary filed a complaint against TPP Holdings Inc. and TPP's owner and chief executive officer Robert Nicholas Preston, alleging that the ESOP fiduciaries: (1) authorized the ESOP to purchase company stock in 2006 and 2008 for more than adequate consideration; (2) failed to act solely in the participants' interests; (3) failed to follow ESOP documents; and (4) engaged in self-dealing. The fiduciaries also allegedly permitted improper co-mingling of ESOP and corporate funds. The complaint further alleged that the ESOP did not exercise its voting rights in company decision-making, did not release the proper number of shares, and did not make the proper distributions to participants. On May 15, 2015, defendants filed a motion to dismiss, motion to stay pre-answer deadlines, and motion to extend time for defendants to file a responsive pleading. On June 1, 2015, the Secretary filed an opposition to defendants' motion to dismiss. On June 15, 2015, the defendants filed a reply. The defendants' motion to dismiss was predicated on arguments concerning enforceability of tolling agreements as to ERISA's six-year time limit. The court granted the defendants' motion, finding that ERISA's six-year time limit is a statute of repose and cannot be waived or contractually tolled. The Secretary, citing Eleventh Circuit and Supreme Court precedent, filed a motion for reconsideration. On May 2, 2016, the court denied the Secretary's reconsideration motion, but the court invited the Secretary to file a motion for certification for interlocutory appeal. The Secretary filed the motion on September 9, 2016. The defendants filed a response. The district court granted the Secretary's motion and certified the dismissal order for interlocutory review on November 22, 2016.

The Secretary filed a petition for interlocutory review with the Eleventh Circuit on December 2, 2016, arguing that the ERISA six-year limitation is subject to waiver. Defendants filed a response on December 12, 2016. On February 24, 2017, the Eleventh Circuit granted the petition for interlocutory appeal. The Secretary filed an opening brief on April 5, 2017. Defendants filed a response on May 5, 2017. The Secretary filed a reply brief on May 19, 2017. Oral argument was held on August 24, 2017. On October 12, 2017, the Eleventh Circuit issued a favorable decision, reversing the district court and agreeing with the Secretary that ERISA's six-year time limit is waivable. Defendants filed a petition for panel rehearing on November 22, 2017, which was denied on December 13, 2017. The case was remanded to the district court after the Eleventh Circuit's decision and the denial of certiorari by the Supreme Court.

The district court referred the case to mediation by a magistrate judge. The Secretary and defendants participated in mediation on November 6, 2018, but did not reach an agreement. The parties held their 26(f) scheduling conference on November 28, 2018, and submitted their joint report and proposed discovery plan to the district court on December 12, 2018. The Department also served initial disclosures on December 12, 2018, and first discovery requests to defendants on December 13, 2018. Defendants served their initial disclosures on December 21, 2018. On December 26, 2018, in response to an emergency motion filed by the U.S. Attorney requesting a stay of all civil cases in which a federal agency is a party in light of the lapse in appropriations for the Department of Justice, the district court stayed the case.

Discovery continued throughout 2019. The parties exchanged tens of thousands of documents in discovery, and they exchanged expert reports regarding the valuation of the Company at the time of the ESOP transactions in 2006 and 2008. The parties took depositions of fact in February and March 2020. Discovery was originally scheduled to close on March 23, 2020. In mid-March, in response to the exigent circumstances created by the COVID-19 pandemic, the parties postponed the remaining depositions and requested an extension of discovery.

The parties agreed to mediate this matter on August 14, 2020. The mediation was unsuccessful. Defendants have provided an updated expert rebuttal report. After considering this new report, the parties have agreed to reconvene the mediation, if doing so seems likely to be productive. The parties concluded fact witness depositions and completed expert witness depositions in February 2021. Atlanta Office and, on appeal, Plan Benefits Security Division

Vigeant v. Meek (8th Cir.)

This appeal addressed two issues. First, the appropriate pleading standard in ERISA case where participants brought fiduciary breach claims related to data manipulation concerning valuation of privately-held company in which the ESOP owned stock. Second, the applicability of the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, which rejected a presumption of prudence as applied to ESOP fiduciaries. The questions presented were (1) whether the district court erred when it held that an allegation of providing inaccurate and misleading information, alone, triggers Federal Rule of Civil Procedure 9(b)’s heightened pleading standard, and (2) whether the district court contravened the Supreme Court’s decisions when it concluded an ERISA fiduciary satisfies its prudence obligation to monitor by conducting an annual valuation of that stock and the company was not on the brink of collapse.

The Secretary filed an amicus brief on February 26, 2019, urging the Eighth Circuit to hold that an allegation of providing inaccurate information to an ESOP trustee is not enough to trigger Rule 9(b)’s heightened pleading standard. Additionally, the Secretary argued that the district court errantly relied on the now-defunct presumption of prudence and erroneously held that merely conducting a required annual valuation of the ESOP held company stock satisfied the fiduciary duty to monitor the ESOP’s investments. The Eighth Circuit held oral argument, in which the Secretary participated, on December 10, 2019.

On March 24, 2020, the Eighth Circuit issued a decision in which it declined to reach the Rule 9(b) question. Plan Benefits Security Division

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Pizzella v. Vinoskey (W.D. Va.)

On October 14, 2016, the Secretary filed a complaint against Adam Vinoskey, who was the selling shareholder in an ESOP stock purchase that occurred in December 2010, Evolve Bank and Trust, which was the independent fiduciary hired to approve the transaction on behalf of the Sentry Equipment Erectors, Inc. ESOP, and its senior trust officer, Michael New, who approved the transaction price and the structure of the transaction. The complaint alleged that the ESOP paid $20.7 million for the company's stock that was worth only about $13 million, that the debt taken on to fund this transaction lowered the value of the ESOP stock that had already been allocated to participant accounts from a stock purchase that had occurred several years earlier, and that the fiduciaries took no action to protect existing participants from this drop in the value of the shares that they owned before the 2010 transaction. The total value of both claims is $13.34 million. On January 17, 2017, following Defendants' motion to dismiss for failure to state a claim, the Secretary filed an amended complaint. On February 14, 2017, Michael New filed a motion to dismiss on the grounds that he acted only as an "employee" of the named fiduciary and therefore, an ERISA claim could not be asserted against him. On May 2, 2017, following briefing by the Secretary, the court denied Michael New's motion to dismiss, concluding that the Secretary had sufficiently pled facts supporting that New exercised discretionary authority or control over the management of the ESOP assets such that he could be considered a fiduciary. On October 26, 2017, the Secretary filed a motion for summary judgment against all Defendants. On December 1, 2017, the Secretary filed responses to the summary judgment motions of Sentry, Evolve Bank and Trust, and Michael New.

On April 17, 2018, the court denied Defendants' motions for summary judgment on the counts alleging that the Defendants engaged in a prohibited transaction and that related to the named fiduciaries breached their fiduciary duties to the ESOP. The court let stand the count Vinoskey's and the Vinoskey Trust's knowing participation in the fiduciaries' breaches. The court also concluded that the majority of the Secretary's expert's testimony was both reliable and relevant and that the Secretary's expert was qualified to testify. The court, however, excluded expert testimony regarding damages related to the loss in value to the existing plan participants' shares because of the structure of the transaction, finding the method to calculate the damages unreliable. The court also excluded the market comparison contained in the expert report because the expert identified only one comparator. The court granted New's motion for summary judgment concluding that he was not a functional fiduciary in this transaction. In its decision, the court rejected the Defendants' position that their decision about fairness of the ESOP transaction should be reviewed under an abuse of discretion standard. In rejecting this position, the court held that it "will review de novo whether Evolve violated its fiduciary obligations to the ESOP, obligations that are "the highest known to the law." The five-day trial of this matter took place in Lynchburg, Virginia from October 22 to October 26, 2018.

On August 2, 2019, in a 100 page decision, the court entered judgment in favor of the Secretary and ordered that Defendants Evolve Bank, Vinoskey, and the Vinoskey Trust restore $6,502,500 to the ESOP. The court determined that Evolve acted unreasonably when it repeatedly failed to question the methodology and factual assumptions used to arrive at the $406 per share valuation by their appraiser, Brian Napier of Capital Analysts, Inc. The court stated that “Evolve’s failure to notice, or ask any questions whatsoever about, these three pro-seller discretionary choices is further evidence of Evolve’s lackluster due diligence and unreasonable reliance on [the] appraisal.” In arriving at its decision, the court credited the testimony of the Secretary’s expert. The court concluded that the seller, Vinoskey, was jointly and severally liable as a fiduciary knowing participant in the prohibited transaction because Vinoskey knew that his shares were worth less than $406 per share. The court specifically rejected Vinoskey’s argument that he could legally accept an inflated price because he had recused himself from Evolve’s determination of that price.

On February 27, 2020, Vinoskey and Evolve filed a notice of appeal. The Secretary subsequently settled the Department’s claims against Evolve. On September 25, 2020, Vinoskey filed his opening brief with the Fourth Circuit. The Secretary filed a response brief on November 17, 2020. Philadelphia Office and, on appeal, Plan Benefits Security Division

Acosta v. Wilmington Trust (N.D. Ohio)

On August 22, 2017, the Secretary filed a complaint against Wilmington Trust, N.A., trustee of the Graphite Sales, Inc. ESOP, alleging that Wilmington approved a transaction in which the ESOP purchased 100% of the company's issued stock for $16 million, which was more than adequate consideration. The complaint alleges that as a result of Wilmington's actions, the ESOP suffered losses in excess of $6 million. On December 20, 2017, the court denied Wilmington Trust's motion to transfer venue of the case to the District of Delaware.

In February 2019, the Secretary conducted a three-day bench trial. On August 7, 2019, the Secretary filed a joint motion advising the court that a settlement in principle had been reached on this matter and several related matters and requesting the court stay any decision while the parties memorialize their agreement. In April 2020, the parties reached a settlement agreement in which Wilmington Trust agreed to pay a combined $80 million to 21 ESOPs, including the Graphite Sales, Inc. ESOP. On May 8, 2020, the parties filed a stipulated order of dismissal. Cleveland Office

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Perez v. Zander Group Holdings, Inc. (M.D. Tenn.)

On August 23, 2017, the Secretary filed a complaint against Jeffrey J. Zander and Stephen M. Thompson, as fiduciaries to the Zander Group Holdings, Inc. ESOP, along with the company itself. The complaint alleged that the valuation process utilized fundamentally flawed valuation methodologies and, as a result company was vastly overvalued and the ESOP overpaid when purchasing its shares Thompson was the trustee, but failed to conduct a prudent investigation into the process by which the valuation was obtained and failed to meaningfully review the valuation report. As alleged in the complaint, had he done so, he would have noted numerous flaws, including that the valuation did not value the entity to be sold, employed stale financial data, employed inaccurate financial data, employed discounts to the market methods in an unorthodox and inconsistent manner, failed to represent the riskiness of the business, failed to employ a proper tax rate, improperly employed EBITDA as a proxy for net cash flows, and improperly included the value of an ESOP "tax shield" in the pre-transaction value of the business. On September 12, 2018, the court denied defendants' motion and the Secretary's motion to strike affirmative defenses plead by Thompson.

During 2019, the parties subsequently engaged in discovery and filed cross-motions for summary judgment. The Secretary also filed a motion in limine seeking to exclude evidence of post transaction performance, and defendant Thompson filed a motion to exclude the testimony of the Secretary’s valuation expert. After a very robust motions practice, the parties agreed to engage in mediation. The mediation enabled the parties to settle the case through a consent judgment and order that the court entered on March 12, 2020. Defendants Jeffrey J. Zander and Stephen Thompson paid $3,818,181 in restitution to the ESOP and $381,818 in ERISA § 502(l) civil penalties. Defendants also confirmed that the Board of Directors of Zander Group Holdings, Inc., took steps to ensure that the Board acted independently, removed the current plan trustee, and appointed a new trustee who was both unrelated to the transaction that established the ESOP and unrelated to any of the parties to the Department’s action. A previous settlement, in Acosta v. Big G Express, Inc. (E.D. Tenn.), barred Thompson from acting as a fiduciary, trustee, agent, representative, or service provider to an ERISA-covered plan. Atlanta Office

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B. Financing the Employer

1. Collection of Plan Contributions and Loan Repayments

Scalia v. Aprinta Group, LLC (M.D. Ala.)

On July 17, 2020, the Secretary filed a complaint against Aprinta Group, LLC (“Aprinta”) and William Austin Dolan, II (“Dolan”). The complaint alleged that Aprinta and Dolan were fiduciaries of Aprinta’s Health Plan and Aprinta’s Disability Plan. The complaint further alleged that Aprinta and Dolan breached their ERISA fiduciary duties when they failed to remit at least $30,418 in employee health plan contributions and $4,776 in employee disability plan contributions to the respective plans. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA-covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plans; and (4) order the defendants to restore all losses, including lost opportunity costs, to the plans. See also Scalia v. Aprinta Group, LLC, Section K. Orphan Plans. Atlanta Office

Acosta v. Avedisian and J&T Enterprises (D. Mass.); Acosta v. Suren Der Avedisian (In re Suren Der Avedisian) (Bankr. D. Mass.)

On December 18, 2017, the Secretary filed a complaint against Suren Der Avedesian and J&T Enterprises Inc. d/b/a/ Omni Foods Supermarkets, fiduciaries of the company's health plan, alleging that they failed to make full employer contributions to the plan while Avedesian withdrew $132,257 from the company's account. Because of this failure, two insurance companies could not reimburse claims. The fiduciaries also failed to inform the plan participants of the inability to reimburse claims. The participants lost $84,938. On December 6, 2016, Avedesian filed for Chapter 13 bankruptcy. Upon discovery of the bankruptcy, the Secretary filed an adversary complaint in the bankruptcy court on December 4, 2017. The Secretary also sought to withdraw the referral of the adversary complaint and to have both cases heard in district court. The district court stayed the case and did not withdraw either the proof of claim or the non-dischargeability case from bankruptcy court. A trial on those issues was set for early 2019 in bankruptcy court. On March 29, 2019, the bankruptcy court approved a stipulation filed by the parties addressing the payment of all outstanding claims through bankruptcy and non bankruptcy funds. The district court case is still stayed pending completion of the bankruptcy proceedings and the payments, which are expected to be made by November, 2021. Boston Office

Scalia v. Ben Shinn Trucking, Inc. (S.D. Iowa)

On November 18, 2019, the Secretary filed a complaint against Ben Shinn Trucking, Inc., and Roger Shinn, who was the company President and 401(k) Plan Trustee. The complaint alleged that from 2013 to 2016, Defendants withheld from employees’ take home pay but failed to forward to the company’s 401(k) Plan $12,156 in employee contributions and Plan participant loan repayments. The complaint sought a judgment for Defendants to repay to the Plan the unremitted employee contribution funds and loan repayment funds, plus the Plan’s related lost earnings. The complaint also sought a permanent bar against Shinn serving as a fiduciary to any ERISA-covered plan, the appointment of an independent fiduciary for the Plan, as well as other appropriate injunctive relief. On May 11, 2020, the court entered a consent judgment against Defendants, requiring restoration of $35,031 to the plan as well as $7,006 in § 502(l) penalties. The consent judgment also requires that Defendants pay up to $7,500 for the costs associated with the appointment of an independent fiduciary, and it permanently bars Roger Shinn from serving as a fiduciary to any ERISA-covered plan. Kansas City Office

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Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern (D. Conn.)

On February 1, 2018, the Secretary filed a complaint against Bridgeport Health Care Center, Inc. ("BHCC") and Chaim Stern, fiduciaries of the company's self-funded Health Plan. The complaint alleged that the fiduciaries failed to fund health reimbursement accounts from which third-party administrators paid health claims. As a result, checks were returned for insufficient funds and health claims remained unpaid. The fiduciaries failed to inform participants and beneficiaries that their claims may not be paid. Rather, the fiduciaries misrepresented to participants that they had health care coverage by continuing to withhold employee contributions to the Health Plan from employee paychecks and reassuring participants that their claims would be paid. On April 18, 2018, BHCC filed for Chapter 11 bankruptcy. Shortly thereafter, various creditors, including the Secretary, moved to appoint a Chapter 11 trustee. After several days of hearing, the bankruptcy court granted the motion to appoint a Chapter 11 trustee. The Chapter 11 trustee secured fully-insured health coverage for employees. As a result of several mediation sessions with the district court, the parties agreed to a consent judgment and order that was entered on July 13, 2020. Under the consent judgment and order, the fiduciaries paid $2,526,392 towards resolving the unpaid health claims and appointing a claims administrator. See also Perez v. Bridgeport Health Care Center, Inc. and Chaim Stern, Section D. Prudence of Investments, and In re Bridgeport Health Care Center, Inc., Section M. Bankruptcy. Boston Office

Scalia v. Cozart-Donnell (W.D. Mo.)

On February 26, 2020, the Secretary filed a complaint against Carinita Cozart-Donnell, Vice President and Owner of CCD Construction, Inc., Craig Donnell Sr., President and Owner of CCD Construction, Inc., and the CCD Construction, Inc. Retirement Savings Plan. The complaint alleged that from 2014 to 2016, the Defendants failed to segregate and forward approximately $8,942 in employee contributions and $14,510 in participant loan repayments to the plan. On July 13, 2020, the court granted the Secretary’s Motion for Entry of Default Judgment against Defendants, finding Cozart-Donnell and Donnell Sr. jointly and severally liable for payment to the plan in the amount of $11,581, which includes $9,057 for unremitted payroll withholdings and $2,524 in interest. The court also ordered Cozart-Donnell’s benefits in the plan to be offset against the amount due in the judgment. The court also removed Defendants as fiduciaries to the plan and permanently enjoined them from violating Title 1 of ERISA and serving as a fiduciary or service provider to any ERISA-covered plan. Kansas City Office

Stewart v. Data Management Group, Inc. and Keith Boyer (E.D. Va.)

On November 3, 2020, the Secretary filed a complaint against Data Management Group, Inc., and Keith Boyer for failing to remit employee contributions to the company’s 401(k) plan and employee contributions to pay the premiums for its dental plan. The Secretary alleges that these fiduciary breaches occurred from 2017 to 2019. The Secretary seeks restoration to the 401(k) plan and health plan of at least $9,555 and $2,808, respectively, which includes interest. The Secretary also seeks the removal of the company and Boyer as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the company and Boyer. Philadelphia Office

Secretary of Labor v. Executive Printing of Darien, Chapin Packaging LLC (D. Conn.)

On February 11, 2020, the Secretary filed a complaint against Executive Printing of Darien, Chapin Packaging LLC, and Trask Pfeifle, as fiduciaries of the Chapin Packaging 401(k) Profit Sharing Plan and Trust, alleging that defendants failed to remit employee contributions to the plan. The parties agreed to a consent order and judgment, which the court approved on August 3, 2020. Under the consent order and judgment, the fiduciary agreed to repay $17,352 in unremitted employee contributions, including lost earnings, obtain the required bonding, and issue an updated summary plan description to plan participants. The fiduciary is also liable for the § 502(l) penalty. Boston Office

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Pizzella v. Ferraco (E.D. Va.)

On August 16, 2019, the Secretary filed a complaint against Nathaniel Ferraco, Steven Vento, DTREDS, LLC, and the DTREDS LLC 401(k) Retirement Plan. In the complaint, the Secretary alleged that Defendants breached fiduciary duties owed to the plan starting in January 2013 by failing to remit to the plan $49,455 in employee contributions and $26,831 in employee loan repayments. The complaint sought restoration of these amounts to the plan, in addition to $10,785 in lost interest. The complaint also asked that Defendants be removed as fiduciaries. Following the filing of the complaint, the Secretary learned that Vento died on June 23, 2019. The court entered a consent judgment on February 26, 2020, appointing an independent fiduciary to administer the plan and adjudicate and pay any outstanding claims for the plan. The Secretary was ordered to file a voluntary dismissal after the parties executed the terms of a settlement. The court issued a final Stipulation of Dismissal Order on July 24, 2020. Philadelphia Office

Scalia v. Herbert Long III, Legion Design/Campbell & Associates Chartered 401(k) Plan (D.D.C.)

On September 26, 2019, the Secretary filed a complaint seeking the restoration of $43,117 in employee contributions and $2,942 in participant loan repayments to the Legion Design/Campbell & Associates Chartered 401(k) Plan and at least $8,918 in related interest. Legion Design sponsored the 401(k) Plan and is now defunct. Herbert Long III was the CEO and Director of Operations for Legion Design. He also was the named Plan trustee at the time of the losses. Long, who filed an answer to the complaint pro se, has represented to the court that he is unable to effectively participate in his defense. Long is in personal bankruptcy. The court issued a scheduling order closing discovery by December 4, 2020, and setting a January 29, 2021 deadline for motions for summary judgment. The Secretary did not file a motion for summary judgment. Philadelphia Office

Scalia v. Information Control Systems Inc. (W.D.N.C.)

On November 15, 2019, the Secretary filed a complaint alleging that the 401(k) Plan’s fiduciaries, Information Control Systems, Inc. (“ICS”), and David Jackson Rogers, failed to remit to the Plan employee contributions withheld from employees' salaries from January 2010 through December 2014. Further, employee contributions remitted to the Plan during Plan years 2010 through 2014 were not remitted timely, resulting in lost earnings owed to the Plan. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee or representative having control over the assets of any ERISA-covered Plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the Plan; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the 401(k) Plan. The parties filed a proposed consent judgment on April 30, 2020, and, on August 18, 2020, a motion to approve the consent judgment. The parties are awaiting a court order approving the consent judgment. Atlanta Office

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Acosta v. JWK Corporation, Jay W. Khim and Scott G. Phillips (E.D. Va.)

On June 28, 2018, the Secretary filed a complaint against JWK Corporation, Jay W. Khim (chief executive officer), and Scott G. Phillips (director of operations), which alleged that, from July 2013 through September 2016, Defendants failed to remit participant loan repayments to the JWK Corporation 401(K) Salary Savings Plan. After multiple attempts, the Secretary was unable to obtain service on Khim and sought permission from the court to serve Khim by alternative methods. The court granted this request on December 26, 2018, and the Secretary served Khim by publication. On September 23, 2019, after Khim failed to answer the complaint, the Secretary filed a motion for default judgment against Khim, JWK Corporation, and Phillips. A hearing regarding the motion was held on October 25, 2019. Following a Report and Recommendation by a Magistrate Judge, the court entered a default judgment against the Defendants, ordering them to restore $86,315 in unremitted contributions to the plan plus $16,782 in interest. Philadelphia Office

Scalia v. Kamphuis (E.D. Mich.)

On February 13, 2020, the Secretary filed a complaint alleging that Robert Kamphuis, Thomas Rose, as fiduciaries of the Deliver Dental Solutions, Inc. 401(k) Plan and Trust, violated ERISA §§ 403, 404, and 406 when they failed to remit and timely remit to the plan employee contributions and loan repayments, totaling over $64,000, withheld from employees' take home pay January 31, 2018, through February 28, 2019. The complaint sought removal of the Defendants Kamphuis and Rose as fiduciaries of the plan, injunctive relief enjoining Defendants from serving as ERISA fiduciaries in the future, the appointment of an independent fiduciary, and correction of the prohibited transactions, including making good on all plan losses, including lost opportunity costs, resulting from Defendants’ fiduciary breaches.

Defendants filed their answer on June 4, 2020, including eight affirmative defenses. On July 30, 2020, the court granted the Secretary’s June 25, 2020 Motion to Strike seven of the eight affirmative defenses.

Incidental to the district court case, Defendants each filed for Chapter 7 bankruptcy. The Secretary filed complaints for determination of nondischargeability of debt on January 13, 2020. Defendants did not contest these adversary proceedings, and on October 21, 2020, Defendants’ debt to the plan was held nondischargeable pursuant to 11 U.S.C. § 523(a)(4).

Due to their respective bankruptcies, Defendants have proposed a payment plan for making good on plan losses, including lost opportunity costs. Defendants and the Secretary are negotiating the final terms of a consent order and judgment. Chicago Office

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Acosta v. Kilen Boe (D. Minn.)

On March 28, 2019, the Secretary filed a complaint against Minn-Dak Asphalt, LLC, and Kilen Boe, as fiduciaries to the company’s 401(k) plan, health plan, dental plan, and life insurance plan, asserting that they failed to remit and timely remit employee contributions to the plans. The complaint sought to restore to the plans approximately $30,000 in unremitted employee contributions and lost opportunity costs and to enjoin Kilen Boe from serving as a fiduciary or service provider to any ERISA-covered plan. On May 31, 2019, Defendants signed and returned waivers of the service of summons. After Defendants failed to answer the complaint, the Secretary applied for an entry of default on June 18, 2019. On June 19, 2019, the clerk entered default against Defendants.

On March 16, 2020, the Secretary filed a default judgment motion. The court heard argument by telephone May 14, 2020, after which, in response to the court’s request, the Secretary filed supplemental briefing on the Secretary’s loss calculations. On September 22, 2020, the court granted the Secretary’s motion for default judgment in part and entered a default judgment against Defendants in the amount of $24,973. The court did not order the appointment of an independent fiduciary to terminate and distribute the assets of the 401(k) plan or order that the losses to the 401(k) plan be offset with Defendant Boe’s individual account in the 401(k) plan. Chicago Office

Acosta v. Kizzang (D. Nev.)

On August 17, 2018, the Secretary filed a complaint against Kizzang, LLC, Robert Alexander and Tom Lee, the fiduciaries of the health and welfare plan established by Kizzang. The plan was funded by both company and participant contributions. During a year-long period in 2015 and 2016, the Defendants breached their fiduciary duties by failing to collect the company's contributions and by failing to forward participant's premium contributions to the plan's health insurance carrier, Anthem BCBS. Having received no premiums, Anthem retroactively cancelled the participants' health insurance. Defendants failed to timely notify participants of the possibility of retroactive cancellation, causing some of them to incur uncovered medical expenses. The complaint seeks $83,000 for the uncovered medical expenses and $20,000 for the unforwarded employee contributions. The complaint also seeks to enjoin the fiduciaries from violating ERISA and to bar them from serving as ERISA fiduciaries in the future. On December 3, 2018, the clerk of the court entered default against Kizzang LLC and Robert Alexander.

On April 4, 2019, the Department filed with the court a proposed order for default judgment against Defendants Kizzang and Robert Alexander and a motion to dismiss defendant Tom Lee with prejudice. The Department subsequently filed a proposed order to show cause on April 18, 2019. On May 3, 2019, the case was reassigned to a new judge. After the judge failed to take action, the Department contacted the court, which requested that the default be resubmitted as a motion. The motion was filed on June 24, 2019. In October 2019, the court approved the dismissal of Defendant Tom Lee.

On April 10, 2020, the Secretary secured a default judgment ordering Kizzang LLC and Alexander to pay $83,389 in plan participants’ uninsured medical claims resulting from the loss of health insurance they suffered due to the fiduciaries’ nonpayment of premiums. The court also ordered the Defendants to pay $16,418 in plan losses in the form of outstanding employee contributions. In addition, the default judgment permanently enjoins the Defendants from engaging in further ERISA violations and permanently bars Alexander from serving as a fiduciary or service provider to any ERISA-covered plan. San Francisco Office

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Scalia v. Krieger (E.D. Wis.)

On May 6, 2020, the Secretary filed a complaint against Gary Krieger and Stratagem, Inc., alleging the Defendants as fiduciaries failed to remit and timely remit employee contributions to the Stratagem, Inc. Savings Plan from February 29, 2016 through March 29, 2019, and failed to process participants’ distribution requests since March 2019. The complaint seeks payment of the unremitted employee contributions, payment of accrued interest on unremitted employee contributions and delayed remittances; reversal of the prohibited transactions; an injunction permanently enjoining Defendants from serving as fiduciaries and/or service providers to any ERISA-covered plan and removing them as plan fiduciaries, appointment of an independent fiduciary, and an order requiring Defendants to pay the reasonable fees and expenses of the independent fiduciary. Defendants did not waive service of the complaint and were ultimately served with a copy of the complaint and summons by the U.S. Marshals Service.

Defendants never filed an answer, and the Secretary filed a motion for a default judgment on December 16, 2020. The court has not yet ruled on the Secretary’s motion. Chicago Office

Acosta v. Mason (N.D. Tex.)

January 24, 2020, the court entered a consent judgment affirming the complaint’s allegations of violations and ordering payment of $20,013 in restitution to 10 plan participants. Previously, on May 17, 2019, the Secretary had filed a complaint alleging that the plan sponsor and its owner and president, Stephen Mason, committed a series of violations by having failed to forward employee paid insurance premiums to the plan and to collect for the plan employer promised insurance premiums. The complaint alleged that, as a result of these fiduciary violations, the Defendants caused $8,169 in losses to the plan and caused plan participants to incur at least $10,245 in unpaid medical bills. The complaint sought recovery of the plan’s losses, payment of the unpaid medical benefits, removal of the fiduciaries, appointment of an independent fiduciary to administer the plan, injunctive relief against further ERISA violations, and a fiduciary bar. In addition to ordering restitution, the court enjoined the Defendants from further violations and barred them from acting in a fiduciary capacity to any other ERISA-covered plan. Dallas Office

Pizzella v. MidSouth Geothermal LLC (W.D. Tenn.)

On August 19, 2019, the Secretary filed a complaint against Scott Triplett and Midsouth Geothermal LLC, alleging that, for payroll periods between October 21, 2014, and July 14, 2016, the fiduciary defendants withheld from employees’ pay approximately $44,185 in employee contributions but failed to remit those funds to the company’s 401(k) plan. The complaint asked the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee or representative having control over the assets of any ERISA-covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plans; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the 401(k) Plan. The Secretary filed a motion for default judgment on April 20, 2020. Thereafter, the parties negotiated a consent judgment, which the court entered on June 11, 2020. Pursuant to the consent judgment, the defendants agreed to restore the lost principal and lost earnings to the plan. The consent judgment also prohibits defendants from acting as fiduciaries to any ERISA-covered plan and provides for the appointment of an independent fiduciary to act for the plan. Atlanta Office

Scalia v. Paramount Industrial Machining, Inc. (E.D. Mich.)

On September 10, 2020, the Secretary filed a complaint against Paramount Industrial Machining, Inc., Sheila Rossman, and Maxwell Schwartz, as fiduciaries of the Paramount Precision Products, Inc. 401(k) Plan and the Paramount Industrial Machining, Inc. Welfare Benefit Health Plan. The complaint alleges that Rossman, a directed trustee, and Schwartz, the company’s owner, committed various ERISA violations, including failing to remit participant contributions and loan repayments to the 401(k) Plan and failing to allocate approximately $15,000 in 401(k) Plan forfeitures to participants’ accounts in accordance with the plan documents. The complaint also alleges that Paramount Industrial and Schwartz, as fiduciaries of the Health Plan, committed various ERISA violations that included failing to remit to the Health Plan participant contributions for the payment of insurance premiums, which resulted in one participant incurring unpaid health benefit claims. The 401(k) Plan violations occurred between September 18, 2015, and March 18, 2016, and between February 10, 2017, and September 8, 2017. The Health Plan violations occurred between July 1, 2017, and September 29, 2017.

The Secretary is seeking restoration of losses (including lost opportunity costs) of approximately $18,000 to the 401(k) Plan and approximately $17,000 to the Health Plan, an injunction to bar the fiduciary defendants from acting as fiduciaries or service providers to any ERISA-covered plan, and appointment of an independent fiduciary to terminate the Plans. The Secretary also seeks payment of approximately $3,000 in unpaid health benefit claims.

The Secretary filed an amended complaint on December 4, 2020, to allege that Rossman is liable as a co-fiduciary for the 401(k) Plan violations from February 10, 2017, to September 8, 2017. The defendants filed amended answers on December 16, 2020, and December 28, 2020. The court issued a scheduling order on December 10, 2020 after the initial status conference on the same date. Chicago Office

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Stewart v. Prototype Productions, Inc. (E.D. Va.)

On May 20, 2020, the Secretary filed a complaint against Prototype Productions, Inc., Italo Travez, and Jose Travez, who were the owners and officers of the company. The Secretary alleges that the Defendants violated their fiduciary duties to the Prototype Productions, Inc. 401(k) Plan and the Prototype Productions, Inc. Welfare Plan by engaging in several related prohibited transactions. On October 9, 2020, the court approved a consent judgment providing that Defendants restore $628,547 to the 401(k) Plan and $111,299 to the Welfare Plan and pay for the cost, up to $23,250, for an independent fiduciary to distribute the 401(k) assets to participants and to terminate both plans. Philadelphia Office

Secretary of Labor v. Puccio (D. Conn.)

On March 29, 2018, the Secretary filed a complaint against Kathryn Puccio, trustee of the Thomas P. Puccio Pension Plan, alleging that while Kathryn Puccio was a trustee, she and her husband Thomas Puccio (who died in 2012) withdrew plan assets from various plan investment accounts for their own personal use and thus left the plan been unable to satisfy the pension benefit entitlements of two plan participants. The parties engaged in discovery during 2019. On November 2, 2020, the Secretary filed a motion for summary judgment on the issues of liability and damages. The Defendant failed to file an opposition or any other substantive reply. On February 15, 2021, the district court granted the Secretary’s motion for summary judgment, ordering the Defendant to pay full restitution of $484,321 into a trust for the two non-fiduciary plan participants and enjoining Defendant from serving as a fiduciary to any ERISA-covered plan. Boston Office

Scalia v. Rando Machine Corp. (W.D.N.Y.)

On July 27, 2020, the Secretary filed a complaint alleging that, in 2017 and 2018, Rando Machine Corp. and Michael Flaherty failed to remit employee contributions and employer contributions to the Rando Machine Corp. 401(k) Plan. On December 23, 2020, the court entered a consent judgment providing that defendants would repay $10,210, distribute all plan assets, and be enjoined from acting as fiduciaries. New York Office

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Scalia v. RCS & Associates, Ltd (N.D. Ill. and Bankr. N.D. Ill.)

On November 9, 2020, the Secretary filed a complaint against RCS & Associates, Ltd., and Rodney Scott (fiduciaries of the company’s 401(k) Plan), asserting that they failed to remit to the plan certain employee salary reduction contributions withheld from employees’ take home pay. The complaint seeks to have the $10,869 unremitted employee contributions, plus the related lost opportunity costs, paid to the plan. The complaint also seeks injunctive relief enjoining the fiduciaries from serving as an ERISA fiduciary in the future and appointing an independent fiduciary to distribute plan assets and terminate the plan. Prior to the filing of the complaint, Defendant Scott filed a bankruptcy case in which the Secretary then filed an adversary complaint for nondischangeability of debt on November 6, 2020. An answer was not filed prior to December 31, 2020 in either case. Chicago Office

Scalia v. Sartell Group, Inc. (D. Minn.)

On May 5, 2020, the Secretary filed a complaint alleging that Pam Sartell, Forrest Sartell and The Sartell Group, Inc., fiduciaries of the Sartell Group 401(k) Plan, violated ERISA § 403, 404, and 406 when they failed to remit and timely remit employee contributions and loan repayments owed to the plan. The plan’s total loss alleged from these violations, including lost opportunity costs, is over $40,000. The complaint sought injunctive relief enjoining these fiduciaries from serving as an ERISA fiduciary in the future, appointing an independent fiduciary, and requiring that the fiduciaries correct the prohibited transactions by restoring delinquent contributions (with interest) to the plan.

On October 28, 2020, the court entered a consent order and judgment against The Sartell Group, Inc., Pam Sartell, and Forrest Sartell, requiring that the plan fiduciaries restore $13,194 in plan losses for six participants in addition to the $27,135 in plan losses that the fiduciaries restored to the plan after this litigation was initiated. The consent order and judgment also bars Forrest Sartell from serving as an ERISA fiduciary in the future and requires Pam Sartell to complete eight hours of training on ERISA fiduciary duties. Finally, this judgment required the defendant fiduciaries to pay $8,065 in § 502(l) penalties. Chicago Office

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Stewart v. Satori Group, Inc. (E.D. Pa.)

On August 11, 2020, the Secretary filed a complaint against Satori Group, Inc., John Florio, the company’s COO, and Amy Wright, the company’s 401(k) Plan Administrator, for failing to remit employee contributions to the 401(k) plan from 2012 to 2014. The Secretary seeks restoration of at least $99,030 to the 401(k) plan, which includes interest, removal of the company and the two individuals as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the company and the fiduciary defendants. The Defendants did not file a responsive pleading, and the court clerk entered default against them on November 10, 2020. Philadelphia Office

Acosta v. Sharpton Brunson and Company, P.A. (S.D. Fla.)

On August 13, 2018, the Secretary filed a complaint against Sharpton Brunson and Company, P.A. (plan administrator and fiduciary to the plan), Darryl Sharpton, Brittany Sharpton, and Kevin Adderly (also fiduciaries to the plan), alleging that from January 15, 2015 to March 31, 2015, the company, Darryl Sharpton, Brittany Sharpton, and Kevin Adderly untimely remitted $2,945 in employee contributions to the plan. In addition, from April 30, 2015 to March 15, 2016, they failed to forward $8,083 in participant funds to the plan. Now that the company is inactive, the fiduciaries did not ensure that participants could receive distributions from the plan or access their individual accounts, essentially abandoning the plan. The complaint sought the removal of Darryl Sharpton, Brittany Sharpton, Kevin Adderly, and the company as fiduciaries, the appointment of an independent fiduciary to settle the plan, a permanent injunction preventing Defendants from servicing as a fiduciary to ERISA-covered plans, and an injunction against Defendants from committing future ERISA violations. It also sought to hold Darryl Sharpton, Brittany Sharpton, and Kevin Adderly personally liable for the payment of unremitted and untimely remitted employee contributions, plus lost earnings on these payments and delays.

In 2019, Brittany Sharpton was dismissed from the case, and the other defendants were served. The Department worked with Adderly to wind the plan down and distribute its assets. When the plan sponsor, the company, became inactive, the fiduciaries did not ensure that participants could receive distributions from the plan or access their plan accounts, essentially abandoning the plan. Defendant Darryl Sharpton, was incarcerated. The case was closed in May 2020. See also Acosta v. Sharpton Brunson and Company, P.A., Section K. Orphan Plans. Atlanta Office

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Pizzella v. Shaun Marzett and Mahan Consulting Group, LLC (E.D. Va.)

On September 6, 2019, the Secretary filed a complaint against Shaun Marzett and Mahan Consulting Group, LLC. The complaint alleged that the Defendants failed to remit $6,443 in employee contributions and $2,542 in matching safe harbor contributions to the Mahan Consulting Group 401(k) Plan. The complaint further alleged that Marzett failed to remit welfare plan premiums to the Mahan Consulting Group Health and Welfare Plan and did not notify employees of the loss of coverage, resulting in unpaid medical expenses of $1,508. Finally, the complaint alleged that the Company and Marzett withheld employee contributions for a life insurance plan yet failed to forward the premiums to the insurance carrier, causing the coverage to lapse. The lapse in coverage caused losses of $10,000. Because Marzett was unable to be located, the Secretary requested and was granted permission to serve Marzett by publication. Service by publication was effectuated, and Marzett is required to appear in court no later February 14, 2020 to protect his interests. The Defendants failed to appear and default was entered on February 25, 2020. The Secretary moved for default judgment on March 31, 2020. On July 30, 2020, the court, adopting the Magistrate Judge’s findings of fact and recommendation, granted the Secretary’s motion and entered default against Marzett and the Company. The court ordered the Defendants to restore $24,201 to the plan, that the Defendants be removed as plan fiduciaries, that Marzett be permanently barred from serving as a fiduciary in the future, and that an independent fiduciary be appointed to marshal the plan assets and make distributions. Philadelphia Office

Scalia v. Sin City Investment Group, Inc. (D. Nev.)

On February 28, 2019, the Secretary filed a complaint against the Sin City Investment Group, Inc., the American Leak Detection SIMPLE IRA Plan, and Keith Ozawa, alleging violations of ERISA stemming from failures to remit to the Plan employee contributions. On March 27, 2019, Defendants filed an answer to the complaint, in which they denied the alleged fiduciary breaches. On August 15, 2019, the Secretary filed a motion for discovery sanctions because the Defendants did not respond to any requests for discovery and because the Defendant Ozawa would not allow the Department to depose him. On October 23, 2019, the Secretary filed a motion for summary judgment based on the Defendants’ deemed admissions resulting from their failure to answer the Secretary’s discovery requests. On December 26, 2019, the court denied the Secretary’s motion for discovery sanctions.

On July 27, 2020, the Secretary secured a summary judgment requiring Defendants to pay $51,434 for missing employee contributions and associated lost interest owed to non-fiduciary participants of the American Leak Detection SIMPLE IRA Plan. The judgment also debarred Ozawa from serving as an ERISA fiduciary. San Francisco Office

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Scalia v. Solis (W.D. Tex.)

On June 20, 2019, the Secretary filed a complaint against Nick and Emily Solis, who were owners of the plan’s sponsoring employer and also were fiduciaries of the West Texas Bulldog Oilfield Services LLC Health Plan, for failing to remit to the plan’s insurer $19,586 deducted from employees’ pay for health insurance premiums during January 13, 2017, through March 15, 2017. The fiduciaries’ failures resulted in the retroactive cancellation of the plan’s health insurance coverage, leaving 28 employees without insurance, 10 of whom incurred unpaid claims totaling $17,000. The complaint seeks restoration of all plan losses, a surcharge against the fiduciaries for the unpaid medical benefits, injunctive relief requiring the fiduciaries’ compliance with ERISA, and a fiduciary bar against the Defendants. On October 21, 2019, the Secretary filed a motion for entry of default and, on November 13, 2019, a motion for default judgment.

On July 20, 2020, the court granted a default judgment for the Secretary. The judgment ordered the Defendants to restore to the 28 plan participants the $11,731 withheld from their wages but never remitted to the plan’s insurer and to pay $16,783 to the 10 plan participants who had incurred unpaid medical bills. Additionally, the default judgment orders the Solises to pay the costs of an independent fiduciary to administer the remittance of these funds and permanently bars the Solises from serving as fiduciaries to any ERISA covered plan.

Because Defendants failed to comply with the default judgment, the Secretary filed a motion to adjudge Defendants in contempt on September 3, 2020. See also Scalia v. Solis, Section L. Contempt and Subpoena Enforcement. Dallas Office

Scalia v. Synergy Partners, Inc. (M.D. Tenn.)

On December 31, 2020, the Secretary filed a complaint against Synergy Partners Inc. and Dr. Lance H. Harrison, Jr. The complaint alleges that the defendants are both fiduciaries to the company’s Synergy Partners, Inc. 401(k) Profit Sharing Plan. The complaint further alleges that the defendants breached their ERISA fiduciary duties from January 1, 2017, through September 30, 2018, when they failed to forward at least $8,458 in employee contributions to the plan and failed to ensure that the company pay at least $9,498 in safe harbor contributions that it owed to the plan. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA-covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plan; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the plan. The Secretary filed proofs of service on February 5, 2021. See also Scalia v. Synergy Partners, Inc., Section K. Orphan Plans. Atlanta Office

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Acosta v. Walton (S.D. Ohio)

On March 13, 2019, the Secretary filed a complaint against Robert Walton, Jr., alleging that, acting as a fiduciary of the Hadsell Chemical Processing SIMPLE IRA between March 2015 and November 2015, Walton failed to remit $53,239 in employee contributions to the plan and improperly delayed remitting some employee contributions that he eventually did remit to the plan. The complaint sought an order requiring that all losses be restored to the plan with interest and enjoining Walton from serving as a fiduciary or service provider to any ERISA covered plan. On August 25, 2020, the court granted the Secretary’s motion for default judgment against Walton in the amount of $65,842. The default judgment also permanently enjoins Walton from violating Title I of ERISA and from serving as a fiduciary or service provider to any ERISA covered plan. Cleveland Office

Scalia v. WGC Holdings LLC (N.D.N.Y.)

On December 6, 2019, the Secretary filed a complaint against WGC Holdings LLC, Alan DeForest, Michelle Fontaine-Segatti, and Jamie Santacroce. The complaint alleges that Defendants are liable for failing to remit employee contributions to the Wiltwyck Golf Club Simple IRA Plan. On February 14, 2020, Defendants WGC and DeForest filed their answers. The court held an initial conference on March 20, 2020, and entered a pretrial scheduling order. On June 18, 2020, DeForest sought an extension of time to join parties, which the court granted on June 19, 2020. On August 25, 2020, DeForest again sought further extensions of time, which the court granted on August 25, 2020. New York Office

Acosta v. Williams-Russell & Johnson Inc. (N.D. Ga.)

EBSA determined that repeat ERISA violators, Williams-Russell & Johnson, Inc., and company president Charles E. Johnson, Sr., were once again failing to remit employee contributions to the Williams-Russell & Johnson 401(k) Retirement Plan which had led to more than $300,000 in damages to the plan. Additionally, Johnson had not ensured that the plan made some distributions required by the plan documents. The company and Johnson were already subject to an earlier consent judgment that barred them from fiduciary service and from future ERISA breaches. Therefore, the Secretary filed a contempt motion.

In April 2019, the court scheduled a hearing on the contempt motion but ultimately ordered the parties to continue work on settlement. In August 2019, the court held another contempt hearing, at which the court held Johnson and the company in contempt and threatened them with daily fines for continued non-compliance. In September 2019, the parties agreed on a consent judgment whereby the Defendants agreed to repay the plan $315,000 (through a payment plan), to honor the fiduciary bar, and to turn over management of the plan to a third party. The court entered the consent judgment on September 24, 2019.

In August 2020, in light of Defendants’ demonstrable financial hardship, the parties filed an amendment to the amended consent judgment, adjusting the payment plan. See also Acosta v. Williams-Russell & Johnson Inc., Section L. Contempt and Subpoena Enforcement. Atlanta Office

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Scalia v. Woldt (W.D. Wis.)

On July 28, 2020, the Secretary filed a complaint against Defendants Shawn Woldt and Thunderbird Engineering, alleging they violated ERISA by failing to remit employee contributions and loan repayments (with lost opportunity cost) to the Thunderbird Engineering, Inc. 401(k) Plan from January 1, 2014 to August 31, 2020. The complaint seeks to have $67,266 in employee contributions and $2,219 in loan repayments remitted to the plan. The complaint also seeks injunctive relief to enjoin these fiduciaries from serving as an ERISA fiduciary in the future and to appoint an independent fiduciary to distribute plan assets and terminate the plan. Chicago Office

Stewart v. WW Contractors, Inc. (D. Md.)

On December 17, 2020, the Secretary filed a complaint against WW Contractors, Inc., and Nea Wiggins for failing to remit employee contributions and participant loan repayments to the WW Contractors, Inc. 401(k) Plan. The company (which is in bankruptcy) as the Plan Administrator and Wiggins as the Plan Trustee carried out the Plan Administrator functions. The Secretary alleges that the fiduciary breaches by the Defendants occurred October 2017 to February 2018. The Secretary seeks restoration of $39,000 to the plan, which includes interest. The Secretary also seeks the removal of the Defendants as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the Defendants. Philadelphia Office

Stewart v. Yost (D. Md.)

On February 20, 2020, the Secretary filed a complaint against Saturn Corp. and Fielding Yost for failing to remit employee contributions and participant loan repayments to the Saturn Corp. Profit Sharing Plan & Trust. The company is the plan administrator and Yost is the company president and majority owner. The Secretary alleges that the fiduciary breaches by the Defendants occurred from 2014 to 2018. The Secretary seeks restoration of $78,683 to the plan, which includes interest, removal of the Defendants as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the Defendants. Philadelphia Office

Scalia v. Zipp Express, LLC (M.D. Tenn.)

On December 22, 2020, the Secretary filed a complaint against the now-defunct Zipp Express, LLC, and Ronnie C. Whitefield, Jr., the sole owner of the company. The complaint alleges that the defendants are fiduciaries to the company’s Group Health Plan. The complaint further alleges the defendants breached their ERISA fiduciary duties when they withheld at least $12,319 in employee contributions but failed to forward those contributions to the plan from November 1, 2017, through December 31, 2017. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plan; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the plan, and (5) set off the individual plan accounts of any defendant against the plan’s losses. The Secretary filed executed waivers of service on January 26, 2021. Atlanta Office

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Secretary v. Zyquest, Inc. (E.D. Wis.)

On October 14, 2020, the Secretary filed a complaint against Allan Zeise and Zyquest, Inc., alleging they breached their fiduciary duties by failing to remit and timely remit to the affected plan employee salary deferrals withheld from take home pay June 30, 2016, to September 14, 2018. The Secretary sought restitution of the principal ($138,962) and lost opportunity costs and an injunction permanently enjoining the fiduciaries from serving as fiduciaries or service providers to any ERISA-covered plan. On January 5, 2021, the Secretary filed a motion for entry of default and the clerk entered default against all Defendants. On January 25, 2021, the Secretary filed a motion for default judgment against all Defendants.

On January 27, 2021, the Court entered a judgment finding Defendants breached their fiduciary duties by failing to remit and timely remit the withheld employee salary deferrals and loan repayments and ordering Defendants to restore $165,759 in wages, including lost opportunity costs, to the plan within 30 days of entry of judgment. The Court also permanently enjoined Defendants from violating Title I of ERISA, removed Defendants as trustee and plan administrator, and permanently enjoined Defendant Zeise from serving or acting as a fiduciary or service provider with respect to any ERISA-covered plan except to the extent necessary to comply with the judgment. Furthermore, the Court appointed an independent fiduciary who will allocate restoration funds to plan participants’ plan accounts and determine whether employee salary deferrals and participant loan repayments withheld from take home pay September 15, 2018, through the date of judgment were all remitted to the plan. For any amounts withheld after September 15, 2018, but not remitted to the plan, Defendants were ordered to restore those assets to the plan within 60 days of the independent fiduciary’s notice of amounts owed. Finally, the Court ordered Defendants to pay to the independent fiduciary the one-time conversion fee of $750 and recurring quarterly fees to cover reasonable expenses. Chicago Office

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2. Insurance Rebates

None

3. Miscellaneous

Secretary v. Allen (W.D. Ky.)

On December 27, 2017, the Secretary filed a complaint against Anthony C. Allen, Mark N. Cain, Brian A. Lutes, James M. Staron, Linda A. Wilson, and Norman E. Zelesky. Defendants are members of the Retirement Savings Plan Advisory Committee, the named fiduciary for four plans sponsored by Sypris Solutions, Inc. The complaint alleges that Defendants failed to follow the plans' governing documents regarding use of forfeiture funds. The governing documents required the employer to use forfeiture funds to pay plan expenses prior to using such funds to reduce employer contributions. From 2012 until 2016, Defendants caused the four plans to pay plan expenses from plan assets and used the forfeiture funds to reduce employer contributions. As a result of this practice, the employer benefited by reducing its contributions to the funds, at the expense of plan participants whose plan account balances were reduced by Defendants’ payment of plan expenses from plan assets instead of from forfeitures. The complaint seeks recovery of the losses, including lost opportunity costs, suffered by the plans as a result of this practice.

After written discovery and depositions, the Secretary amended the complaint to include the company, Sypris Solutions, Inc., as a fiduciary Defendant. At a settlement conference with the district court’s magistrate judge on April 10, 2019, the parties were unable to settle the case. The parties completed discovery on May 10, 2019. The parties each filed dispositive motions on July 10, 2019, with the Secretary moving for partial summary judgment and Defendants moving for full summary judgment. The dispositive motions were fully briefed on August 21, 2019.

On May 14, 2020, Magistrate Judge Lindsay issued a Report and Recommendation, denying the Secretary’s motion for partial summary judgment and granting in full Defendants’ motion for summary judgment. The Secretary filed the Department’s Objections to the Magistrate’s Report and Recommendation on May 28, 2020. Defendants filed their Response to the Secretary’s Objections on June 11, 2020. The parties are awaiting the district court decision. Chicago Office

Secretary v. Area Wide Realty Corporation (N.D. Ill.)

On January 29, 2020, the Secretary filed a complaint against Michael Olszewski and Area Wide Realty Corporation as fiduciaries of the Area Wide Realty Corporation Cash Balance Pension Plan and Trust and the Area Wide Realty Corporation Profit Sharing Plan and Trust. The complaint alleges that these defendants breached their fiduciary duties under ERISA by transferring Plan assets to the fiduciaries and parties in interest in 2011 and again in 2017 and by failing to maintain a fidelity bond. To remedy these fiduciary breaches, the Secretary is seeking an order removing the defendants as fiduciaries to the Plans, appointing an independent fiduciary to administer the Plans’ assets, and restoring all losses, including lost opportunity costs, to the Plans. The parties have been in discussions to resolve the matter. Chicago Office

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Acosta v. East Tennessee Hematology-Oncology, P.C. (E.D. Tenn.)

On June 21, 2019, the Secretary filed a complaint against William R. Kincaid, Janet Kincaid, Millard R. Lamb, Catanzarite Law Corporation, Marian Villanueva, and East Tennessee Hematology-Oncology Associates P.C., alleging that the fiduciary defendants engaged in prohibited transfers of Plan assets, failed to discharge their duties for the exclusive purpose of providing benefits to Plan participants, and failed to discharge their duties to the Plan in the manner required by ERISA. The complaint asserts violations of sections 404 and 406 of ERISA, and the complaint seeks equitable relief (including restitution of losses to the Plan), a permanent injunction against the fiduciaries from acting in a fiduciary capacity to ERISA-covered plans, an injunction against Defendants from committing future ERISA violations, and disgorgement of fees earned by Defendant service providers. The complaint also seeks the appointment of a successor independent fiduciary. The Department is again attempting to schedule a Rule 26(f) conference with Defendants’ counsel. Atlanta Office

Secretary v. Ford (W.D. Tex.)

On April 17, 2020, the Secretary filed a complaint against fiduciaries Jon Grant Ford and Todd Ford, Inc., to redress violations that resulted in plan losses in excess of $274,685. As revealed in the investigation and confirmed in an executed consent judgment obtained pre complaint filing, Jon Ford took 65 separate, unauthorized withdrawals from the Todd-Ford, Inc. Employees’ Profit Sharing Plan over four years. On April 20, 2020, the court entered the consent judgment, which affirmed the alleged violations, held the fiduciaries liable for the unauthorized distributions, and imposed a fiduciary bar. Additionally, the consent judgment ordered the appointment of an independent successor fiduciary who will conduct an accounting of all Plan expenses accrued or paid after the investigative period, determine the precise amount owed each participant, distribute the Plan assets, terminate the Plan, and distribute any additional funds collected as a result of its accounting. Dallas Office

Acosta v. Macy's, Inc. (S.D. Ohio)

On August 16, 2017, the Secretary filed a complaint alleging that Macy's Inc., Anthem, and Cigna failed to properly pay out-of-network claims for the Macy's, Inc. Welfare Benefits Plan and alleging that Macy's administered a discriminatory wellness program. The first violations concern Macy's, Anthem's, and Cigna's failure to provide benefits in accordance with the health plan documents, which stated that from the beginning of July 2009, through the end of June 2012, the plan would pay for out-of-network benefits based on the Usual and Customary Rate ("UCR") while the plan fiduciaries actually paid for these benefits on a formula tied to the Medicare Allowable Rate. These two methods, UCR and the Medicare Allowable Rate, use significantly different methodologies to determine rates. Based on the evidence, the Secretary alleges that plan participants paid more for out-of-network benefits received because the fiduciaries used the Medicare Allowable Rate instead of UCR. The Secretary alleges that Macy's, Anthem, and Cigna failed to follow the plan documents regarding out-of-network claims reimbursement. The second set of violations stems from Macy's tobacco surcharge wellness program, in which it charged tobacco users a monthly surcharge. The Secretary alleges that Macy's violated ERISA's Part 7 non-discrimination provisions when it failed to provide a lawful reasonable alternative to the surcharge and required invalid affidavits from those who attempted to utilize alternative means of compliance from July 1, 2011, through June 30, 2013. The Secretary alleges further violations of Part 7 non-discrimination provisions from July 1, 2013 through the present, based on deficiencies in the documents used by Macy's to administer its tobacco surcharge wellness program. The Secretary's complaint seeks the appointment of an independent fiduciary to readjudicate all out-of-network claims that were processed by Cigna from July 1, 2009 through June 30, 2012, and processed by Anthem from July 1, 2011 through June 30, 2012, in order to restore losses to the affected participants, as well as restoration of all tobacco surcharges collected from July 1, 2011 through the present.

The parties mediated the case before the district court’s magistrate judge in December 2017, February 2018, and April 2018, but were unable to reach a resolution. Each of the Defendants moved to dismiss the Secretary’s complaint on October 1, 2018, and the Secretary opposed the motions on October 31, 2018. Each of the Defendants filed a reply brief on November 21, 2018. The case was transferred to a new judge on December 11, 2019. As of December 31, 2020, the district court had not yet ruled on the motions to dismiss. The district court issued no orders in 2020. Chicago Office

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Acosta v. M-E-C Company (D.S.C.)

On June 7, 2019, the Secretary filed a complaint against M-E-C Company, its former President, John A. Quick, its former Controller, Kristina Romanowski, and its Board of Directors (Reuben Andreas, Justin Andreas, John B. Andreas, Lynn Lichtenfeld and Stephen D. Parker). The complaint alleged that the fiduciaries failed to timely and completely remit to the M-E-C Group Health Plan employee contributions withheld from employees’ pay. The complaint sought recovery of the losses to the plan totaling $17,483, removal of Quick, Romanowski, and the Board of Directors as fiduciaries, appointment of a successor fiduciary, and a permanent injunction against Quick, Romanowski, and the directors operating as fiduciaries to ERISA covered plans in the future. On June 21, 2019, the Secretary filed an amended complaint, which demanded relief only against the company, Quick, and Romanowski and deleted the other defendants that had been named in the initial complaint. The Secretary completed discovery in December 2019. The Secretary negotiated a consent judgment with Quick, which the court entered on March 31, 2020. By the terms of the consent judgment, Quick restored losses to the plan; was removed as a fiduciary; was permanently enjoined from serving as a fiduciary, trustee, agent, or representative in any capacity to any ERISA-covered plan; and was permanently enjoined from violating Title I of ERISA. AMI Benefit Plan Administrators, Inc., was appointed successor fiduciary. The Secretary filed a motion for default against Romanowski and the company on March 9, 2020. The Secretary is currently awaiting the court’s ruling on the motion for default. The court has set a telephonic hearing on the default motion for March 1, 2021. Atlanta Office

Acosta v. Papa (E.D.N.Y.)

On November 6, 2018, the Secretary filed a complaint against plan trustees Joseph Papa and Donna Papa and the United MFRS Supplies Inc. Profit Sharing Plan. The complaint alleges that, between May 2014 and August 2017, Joseph and Donna Papa improperly transferred plan assets to the plan’s sponsoring company, United MFRS Supplies, Inc., to fund the company's business operations. The Secretary sought to have the plan's losses restored, have Joseph and Donna Papa barred from serving as a fiduciary to any ERISA-covered plan, and have an independent fiduciary appointed to administer the plan.

On January 3, 2019, the Secretary filed a proposed consent judgment providing that the fiduciaries would repay $455,124 in losses to the plan, as well as $47,659 in lost opportunity costs. The consent judgment was entered on February 22, 2019.

Having learned that Defendants failed to make payments required by the consent judgment, the Secretary on March 13, 2019, requested a pre-motion conference with the court before moving to enforce the judgment or seek contempt. On April 5, 2019, the court ordered Defendants to respond no later than April 15, 2019. On April 15, 2019, Defendants responded through counsel, indicating that they were “hoping to allow some leeway in repayment.”

On April 17, 2019, the court ordered the parties to attempt to resolve the matter without the need for the court’s assistance. Defendants submitted financial declarations for the Department’s review. On the basis of these declarations, on July 1, 2019, the Secretary agreed to a proposed amended consent judgment, where Defendants agreed to pay the judgment over the course of eight years. The court entered the amended consent judgment on July 10, 2019.

On December 17, 2019, the Secretary, having learned that Defendants again were not making payments as required, filed a motion for contempt. The court ordered Defendants to appear on October 2, 2020, to show cause why they should not be held in contempt. At that hearing, the court terminated the contempt motion without prejudice, but set another hearing, at which it asked the Secretary to inform the court whether the Department wished to restore the motion to the court’s docket. On December 1, 2020, the court ordered Defendants to pay $2,500 to the plan immediately, pay $1,000 per month thereafter, and provide proof of payment to the court. New York Office

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Perez v. Sherrod (N.D. Ill.)

On April 29, 2016, the Secretary filed a complaint against Shirley Sherrod and Leroy Johnson, fiduciaries of the Shirley T. Sherrod, M.D., P.C. Target Pension Plan, alleging that, from September 2012 to the present, the fiduciaries failed to administer the plan, allocate distributions properly, and make distributions to the participants consistent with plan documents. On August 1, 2016, Defendants filed their answer. On October 11, 2016, Defendants filed a motion for a protective order, which they withdrew on November 7, 2016. On December 1, 2016, Defendants filed a motion to amend their answer. On December 19, 2016, the Secretary opposed their motion to amend. On December 30, 2016, Defendants filed their reply. On March 27, 2017, the court denied Defendants' motion to amend their answer. On April 26, 2017, Defendants' attorneys filed a motion to withdraw, which the court granted on May 2, 2017. On December 13, 2017, the court denied Defendants motion seeking to limit the Secretary's rights to seek discovery for certain years. On December 21, 2017, Defendants' second attorney filed a motion to withdraw. On September 10, 2018, the Secretary filed a memorandum opposing Defendants' July 18, 2018 motion to compel. On September 17, 2018, the Defendants filed their reply brief in support of their motion to compel. On December 27 and 28, 2018, the Defendants' third set of attorneys filed motions to withdraw.

On February 1, 2019, the Defendants’ fourth attorney entered a notice of appearance. On February 7, 2019, Defendants filed a motion to reconsider the order denying Defendants’ earlier motion to amend their answer. On March 15, 2019, the Secretary filed a brief in opposition to Defendants’ motion to reconsider. On March 25, 2019, Defendants filed their reply brief for their motion to reconsider. On April 5, 2019, the Secretary filed a sur-reply to the motion to reconsider.

On April 30, 2019, the court granted part of Defendants’ motion to compel, ordered the production of one document, and denied the motion as to all other documents. The court also granted Defendants’ motion to extend discovery to take the deposition of the second Department investigator. The court denied Defendants’ motion to reconsider its order denying their motion to amend their answer.

On May 9, 2019, the Defendants requested that discovery be reopened to permit them to obtain an expert. The court granted the request. On May 29, 2019, the Secretary defended the deposition of the second Department investigator. On May 31, 2019, Defendants disclosed the name of their expert, who was an accountant.

On June 10, 2019, the Defendants filed a second motion to reconsider the order denying the motion to amend. On July 8, 2019, the Secretary filed a brief in opposition. On July 22, 2019, defendants filed their reply brief.

On August 19, 2019, Defendants filed a motion for miscellaneous relief, essentially arguing that plaintiff’s damages should be limited. After oral arguments on the motion, the court indicated it would deny the motion, and Defendants withdrew it on August 21, 2019. In August and September 2019, Defendants filed several motions to extend their deadline to provide their expert report and the Secretary objected to each extension. The court gave a final deadline of October 11, 2019. The Defendants notified the court on November 7, 2019, they did not intend to use an expert. On November 11, 2019, the court set a summary judgment deadline of February 27, 2020, response by March 27, 2020, and reply by April 10, 2020.

On February 27, 2020, the Department filed a motion for summary judgment. On June 11, 2020, Defendant Sherrod filed a motion for appointment of pro bono counsel. On June 17, 2020, the Department filed a motion to oppose the appointment of pro bono counsel. On July 21, 2020, the court appointed pro bono counsel to represent Sherrod, but noted that Defendant Johnson reported he would proceed pro se. On November 9, 2020, Defendants filed their response to the Department’s motion for summary judgment. On December 9, 2020, the Department filed the reply brief. Chicago Office

Scalia v. 300 Broadway Healthcare, L.L.C. (D.N.J.)

On January 17, 2020, the Secretary filed a complaint alleging that, in late 2015 and early 2016, 300 Broadway Healthcare, L.L.C., doing business as New Vista Nursing & Rehab Center, George Weinberger, and Steve Kleiman had improperly failed to fund health benefit claims incurred by the New Vista Nursing & Rehab Center Medical Plan. On March 23, 2020, Weinberger answered and filed a third party complaint. On April 24, 2020, 300 Broadway and Kleiman answered and added cross-complaints. On May 6, 2020, the court held an initial conference. New York Office

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C. Financing the Union

Scalia v. Hayes (E.D.N.Y.)

On January 31, 2020, the Secretary filed a complaint against William D. Hayes, Christopher Gorman, Thomas Wilson, Carole Raftrey, Frank Mizerik, Marco Berardi, Jeremy Moses, Anthony Vespa, and United Derrickmen & Riggers Association, Local Union No. 197, alleging that, since 2013, they had improperly allocated union salaries and overhead expenses to four ERISA-covered plans. On June 22, 2020, defendants Berardi, Gorman, Hayes, Mizerik, Moses, Raftrey, Sanders, Vespa, Weiss, and Wilson filed an answer. On September 2, 2020, the court entered a consent judgment ordering these defendants and the union to pay $570,000, including $475,000 to the ERISA-covered plans. The consent judgment also provided that no union sponsored fund would transfer money to the union for the purposes of subsidizing, sharing, or reimbursing: (1) any portion of any salary for any person serving simultaneously as a union employee and as a fiduciary to an ERISA covered plan or (2) any portion of the union’s rent or overhead. New York Office

Acosta v. Kavalec (N.D. Ohio)

On April 30, 2019, the Secretary filed a complaint against Robert Kavalec, Charles Alferio, and Victor Collova as trustees of the Fleet Owners Insurance Fund. The complaint alleges that the trustees committed prohibited transactions by paying themselves over $1,500,000 in compensation during November 2014 to at least December 2018. The complaint also alleges that the trustees violated ERISA by approving unreasonable and excessive travel expenses, allowing a former union officer to participate in the plan at no cost, and failing to administer the plan in accordance with the ACA and HIPAA. On November 1, 2019, over the Secretary’s objection, the court entered an order staying the case until March 1, 2020.

On March 23, 2020, Collova filed an emergency motion asking the court to compel the plan to pay his attorney’s fees incurred to date and to advance his attorney’s fees for the remainder of the litigation. In addition to opposing that motion, on April 16, 2020, the Secretary filed a motion for a preliminary injunction to enjoin the plan from paying or advancing attorneys’ fees to any of the Defendants. On July 14, 2020, the court denied Collova’s motion and granted the Secretary’s motion for a preliminary injunction. On November 25, 2020, the Secretary filed a second motion for a preliminary injunction, seeking an order barring Kavalec, the sole remaining trustee, from continuing to pay his salary from plan assets. On January 25, 2021, the court granted the Secretary’s motion and entered a preliminary injunction enjoining Kavalec from paying himself any additional direct or indirect compensation from plan assets. Cleveland Office

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Acosta v. United Transportation Union (N.D. Ohio)

On May 1, 2017, the Secretary filed a complaint against the United Transportation Union (“UTU”), its successor, the International Association of Sheet Metal, Air, Rail, and Transportation Workers (“SMART"), and five trustees of the UTU Group Voluntary Short Term Disability Plan. The Secretary alleges that the Defendants caused SMART and other parties in interest to retain more than $7,000,000 in “administrative expenses” withheld from employees’ wages as employee contributions to the plan. The complaint sought injunctive relief and an order requiring the Defendants to restore all losses to the plan. On April 19, 2018, certain Defendants filed a motion for partial summary judgment, seeking a ruling that, for a portion of the time covered by the complaint, the challenged fees were not paid out of plan assets, and therefore, no fiduciary breaches could have occurred. The Department filed a brief in opposition on June 19, 2018, arguing that summary judgment should be entered in the Department’s favor on this issue, or in the alternative, that the Defendants’ motion should be denied.

On October 24, 2018, the court entered a consent judgment resolving the Department’s claims against Defendant Futhey. On March 27, 2019, the court issued a partially favorable decision denying Defendants’ motion for partial summary judgment. The court agreed with the Secretary’s position that the funds used by the Union to pay itself and its employees for administrative services allegedly done for the plan were in fact, plan assets, but the court held that a genuine dispute of fact existed as to whether the Defendants were fiduciaries. In June 2019, the parties filed cross motions for summary judgment. On March 30, 2020, the court granted in part the Department’s motion for partial summary judgment. The court agreed with the Secretary’s position on the issues of fiduciary status, the fiduciaries’ culpability for prohibited transactions, fiduciary breaches, and co-fiduciary liability arising from the “administrative expenses,” but the court denied summary judgment as to amount of losses.

On October 2, 2020, the court entered a consent judgment, ordering Defendants to pay $6,545,454 to the plan. From this amount, the plan will use $200,000 to retain an independent fiduciary tasked with creating proper policies and procedures for hiring administrative service providers for the plan. The remaining amount will be used to fund a temporary premium holiday for plan participants. In addition, Defendants will pay $545,454 in § 502(l) penalties. The consent judgment also enjoined Defendants from future ERISA violations. Cleveland Office

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D. Prudence of Investments

Note: For other cases involving imprudent investments, please see J. Financial Institution and Service Provider Cases.

Perez v. Bridgeport Health Care Center, Inc. and Chaim Stern (D. Conn.)

On September 8, 2016, the Secretary filed a complaint against Bridgeport Health Care Center, Inc. ("BHCC") and Chaim Stern, fiduciaries of the company's Retirement Plan. The fiduciaries transferred millions of plan assets both directly and indirectly to BHCC, Stern, and Em Kol Chai, a related entity. Between January 2011 and September 2011, the fiduciaries transferred approximately $2.6 million to Em Kol Chai without any contract or agreement related to the transfers. In October 2011, Em Kol Chai executed a Promissory Note for a $3.8 million loan from the plan without any collateral and at an interest rate of 3.25%. The promissory note also provided for a two-year extension, which Stern granted as trustee of the plan without any consideration, such as collateral or a higher interest rate.

On March 23, 2017, the Secretary filed a motion for a preliminary injunction to remove Chaim Stern as fiduciary of the plan and appoint an independent fiduciary. The district court denied the preliminary injunction on March 6, 2018, and the Secretary filed an interlocutory appeal on May 4, 2018. However, on April 18, 2018, BHCC filed for Chapter 11 bankruptcy. Shortly thereafter, various creditors including the Secretary moved to appoint a Chapter 11 trustee. After several days of hearings, the bankruptcy court granted the motion to appoint a Chapter 11 trustee. Stern was removed from being trustee of the Retirement Plan, rendering the Secretary’s appeal as unnecessary, and it was withdrawn.

In August 2018, Stern paid approximately $4.1 million to the Retirement Plan. The district court also appointed an independent fiduciary for the Retirement Plan on June 24, 2019. As a result of several mediation sessions with the district court, the parties reached a resolution and a consent order and judgment was entered on July 13, 2020. Under the consent order and judgment, the fiduciaries paid an additional $840,565 to the Retirement Plan. See also Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern, Section B.1. Collection of Plan Contributions and Loan Repayments and In re Bridgeport Health Care Center, Inc., Section M. Bankruptcy. Boston Office

Hughes v. Northwestern University (S. Ct.)

This case concerns the pleading standards for challenging under ERISA the reasonableness of fees charged by service providers to defined-contribution retirement plans. On October 5, 2020, the Supreme Court sought the Government’s views on the question of whether “allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA, 29 U.S.C. § 1104(a)(1)(B).” Plan Benefits Security Division

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Scalia v. Ruane, Cunniff & Goldfarb, Inc. (S.D.N.Y.)

This case concerns the mismanagement of plan assets, including significant failure to diversify those assets, by fiduciaries of the DST Systems, Inc. 401(k) Profit Sharing Plan. On October 8, 2019, the Secretary filed a complaint against Ruane, Cunniff & Goldfarb, Inc. (“Ruane”), its former chairman and CEO Robert Goldfarb, DST Systems, Inc. (“DST”), two internal DST committees, and 16 individual members of those committees for alleged violations of the duties of loyalty, prudence, diversification, and the duty to follow the plan document under ERISA sections 404(a)(1)(A), (B), (C), and (D) in relation to the Plan, as well as on the part of DST and its committees for fiduciary failure to monitor an investment manager and for co-fiduciary liability. The Secretary also named the Plan as a Rule 19 defendant.

The Secretary’s complaint alleged as follows. Until 2016, for the entire profit-sharing portion of the plan’s assets, the investment manager followed a deliberate strategy of non-diversification, contrary to ERISA’s fiduciary duty to diversify a plan’s investments to minimize the risk of large losses. As a result, the plan’s investment portfolio was highly concentrated in the stocks of certain companies. One in particular, Valeant Pharmaceuticals International, Inc., constituted 45.4% of the portfolio before falling drastically in value. The Plan lost tens of millions of dollars because of the fiduciaries’ failure to appropriately diversify the Plan assets.

On December 4, 2020, defendants filed four separate motions to dismiss. In the first, DST, the two DST committees, and 13 individual DST defendants (joined by two additional individual DST defendants who are separately represented) argued that the Secretary’s claims are time barred by ERISA’s six-year statute of limitations because Ruane and Ruane’s investment strategy had been in place since the 1970s, and by ERISA’s three-year statute of limitations because the Secretary had actual knowledge of Ruane’s investment strategy more than three years before filing the complaint through the plan’s annual Forms 5500 filed with the Department. In the alternative, DST asked the court to order targeted discovery and supplemental briefing on their actual knowledge defense. Ruane and Goldfarb each filed separate motions raising the same arguments as DST. Both also asserted that the Secretary may have had actual knowledge through a private complaint that the Department received under ERISA section 502(h), and both also requested targeted discovery on actual knowledge. Ruane additionally argued that the Secretary failed to state a claim for breach of fiduciary duty because Ruane had no duty to determine the percentage of Plan assets it managed and because Ruane’s investment strategy did not violate ERISA. Finally, one individual DST defendant moved to dismiss the claims against him on the grounds that the Secretary failed to plausibly allege that his conduct while on a DST committee caused the alleged losses. He also joined DST’s statute of limitations arguments.

On January 8, 2021, the Secretary filed a combined opposition to the four motions to dismiss. The Secretary argued that the claims were not barred by the six-year statute of limitations because the violations actually alleged in the complaint -- breaches of ongoing fiduciary duties to ensure the prudent management and diversification of Plan assets and, for the DST defendants, to monitor the Ruane defendants -- occurred within the limitations period. For purposes of the three-year statute, the Secretary argued that the defendants’ assertions regarding the Forms 5500 and the private complaint amounted to charging the Secretary with constructive knowledge, while “actual knowledge” requires more than mere disclosure, as clarified by Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020). The Secretary argued that Ruane’s assertion that the Secretary failed to state a claim against them is based upon a mischaracterization of the Secretary’s allegations regarding breaches of their ongoing fiduciary obligations in their management of the Plan assets, which apply regardless of the percentage of Plan assets that Ruane managed. Finally, the Secretary explained how the complaint adequately alleged that the individual DST defendants breached their duties to the Plan and that those breaches directly caused the Plan’s losses. Briefing was completed as of February 5, 2021.

On December 10, 2019, Ruane filed a separate declaratory judgment action (the “Ruane action”) against hundreds of participants in the Plan who are pursuing relief from Ruane in individual arbitration proceedings (the “Arbitration Claimants”). Ruane also named DST, plaintiffs in various ongoing private suits, and the Secretary as “nominal defendants.” Ruane filed an amended complaint on December 18, 2019, in which it sought declaratory judgments and injunctive relief. On that same date, Ruane filed a motion for a preliminary injunction and appointment of a special master. Ruane sought to stay the arbitrations and sought a declaratory judgment ruling: (1) “that multiple participants here cannot at the same time seek recovery under ERISA in multiple forums for the same harm to the same Plan assets caused by the same alleged breaches of fiduciary duty” and (2) “that either Ferguson [a Plan participants’ private lawsuit] or Scalia [the Secretary’s lawsuit] represents all 10,000 Plan participants or only the approximately 500 who opted out of the Arbitration Agreement.”

On January 24, 2020, the Secretary filed an opposition to Ruane’s motion for a preliminary injunction and special master. The Secretary argued that Ruane had not met its burden for obtaining a preliminary injunction. Most notably, Ruane was unlikely to succeed on the merits because ERISA authorizes the Secretary and private litigants, including the Arbitration Claimants, to bring parallel actions to recover plan losses. In particular, the Secretary has independent enforcement authority to further the public interest, distinct from the interests of individual Plan participants, such that the Secretary does not “represent” any participants as Ruane claimed. Additionally, Ruane would not suffer irreparable harm if the arbitrations were allowed to proceed, and neither the balance of hardships nor the public interest weigh in Ruane’s favor. On July 10, 2020, Ruane moved for voluntary dismissal of its claims after reaching a settlement with the Arbitration Claimants and certain individual plaintiffs. The Ruane action was dismissed with prejudice on September 28, 2020. New York Office and Plan Benefits Security Division

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Perez v. Severstal Wheeling, Inc. Retirement Committee (W.D. Pa.)

On October 31, 2014, the Secretary filed a complaint alleging that from November 3, 2008 through May 19, 2009, the assets of the Wheeling Corrugating Company Retirement Security Plan and the Salaried Employees' Pension Plan of Severstal Wheeling Inc. were imprudently invested by the plans' fiduciaries, including the Severstal Wheeling, Inc. Retirement Committee – specifically committee members Michael DiClemente and Dennis Halpin – and WPN Corp. and its owner Ronald LaBow, who had been hired as the plans' investment manager. The suit also alleged that the Retirement Committee and its members failed to properly oversee the plans and monitor the actions taken by WPN and LaBow. The suit seeks to order the Defendants to restore to the plans all losses and lost earnings, amounting to in excess of $7 million, and to remove the Retirement Committee as fiduciaries and appoint an independent fiduciary with authority to manage the plans.

The Secretary filed motions for additional time to serve LaBow and WPN on February 25, 2015 and April 24, 2015 based on LaBow's attempts to evade service. Service was eventually effected on June 24, 2015. In March 2015, several Defendants filed motions to dismiss the complaint in part. The Secretary replied to the motions and amended the complaint on March 27, 2015.

The case was stayed on April 10, 2015 pending the decision of a Southern District of New York court in a related case in which the Retirement Committee had sued LaBow and WPN. The court in the related case entered a judgment in favor of the Retirement Committee in excess of $15,000,000 on August 10, 2015. LaBow and WPN have appealed that judgment. Following an August 18, 2015 status conference, the court continued the stay in the Secretary's case and scheduled a settlement conference with a magistrate judge. On September 6, 2016, the Secretary agreed to a settlement with the current members of the retirement committee covering May 1, 2009 through the present. The settlement was not filed in court. The Second Circuit Court of Appeals upheld the Southern District of New York judgment on August 30, 2016. The Secretary moved that the case be referred back to the District Court because no further settlement progress was likely with the prior Retirement Committee, DiClemente, and Halpin. The District Court held a scheduling conference on September 20, 2016. On October 14, 2016, the Secretary opposed releasing, to the prior Committee, the settlement agreement with the current Committee. On November 9, 2016, the court ordered that the settlement agreement be released to the prior Committee but not shared with anyone else.

The prior members of the Retirement Committee, DiClemente, and Halpin, filed a motion to dismiss on October 31, 2016, to which the Secretary responded on December 15, 2016. Oral argument on the Retirement Committee's motion to dismiss was held on February 7, 2017 and the Secretary filed a supplemental brief on March 17, 2017. The court issued its ruling on the Retirement Committee's motion to dismiss on June 7, 2017, rejecting the Retirement Committee's position that the Secretary's failure to monitor claim should be dismissed. The court found that the backdated investment management agreement which was signed on December 5, 2008, was effective on November 1, 2008, and dismissed the Secretary's failure to invest claim against the Retirement Committee for November 2008. The court gave the Secretary leave to amend the complaint to allege that the Retirement Committee failed to monitor LaBow, and LaBow failed to invest the plans' assets in November 2008. The court dismissed the co-fiduciary liability claim which was based on the same facts as the failure to monitor claim. The Secretary filed the amended complaint on June 28, 2017. There is a private action against some of the same Defendants (LaBow and WPN).

Following the close of discovery, Defendants filed a motion to exclude the testimony of the Secretary's expert, which the court denied on August 3, 2018. On September 25, 2018, the Secretary filed two motions for summary judgment, one against LaBow and WPN and the other against DiClemente, Halpin, and the Retirement Committee. DiClemente, Halpin, and the Retirement Committee, likewise, filed motions for summary judgment asserting that they met their fiduciary obligations to monitor the plans.

On July 16, 2019, the court issued a summary judgment decision in favor of the Secretary with respect to the claims asserted against LaBow and WPN. On October 17, 2019, the court entered an order against LaBow and WPN, requiring them to pay $6,355,972 to the plan and permanently barring the Defendants from serving in a fiduciary capacity to any ERISA-covered plan. On September 30, 2019, the court issued a memorandum opinion outlining the reasons that it was granting summary judgment in favor of the Retirement Committee, DiClemente, and Halpin.

On December 6, 2019, the Secretary filed a notice of appeal of this adverse decision. On March 18, 2020, the Secretary filed an opening brief on appeal, requesting, among other things, that the judgment be reversed. On April 17, 2020, DiClemente, Halpin, and the SRC filed their responsive brief requesting that the judgment in their favor be affirmed. The Department’s reply brief was filed May 8, 2020. The Third Circuit granted the Secretary’s request for voluntary dismissal on August 6, 2020. Philadelphia Office, and, on the appeal, Plan Benefits Security Division

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E. Preemption

Howard Jarvis Taxpayers Association v. California Secure Choice Retirement Savings Program (E.D. Cal.)

In this case, plaintiffs allege that California’s Secure Choice Act is preempted under ERISA section 514(a). As background, the Secure Choice Act requires that employers who do not have a pre-existing ERISA-covered retirement plan for their employees establish payroll deduction arrangements in order to fund IRAs managed by CalSavers, a subdivision of the California Treasurer’s Office.

The district court granted CalSavers’ motion to dismiss plaintiffs’ initial complaint on March, 2019, but gave leave to file an amended complaint. The government filed a statement of interest that opposed CalSavers’ motion to dismiss the amended complaint on September 13, 2019. The brief argues that the Secure Choice Act is preempted by ERISA under both the “reference to” and “connection with” doctrines, as well as general conflict preemption principles. Specifically, the brief argues that: (1) the Act makes “reference to” employee benefit plans by basing an employer’s obligation to maintain what is the functional equivalent of an ERISA-covered plan (through CalSavers) on what should be a voluntary decision to establish an ERISA-covered plan (outside of CalSavers); (2) that the CalSavers withholding arrangements are in fact ERISA covered plans because the employer’s duties under the Act are sufficient to find that the employer “maintains” the plan under ERISA section 3(2); (3) that the Act has an impermissible “connection with” employee benefit plans because state auto-IRA laws subject multi-state employers to a patchwork of different regulations affecting retirement plans; and (4) that the Act serves to force employers to establish ERISA covered plans.

On March 10, 2020, the district court granted defendant’s motion to dismiss, agreeing with the Secretary that the Act was preempted. Plaintiff appealed, and the Secretary filed an amicus curiae brief supporting plaintiff on June 19, 2020, contending that the district court correctly found the Act preempted. Plan Benefits Security Division

Rutledge v. Pharmaceutical Care Management Association (S. Ct.)

On April 15, 2019, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in this case. The question presented is whether ERISA preempts an Arkansas statute regulating pharmacy benefit managers’ drug-reimbursement rates. The government’s brief, filed on December 4, 2019, takes the position that the petition for a writ of certiorari should be granted because the Eighth Circuit’s decision that ERISA preempted the Arkansas law is contrary to Supreme Court precedent and the decisions of other courts of appeals. Oral argument was held October 6, 2020. The Court issued a unanimous decision on December 10, 2020 in favor of Arkansas, adopting the reasoning put forth in the Government’s brief, holding the Arkansas law was not preempted by ERISA and reversing the Eighth Circuit decision. Plan Benefits Security Division

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F. Participants' Rights and Remedies

Guenther v. Lockheed Martin (9th Cir.)

The case concerns the three-year time limit in ERISA section 413, which runs from “the earliest date on which the plaintiff had actual knowledge of [a fiduciary] breach or violation.” The district court ruled that inconsistent fiduciary statements trigger an ERISA plan participant’s actual knowledge of an ERISA claim and, therefore, ERISA bars his claim after three years. The Department of Labor submitted an amicus curiae brief on August 22, 2018, arguing that the standard for actual knowledge is not constructive knowledge, that the participant did not know which statement was false, and that the fiduciary declined to clarify its statements. Accordingly, the brief argued that the participant did not have actual knowledge of a claim of misrepresentation. Oral argument, in which the Secretary participated, was held on June 11, 2019. On August 25, 2020, the Ninth Circuit issued its decision holding that plaintiff’s claim of breach of fiduciary duty was time-barred under ERISA’s statute of limitations because plaintiff failed to file suit within three years of obtaining “actual knowledge” of the breach. Plan Benefits Security Division

Intel v. Sulyma (S. Ct.)

On October 28, 2019, the United States filed an amicus brief supporting the respondent in Intel v. Sulyma, No. 18-1116, a case in which the Supreme Court will interpret for the first time ERISA’s three-year statute of limitations. That statute requires plaintiffs, including the Secretary of Labor, to bring suit within three years of having “actual knowledge” of the breach or violation. Petitioner Intel argued that plan participants have actual knowledge of the contents of all written material the plan sends to them, even if the participants did not read those materials. The government’s brief argued that actual knowledge does not encompass constructive knowledge of unread materials, and asked the Supreme Court to affirm the Ninth Circuit’s decision. The government participated in the December 4, 2019 oral argument. On February 26, 2020, the Supreme Court affirmed, holding that, under 29 U.S.C. § 1113(2), a plaintiff does not necessarily have “actual knowledge” of the information contained in disclosures that he receives but does not read or cannot recall reading. Rather, to meet § 1113(2)’s “actual knowledge” requirement, the plaintiff must in fact have become aware of that information. Plan Benefits Security Division

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Laurent v. PwC (2d Cir.)

In a 2015 decision, the Second Circuit held that the PricewaterhouseCooper’s (PwC) pension plan violated ERISA’s accrual and vesting provisions. However, on remand, the district court held that ERISA did not provide a remedy for these ERISA violations under either section 502(a)(1)(B) or (a)(3). The participants appealed this ruling to the Second Circuit. On August 15, 2018, the Secretary filed an amicus brief supporting the participants, arguing that relief for violations of ERISA’s plan content standards are available under either section 502(a)(1)(B) or (a)(3). The Secretary also participated in oral argument on October 23, 2019.

On December 23, 2019, the Second Circuit reversed the district court’s decision, holding that ERISA sections 502(a)(3) and (a)(1)(B) authorize a two-step remedy. First, the Court read section 502(a)(3) as plainly authorizing equitable remedies, including reformation, to “redress violations ofʺ or ʺto enforce any provisions ofʺ ERISA. The Court further concluded that reformation may apply “where the written terms of a pension plan indisputably violate ERISA, but there is no allegation that the violation stems from traditional fraud, mistake, or otherwise inequitable conduct.” After holding that section 502(a)(3) authorizes the reformation of plan terms that violate ERISA, the Court had “little trouble holding that the district court [has] authority to grant . . . enforcement of the reformed Plan under [section] 502(a)(1)(B).”

PwC filed a petition for certiorari on July 10, 2020. On October 19, 2020, the Supreme Court requested the Government’s views on whether to grant certiorari on the question of whether “the Second Circuit improperly combined parts of two separate remedial sections under ERISA, interpreting § 502(a)(3) to permit reformation of a plan solely as a preparatory step to ultimate relief under § 502(a)(1)(B) in the form of money damages.” Plan Benefits Security Division

Mitchell v. Blue Cross Blue Shield of North Dakota (8th Cir.)

This case concerns constitutional and statutory standing for plan participants who seek to challenge a denial of an ERISA covered health benefits claim. The questions presented were whether a participant who sues the plan for wrongfully denying his claim suffered an “injury in fact” when the medical provider did not require the participant to pay the denied amount; and whether a former employee with a colorable claim to benefits has statutory standing to bring an action under ERISA section 502(a)(1)(B) to challenge a denial.

On January 22, 2019, the Secretary filed an amicus brief urging the Eighth Circuit to hold that a participant or beneficiary has standing to challenge a claims denial under ERISA section 502(a)(1)(B) even if the provider has not yet directly billed the participant. The Secretary argued that a participant suffers an "injury in fact" and has constitutional standing when the plan refused to fully reimburse his medical provider. The Secretary also argued that a former employee with a colorable claim to benefits denied by the plan has statutory standing as a plan participant or beneficiary to bring an action under ERISA to challenge the plan’s decision. Oral argument, in which the Secretary participated, was held on October 15, 2019.

On March 20, 2020, the Eighth Circuit issued an opinion in accord with the Secretary’s position, and holding that plaintiffs had standing because a denial of benefits is a cognizable injury regardless of whether it results in monetary loss to the participants. Plan Benefits Security Division

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N.R. v. Raytheon (1st Cir.)

This case involves a suit by a beneficiary of an ERISA plan under ERISA section 502(a)(1)(B) (among other causes of action) alleging that ERISA’s MHPAEA provision (ERISA section 712, 29 U.S.C. § 1185, is a term of the plan, and that, by denying speech-therapy benefits pursuant to an exclusion that violated MHPAEA, defendants failed to pay benefits due under the plan. The district court dismissed the claim, holding that MHPAEA is not incorporated into the terms of ERISA plans but is instead a substantive provision of ERISA, the violation of which is redressable only through section 502(a)(3). Additionally, the court dismissed the plaintiff’s allegation under section 502(a)(3) that the plan’s application of the speech therapy exclusion violated ERISA’s parity requirements for a failure to allege sufficient factual details, despite the fact that the plan denied the plaintiff access to information that he requested, that he was entitled to under the Department’s claims procedure regulation and that would have allowed him to plead his parity allegation with more specificity.

On October 7, 2020, the Secretary filed an amicus brief in the case arguing that where beneficiaries have been denied plan benefits pursuant to limitations or exclusions that allegedly violate ERISA’s parity requirements, they may bring a cause of action for those benefits under ERISA section 502(a)(1)(B), and in construing their rights under the plan, a court should disregard terms contrary to ERISA’s requirements. The Secretary also argued that the court erred in failing to consider the plan’s violations of its disclosure obligations in assessing the plausibility of the plaintiff’s parity allegations. Plan Benefits Security Division

Ovist v. Unum Life Ins. Co. of America (1st Cir.)

Plaintiff Rhonda Ovist was a professor at Rollins College and a participant in the College’s long term disability (LTD) plan insured and administered by Defendant Unum. The LTD policy had a 24 month limitation on benefits for disabilities based on self-reported symptoms (SRS), which are “manifestations” of a condition that are not objectively verifiable, such as fatigue, pain, and headaches. After independent medical review, Unum ultimately determined that Ovist’s symptoms were not objectively verifiable, and it applied the SRS limitation to terminate her benefits. Ovist filed suit in the U.S. District Court for Massachusetts, and the Court granted summary judgment for Unum, holding that Unum reasonably applied the SRS limitation. The Court also made the threshold finding that Ovist had the burden of proof to show her entitlement to benefits.

On October 21, 2020, the Secretary filed an amicus brief arguing that the burden to prove a limitation on benefits, like the burden to prove an exclusion from coverage, rests with the plan, not the participant. Plan Benefits Security Division

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Thole v. U.S. Bank (S. Ct.)

In 2017, the Eighth Circuit issued a decision that relied on its prior precedent to hold that participants in overfunded defined benefit pension plans have no standing to sue under ERISA §§ 502(a)(2) and (a)(3). Plaintiffs filed a petition for writ of certiorari, seeking review on both statutory and constitutional grounds. On May 21, 2019, the government filed a brief urging the Supreme Court to grant the writ of certiorari on the questions of whether participants in overfunded defined-benefit pension plans have statutory and constitutional standing to sue. On June 28, 2009, the Supreme Court granted the petition for writ of certiorari on both questions.

On September 18, 2019, the government filed a brief in support of the participants on the merits, arguing that participants have constitutional standing because (1) the plan suffered a loss and, under the trust law, the participants can sue on the plan’s behalf; (2) as is historically well recognized in trust law, the participants suffered their own injury simply as a result of the alleged breach of trust; and (3) the participants suffered an injury as a result of the materially increased risk to their benefits. The government also argued that the participants had standing under the statute to pursue their claims, because the language of ERISA §§ 502(a)(2) and (a)(3) plainly supports such right, and it is in no way circumscribed by the type of plan at issue or the funding level of such plan.

On June 1, 2020, the Supreme Court issued a decision holding that the participants did not suffer a “concrete” injury-in-fact and thus lacked Article III standing, because, win or lose, they would receive exactly the same benefits. Plan Benefits Security Division

G. Section 510

None

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H. Participant Loans

Note: This section covers loans made in violation of ERISA. For cases involving failure to forward participant loan repayments to plans, see section B.1. Collection of Plan Contributions and Loan Repayments.

None

I. MEWAs

Scalia v. ABMS (N.D. Ga.)

On March 1, 2020, the Secretary filed a complaint against Advance Benefits Management Systems USA, Inc. (“ABMS”), its founder and CEO, C. Kenneth Johnson, and its former president, Randy Wright. ABMS was a third-party administrator that, ostensibly, administered 118 level-funded employer health benefits plans. The complaint alleges that ABMS, Johnson, and Wright diverted to their own uses employer funds and employee claim funds that were owed to the plans. Due to their misuse of these funds, as well as to their failure to obtain insurance reimbursements for the plans, ABMS became insolvent and incapable of paying benefit claims that it owed and should have been able to pay. That insolvency left thousands of participants and beneficiaries, who had paid premiums believing they had health benefits coverage under the plans, personally liable for over $7,000,000 in medical charges. Thus, along with filing the complaint, the Secretary moved for judicial appointment of a successor fiduciary for the plans and for an All Writs Act order to temporarily stay any collection actions as well as other lawsuits regarding unpaid charges. On May 21, 2020, the court appointed an independent fiduciary, Larry Magarik, to administer the plans and their assets. The independent fiduciary has hired a third party administrator to administer the payment of claims. The All Writs Act order was approved on June 2, 2020. Atlanta Office

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Acosta v. AEU Benefits, LLC (N.D. Ill.)

On November 2, 2017, the Secretary filed a complaint and motion for temporary restraining order ("TRO") against AEU Benefits, LLC, AEU Holdings, LLC (together "AEU"), and Black Wolf Consulting, Inc. The ex parte motion and complaint alleged that participants in a multiple employer welfare arrangement ("MEWA") are experiencing irreparable harm as a result of over $26 million in unpaid medical claims dating back to 2016, AEU and Black Wolf caused these losses as a result of the MEWA's excessive fees, and plan assets are being unlawfully held in offshore Bermuda accounts. The court issued the TRO on November 3, 2017, temporarily removing AEU and Black Wolf from their positions as fiduciaries and service providers to the ERISA-covered plans participating in the MEWA, freezing bank accounts holding plan assets, and appointing an independent fiduciary to manage the MEWA and participating plans. On November 15, 2017, the court issued an order under the All Writs Act, staying and enjoining all state and federal court actions against the MEWA and participating plans, all actions against participants and beneficiaries for unpaid benefit claims incurred while participating in the MEWA, and prohibiting adverse credit reports against participants and beneficiaries for nonpayment of monies from health claims incurred while participating in the MEWA. On December 13, 2017, the court entered a preliminary injunction. In addition to the relief set forth in the TRO, the preliminary injunction permits the appointed independent fiduciary to use the monies in all but one of the frozen bank accounts to pay claims and reasonable and necessary plan expenses, and requires AEU and Black Wolf to pay the independent fiduciary's fees. On December 21, 2017, the court granted the independent fiduciary's motion to terminate the MEWA and participating plans effective January 31, 2018, except as to plans associated with aggregator Focus Health Solutions, which will be the subject of further briefing. In addition, on November 6, 2017, the Secretary issued a cease and desist order to stop all sub-brokers and aggregators to the MEWA from marketing the MEWA and accepting new applications for enrollment, in order to limit additional harm to prospective employers and participants. Of the 53 subjects of the Cease and Desist Order, five requested hearings before the Office of Administrative Law Judges.

Between January and May 2018, all objections to the Cease and Desist Order were resolved by individual agreements before the Administrative Law Judge. On March 2 and 10, 2018, the AEU Defendants and Black Wolf filed answers to the complaint. On September 12, 2018, AEU Defendants filed an amended answer and third-party claims against Black Wolf and new third-parties to the action. On October 9, 2018, the Secretary filed an amended complaint and added new Defendants: James D’Iorio, Steven Goldberg, Charles LaMantia, Rod Maynor, Stephen Satler, Veritas Benefits, LLC, Veritas PEO, LLC, Wilson Benefit Services, LLC, WBS, LLC, and Donald R. Wilson. On November 14, 2018, a third-party Defendant, Tall Tree, LLC, filed a motion to dismiss AEU’s allegations against it. On December 20, 2018, Satler, Goldberg, AEU Defendants filed an answer to the Secretary’s amended complaint. On December 20, 2018, LaMantia filed an answer to the Secretary’s amended complaint.

On January 11, 2019, the court entered a consent order and judgment against Defendants SD Trust Advisors, LLC, and Thomas Stoughton, requiring restoration of $175,000 to the MEWA. On January 17, 2019, Defendant Wilson filed an answer to the Secretary’s first amended complaint. D’Iorio and the Veritas entities filed their answer on February 7, 2019, and filed an amended answer on February 28, 2019.

On February 25, 2019, Black Wolf and Maynor filed a Motion for Leave to File a Cross-Claim against the court-appointed independent fiduciary. This motion was denied on April 24, 2019. Black Wolf and Maynor filed their answer to the Secretary’s first amended complaint on May 1, 2019. On August 20, 2019, the Secretary filed a motion to hold the AEU Defendants and Black Wolf in contempt for failing to repay the independent fiduciary’s fees and expenses as required by the preliminary injunction.

On September 25, 2019, the case was referred to a magistrate judge for a settlement conference. On October 11, 2019, the court granted the AEU Defendants’ Motion to File Their Profit and Loss Statement (an attachment to their response to the Secretary’s contempt motion) under seal. The Secretary filed a motion for reconsideration, which the court granted on December 5, 2019, unsealing the AEU Defendants’ profit and loss statement.

On December 19, 2019, the Secretary filed a second amended complaint, alleging successor liability and/or alter ego liability against new Defendants Halo P & C North America, LLC, and Halo Advisors, LLC. The second amended complaint also made new allegations of co-fiduciary liability against Defendants LaMantia, D’Iorio, and the Veritas Defendants.

On January 9, 2020, the Secretary attended settlement conferences with the following Defendants: AEU, Satler, Goldberg, Black Wolf, Maynor, LaMantia, Wilson Benefit Services LLC, WBS, LLC, and Donald Wilson.

On June 26, 2020, the court entered two consent orders and judgments. The first requires LaMantia to restore $82,140 to the MEWA. The second requires Wilson Benefit Services LLC, WBS, LLC, and Donald Wilson to restore $18,000 to the MEWA. On July 13, 2020, Veritas Benefits, LLC, Veritas PEO, LLC, and D’Iorio attempted to file a pro se answer to the Second Amended Complaint. The Secretary objected to D’Iorio filing a pro se answer on behalf of corporate Defendants, and subsequently, D’Iorio filed an amended answer on only his behalf. On September 21, 2020, the court entered a consent order and judgment against Defendants AEU Benefits, LLC, AEU Holdings, LLC, Halo P&C North America, LLC, Halo Advisors, LLC, Satler, and Goldberg, requiring them to restore $1,133,000 to the MEWA.

As of October 2020, the remaining Defendants in this matter are: Black Wolf/Maynor, Veritas Benefits, LLC, Veritas PEO, LLC, and D’Iorio. All Defendants are unrepresented by counsel. On October 19, 2020, the court granted the parties’ motion for revised scheduling order. Under the revised scheduling order, the parties have until May 28, 2021, to complete fact discovery; until June 30, 2021, for Plaintiff to disclose his expert report(s); and until November 30, 2021, to file dispositive motions.

On October 19, 2020, the Secretary filed for entry of default against Veritas Benefits, LLC and Veritas PEO, LLC for their failure to answer the Second Amended Complaint. The clerk of the court entered this default, and on January 11, 2021, the Secretary filed his motion for default judgment against Veritas Benefits, LLC and Veritas PEO, LLC. This motion is currently still pending.

On November 10, 2020, the Secretary also filed for an application of entry of default against Black and Maynor for their failure to answer the Second Amended Complaint. The clerk of the court entered this default, and the Secretary plans to file a motion for default judgment against Black Wolf and Maynor shortly. Chicago Office

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Perez v. Doyle (D.N.J. and 3rd Cir.)

On April 28, 2005, the Secretary filed a complaint involving the Professional Industrial & Trade Workers Union (“PITWU”) Health and Welfare Fund, a MEWA. The Secretary alleged that James Doyle, who marketed the plan's health benefits, diverted employer contributions paid to the plan's trust for non-plan purposes, including for his own commission and fees, and that Cynthia Holloway, as a trustee, failed to institute any proper administration of funds despite clear indications of diversion. The fund collapsed with more than $7 million of unpaid health claims. Following a bench trial in 2009, one Defendant, Mark Maccariella, a co-trustee, entered into a consent order in which he agreed to be enjoined from serving as a fiduciary or service provider for any ERISA-covered plan and to restore more than $195,000 to the plan. On June 30, 2010, the district court granted judgment in favor of Doyle and Holloway, finding that the Secretary failed to conclusively establish that the plan was underfunded or that the marketing fees were unreasonable.

The Secretary filed an appeal on August 27, 2010, with an opening brief filed on December 13, 2010 and a reply on March 4, 2011. The Secretary argued that the district court erred in holding that Holloway, as trustee, did not breach her duties when the evidence showed that she failed to prudently manage the trust fund and did nothing to prevent the diversion of its assets, and that there was substantial evidence, which the district court failed to address, that Doyle was a fiduciary in that he controlled plan assets and that the fees he forwarded from plan assets were unreasonable. The Third Circuit heard oral argument on April 27, 2011. The Secretary received a favorable decision on March 27, 2011, vacating the decision and remanding for further proceedings.

On January 8, 2015, the district court issued a post-remand decision against the Defendants, holding Holloway and Doyle liable for diverting over $4.6 million and $3.8 million of plan assets, respectively, in the form of bogus union dues and unnecessary sales commissions. The Defendants appealed once more to the Third Circuit. The Secretary filed a response on September 3, 2015 arguing that the paid employer contributions were plan assets, that Doyle is a functional fiduciary based on his control and discretion over the billing and receipt of the paid employer contributions, and that Holloway and Doyle had both breached multiple fiduciary duties in failing to protect these plan assets from diversion. Oral argument, in which the Secretary participated, was held on January 21, 2016.

On August 18, 2016, the Third Circuit issued a mostly favorable decision upholding the functional fiduciary status of the appealing Defendants. The Third Circuit rejected Doyle's arguments and affirmed in full the lower court's judgment against Doyle. The court also rejected Holloway's arguments that the contributions were not plan assets, but remanded to have the district court make findings as to when Holloway's liability for plan losses arose. The Third Circuit found that Holloway could not simply be held liable for losses starting on the date of her installation as a fiduciary; liability could only attach when sufficient "red flags" (the Third Circuit's phrase) put her on notice.

The district court judge then issued an "order on mandate" re-entering the case on the district court docket on November 3, 2016. The district court assigned the case to a Magistrate Judge for settlement discussions. Pre-trial conferences were held on March 14, 2018, and September 11, 2018. On November 5, 2018, the Magistrate Judge permitted the Secretary to conduct additional written discovery and take depositions of additional witnesses with respect to Holloway's affirmative defense and set this matter for trial. On March 11 and 12, 2019, trial was held. The parties submitted posttrial briefs on July 19, 2019.

On November 13, 2020, the district court issued an opinion holding Holloway jointly and severally liable along with the other defendants, awarding $776,709 in restitution to the fund, imposing a fiduciary bar, and ordering briefing on prejudgment interest. On December 11, 2020, the Secretary filed a brief arguing that prejudgment interest should be awarded at the 26 U.S.C. § 6621(a)(2) underpayment rate, compounded daily. Holloway’s brief is pending. New York Office and, on appeal, Plan Benefits Security Division

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Scalia v. Florida Bankers Health Consortium, Inc. (M.D. Fla.)

On July 21, 2020, the Secretary filed a complaint against Florida Bankers Health Consortium, Inc. (“FBHC”), Trust Management Group, Inc. (“TMG”) and individual members of the FBHC board of directors. The complaint alleged that the defendants were fiduciaries to the FBHC welfare benefit plan. The complaint further alleged the fiduciaries breached their ERISA fiduciary duties by failing to monitor fees the plan paid to TMG, causing the plan to pay excessive fees and causing prohibited transactions. On January 26, 2021, the parties reached an out-of-court settlement, whereby TMG will pay $40,000 to the plan, current board members will undergo four hours of ERISA education, and the defendants will implement operational changes to ensure compliance with ERISA. FBHC will provide copies of the plan’s monthly financial monitoring reports and lag claims reports to the Department through the end of calendar year 2021. FBHC is also being monitored under a Corrective Action Plan with the Florida Office of Insurance Regulation. Atlanta Office

Scalia v. Kentucky Bankers Association (W.D. Ky.)

On September 3, 2020, the Secretary reached a settlement with the Kentucky Bankers Association, Participating Employer Committee, Association Healthcare Consortium, Inc. d/b/a KBA Benefits Trust, and the current and former trustees of the Kentucky Bankers Association Health and Welfare Benefit Program, namely, Ballard W. Cassidy, Jr., W. Fred Brashear, Neil S. Bryan, Burt Bellamy, and Jack W. Strother, Jr. (collectively, “fiduciaries”). On September 9, 2020, the Secretary filed simultaneously a complaint and a consent order and judgment. The consent judgment, entered October 13, 2020, required the fiduciaries to restore $1,561,818 to the Plan as losses from alleged violations of ERISA sections 404 and 406.

Specifically, the complaint alleged that the Plan’s fiduciaries violated ERISA when they received Plan assets through insurance commissions, salary reimbursements, and lease payments from early February 2011 through mid-September 2017. The Plan, administered in Louisville, Kentucky, is a multiple employer welfare arrangement that holds and administers the assets of 76 member banks and has approximately 2,899 participants.

The consent judgment requires the fiduciaries to utilize the restored funds to provide a per month participation credit, against premiums for the 2021 Plan year, to Plan participants who were harmed by the ERISA violations. The consent judgment also requires the fiduciaries to implement written policies and procedures for the Plan’s selection of service providers and payment of administrative expenses. This will include, but not be limited to, written policies and procedures to ensure the following: (1) all Plan expenses are for the exclusive benefit of Plan participants and are reasonable and necessary; (2) the Plan’s agreements for and payments of fees comply with ERISA §§ 404 and 406; (3) where any Plan payments to KBA or its affiliates do not comply with ERISA, the arrangement will be terminated immediately; (4) no more than reasonable compensation is to be paid, as required by ERISA § 408(b)(2), 29 U.S.C. § 1108(b)(2) and (c)(2), 29 C.F.R. 2550.408b-2 and 2550.408c-2, and, where required by ERISA, no more than direct expenses are paid; (5) service providers will provide services and receive payments only in accordance with ERISA and their contractual obligations to the Plan; and (6) decisions made for the Plan by AHC and the AHC Board Members are sufficiently explained in writing in the Plan’s meeting minutes. Finally, the consent order and judgment required the breaching fiduciaries to pay $312,363 in § 502(l) penalties. Chicago Office

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Secretary v. Koresko (E.D. Pa. and 3rd Cir.)

This is a fiduciary breach case involving the diversion of assets from a MEWA death benefit arrangement. While the case was ongoing in the district court, Koresko and other Defendants filed multiple appeals, a motion to stay and a mandamus action. Ultimately, the Secretary was successful in getting all of the appeals dismissed as interlocutory, except the appeal from the order prohibiting the Defendants from acting as plan fiduciaries or service providers and appointing an independent fiduciary. Eventually, after numerous extensions, Koresko filed his opening brief on May 28, 2014, and the Secretary filed a response brief on June 27, 2014, arguing that the court of appeals should uphold the district court's order. On March 6, 2015, the appeal was submitted to a panel without oral argument.

Meanwhile, the district court held a three-day bench trial in June 2014. By decisions issued in February and March 2015, the district court made the injunctions permanent and held Koresko liable for $38 million in plan losses. On April 24, 2015, the district court granted the Secretary's and U.S. Trustee's motion to dismiss six pending Koresko-related bankruptcy petitions with prejudice, finding that the bankruptcy process had been used as a means to impede the Department of Labor's prosecution against the Koresko Defendants rather than to benefit the beneficiaries. On July 21, 2015, the district court issued an order appointing a forensic accountant responsible for conducting, at the Defendants' expense, an equitable accounting of the assets of the trusts at issue, with a sub-accounting of each plan's interest in the trust. On August 4, 2015, the district court issued an order appointing a new independent fiduciary and ordering Koresko to pay for the associated costs at the end of the appointment.

Koresko appealed the merits decision, and filed a brief on September 23, 2015, to which the Secretary responded on November 9, 2015. Koresko also appealed the August 4 order appointing an independent fiduciary, and the court ordered the appeals consolidated and asked for additional briefing on the issues relating to the order. The parties submitted letter briefing on these issues. On April 5, 2016, the Third Circuit affirmed in full the judgment against Koresko without holding oral argument.

In subsequent proceedings, the district court ordered Koresko to turn over property and assets to the Trust pursuant to the judgment. Koresko did not comply, and the court jailed Koresko for contempt. Koresko challenged the order of contempt but was denied relief. On October 15, 2016, Koresko appealed that denial. At the same time, the Secretary proceeded with collection efforts, and, on April 21, 2016, the Secretary's representative recorded the final judgment in this case for restitution of losses and disgorgement of profits in the State of Oklahoma, based on information that Koresko held funds in escrow in Oklahoma that could be used towards satisfying Koresko's liability. On September 23, 2016, the district court issued a writ of continuing garnishment. On October 17, 2016, the Secretary identified $50,000 held in an escrow account in which Koresko has a substantial, non-exempt interest subject to the garnishment order. On November 10, 2016, Koresko filed a motion to quash the writ of garnishment, which the court denied on December 5, 2016.

On January 13, 2017, Koresko filed another notice of appeal with respect to a garnishment order. On February 8, 2017, Koresko filed a motion to stay proceedings along with other miscellaneous relief. The Secretary filed a response on February 21, 2017. The Third Circuit, on March 15, 2017, denied Koresko's motion for miscellaneous relief. The Third Circuit then consolidated the two appeals. On June 19, 2017, Koresko filed a letter motion for release pending appeal and a stay of briefing. The Department filed a response on August 3, 2017, and the Court denied the motion on August 18, 2017. Koresko's opening brief was filed on August 18, 2017, and the Secretary filed a response brief on October 18, 2017. Koresko filed an Emergency Motion for Immediate Release and Vacatur of Orders on November 15, 2017. The Secretary filed a response on November 20, 2017. The Third Circuit denied the motion as moot on November 27, 2017. On December 5, 2017, Koresko filed a new motion, again urging the court to release him and the Secretary filed a similar response. On December 19, 2017, the motion was denied.

On December 15, 2017, the district court held a hearing with Koresko, asking him to sign a power of attorney, which might have released him from contempt of court. Koresko refused to sign.

Koresko filed two appeals, on January 19, 2018, and February 9, 2018, with the Third Circuit, while awaiting a decision on the contempt and garnishment orders, regarding various district court proceedings and demanding release. The Secretary responded to each appeal, arguing that the court lacked jurisdiction and that Koresko lacked standing to appeal. The Third Circuit denied both appeals for a lack of appellate jurisdiction and also denied his petitions for rehearing.

On March 23, 2018, the Third Circuit issued a decision affirming both the contempt and garnishment orders, rejecting Koresko's arguments that he had been wrongfully imprisoned and holding the garnishment was appropriate. On June 12, 2018, the Third Circuit denied Koresko's petition for a rehearing, and a mandate was issued on June 20, 2018. Koresko filed one additional appeal with the Third Circuit on June 20, 2018, but it was dismissed for failure to pay the filing fee for the notice of appeal. Subsequently, Koresko was released from federal custody following an order issued by the district court on June 22, 2018, vacating the contempt order once Koresko executed a power of attorney related to the real estate in Nevis.

After receiving extensions to file, on November 1, 2018, Koresko filed a petition for a writ of certiorari with the United States Supreme Court regarding the contempt order, and on November 9, 2018, Koresko filed a petition for a writ of certiorari with the United States Supreme Court regarding the garnishment order. The government waived a response to both petitions, and the Supreme Court denied both petitions.

On November 3, 2018, the district court held a day-long evidentiary hearing on the issues of whether Wilmington Trust Company (“WTC”), the court-appointed trustee, properly handled the tax liability and tax withholdings relating to the distribution of trust funds to plan sponsors and plan participants under the Court’s equitable distribution order. The Department cross-examined two witnesses from WTC who confirmed that it violated a court order prohibiting the trustee from withholding employer-side FICA taxes from the corpus of the trust. The witnesses also confirmed that WTC failed to investigate and address properly the past tax settlements between the IRS and various plan sponsors and participants when determining whether tax withholdings were proper in connection with the equitable distribution. As a result, the court ordered WTC to restore $778,485 to the trust and enjoined it from certain tax withholdings until further instruction from the court.

On April 8, 2019, the district court held a hearing on points of law to determine how WTC should handle the past tax withholding errors. Although the Department took no position on the requirements under the Internal Revenue Code, the Department suggested a possible course of action that would comply with ERISA. As a result, on August 9, 2019, the court ordered that WTC obtain refunds from the IRS relating to past tax withholding errors.

On December 3, 2020, the district court granted the Secretary’s July 31, 2020 request for final distribution of the remaining $17.7 million being held in trust for the benefit of the welfare benefit plans whose assets were misappropriated by John Koresko in the late 1990s and early 2000s. The court ordered that the final distributions be made by January 29, 2021, that the independent trustee, Wilmington Trust, submit a final accounting by February 26, 2021, and that the Department submit a proposed order to enter final judgment 30 days thereafter. Philadelphia Office and, on appeal, Plan Benefits Security Division

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Secretary v. Medova Healthcare Financial Group, LLC (D. Kan.)

On December 10, 2020, the Secretary filed a complaint and an ex parte motion for a temporary restraining order and preliminary injunction against the Medova Healthcare Financial Group, LLC; Daniel Whitney; Michelle Willson; Midlands Casualty Insurance Company, Inc.; Just Diabetic Supplies, LLC; Advent Health Services, LLC; Capital Advisors, Inc.; Patrick Enterprises, Inc.; Lifestyle Health Plans Group Benefit Program; Lifestyle Health Plans – Level Funded Group Benefits; Level Funded Lifestyle Self-Insured Health Plan; and Lifestyle Health Plans. The ex parte motion and complaint allege that the defendants’ misuse of the MEWA’s funds has created a critical funding deficiency of over $18 million. As of November 6, 2020, the Medova MEWA provided benefits and held assets for at least 2,600 participating health plans serving more than 35,000 employees in 38 different states. On December 11, 2020, the court denied the motion, stating that the Secretary failed to show “immediate and irreparable injury” and that defendants’ counsel “should be given an opportunity to be heard.” The complaint alleges that the Medova defendants breached their fiduciary duties of loyalty and prudence and engaged in prohibited transactions in violation of ERISA by commingling plan assets, diverting plan assets to corporate accounts and other companies they controlled, and using plan assets belonging to one plan to pay the claims of another going back as far as 2016. The Secretary alleges the defendants made material omissions to current and prospective participating employers regarding the MEWA’s failure and its ability to pay claims, as well as the overall financially hazardous condition of the MEWA. The complaint also alleges that the Medova defendants failed to file the Form M-1 on an annual basis for the Medova MEWA, as required under ERISA. The complaint seeks to have the Medova defendants removed and barred from serving as fiduciaries or service providers to the individual employer plans that participate in the Medova MEWA and the appointment of an independent fiduciary to oversee the MEWA’s operations, marshal and control the assets of the plans as it relates to the underlying participant plans, perform an accounting of the MEWA’s financial position, determine the MEWA’s ability to pay outstanding participant health claims, work to negotiate and pay outstanding health claims, and provide sufficient notice of the MEWA’s termination, if such termination is deemed appropriate. The complaint also seeks to have defendants disgorge to the Medova MEWA all profits and fees and other monies earned in connection with their violations. Kansas City Office

Acosta v. Riverstone Capital LLC (C.D. Cal.)

On February 1, 2019, the Secretary filed a complaint alleging that Defendants Riverstone Capital LLC, Nexgen Insurance Services, Inc., NGI Brokerage Services, Inc., James C. Kelly, Travis Bugli, and Robert Clarke, as the operators of an unlicensed MEWA, violated ERISA by failing to prudently set adequate premium rates to properly fund the 100 participating ERISA-covered plans, failing to hold the assets of the MEWA in trust, and charging excessive fees. As unpaid claims mounted, the operators of the MEWA delayed the payment of approved claims and "cherry-picked" which claims to pay. The complaint also alleged that the Defendants made misrepresentations to the participating employers and agents marketing the MEWA related to the funding of reserves.

On the same day the lawsuit was filed, the Secretary moved for an ex parte temporary restraining order. The court issued emergency relief that included freezing bank accounts containing plan assets and restraining the operators from their fiduciary functions over the MEWA. On February 7, 2019, the Secretary secured and filed, and the court approved, a stipulated amended temporary restraining order. This order temporarily appointed an independent fiduciary, Receivership Management, to take control over operation of the MEWA. The order charged Receivership Management with taking all reasonable steps necessary to marshal the existing plan assets and place them in trust, perform an accounting, pay urgent claims, communicate with impacted entities and persons, and design and implement a fair process for paying out covered claims to the extent feasible. In addition, the order temporarily protected participants and beneficiaries who are unable to pay covered medical expenses from collections actions until further order by the court. This relief was granted under the All Writs Act, 28 U.S.C. §1651.

On March 7, 2019, the Secretary filed a consent judgment against Defendants James C. Kelly, Travis Bugli, and Robert Clarke, the three individuals who owned Riverstone. The judge requested a hearing, which took place on March 13, 2019. The judge entered the consent judgment after the hearing. Under the consent judgment, all of the owners of Riverstone Capital were debarred from serving as fiduciaries or service providers to ERISA-covered plans. They admitted to their ERISA violations, and they relinquished all claims on all assets seized under the Department's February 7, 2019 order as well as all money traceable to those accounts. The Defendants were ordered to repatriate approximately $400,000 that they had sent to an account in the Cayman Islands. The Defendants surrendered all assets and administration to the independent fiduciary and consented to termination of the MEWA. The consent judgment also provides All Writs Act protection for participants and beneficiaries and allows the Department to seek a money judgment in the future should Defendants become solvent.

The Secretary filed a motion for default judgment on March 22, 2019. After a hearing on April 28, 2019, the district court on May 1, 2019, entered default judgment against the remaining corporate Defendants.

Also on May 1, 2019, the court also issued an order that deferred ruling on the independent fiduciary's motion to liquidate the MEWA, pending revision of proposed deadlines for participating employers and providers to submit claims and pending revisions to proposed notice procedures. In response to the independent fiduciary's proposed liquidation plan, several participating employers objected on the grounds that they allegedly signed contracts with Riverstone Capital whereby Riverstone would fund employee claims. The Secretary filed a position statement explaining that any purported contract was with Riverstone Capital, the corporate entity, and not with the plan; that the operative plan terms were laid out in the plan documents which, among other things, expressly stated that these were self-funded plans; that participating employers were responsible for funding employee health claims; and that participating employers were identified as plan administrators and named fiduciaries. The court agreed with the Secretary, finding that, per the plan documents, participating employers are "clearly" responsible for paying employee benefits claims.

On May 9, 2019, the court approved a revised proposed liquidation plan submitted by the independent fiduciary. Among other things, the liquidation plan provides All Writs Act protection against any collection actions outside the procedures set forth in the liquidation plan, as other actions would frustrate the purpose of allocating limited plan assets to pay health claims to the greatest extent feasible.

In April 2020, in Bugli’s personal bankruptcy case, the Secretary obtained an order holding that Bugli’s debts to the plan identified in the consent judgment were not dischargeable in bankruptcy. The Secretary continued to monitor this case and communicated regularly with the independent fiduciary. Los Angeles Office

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J. Financial Institution and Service Provider Cases

Perez v. Chimes District of Columbia, Inc. (D. Md.)

On October 30, 2015, the Secretary filed a complaint against Chimes District of Columbia, Inc., FCE Benefits Administrators, Inc. ("FCE"), Benefits Consulting Group ("BCG"), Marilyn Ward and other related Defendants alleging that the Chimes D.C. Health & Welfare Plan paid millions of dollars in excessive fees for plan services and that FCE and BCG, the plan's service providers, caused the plan to engage in a number of transactions for their benefit or knowingly participated in such transactions. Among other things, the complaint alleged that Chimes DC officers Albert Bussone and Martin Lampner solicited FCE and BCG to make donations to the Chimes Foundation, the fundraising entity of Chimes International and its other subsidiaries (including Chimes DC). In 2009 and thereafter, FCE and BCG jointly pledged at least $330,000 to the Chimes Foundation and did so in connection with their continued retention as plan service providers. Between 2009 and 2014, FCE paid at least $400,000, and BCG paid at least $282,500, to the Chimes Foundation in connection with their engagement as plan service providers. The complaint also alleged that the Chimes Defendants failed to diligently seek alternative service providers for the plan, that FCE improperly used its authority over the plan to cause other service providers to make payments to FCE, and that the claims administration and other services FCE provided to the plan were inadequate. In 2016, the court denied motions to dismiss filed by all of the Defendants.

Following the close of discovery, cross motions for summary judgment motions were filed by the Secretary and all Defendants. A hearing regarding the motions was held on November 13, 2018. On November 21, 2018, the court granted the Defendants' motion for partial summary judgment based on the three-year statute of limitations under 29 U.S.C. §1113(2), finding that the Secretary had actual knowledge of the "essential facts" relating to the prohibited transactions and fiduciary breaches alleged in the Secretary's complaint. On November 29, 2018, the court granted summary judgment for Benefits Consulting Group and Jeffrey Ramsey. The Secretary alleged that BCG and Ramsey, as service providers and parties-in-interest to the Chimes plan, were knowing participants in the Chimes Defendants' fiduciary breaches and prohibited transactions. The court found that there was no evidence that the BCG Defendants had knowledge that the fees they received were excessive. Consistent with prior holdings, the court also found against the Secretary on BCG's counterclaim alleging a violation of the Right to Financial Privacy Act, based on the Secretary's inadvertent failure to notify Ramsey of an administrative subpoena to a third party.

On December 10, 2018, the court granted the summary judgment motions of Lampner and Bussone, finding that neither functioned as a fiduciary with respect to the plan. The court also denied the cross motions for summary judgment filed by the Secretary and Chimes DC and Chimes International. On December 13, 2018, the court denied both the Secretary's motion for partial summary judgment against FCE (the plan's third-party administrator) and FCE's motion for partial summary judgment against the Secretary.

Prior to the start of trial, the Secretary entered into a consent judgment with Ward, the plan trustee, which provided for the restoration of $387,000 to the plan and payment of a $38,700 civil money penalty. The court entered the consent judgment on January 7, 2019. The Secretary also entered into a consent judgment with FCE, Porter, and Beckman, which the court entered on January 10, 2019. The consent judgment provided for the restoration of $2,272,728 to the plan and payment of a civil money penalty of $227,272.

The trial of this matter against the remaining Chimes Defendants was held from January 14, 2019 to January 30, 2019. On February 26, 2019, the court issued a memorandum opinion which found in favor of the remaining Defendants. On April 23, 2019, the Secretary filed a notice of appeal to the Fourth Circuit. The Fourth Circuit granted the Secretary’s motion to withdraw the appeal on August 9, 2019. On March 16, 2020, the Secretary filed a motion to appoint an independent fiduciary to distribute settlement proceeds. On August 13, 2020, the court entered the order appointing the independent fiduciary. Philadelphia Office

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K. Orphan Plans

Scalia v. Aprinta Group, LLC (M.D. Ala.)

On July 17, 2020, the Secretary filed a complaint against Aprinta Group, LLC (“Aprinta”) and William Austin Dolan, II (“Dolan”). The complaint alleged that Aprinta and Dolan were fiduciaries of Aprinta’s Health Plan and Aprinta’s Disability Plan. The complaint further alleged that Aprinta and Dolan breached their ERISA fiduciary duties when they withheld at least $30,418 in employee health plan contributions and $4,776 in employee disability plan contributions, but then failed to remit those contributions to the respective plans. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA-covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plans; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the plans. See also Scalia v. Aprinta Group, LLC, Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

Scalia v. Bone and Joint Clinic, LLP Profit Sharing Plan (N.D. Tex.)

On May 12, 2020, the Secretary filed a complaint seeking appointment of a successor fiduciary to administer the Bone and Joint Clinic, LLP Profit Sharing Plan. The Plan has five participants and a total of $11,506 in assets. The complaint alleges that the Plan’s sponsor, Bone & Joint Clinic, LLP, had ceased operations and that no individual or entity has taken fiduciary responsibility for the operation and administration of the Plan and its assets. On December 17, 2020, the court issued a final judgment granting the Secretary’s demand for appointment of an independent trust company to serve as an independent fiduciary to terminate the Plan and distribute the Plan assets. Dallas Office

Scalia v. Gavin I. Awerbuch, M.D. (E.D. Mich.)

On October 2, 2020, the Secretary filed a complaint and a consent order and judgment against Gavin Awerbuch, fiduciary of the abandoned Gavin I. Awerbuch, M.D. Defined Benefit Pension Plan and Trust and the Gavin Awerbuch, M.D. Retirement Plan. Gavin Awerbuch’s counsel provided proof that Gavin Awerbuch, who is currently serving time in federal prison, deposited $1,795,339 of the two Plans’ assets into his counsel’s IOLTA account. Upon the court’s appointment of an independent fiduciary, these funds are to be transferred to the Plans and distributed to 17 participants in the Defined Benefit Pension Plan and four participants in the Retirement Plan. Gavin Awerbuch also deposited an additional $13,925 into that IOLTA account to pay the independent fiduciary fees. The consent order and judgment grants complete relief that includes a permanent injunction against Gavin Awerbuch from serving as a fiduciary or service provider to any ERISA-covered plan. Chicago Office

Acosta v. Graphic Visions in Print, LLC 401(k) Plan (E.D. La.)

On July 2, 2019, the Secretary filed a complaint seeking to appoint a successor fiduciary to administer the Graphic Visions in Print, LLC 401(k) Plan. The Plan had a total of $11,205 in assets and seven participants. The complaint alleged that the Plan trustee and owner of Graphic Visions in Print, Epianio J. Lara, could not be located and that the Plan has been abandoned. On December 5, 2019, the court entered a default judgment granting the Secretary’s requested relief of the appointment of an independent fiduciary to terminate the Plan and distribute its assets to the eligible participants. On April 8, 2020, the court granted the Secretary’s motion to substitute Alpha & Omega as the independent fiduciary with the authority to terminate the Plan and distribute the Plan assets. Dallas Office

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Scalia v. Impact Solutions (N.D. Ga.)

On July 6, 2020, the Secretary filed a complaint against Impact Solutions Consulting Inc., Russell Forde, and Nashlee Young, fiduciaries to the Impact Solutions Consulting, Inc. 401(k) Profit Sharing Plan, alleging that the fiduciaries breached their ERISA fiduciary duties because they failed to terminate the plan and failed to ensure that approximately $188,654 in plan assets were distributed to seven participants. The complaint asks the court to: (1) enjoin defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA-covered plan; (2) enjoin defendants from violating Title I of ERISA; and (3) appoint a successor fiduciary at the defendants' expense to administer the plan. Atlanta Office

Scalia v. LBI Companies 401(k) Profit Sharing Plan and Trust (D. Minn.)

On October 3, 2019, the Secretary filed a complaint against Cory Loger, fiduciary of the LBI Companies 401(k) Profit Sharing Plan and Trust. The complaint alleged that Cory Loger breached his ERISA fiduciary duties by failing to administer the plan, including by not distributing plan assets, since 2011, when Loger Builders, Inc., now known as LBI Companies, Inc., ceased operations. The complaint sought to remove Loger as a fiduciary to the plan and enjoin him permanently from serving as a fiduciary or service provider to any ERISA-covered plan in the future. The Department also sought to have an independent fiduciary appointed to administer the plan, distribute a total of $42,444 in plan assets to eligible participants, and terminate the plan.

During the course of the litigation, Cory Loger undertook the necessary actions to terminate the plan and distribute the plan assets. On July 6, 2020, the court entered a consent order and judgment against Cory Loger and permanently enjoined him from serving as a fiduciary or service provider to any ERISA-covered plan. Chicago Office

Scalia v. Millard L. Hoyt MD Profit Sharing Plan (S.D. Ind.)

On January 2, 2019, the Secretary filed a complaint against Hoyt Enterprises, Inc. (a/k/a Millard L. Hoyt), fiduciary of the Millard L. Hoyt MD Profit Sharing Plan. The complaint alleges that Hoyt Enterprises breached its ERISA fiduciary duties by failing to administer the plan since April 2002, when the company was administratively dissolved by the Indiana Secretary of State. Millard L. Hoyt, president of Hoyt Enterprises and the only person with signature authority on the plan’s account, died on July 12, 2004. No successor plan administrator or trustee was appointed. As a result, $107,000 in plan assets remain undistributed because the plan has not been terminated.

On June 12, 2019, the clerk of the court entered a default against Defendants for failure to plead or otherwise defend this action. On November 18, 2019, the Secretary filed a motion for default judgment. On January 31, 2020, the court entered a default judgment against Hoyt Enterprises, Inc. The default judgment ordered the removal of the fiduciary and the appointment of an independent fiduciary to terminate the plan and distribute the remaining plan assets. Chicago Office

Scalia v. Onsite Oil Tools 401(k) Plan (N.D. Tex.)

On April 21, 2020, the Secretary filed a complaint seeking the appointment of an independent fiduciary to terminate the Onsite Oil Tools, Inc. 401(k) Plan and distribute or roll over the more than $502,783 in plan assets to the 17 participants. On November 23, 2020, the court granted default judgment against the Defendant and awarded the requested remedy. Dallas Office

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Acosta v. Sharpton Brunson and Company, P.A. (S.D. Fla.)

On August 13, 2018, the Secretary filed a complaint against Sharpton Brunson and Company, P.A. (plan administrator and fiduciary to the plan), Darryl Sharpton, Brittany Sharpton, and Kevin Adderly (also fiduciaries to the plan), alleging that from January 15, 2015 to March 31, 2015, the company, Darryl Sharpton, Brittany Sharpton, and Kevin Adderly untimely remitted $2,945 in employee contributions to the plan. In addition, from April 30, 2015 to March 15, 2016, they failed to forward $8,083 in participant funds to the plan. Now that the company is inactive, the fiduciaries did not ensure that participants could receive distributions from the plan or access their individual accounts, essentially abandoning the plan. The complaint sought the removal of Darryl Sharpton, Brittany Sharpton, Kevin Adderly, and the company as fiduciaries, the appointment of an independent fiduciary to settle the plan, a permanent injunction preventing Defendants from servicing as a fiduciary to ERISA-covered plans, and an injunction against Defendants from committing future ERISA violations. It also sought to hold Darryl Sharpton, Brittany Sharpton, and Kevin Adderly personally liable for the payment of unremitted and untimely remitted employee contributions, plus lost earnings on these payments and delays. In 2019, Brittany Sharpton was dismissed from the case, and the other defendants were served. The Department worked with Adderly to the wind the plan down and distribute its assets. When the plan sponsor, the company, became inactive, the fiduciaries did not ensure that participants could receive distributions from the plan or access their plan accounts, essentially abandoning the plan. Defendant Darryl Sharpton was incarcerated. The case was closed in May 2020. See also Acosta v. Sharpton Brunson and Company, P.A., Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

Scalia v. Synergy Partners, Inc. (M.D. Tenn.)

On December 31, 2020, the Secretary filed a complaint against Synergy Partners, Inc., and Dr. Lance H. Harrison, Jr. The complaint alleges that the defendants are both fiduciaries to the Synergy Partners, Inc. 401 (k) Profit Sharing Plan. The complaint further alleges that the defendants breached their ERISA fiduciary duties from January 1, 2017, through September 30, 2018, when they failed to forward at least $8,458 in employee contributions to the plan and failed to ensure that the company pay at least $9,498 in safe harbor contributions that it owed to the plan. The complaint asks the court to: (1) permanently enjoin the defendants from serving as a fiduciary, administrator, officer, trustee, custodian, agent, employee, or representative having control over the assets of any ERISA-covered plan; (2) enjoin the defendants from engaging in any further action in violation of Title I of ERISA; (3) appoint a successor fiduciary at the defendants' expense to administer the plan; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the plan. The Secretary filed proofs of service on February 5, 2021. See also Scalia v. Synergy Partners, Inc., Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

Acosta v. T & M Hardware, Inc. (D. Ariz.)

On December 31, 2018, the Secretary filed a complaint alleging that T & M Hardware, Inc. and Pamela Mandile-Croteau, the fiduciaries of the T & M Hardware Profit Sharing Plan, abandoned their fiduciary duties by refusing to follow the terms of the governing plan documents and authorize required distributions. The plan's seven participants have terminated their employment and requested distributions as authorized under the plan terms. The Department sought the removal of Ms. Mandile-Croteau as the fiduciary of the plan and the appointment of an independent fiduciary to distribute the assets of the plan to eligible participants and beneficiaries.

Defendants filed an answer on January 25, 2019. On March 25, 2019, the Secretary filed a joint scheduling report with the court. On May 14, 2019, counsel for Defendants moved to withdraw as counsel, citing his clients' "failure to communicate or cooperate and irreconcilable differences."

A status hearing was held on June 6, 2019. Over the Secretary's objection, the court gave Defendants until June 20, 2019, to make overdue initial disclosures and to respond to the outstanding discovery. The court advised Defendants of the importance of complying with the deadline and authorized the Secretary to proceed with a sanctions motion should Defendants fail to serve the required responses. On June 19, 2019, counsel for Defendants renewed his motion to withdraw, citing "failure to communicate or cooperate and irreconcilable differences." The court permitted counsel to withdraw.

The Secretary moved for summary judgment or default sanctions on June 26, 2019. On August 1, 2019, the Secretary filed a declaration of non-opposition to its earlier filed motion for summary judgment or default sanctions. On August 15, 2019, the individual Defendant filed a motion for leave to extend deadlines due to medical reasons and claimed that her prior motion was never ruled upon. On September 4, 2019, the Department filed an opposition to the motion for leave to extend deadlines.

On March 30, 2020, the Secretary secured a summary judgment that awarded all relief sought, including over $9,000 in lost opportunity costs, the immediate debarment of the individual fiduciary, and the appointment of an independent fiduciary to make distributions from the plan. San Francisco Office

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L. Contempt and Subpoena Enforcement

Secretary v. Alight Solutions, LLC (N.D. Ill.)

On April 6, 2020, the Secretary filed a Petition to Enforce an Administrative Subpoena Duces Tecum to compel Alight Solutions, LLC, to produce all responsive documents. Alight provides recordkeeping, administrative, and consulting services to its ERISA plan clients to assist in managing their employee benefit plans. Alight provides an internet based portal to plan participants to manage their plan accounts. Over the years, Alight experienced numerous cybersecurity incidents relating to several of its ERISA plan clients’ accounts. The Department issued a subpoena on November 5, 2019, and, despite the Department’s numerous meetings, emails, and formal letters with Alight, Alight has refused to provide all responsive documents to the Department’s Subpoena. On November 17, 2020, Alight filed its response brief to the Petition. Chicago Office

Scalia v. Cinc Solutions, Ltd. (N.D. Ohio)

On November 26, 2019, the Secretary filed a petition to enforce an administrative subpoena against Cinc Solutions, Ltd. On December 19, 2019, the court issued an order requiring the Defendant to show cause why it had not complied with the Secretary’s subpoena. In response to the court order, Cinc Solutions complied with the subpoena. On March 20, 2020, at the Secretary’s request, the court dismissed the Secretary’s petition. Cleveland Office

Secretary v. Fensler (N.D. Ill.)

On January 24, 2019, the Secretary filed a second subpoena enforcement action involving the Department’s investigation of the United Employee Benefit Fund, which provides death benefits to participating employers and their eligible employees through whole life and term life insurance policies. The Secretary issued an administrative subpoena for the testimony of Fund Administrator David Fensler, who failed to appear to testify as required. On February 8, 2019, the court entered a show cause order requiring Respondent Fensler to explain his failure to testify. On February 22, 2019, Fensler filed a motion to strike and dismiss the Secretary’s petition to enforce that second subpoena. The Secretary filed a response in opposition on March 1, 2019, and Fensler filed a reply on March 6, 2019. Respondent was initially deposed on March 7, 2019.

At the hearing on the motion on March 8, 2019, Fensler withdrew his objections to the Secretary’s authority to depose him pursuant to an administrative subpoena. Respondent was deposed on September 26, 2019. Status hearings were held on May 22, July 24, August 13, September 10, October 3, October 29, November 12, and December 10, 2019.

After the Respondent complied with the subpoena, the case was dismissed on January 8, 2020, pursuant to Rule 41(a)(1)(A)(ii). Chicago Office

Scalia v. Hitchings (N.D.N.Y.)

On July 22, 2019, after John Hitchings failed to produce documents requested by an administrative subpoena, the Secretary filed a motion to enforce that administrative subpoena. On September 20, 2019, the court granted the Secretary’s motion, ordering Hitchings to appear within ten days of the order and tolling the statute of limitations. When Hitchings continued to fail to respond, on December 4, 2019, the Secretary filed a motion for civil contempt and coercive fines. On January 16, 2020, the court granted the motion and held respondent in contempt. On January 22, 2020, the Secretary informed the court that the Secretary had received sufficient information to process the case. On January 23, 2020, the court granted the Secretary’s request to withdraw the contempt motion. On January 28, 2020, the court granted the Secretary’s motion to close this matter. New York Office

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Secretary v. Law Offices of Matthew Gurvey (N.D. Ill.)

On September 11, 2019, the Secretary filed a fourth subpoena enforcement action involving the Department’s investigation of the United Employee Benefit Fund, which provides death benefits to participating employers and their eligible employees through whole life and term life insurance policies. The Secretary issued an administrative subpoena to The Law Offices of Matthew E. Gurvey, Ltd., but received no response. On October 10, 2019, the Court entered an order to show cause requiring that respondent Gurvey file a response. A status hearing was held on December 10, 2019, and continued to January 9, 2020.

On February 12, 2020, L. Steven Platt, counsel for Gurvey, filed a motion to withdraw because the Secretary had conducted a deposition of Robbins, Salomon, and Patt, Ltd., Platt’s law firm, and, therefore, the law firm had become a witness in the matter. The court granted the motion on February 14, 2020. The court held a hearing on May 12, 2020 and the Secretary dismissed the case on June 1, 2020, pursuant to Rule 41(a)(1)(A)(i). Chicago Office

Secretary v. Robbins, Salomon, and Patt Ltd. (N.D. Ill. and 7th Cir.)

On January 25, 2019, the Secretary filed a third subpoena enforcement action involving the Department’s investigation of the United Employee Benefit Fund, which provides life insurance benefits to the Fund’s participants. The Secretary issued an administrative subpoena for documents to Robbins, Salomon, and Patt, Ltd., a law firm representing the Fund. After that law firm failed to produce all responsive documents, the court on February 8, 2019, entered a show cause order requiring the respondent law firm to explain its failure to comply with the subpoena.

On February 22, 2019, respondent moved to dismiss the Secretary’s petition. The Secretary filed a response in opposition on March 1, 2019, and respondent filed a reply on March 6, 2019. At the hearing on the motion on March 8, 2019, respondent withdrew objections to the Secretary’s subpoena.

On August 6, 2019, the Secretary filed a motion to require respondent to produce all responsive documents by August 27, 2019. On August 12, 2019, respondent filed a response in opposition. On August 13, 2019, the Court ordered respondent to produce all responsive documents by August 27, 2019, and ordered a third-party expert to be retained at respondent’s expense to retain copies of all computer hard drives and email servers used by respondent’s attorneys who provided services to the Fund. Respondent appealed that order to the Seventh Circuit Court of Appeals.

On September 12, 2019, in district court, respondent filed an objection to the Secretary’s proposed order appointing a neutral third-party expert. On October 30, 2019, the district court overruled respondent’s objections and appointed Deloitte Financial Advisory Services LLP as the neutral third party expert. On November 19, 2019, respondent appealed that order to the Seventh Circuit, and on December 2, 2019, filed a motion for a stay pending appeal.

On November 22, 2019, the Secretary had moved to hold respondent in contempt for not having complied with the order appointing the neutral third party expert. On December 23, 2019, both motions were granted in part and denied in part; the district court ordered respondent to allow the neutral third-party expert to collect and retain all of the subpoenaed electronic information from the relevant computer hard drives and email servers.

In the court of appeals, the respondent law firm voluntarily dismissed its first appeal after the Secretary filed a motion to dismiss saying that the appeal was premature and thus left the court of appeals without jurisdiction to hear that appeal. The second appeal also was dismissed, this time pursuant to a settlement agreement reached on January 3, 2020, after a court-ordered mediation.

On February 11, 2020, the Secretary filed an Unopposed Motion to Amend the Order of October 30, 2019. The court granted the motion on February 14, 2020 and entered an Amended Order Replacing Deloitte with Mazars as Neutral Third Party Expert. On February 12, 2020, L. Steven Platt, counsel for respondent, filed a motion to withdraw because the Secretary had conducted a deposition of Robbins, Salomon, and Patt, Ltd., Platt’s law firm, and, therefore, the law firm had become a witness in the matter. The court granted that motion on February 14, 2020. On June 15, 2020, the Secretary filed a Notice to the Court Regarding Further Searches by Neutral Third Party Expert, explaining that respondent had produced 8,210 documents on May 20, 2020 and that no further searches by Mazars were necessary.

On August 14, 2020, the Secretary filed a Motion for Order Deeming Privileges Waived requesting the court deem the attorney-client privilege and attorney work product doctrine waived with respect to all of the documents respondent had produced. Respondent filed a response on August 18, 2020, and the parties filed a joint status report on September 18, 2020. The court declined to enter the Secretary’s requested Order Deeming Privileges Waived.

After the respondent complied with the subpoena, the case was dismissed on January 8, 2021, pursuant to Rule 41(a)(1)(A)(ii), with the Secretary reserving the Department’s argument regarding respondent’s waiver of privileges. Chicago Office and, on appeal, Plan Benefits Security Division

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Scalia v. Solis (W.D. Tex.)

On September 3, 2020, the Secretary filed a motion to adjudge defendants Nick and Emily Solis in contempt of court. Previously, on June 20, 2019, the Secretary had filed a complaint against the Solises, who were owners of the plan’s sponsoring employer and also were fiduciaries of the West Texas Bulldog Oilfield Services LLC Health Plan, for failing to remit to the plan’s insurer $19,586 deducted from employees’ pay for health insurance premiums during January 13, 2017, through March 15, 2017. These fiduciary failures resulted in the retroactive cancellation of the plan’s health insurance coverage, leaving 28 employees without insurance, 10 of whom incurred unpaid claims totaling $17,000.

On July 20, 2020, the court granted a default judgment for the Secretary. The judgment ordered the Defendants to restore to the 28 plan participants the $11,731 withheld from their wages but never remitted to the plan’s insurer and restore $16,783 to the 10 plan participants who had incurred unpaid medical bills. Additionally, the judgment orders the Solises to pay the costs of an independent fiduciary to administer the remittance of these funds and permanently bars the Solises from serving as fiduciaries to any employee benefit plan.

Because Defendants failed to comply with the default judgment, the Secretary filed a motion to adjudge Defendants in contempt. See also Scalia v. Solis, Section B.1. Collection of Plan Contributions and Loan Repayments. Dallas Office

Stewart v. Supply Chain Insights, LLC (M.D. Pa.)

On September 16, 2020, the Secretary filed a Petition to Enforce Administrative Subpoena against Supply Chain Insights, LLC. The Secretary alleges in the petition that the company failed to produce any documents in response to a February 27, 2020 subpoena issued in connection with an investigation of the company’s profit sharing plan. The case is pending. Philadelphia Office

Secretary v. United Employee Benefit Fund Trust Agreement (N.D. Ill.)

On December 21, 2018, the Secretary filed a petition to enforce an administrative subpoena duces tecum issued to the United Employee Benefit Fund Trust (“UEBF”). The Fund provides death benefits to member participants, who are both union and non-union employees. The Fund had provided various documents in response to the subpoena, but had failed to produce all responsive documents. Despite several attempts to obtain compliance, Respondent UEBF failed to comply with the subpoena.

On January 23, 2019, the Court held a status hearing setting deadlines for Respondent UEBF’s response to the Secretary’s petition. On February 13, 2019, Respondent UEBF filed its response to the Secretary’s petition. On February 26, 2019, the Secretary filed a brief in opposition to UEBF’s response. Status hearings were held on May 22, July 24, August 13, September 10, October 3, October 29, November 12, and December 10, 2019, as the Secretary attempted to obtain full compliance with the subpoena. A status hearing was scheduled for January 9, 2020.

After the Respondent complied with the Subpoena, the case was dismissed on January 18, 2020, pursuant to Rule 41(a)(1)(A)(ii). Chicago Office

Acosta v. Williams-Russell & Johnson Inc. (N.D. Ga.)

EBSA determined that repeat ERISA violators, Williams-Russell & Johnson, Inc., and company president Charles E. Johnson, Sr., were once again failing to remit employee contributions to the Williams-Russell & Johnson 401(k) Retirement Plan, leading to more than $300,000 in damages to the plan. Additionally, Johnson had not ensured that the plan made some distributions required by the plan documents. The company and Johnson were already subject to an earlier consent judgment that barred them from fiduciary service and from future ERISA breaches. Therefore, the Secretary filed a contempt action.

In April 2019, the court scheduled a hearing on the contempt motion but ultimately ordered the parties to continue work on settlement. In August 2019, at another contempt hearing, the court held Johnson and the company in contempt and threatened them with daily fines for continued non-compliance. In September 2019, the parties entered a consent judgment whereby the Defendants agreed to repay the plan $315,000 (through a payment plan), to honor the fiduciary bar, and to turn over management of the plan to a third party. The court entered the consent judgment on September 24, 2019.

In August 2020, the parties filed an amendment to the amended consent judgment, adjusting the payment plan. See also Acosta v. Williams-Russell & Johnson Inc., Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

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M. Bankruptcy

Note: This section includes cases focusing on bankruptcy issues; where an adversarial complaint to determine the non-dischargeability of debt is incidental to a district court complaint, please see the appropriate case discussion.

In re Bridgeport Health Care Center, Inc. (Bankr. D. Conn.)

On April 18, 2018, Bridgeport Health Care Center, Inc., a Defendant in both Perez v. Bridgeport Health Care Center, Inc. and Chaim Stern and Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern filed for Chapter 11 bankruptcy. Shortly thereafter, various creditors including the Secretary moved to appoint a Chapter 11 trustee. After several days of hearing, the bankruptcy court granted the motion to appoint a Chapter 11 trustee. Chaim Stern was removed from being trustee of the Retirement Plan. The Chapter 11 trustee secured fully-insured health coverage for employees.

In August 2018, Stern paid approximately $4.1 million to the Retirement Plan. The district court also appointed an independent fiduciary for the Retirement Plan on June 24, 2019. As a result of several mediation sessions with the district court, the parties reached a resolution, and a consent order and judgment was entered on July 13, 2020. Under the consent order and judgment, the fiduciaries paid an additional $840,565 to the Retirement Plan, as well as $2,526,392 towards resolving unpaid health claims and appointing a claims administrator. See also Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern, Section B.1. Collection of Plan Contributions and Loan Repayments, and Perez v. Bridgeport Health Care Center, Inc. and Chaim Stern, Section D. Prudence of Investments. Boston Office

In Re Charles Eaton (Bankr. W.D. Wis.)

On January 31, 2019, Charles Eaton filed this Chapter 7 bankruptcy case. On August 2, 2019, the Secretary filed an adversary complaint seeking an order stating that Eaton’s debts owed to the 401(k) Plan and Health Plan are non dischargeable. Due to Eaton’s failure to answer the adversary complaint, the Secretary filed a motion for default judgment. On October 20, 2019, the bankruptcy court entered a default judgment against Eaton and ordered that his debt owed to the ERISA plans was nondischargeable. The Marshal served the judgment order on Eaton in June, 2020. Chicago Office

In re Papp (Bankr. D. Ariz.)

On February 7, 2020, the Secretary filed an objection to the debtors’ chapter 13 plan on the ground that it did not list the Secretary’s claim among its priority claims or otherwise provide for its treatment. On June 25, 2020, the chapter 13 trustee filed a notice of intent to lodge dismissal based, in part, on the failure to address the Secretary’s objection. On August 13, 2020, debtors objected to the chapter 13 trustee’s stated intention, suggesting that the delay was the Secretary’s fault. The Secretary responded to this on September 23, 2020. On September 29, 2020, the court entered an order providing for payment in full of the Secretary’s claim, which the court also held was non-dischargeable. New York Office

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In re Sky Skan Incorporated (Bankr. D.N.H.); In re Steven T. Savage and Virginia A. Savage (Bankr. D.N.H.); Acosta v. Steven T. Savage and Virginia A. Savage (Bankr. D.N.H.)

On March 26, 2018, the Secretary filed an adversary proceeding for a determination of non-dischargeability of debt against Steven and Virginia Savage, the trustees and fiduciaries of the Sky-Skan 401(k) Plan in the bankruptcy court. The Savages failed to remit employee contributions, loan repayments, and failed to collect and remit employer matching safe harbor contributions to the plan. The Secretary previously filed proofs of claim in the Savages' Chapter 11 bankruptcy and company/plan sponsor Sky-Skan, Inc.'s Chapter 11 bankruptcy. Both are pending in the bankruptcy court. Prior to filing their bankruptcy petition, the Savages transferred $704,075 from the company to themselves as reimbursement for use of credit cards, travel expenses, rent and repayment of personal loans. The Secretary alleged that this misappropriation of employee contributions and failure to collect employer contributions while taking money for themselves was reckless and constituted defalcation.

The Secretary and the Savages entered into a stipulation that the $152,685.47 of outstanding employee and employer contributions and loan repayments owed to the 401(k) plan is a nondischargeable debt pursuant to 11 U.S.C. section 523(a)(4). On August 27, 2018, the court approved the Assented-to Motion for an Order Approving the Stipulation for Determination of Dischargeability of Debt between the Secretary and Debtors, and a Final Judgment was entered.

The Department continues to protect the interests of the 401(k) Plan in the two bankruptcies. The court held the plan confirmation hearing on February 13-14, 2020. Debtor Sky-Skan presented testimony from its valuation expert and interim distress CEO Brandi Bonds. The Secretary requested that payment to the plan be in cash and not equity in the reorganized company. There were no objections and Debtor agreed to put it into the Proposed Confirmation Order. The court took the matter under advisement but has not issued a ruling with respect to plan confirmation. Some of the issues in the Confirmation hearing overlapped with an Adversary Proceeding filed by a Creditor. The hearing in the Adversary Proceeding was delayed because of the pandemic. Sky-Skan and creditor Coastal Capital have been mediating Coastal Capital’s Adversary Proceeding. On September 25, 2020, Debtor Sky-Skan filed a Notice of Amendment to Petition to Designate Case as a Subchapter V Proceeding, pursuant to Bankruptcy Rule 1009(a). Debtor’s counsel advised that the Debtor hoped this approach, seeking to amend the original Voluntary Chapter 11 Petition filed November 1, 2017, would help to move the matter forward, as the Department continues to await the outcome of the February 13-14, 2020 plan confirmation hearing. On October 20, 2020, Debtor Sky-Skan filed a motion to convert its Chapter 11 case to a Chapter 7 case. The company was reported to have approximately $75,000 in cash ($58,000 of which is restricted and is owed to a supplier to install a dome internationally) and receivables of less than $100,000. The company reported having recently lost two jobs in excess of $1 million, which was “catastrophic.”

On November 11, 2020, the Savages filed an ex parte motion to convert their Chapter 11 case to a Chapter 7 case, which was granted on November 12, 2020. On December 1, 2020, the Creditors’ Committee filed a Committee Joinder in Debtor Sky-Skan’s motion to convert their case to Chapter 7 and an objection to Coastal Capital’s Motion to dismiss the same. On December 2, 2020, the Judge denied Coastal’s motion to dismiss and granted debtor’s motion to convert in the Sky-Skan matter.

The Secretary filed an Amended Proof of Claim in the Sky-Skan Chapter 7 case on February 4, 2021. On February 8, 2021, the Secretary filed a Notice of Prior Stipulation as to NonDischargeability of Debt, in lieu of an Objection to Nondischargeability in the Savages’ Chapter 7 case. Boston Office

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N. Miscellaneous

Acosta v. N&B Lundy Corp. d/b/a Pitter Patter Day School (M.D. Pa.)

On March 22, 2019, the Secretary filed a complaint against N&B Lundy Corporation d/b/a Pitter Patter Day School, Bobbi-Jo Lundy (the company’s co-owner and CEO), and the Pitter Patter Day School Health Plan. The complaint alleges that the company and Lundy violated sections 403, 404, and 406 of ERISA. The complaint further alleges that in September 2014 the Defendants withheld approximately $1,500 in health insurance premiums from plan participants’ pay after the insurer had cancelled the policy, but did not reimburse the plan participants. In addition, the complaint asserts that, from January through August 2014, the company and Lundy failed to pay the insurance premiums or paid them late but never advised the plan participants of either of these failures or of the resulting cancellation of their health insurance. As a result of Defendants’ conduct, participants continued to rely on the plan for their health care coverage and incurred up to approximately $60,000 in uninsured medical claims. On March 31, 2020, the court entered a consent judgment permanently enjoining the defendants from serving as fiduciaries to any ERISA-covered plan. Philadelphia Office

Acosta v. WH Administrators, Brenden Turner, Susanne Sheil (D. Md.)

On May 2, 2018, the Secretary filed a complaint against WH Administrators, the owner and Chief Executive Officer Brenden Turner, and the Chief Operating Officer Susanne Sheil. The complaint alleges that Defendants induced employers to purchase welfare plans on the promise that if the employer paid "premiums" all medical claims that properly accrued under the plan would be paid and that the employer would bear no additional responsibility. The Secretary alleged that over $8 million in claims had been adjudicated but remained unpaid. The Secretary asserted that Defendants breached numerous fiduciary duties under § 404, that they failed to hold assets in trust under § 403, and that the Defendants engaged in multiple prohibited transactions under § 406.

Because, at the time of filing, twenty one employers continued to participate in WH Administrator plans, the Secretary filed a motion for a temporary restraining order seeking to have Defendants removed as fiduciaries to the plans and asking for the appointment of an independent fiduciary. On July 6, 2018, the Secretary filed a notice and proposed consent order resolving the temporary restraining order. The consent order required WH Administrators to immediately stop offering welfare benefit plans and to terminate services to any remaining welfare plans within 30 days of entry of the order. The order also prohibits WH Administrators, Turner, and Sheil, from acting as fiduciaries to any ERISA-covered plans.

On May 2, 2019, the Secretary filed a motion for summary judgment against WH Administrators, Brendan Turner, and Suzanne Sheil. On March 26, 2020, the court granted the Secretary’s motion for summary judgment and ordered that the Defendants restore $28,650,604 to the plans, disgorge profits of $397,189, and be permanently enjoined from advertising, promoting, or offering an ERISA-covered plan or serving as a fiduciary to any ERISA-covered plan. Philadelphia Office

Acosta v. William Delaney (D.R.I.)

On April 12, 2019, the Secretary filed a complaint against William J. Delaney, a state receiver for Equity Concepts, Inc. Allegedly to pay for his work for the Equity Concepts, Inc. 401(k) and Profit Sharing Plan (which he was terminating), Delaney paid to himself the plan’s entire forfeiture account. The plan document did not allow use of the forfeiture account for such purposes. The case was resolved on January 22, 2020, through a full return payment of $21,695 and a consent judgment requiring Delaney to assist in distributing the funds and completing the termination of the pension plan. Boston Office