2019 ERISA Litigation and Significant Issues in Litigation

 

Labor Department Participation in ERISA Litigation and Significant Issues in Litigation

Compiled by the Plan Benefits Security Division Office of the Solicitor

Calendar Year 2019

Table of Contents

Table of Cases

 

 

 

 

A. Employer Stock

Big G Express, Inc., Acosta v. (E.D. Tenn.)

On November 29, 2017, the Secretary filed a complaint against Big G Express, Inc., David Nolan, Stephen Thompson, and the Big G ESOP, in connection with the creation of the ESOP. The complaint alleges that the ESOP purchased 100% of the outstanding shares of Big G Express at an amount that far exceeded fair market value. The company had retained Thompson to serve as the ESOP's independent trustee. Thompson acquiesced to the selection of 2nd Generation Capital LLC to conduct an appraisal of the company's fair market value. This valuation report concluded that the company was worth $21,000,000 but contained a multitude of errors that resulted in a wildly inflated share price. In conducting its appraisal, 2nd Generation Capital allegedly failed to consider nearly $4 million in interest-bearing debt, incorrectly applied the discounted cash flow ("DCF") analysis, failed to exclude the value of a related investment entity that owned most of the company's real estate, utilized outdated financial data, failed to utilize the mid-year convention in its DCF analysis, failed to adjust for lack of control, and predicted a growth rate for the company that far exceeded its past performance. The errors should have been readily apparent to anyone with a very general knowledge of accounting. However, Thompson accepted the conclusions of the valuation without question, as did the company's Chief Financial Officer and chair of its ESOP Exploratory Committee, David A. Nolan. Nolan advised the other three selling shareholders to agree to the deal, and the complaint alleges that he was a knowing participant in the fiduciary breaches of Big G and Thompson. The complaint seeks restitution of all losses caused by these breaches, as well as appropriate injunctive relief. Defendants filed a motion to dismiss arguing that the six-year statute of limitations under ERISA was a statute of repose and could not be expressly waived, making the executed tolling agreements immaterial. In an order filed on December 21, 2018, the court rejected the defendants' logic and endorsed the Eleventh Circuit's Secretary v. Preston approach, dismissing the defendants' reliance on the "flawed" Harris v. Bruister decision, The court reasoned that "the Eleventh Circuit's opinion is not more persuasive merely because it comes from an appellate court, but rather it is more persuasive because it is right in its legal analysis and conclusion." The court held that ERISA's six-year statute date is not jurisdictional, because Congress had not clearly indicated it was; the court reviewed the applicable statutory text, context, and history. Rejecting the defendants' argument, the court held that the statutes of repose are not categorically non-waivable. Defendants' answers were due January 11, 2019.

In July 2019, following nearly two years of litigation, the fiduciaries agreed to a settlement that required them to restore nearly $500,000 to the ESOP, resolving the Secretary’s claim that the ESOP had overpaid for the company’s shares when the ESOP was created in 2009. Thompson agreed to accept a permanent bar from serving as a fiduciary or service provider to another ERISA-covered plan, and Nolan agreed to complete fiduciary training in the event he serves as a fiduciary to an ERISA-covered plan in the future. Atlanta Office

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Acosta v. Boettner (D.N.D.)

On September 29, 2017, the Secretary filed a complaint against Custom Aire, Inc., Custom Holdings, Inc., Scott Boettner, Randal Boettner, and Rickie Bohm, alleging that the company and the ESOP's trustees (two of whom were the company's former owners) sold the shares of the company to the ESOP for more than fair market value. The complaint seeks restoration of losses to the ESOP, as well as an injunction against the trustees. Defendants filed their answer in February 2018. The court entered a consent judgment on December 19, 2019, establishing the facts alleged in the complaint and resolving all outstanding issues. The consent judgment provides that the Defendants will make restitution in the form of forgiving $500,000 in outstanding loans owed by the ESOP to the Boettners and that the Boettners will pay $11,000 in cash plus interest to former participants who already received distributions from the ESOP. The consent judgment also requires the Defendants to pay $46,000 in § 502(l) penalties. Denver Office

Brundle v. Wilmington Trust (4th Cir.)

A participant in Constellis’ ESOP sued Wilmington Trust, the ESOP's trustee, for causing the ESOP to purchase 100% of Constellis stock at a price exceeding its fair market value in violation of ERISA section 406(a) as a prohibited transaction. The district court found the stock purchase was prohibited under ERISA because the purchase price was not for adequate consideration and awarded $29,773,250.00 in damages. The Secretary filed an amicus brief on July 23, 2018, urging the Fourth Circuit to affirm the district court, and hold that the fiduciary's hiring of an adviser does not insulate it from judicial scrutiny; that it was improper for the ESOP to pay a control premium without receiving any elements of actual control of the company other than 100% share ownership; and that the fiduciary was not entitled to offset the damages it owed by money the ESOP earned in a separate transaction the following year.

On March 21, 2019, the Fourth Circuit affirmed, holding that the district court correctly held that Wilmington breached its fiduciary duty by (1) failing to follow a prudent process when it caused the Constellis ESOP to overpay for company stock and (2) causing the ESOP to pay a premium for control of the company when it did not actually acquire effective control in the transaction. The court rejected Wilmington’s defense that it had not acted in bad faith, noting that the court’s “focus is not Wilmington’s motives (good or bad) but on whether it acted ‘solely in the interest’ of the plan participants and ‘engaged in a reasoned decision-making process, consistent with that of a prudent man in like capacity.’" While Wilmington relied heavily on its advisor’s valuation, the court noted that ERISA “demands a high level of scrutiny from fiduciaries" and that a trustee must prove it made certain that reliance on the expert’s advice was reasonably justified. The court found no error in the district court’s “exhaustive" findings of fact and conclusions of law that Wilmington’s decision-making process was inadequate due to major failures, including Wilmington’s failure to investigate its appraiser’s valuation. The court affirmed the district court’s finding that Wilmington failed to discount the stock for lack of control. The court noted that the record showed that the ESOP’s “unique ownership structure was intentionally designed to maintain the sellers’ control over Constellis even after selling their shares" and that the ESOP, in fact, only had “the same limited relief available to a minority shareholder."

The court further upheld the district court’s ruling that Wilmington's liability for the ESOP's losses caused by purchasing employer stock at an excessive price may not be offset by the ESOP's unrelated gains. “Any subsequent gains involving the stock, which the ESOP would have obtained regardless of the overpayment, have no bearing on that loss." Furthermore, the court held that, although the ESOP benefited from the later sale despite the initial overpayment for stock, “it would have benefited at least as much – but ended in a far better position – without the breach." Plan Benefits Security Division

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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. 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 alleges 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 alleges, 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 alleges 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 alleges 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. Plan Benefits Security Division

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Scalia v. Reliance Trust Company (N.D. Ill.)

On April 22, 2019, the Secretary filed a complaint alleging that Reliance Trust Company caused the Bradford Hammacher Group, Inc. ESOP to purchase 100% of Bradford Hammacher Group, Inc. (BHG), for $278.4 million in 2013, far in excess of fair market value. BHG’s Board of Directors retained Reliance Trust Company to act as the trustee of the ESOP for purposes of the stock purchase transaction. According to the allegations in the complaint, Reliance Trust breached its duties of prudence and loyalty, in violation of ERISA sections 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) and (B), and entered into a non-exempt prohibited transaction in violation of ERISA section 406(a), 29 U.S.C. § 1106(a). In so doing, Reliance Trust caused the ESOP to overpay for stock in the Company by tens of millions of dollars, thereby causing financial losses to the Plan under ERISA section 409(a), 29 U.S.C. § 1109(a). The complaint sought the recovery of the ESOP’s losses (with interest) and injunctive relief against Reliance Trust. The complaint also pursued repayment of all monies advanced by BHG to pay Reliance Trust’s legal fees under an indemnification agreement. The legal fees are associated with a private action filed against Reliance Trust by ESOP participants and with the Department’s investigation of the underlying ESOP transaction.

On December 20, 2019, the Department filed a notice of settlement, and the case was closed. As a result of a settlement in the related private litigation and Reliance Trust no longer being in the ESOP business, the Department settled this case through the use of a process agreement. A motion for preliminary approval of the private settlement was filed on December 19, 2019. This agreement, in which the Department participated in negotiations but was not a party, recovered $12 million on behalf of the ESOP. Plan Benefit Security Division

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 alleges 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. A hearing is scheduled for January 21, 2020. Chicago Office

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Retirement Plans Committee of IBM v. Jander (S. Ct.)

Participants alleged fiduciaries violated ERISA when they failed to publicly disclose inside corporate information that negatively impacted the value of a publicly traded stock owned by an employee stock ownership plan. In Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), the Supreme Court laid out three considerations for courts to use when evaluating allegations like this at the motion to-dismiss stage. Using those considerations, the district court held that plaintiffs failed to state a claim because the complaint lacked allegations that public disclosure would have done more good than harm to the plan, one of the three considerations. The U.S. Court of Appeals for the Second Circuit reversed, and the Supreme Court granted defendant petitioners’ writ of certiorari. In an amicus curiae brief, the government contended that the more-harm-than-good analysis is informed by another Dudenhoeffer consideration: whether the alleged alternative action—i.e., public disclosure—conflicted with the securities laws and their objectives. Along with the SEC, the government argued that fiduciaries have an ERISA duty to disclose inside corporate information only when they have a concomitant duty to disclose that information under the securities laws. And fiduciaries without a securities-laws duty still have obligations to urge disclosure and report negative information through corporate channels.

In a per curiam opinion issued June 3, 2019, the Supreme Court remanded the case to the Second Circuit so that the court of appeals could address the government’s views in the first instance. Plan Benefits Security Division

Acosta v. Saakvitne (D. Haw.)

On April 27, 2018, 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 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. San Francisco and Los Angeles Offices

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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 alleges 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 his 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 have exchanged tens of thousands of documents in discovery, and they have exchanged expert reports regarding the valuation of the Company at the time of the ESOP transactions in 2006 and 2008. The parties are currently preparing for fact and expert witness depositions, which are scheduled to occur in February and March 2020. Discovery is scheduled to close on March 23, 2020. Atlanta Office and, on appeal, Plan Benefits Security Division

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Vigeant v. Meek (8th Cir.)

This appeal addressed two issues. First, the appropriate pleading standard in an 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. Plan Benefits Security Division

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 alleges 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 $6,502,500.00 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 August 23, 2019, Evolve filed a motion for a new trial or, in the alternative, to amend the judgment. In the motion, Evolve asserted that the Secretary lacked standing to seek monetary relief payable to the ERISA-covered ESOP and that the ESOP should be substituted as a party plaintiff to receive the monetary relief. The Secretary filed the an opposition brief, arguing that defendants’ motion was untimely and failed to meet the standard for either a new trial or altered judgment, that ERISA’s statutory text plainly authorizes the Secretary to obtain monetary relief payable to the ESOP, and that no party substitution was warranted or necessary. Philadelphia Office and, on the post decision motion, Plan Benefits Security Division

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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. Cleveland Office

Acosta v. Wilmington Trust (HCMC Legal) (S.D.N.Y.)

On August 21, 2017, the Secretary filed a complaint against Wilmington Trust, N.A., trustee of the HCMC Legal, Inc. ESOP, alleging that Wilmington approved the ESOP's purchase of 100% of HCMC's stock for $46 million, which was millions of dollars more than the fair market value of the stock. The complaint alleges that Wilmington failed to prudently investigate the value of HCMC's stock and improperly relied on a flawed, inflated valuation of the stock's value in approving the ESOP's purchase of the stock. Specifically, the valuation included a premium for control of HCMC even though the ESOP did not acquire control of the company and failed to account for the value of millions of warrants that gave other parties to the transaction the right to buy nearly 50% of HCMC stock at a preset price in the future – and thereby dilute the ESOP's equity stake. Despite these obvious red flags, Wilmington allegedly made no effort to negotiate the ESOP's purchase price and merely accepted the price presented to it. Wilmington filed an answer to the complaint on October 23, 2017, and the court issued a case management order on November 17, 2017.

In 2018, the Secretary completed fact discovery. The Secretary obtained documents from the trustee, trustee’s counsel, trustee’s valuation advisor, plan sponsor, selling shareholders, and an investment advisor. The Secretary also deposed eight individuals, and moved to compel production of certain documents withheld by the plan sponsor and the investment advisor; this motion remained pending at the end of 2018. The court denied a motion to quash the Secretary’s deposition subpoena of the valuation advisor. To allow for a potential settlement, the court extended certain deadlines in the case management order.

On February 1, 2019, the U.S. Magistrate Judge granted the Secretary’s motion to compel production of documents withheld on the basis of attorney client privilege. The Magistrate Judge also ordered that a witness who served as the financial advisor to the selling shareholders testify about those documents and about matters which he had previously been instructed not to answer by counsel on claims of attorney-client privilege. The district judge denied an objection to that ruling, and ordered compliance with it.

Also in 2019, the parties exchanged expert reports and expert rebuttal reports, the Secretary deposed Wilmington’s five expert witnesses, and Wilmington deposed the Secretary’s three expert witnesses, thereby completing discovery. Wilmington filed a motion seeking partial summary judgment. Prior to further proceedings, the parties agreed to a settlement in principle, and litigation activities ceased. Plan Benefits Security Division

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Acosta v. Wilmington Trust, N.A. (Stargate) (S.D.N.Y.)

On March 28, 2019, the Secretary filed a complaint against Wilmington Trust, N.A., trustee of the Stargate Apparel, Inc. Employee Stock Ownership Plan (ESOP), alleging that Wilmington approved the ESOP's purchase of Stargate’s stock for $46 million, which was millions of dollars more than its fair market value.

The complaint alleges that Wilmington hired a conflicted appraisal firm that was not independent of the selling shareholder (the ESOP's counterparty in the transaction) -- an appraiser that the Secretary alleged was pre-selected for Wilmington by the financial advisor for the selling shareholder and which had just weeks earlier performed a valuation for the selling shareholder of the very stock it valued for Wilmington and the ESOP. The Secretary alleged that Wilmington then failed to prudently investigate the value of Stargate's stock and improperly relied on a flawed, inflated valuation of the stock's value by that appraiser in approving the ESOP's purchase of the stock. Specifically, the Secretary alleged that Wilmington relied on a valuation that: included projections of future financial performance that far outpaced historical performance with no articulated reason for such a substantial surge in growth; projected future operating expenses that were far more modest than historical spending; was based upon internal financial statements that were questionable on their face; failed to reduce the valuation to account for the transfer of company trademarks to the selling shareholder; made unjustified upward adjustments to company value by discounting debt and adding supposedly excess working capital to its valuation; and failed to either reduce its valuation of the stock based on the dilutive effect of warrants issued to the selling shareholder or include the value of the warrants in the total consideration the ESOP paid for the stock.

Wilmington filed an answer to the complaint on May 28, 2019, and the court issued a case management order on June 21, 2019. In late July 2019, the parties advised the Court that they had reached a settlement in principle, and all litigation activities ceased. Plan Benefits Security Division.

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 was successful and, at the end of 2019, the parties were in the process of finalizing their settlement. Atlanta Office

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B. Financing the Employer

1. Collection of Plan Contributions and Loan Repayments

Acosta v. AIR, LLC d/b/a TantaComm (W.D. Wis.)

On April 4, 2018, the Secretary filed a complaint against AIR, LLC d/b/a TantaComm and Charles Eaton, alleging that Defendants failed to remit and untimely remitted employee salary deferral contributions to the AIR, LLC 401(k) Plan from April 5, 2012 through June 4, 2016. The complaint seeks payment of the unremitted employee contributions; payment of accrued interest on unremitted employee contributions and untimely 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 from any positions they now hold as fiduciaries of the Plan; appointment of an independent fiduciary; and an order requiring that the fiduciaries pay the reasonable fees and expenses of the independent fiduciary. Defendants filed an answer on July 6, 2018. A preliminary pretrial conference was held on September 14, 2018.

On September 25, 2019, the Court entered a default judgment ordering that Defendants be removed as fiduciaries of the 401(k) Plan and the TantaComm Health Plan, permanently enjoining Defendants from serving as fiduciaries to any ERISA-covered benefit plan, and holding Defendants jointly and severally liable to the Health Plan for $26,977.39 and to the 401(k) Plan for $176,810.81. See also In Re Charles Eaton, Section M. Bankruptcy. Chicago Office

Scalia v. Alessio Azzari Inc. (D.N.J.)

On December 28, 2015, the Secretary filed suit against Alessio Azzari, Inc., Arthur Azzari, Alex Azzari, and John Azzari, fiduciaries to the Alessio Azzari, Inc. Prevailing Wage Plan for failure forward participant contributions. On December 30, 2015, the parties filed a consent judgment, whereby Defendants agreed to repay $51,158.31 over three years. After learning that Defendants had violated the consent order, the Secretary obtained a conference with the court on August 2, 2019, where the court ordered Defendants to file amended financial disclosures. On the basis of those amended financial disclosures, the Secretary agreed to an extended consent judgment, which the parties proposed on November 19, 2019, and which was entered on November 20, 2019. New York Office

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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 $132,257.70 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 $84,938.84. 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. 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 alleges that from 2013 to 2016, Defendants withheld from employees’ take home pay but failed to forward to the company’s 401(k) Plan $12,156.12 in employee contributions and Plan participant loan repayments. The complaint seeks 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 seeks 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. Kansas City Office

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. As of August 13, 2018, over approximately $2.6 million in health claims remained unpaid. 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 has secured fully-insured health coverage for employees. Currently, the case continues in mediation in the district court. 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

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Acosta v Cahill (D. Colo.)

On April 25, 2018, the Secretary filed a complaint against Finishing Professionals, LLC, and its President and Plan fiduciary, Dan Cahill. The complaint alleged that Finishing Professionals and Cahill failed to ensure that all employee contributions and Plan assets were timely and completely remitted to the Plan resulting in losses to the Plan, affecting approximately 45 participants. The complaint also sought a permanent injunction preventing future violations and barring Cahill from acting as a fiduciary or service provider to any ERISA-covered benefit plan. On August 13, 2018, the Secretary moved for Entry of Default, which the Clerk of the Court entered on that same day, against the Defendants for failing to answer. The Secretary next moved for default judgment on August 16, 2018. On November 20, 2018, the magistrate entered a recommendation that affirmed the default judgment but that denied the Secretary’s request for a permanent fiduciary bar.

On January 17, 2019, the court entered judgment in favor of the Secretary and against Finishing Professionals, LLC and Daniel Cahill. The court ordered payment of $39,190.48 in restitution to the Plan and the removal of Daniel Cahill as a fiduciary. The court found that Finishing Professionals and Daniel Cahill failed to ensure that all employee contributions and Plan assets were timely and completely remitted to the Plan in violation of ERISA resulting in losses and lost opportunity costs. Denver Office

Acosta v. Chainani (S.D. Tex.)

On April 20, 2015, the Secretary filed an amended complaint against AARC Environmental, Inc. (“AARC"), and Kishore Chainani, AARC's sole owner. The original complaint, filed on December 26, 2014, alleged that they failed to forward employee contributions and loan repayments to the company's 401(k) Plan since December 29, 2007, resulting in more than $78,000 in losses. The amended complaint alleges that they failed to remit all employee and employer premiums to the company's Group Health Plan and allowed coverage to lapse multiple times since 2011, as a result of which they owe participants more than $40,000 in employee premiums and an additional unknown amount for unpaid medical claims.

On September 20, 2016, the court entered a default judgment against Defendants, granting full relief and awarding more than $86,000 in losses for the 401(k) Plan and more than $40,000 in losses for the Health Plan to 49 participants and beneficiaries. Defendants are also required to hire an independent fiduciary at their own expense and are barred from acting as fiduciaries in the future once the independent fiduciary is in place.

Because Defendants failed to comply with the default judgment, the Secretary on June 28, 2017, filed a motion to adjudge Defendants in contempt. On September 7, 2017, the court issued an order finding Defendants in civil contempt and ordered them to make immediate restitution of $86,085.43 to the 401(k) plan and immediate restitution of $39,601.47 to the health plan participants. Defendants hired legal counsel and entered into negotiations with the Secretary to purge themselves of contempt.

On December 22, 2017, the Secretary filed a request for stay of contempt pending Defendants' payment of the outstanding debt owed to both plans pursuant to an agreed repayment plan. On January 9, 2018, the court granted the Secretary's stay. As of December 17, 2019, the Defendants have completed the payment plan agreement, by paying $90,729.76 to the 401(k) Plan and $77,376.31 to 22 participants of the Group Health Plan. See also Acosta v. Chainani, Section L. Contempt and Subpoena Enforcement. Dallas Office

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Acosta v. Day-Mont Behavioral Health Care, Inc. (S.D. Ohio)

On July 18, 2018, the Secretary filed a complaint against Day-Mont Behavioral Health Care, Inc., Gayle Johnson, and Akil Sharif, fiduciaries of the Day-Mont West Tax-Deferred Annuity Plan and the Day-Mont Behavioral Health Care Inc. Employee Benefit Plan. The complaint alleges that the Defendants failed to remit certain employee contributions to the Day-Mont West Tax Deferred Annuity Plan, failed to timely remit additional amounts owed to that plan, and made material misrepresentations and omissions to participants of the Day-Mont Behavioral Health Care Inc. Employee Benefit Plan, causing the participants to incur uncovered health benefits claims. The violations occurred from January 2012 to August 2016. The complaint sought an order requiring the Defendants to restore all losses to both plans and their participants, removing the Defendants as fiduciaries, and enjoining them from being fiduciaries or service providers to any ERISA-covered plan.

On November 20, 2019, the court entered a consent judgment ordering the Defendants to restore $64,582.49 to the Annuity Plan, restore $77,084.18 to the participants of the Health Plan, and pay a $28,333.33 § 502(l) penalty. The consent judgment also appointed an independent fiduciary to terminate the plans, and it permanently enjoined the Defendants from serving as fiduciaries or service providers to any ERISA-covered plan. See also Acosta v. Day-Mont Behavioral Health Care, Inc., Section B.3. Miscellaneous. Cleveland Office

Secretary v. DJI and Associates, Inc. (E.D. Mich.)

On February 6, 2019, the Secretary filed a complaint against fiduciaries DJI and Associates, Inc., Rebecca Iocca and David Iocca, asserting that they violated ERISA when they failed to remit, to the DJI & Associates, Inc. SIMPLE Plan, certain employee contributions, untimely remitted other employee contributions, and failed to collect delinquent employer contributions owed to the Plan. The Plan’s total losses associated with these violations, including lost opportunity costs, were approximately $70,000. Defendants Rebecca Iocca and David Iocca breached their fiduciary duties also by using unremitted employee contributions for their own personal use instead of ensuring those monies were remitted to the DJI & Associates, Inc. SIMPLE Plan.

On June 11, 2019, the Court entered a consent order and judgment requiring ERISA fiduciaries to restore approximately $70,000 in losses attributed to the unremitted and untimely remitted employee and employer contributions. In addition to requiring the Defendants to fully restore these losses to the Plan, the judgment required the Defendants to terminate the Plan and issue distributions to the Plan participants. It also enjoined the Defendants from serving as fiduciaries or service providers to any ERISA-covered plan after issuing distributions and terminating the Plan. Chicago 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 $49,455.70 in employee contributions and $26,831.58 in employee loan repayments. The complaint seeks restoration of these amounts to the plan, in addition to $10,785.36 in lost interest. The complaint also asks that Defendants be removed as fiduciaries. Following the filing of the complaint, the Secretary learned that Vento died on June 23, 2019. The matter is currently in the discovery phase. Philadelphia Office

Acosta v. General Projection Systems, Inc. (M.D. Fla.)

On May 12, 2017, the Secretary filed a complaint against General Projection Systems, Inc., Cheryl Wayson, and Drake Wayson, alleging that they withheld employee contributions and failed to remit required contributions to the company's 401(k) Plan and the Group Health Plan (“GHP"). As a result of the fiduciaries' failure to remit the health insurance premiums, participants incurred unpaid medical claims totaling approximately $10,217. 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 employee benefit plan subject to ERISA; (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 to the plans, including payment of unpaid health insurance claims. Drake Wayson died on September 9, 2017.

On January 12, 2018, the clerk's office docketed one answer for each of the Rule 19 plans and one for the Estate of Drake Wayson, all signed by Cheryl Vason. On March 12, 2018, the court struck these answers. The court, without the Secretary's objection, dismissed the Secretary's claims against Drake Wayson on April 11, 2018, and against Cheryl Wayson on June 8, 2018. After the Secretary achieved service the court deemed sufficient, the clerk entered a default against the company on June 20, 2018. On December 10, 2018, default judgment was entered on the issue of liability, and the court ordered that their remedies issue be briefed separately. The Secretary submitted a brief on remedies on December 31, 2018.

After the Secretary filed the complaint, Drake Wayson passed away. His estate did not have recoverable assets, and Cheryl Wayson did not have recoverable assets. Cheryl Wayson pled that she was mentally incompetent to defend herself or the company in the litigation. The court dismissed both Waysons from the litigation. The company failed to appear in the litigation.

The Secretary moved for default judgment. On December 19, 2019, the court entered a default judgment against the company and ordered the company to make $5,765.75 in restitution to the 401(k) Plan for outstanding contributions and $3,855.38 in restitution to the GHP for outstanding health insurance premiums. The court also enjoined the company from future ERISA violations and from serving as a fiduciary for any other ERISA- covered plans. Atlanta Office

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Acosta v. Halcyon Electronics, LLC (N.D. Ohio)

On December 11, 2018, the Secretary filed a complaint against Halcyon Electronics, LLC and Gust Poulos, alleging that the Defendants, who were fiduciaries of the Halcyon Electronics Health Plan, failed to remit participant contributions to the plan from May 2015 through March 2017. The complaint sought an order requiring that all losses be restored to the plan with interest, removing the Defendants as fiduciaries, and enjoining them from being fiduciaries or service providers to any ERISA-covered plan. On July 8, 2019, the court entered a default judgment against the Defendants, ordering them to restore $16,403.53 to the plan’s participants and permanently enjoining them from serving as a fiduciaries or service providers to any ERISA-covered plan. Cleveland 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 $43,117.16 in employee contributions and $2,942.49 in participant loan repayments to the Legion Design/Campbell & Associates Chartered 401(k) Plan and at least $8,918.93 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. The court has stayed discovery in the matter until April 28, 2020, to allow Long to find counsel. Philadelphia Office

Acosta v. Holloway (D. Colo.)

Previously on May 26, 2017, the Secretary had filed a complaint against Mark Holloway, Meridian Medical Staffing, Inc. (Meridian), and Meridian Medical Staffing, Inc. Group Health Plan (the Plan") alleging the fiduciaries failed to remit $23,733.18 in premium payments withheld from employee wages to the Plan, leaving 58 employees without health and/or dental coverage for various periods within a four year timeframe. On September 12, 2017, the court signed the parties’ consent judgment and ordered Defendants to issue $23,733.18 in refunds to 47 participants. ($4,885.93 had been refunded to 11 participants prior to filing of the complaint.) The court also enjoined the Defendants from violating ERISA and required Holloway and any employee to whom he delegates fiduciary responsibilities to attend a minimum of eight hours of fiduciary training.

Defendants subsequently defaulted. Before the Secretary moved for contempt, Defendants, through their newly retained counsel, agreed to a second consent judgment, which the court entered on September 26, 2019, requiring restoration of all plan losses and full injunctive relief. Dallas Office

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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. Atlanta Office

Acosta v. Institute of Technical Arts LLC (M.D. Fla.)

On September 17, 2018, the Secretary filed a complaint against the Institute of Technical Arts, LLC (ITA), a now defunct plan sponsor and administrator, and its former owner, Laura Lundberg. The complaint alleged that the fiduciaries untimely remitted and failed to completely remit employee contributions to the ITA 401(k) Profit Sharing Plan and failed to remit employee premiums to the ITA Group Health Plan. The complaint seeks approximately $11,719.21 in plan losses, removal of Lundberg as a fiduciary, appointment of a successor fiduciary, and a permanent injunction against Lundberg serving as a fiduciary to ERISA-covered plans in the future. In 2019, despite sustained efforts, the Secretary was unable to serve the defendants, and the complaint was dismissed without prejudice. Atlanta Office

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, and a decision remains pending. Philadelphia 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 seeks to have approximately $30,000 in unremitted employee contributions and lost opportunity costs restored to the plans 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 an entry of default against Defendants. A default hearing will take place in 2020. 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 a 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 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 $83,000.00 for the uncovered medical expenses and $20,000.00 for 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 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. San Francisco Office

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

On May 17, 2019, the Secretary 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 alleges that as a result of these fiduciary violations, the Defendants caused losses of $8,169 to the plan and caused plan participants to incur unpaid medical bills of at least $10,245. The complaint seeks 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. Dallas Office

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Pizzella v. Michael Shawn Cool and Spectrum Fire Protection, Inc. (Bankr. D. Md. and D. Md.)

On September 16, 2019, the Secretary filed a complaint against Michael Shawn Cool and Spectrum Fire Protection, Inc. The complaint alleges that from 2011 to 2016, Cool and the company failed to remit $80,019.08 in employee contributions and $8,874.99 in employee loan repayments to the Spectrum Fire Protection, Inc. 401(k) Profit Sharing Plan. The complaint seeks restoration of these amounts, with interest, to the Plan, along with a permanent fiduciary bar of Defendants. Prior to the filing of the district court action on August 22, 2019, the Secretary filed an adversary action in Cool’s Chapter 7 bankruptcy case, seeking to have Cool’s debt to the plan declared non-dischargeable.

Cool agreed to resolve both matters with the Secretary. Thus, on November 6, 2019, the bankruptcy court entered a consent order declaring the debt to the plan non-dischargeable and on November 26, 2019, the district court entered a consent judgment requiring Cool to restore $88,894.07 in plan assets and $21,889.16 in pre-judgment interest to the plan. The consent judgment also requires Cool to pay $3,000 related to the costs of the appointment of an independent fiduciary to administer the plan. Finally, the consent judgment enjoins Cool and the company from serving as fiduciaries to any ERISA-covered plan. Philadelphia 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 $44,185.66 in employee contributions for the company’s 401(k) plan but failed to remit those funds to the company’s 401(k) 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 plans; and (4) order the defendants to restore all losses, including interest and lost opportunity costs, to the 401(k) Plan. Atlanta Office

Acosta v. Mirjat (N.D. Ill.)

On April 27, 2018, the Secretary filed a complaint alleging that Mubarak Mirjat and Maximum Rehabilitation Services Ltd. failed to remit and untimely remitted participant contributions and loan repayments to the Maximum and Mark Rehabilitation 401(k) Plan. The Secretary seeks to have almost $10,000 in losses restored to the Plan, to enjoin Mirjat and Maximum Rehab from serving as a fiduciary or service provider to any ERISA-covered plan, to require the fiduciaries to file Form 5500s and amend the plan’s summary plan description to comply with ERISA, and to have the court appoint an independent fiduciary to issue distributions and terminate the Plan. After having denied the Secretary's motion for default judgment, the court on November 29, 2018, granted Defendants' motion to set aside their default. On December 13, 2018, the court stayed discovery in order to permit the parties to continue negotiating a consent order to settle the entire case.

On January 9, 2019, the court entered a consent order and judgment. The judgment recognized that the Defendants had fully restored almost $10,000 in losses to the Plan since the litigation was initiated and that the Defendants were currently issuing distributions and terminating the Plan. The judgment required the Defendants to fully terminate the Plan and enjoined Mirjat from serving as a fiduciary or service provider to any ERISA-covered plan after issuing distributions and terminating the Plan. Chicago Office

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Acosta v. Nichols Food Service, Inc. (E.D.N.C.)

On January 18, 2017, the Secretary filed a complaint against Nichols Food Service, Inc. and James L. Nichols, alleging that from September to November 2013, they failed to forward $4,564 in employee contributions to the 401(k) Plan and commingled the funds with the company's general assets. Additionally, the defendants withheld premiums totaling approximately $86,962 from employees' compensation and failed to segregate the funds from the company's general assets and forward them to the Health Plan. As a result, participants incurred unpaid medical claims totaling $143,394. The company ceased operation in January 2014. 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 401(k) Plan and restore health plan participants' contributions that were withheld. The Secretary received waivers of formal service on April 1, 2017.

Litigation proceeded during 2019. The parties successfully mediated the case. Mr. Nichols agreed to pay $3,996.90 in restitution to the 401(k) Plan and $100,483.10 in restitution to the Health Plan. AMI was appointed as successor fiduciary to both plans. In the resulting consent judgment, the court enjoined Mr. Nichols from violating ERISA and from serving as a fiduciary or representative of any ERISA-covered plan. On July 11, 2019, the court signed the consent judgment ordering Mr. Nichols to comply with these terms. See also Acosta v. Nichols Food Service, Inc., Section K. Orphan Plans. Atlanta 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 Puccio withdrew plan assets from various plan investment accounts for her own personal use and, thus, has been unable to satisfy the $439,501.09 in pension benefit entitlements of two plan participants. The parties engaged in discovery during 2019. Boston Office

Acosta v. Robinette (N.D. Ohio)

On July 9, 2018, the Secretary filed a complaint against Clifford Robinette, Marlene Robinette, Wendy Mowry, and Techniform Industries, Inc., alleging that the Defendants, who were fiduciaries of the Techniform Industries, Inc. 401(k) Plan, failed to remit employee contributions and loan repayments to the plan and failed to timely remit additional amounts. The violations occurred from January 2013 to April 2017. The complaint sought an order requiring that all losses be restored to the plan with interest, removing the Defendants as fiduciaries, and enjoining them from being fiduciaries or service providers to any ERISA-covered plan.

On April 25, 2019, the court entered a consent judgment, after the Defendants had restored $23,716 to the plan and paid a $4,743 § 502(l) penalty. Under the consent judgment, the Defendants waived their rights to their own 401(k) Plan accounts and agreed to be permanently enjoined, after terminating the Plan, from serving as fiduciaries or service providers to any ERISA-covered plan. Cleveland Office

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Acosta v. Schwab Contracting, Inc., Adam Schwab, and Jodi Schwab (E.D. Pa.)

On August 21, 2018, the Secretary filed a complaint against Schwab Contracting, Inc., Adam Schwab, the company's owner, and Jodi Schwab, the company's payroll officer, as Defendant fiduciaries. The complaint alleges that the Defendants systematically failed to remit those contributions to the Schwab Contracting SIMPLE IRA Plan between June 2015 and December 2016. The complaint seeks restoration to the Plan of approximately $18,531 in lost contributions and $1,706 in interest, as well as injunctive relief. After Defendants failed to answer the complaint, a clerk's default was entered on December 6, 2018.

On March 1, 2019, the Secretary filed a motion for default judgment against all Defendants; the court granted this motion on December 23, 2019. In granting default judgment, the court removed Adam and Jodi Schwab as Plan fiduciaries, required them to pay $18,531.57 in restitution to the Plan participants with $2,552.43 in lost interest, and required Defendants to pay $170.00 for the costs of personal service. 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 $2945.15 in employee contributions to the plan. In addition, from April 30, 2015 to March 15, 2016, they failed to forward $8,083.65 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 seeks the removal of Darryl Sharpton, Brittany Sharpton, and 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 seeks 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. See also Acosta v. Sharpton Brunson and Company, P.A., Section K. Orphan Plans. Atlanta Office

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 alleges that the Defendants failed to remit $6,443.80 in employee contributions and $2,542 in matching safe harbor contributions to the Mahan Consulting Group 401(k) Plan. The complaint further alleges 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 $1,508.68. Finally, the complaint alleges 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. Philadelphia 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. Chicago 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. San Francisco Office

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Acosta v. SmartCore LLC (W.D. Tenn.)

On March 7, 2019, the Secretary filed a complaint against Smartcore LLC, Steven Good, and William H. Winn, alleging that these defendants were fiduciaries to the SmartCore Group Health Benefit Plan. The complaint further alleged that these defendants breached their fiduciary duties under ERISA when they withheld employee contributions totaling at least $14,363.15 from January 3, 2016, through February 19, 2016, but then failed to remit those contributions to the plan.

On August 19, 2019, the court entered a consent judgment and order. Good and Winn were ordered to pay $21,404.10 to participants and beneficiaries for unpaid medical claims and unremitted premiums. The order permanently enjoined both fiduciaries from violating ERISA in the future, enjoined Winn permanently and Good for three years from acting as fiduciaries to any ERISA-covered Plan, and removed both as fiduciaries to the Plan. The order further appointed AMI Benefit Plan Administrators as successor fiduciary to administer all of the Plan assets, including making the payments to the participants under this order. In exchange for the three year injunction against acting as a fiduciary, Good must attend training on responsibilities of fiduciaries for ERISA-covered plans. Atlanta Office

Acosta 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 October21, 2019, the Secretary filed a motion for entry of default and, on November 13, 2019, a motion for default judgment. Dallas Office

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

On January 17, 2017, the Secretary filed a complaint against Passages Hospice, LLC, and Sandor Szajkovics (fiduciaries to the company's Dental and Employee Benefits Plans), asserting that they failed to remit to the plans certain employee salary reduction contributions. The unremitted salary contributions were retained in the company's general corporate account and used to pay corporate non plan expenses. The complaint seeks to have the unremitted employee contributions, plus the related lost opportunity costs, paid to the plans and to enjoin Szajkovics from serving as a fiduciary or service provider to any ERISA-covered plan. The company recently filed for bankruptcy, and the Secretary filed a proof of claim in the bankruptcy. On September 22, 2017, Szajkovics filed his answer.

On December 15, 2017, the Secretary filed a motion for default judgment against Passages Hospice. On December 29, 2017, the court granted the Secretary's motion and entered judgment against Passages Hospice. On August 30, 3018, the parties held a settlement conference and agreed to a settlement in principle. On March 7, 2019, the court entered a consent order and judgment ordering the Defendant to pay $27,500 to the plan. Chicago 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 $53,239.95 in employee contributions to the plan and improperly delayed remitting some employee contributions that he eventually did remit to the plan. The complaint seeks 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. 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. 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, Mr. Johnson had not ensured that the plan made some distributions required by the plan documents. The company and Mr. 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 Mr. 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. See also Acosta v. Williams-Russell & Johnson Inc., Section L. Contempt and Subpoena Enforcement. Atlanta 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. The district court has not yet ruled on the motions. Chicago Office

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Acosta v. Bruegger (S.D. Tex.)

On May 16, 2018, the Secretary filed a complaint against Christopher Bruegger, Kerkis LLC d/b/a Rebel Well Testing ("Rebel Well"), and the Rebel Well Testing 401(k) Plan. The complaint alleged that on July 9, 2014, Bruegger transferred $60,237.27 in plan assets to his personal bank account. The complaint sought the restoration of all plan losses with lost opportunity costs, Bruegger's and Rebel Well's compliance with ERISA, a permanent bar against Bruegger and Rebel Well serving as a fiduciaries to any ERISA-covered plan, and the appointment of an independent fiduciary, at Defendants' expense, to terminate the plan.

On December 18, 2018, the clerk of the court entered default against the Defendants for failure to answer or defend. On February 13, 2019, the court granted the Secretary’s motion for default judgment, awarding $71,646.25 payable to the plan, appointing an independent fiduciary, enjoining Bruegger from violating ERISA, and barring him from acting as a fiduciary. Defendants later made an appearance and raised issues of not being properly served. To avoid having to relitigate the matter, the Secretary obtained the same relief through a consent judgment and order, signed on August 22, 2019. Dallas Office

Acosta v. Day-Mont Behavioral Health Care, Inc. (S.D. Ohio)

On July 18, 2018, the Secretary filed a complaint against Day-Mont Behavioral Health Care, Inc., Gayle Johnson, and Akil Sharif, fiduciaries of the Day-Mont West Tax-Deferred Annuity Plan and the Day-Mont Behavioral Health Care, Inc. Employee Benefit Plan. The complaint alleges that the Defendants failed to remit certain employee contributions to the Day-Mont West Tax-Deferred Annuity Plan, failed to timely remit additional amounts owed to that plan, and made material misrepresentations and omissions to participants of the Day-Mont Behavioral Health Care Inc. Employee Benefit Plan, causing the participants to incur uncovered health benefits claims. The violations occurred from January 2012 to August 2016. The complaint seeks an order requiring the Defendants to restore all losses to both plans and their participants, removing the Defendants as fiduciaries, and enjoining them from being fiduciaries or service providers to any ERISA covered plan.

On November 20, 2019, the court entered a consent judgment ordering the Defendants to restore $64,582.49 to the Annuity Plan, restore $77,084.18 to the participants of the Health Plan, and pay a $28,333.33 §502(l) penalty. The consent judgment also appointed an independent fiduciary to terminate the plans, and it permanently enjoined the Defendants from serving as fiduciaries or service providers to any ERISA-covered plan. See also Acosta v. Day-Mont Behavioral Health Care, Inc., Section B.1. Collection of Plan Contributions and Loan Repayments. Cleveland Office

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 fiduciary defendants engaged in prohibited transfers and uses 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. Atlanta Office

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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, 2019, the district court had not yet ruled on the motions to dismiss. Chicago Office

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 Plans totaling $17,483.51, 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 which deleted the other defendants that had been named in the initial complaint. Atlanta Office

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Acosta v. Neurosurgical Solutions P.A. (M.D.N.C.)

On March 3, 2018, the Secretary filed a complaint against Dr. Mark A. Lyerly and his company, Neurosurgical Solutions, PA, alleging that they engaged in a number of prohibited and imprudent transactions while serving as fiduciaries of the Neurosurgical Solutions, PA Employees' 401(k) Profit Sharing Plan. In particular, the complaint contends that Dr. Lyerly and his company authorized the plan to loan over $500,000 to Dr. Lyerly personally, authorized an indirect loan to a company employee to purchase a car, failed to obtain collateral to safeguard loans to a third party despite loan documents authorizing the plan to take a secure interest in collateral, and failed to take any collection when a third party defaulted on repaying a plan loan. The Secretary seeks injunctive and equitable relief, including removal of Dr. Lyerly and his company as fiduciaries of the plan, rescission of prohibited transactions, and restitution of losses to the plan.

Dr. Lyerly repaid the Plan for the illegal transactions before the parties reached a consent judgment settlement, so there were no remaining funds to recover. However, Dr. Lyerly agreed to a permanent bar against further fiduciary service (except for terminating the plan) and an injunction against ERISA violations. The court approved the consent judgment on January 3, 2019. The consent judgment required that the plan be wound down by December 6, 2019. Dr. Lyerly had until March 6, 2019 to distribute the balance in his own account to all other plan participants. Atlanta Office

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

On November 6, 2018, the Secretary filed a complaint against Joseph Papa and Donna Papa (plan trustees) 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 sponsor company, United MFRS Supplies, Inc., to fund the company's business operations. The Secretary sought to have the plan's losses restored, Joseph and Donna Papa barred from serving as a fiduciary to any ERISA-covered plan, and the appointment of an independent fiduciary.

On January 3, 2019, the Secretary filed a proposed consent judgment providing that the fiduciaries would repay $455,124.28 in losses to the plan, as well as $47,659.28 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. New York Office

Acosta v. Radow (D.N.J.)

On November 6, 2018, the Secretary filed a complaint against Howard Radow, the Eastern Terminals & Communications, Inc. Profit Sharing Plan, and the Eastern Terminals & Communications, Inc. Retirement Plan, alleging that Radow had had executed loans from the plans to himself and never repaid them. The complaint seeks to restore $53,664.04 plus prejudgment interest, remove Radow as a fiduciary, appoint an independent fiduciary, and permanently enjoin Radow from serving as a fiduciary or service provider to an ERISA-covered plan in the future. Defendants’ answer was filed on January 2, 2019. An initial conference took place on February 21, 2019. On April 25, 2019, the Department filed an agreement with Radow for Radow to repay all losses over the course of two years and then pay a § 502(l) penalty over the course of five months. The judgment was entered on April 30, 2019. New York Office

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Acosta v. Trinkle (E.D. Ky.)

On March 6, 2018, the Secretary filed a complaint against Acramold, Inc., Christine Trinkle, as legal guardian of Gail Trinkle, and the Estate of Dallas Trinkle, II, alleging that the Defendants, who were fiduciaries of the plans, misappropriated funds from the Acramold, Inc. Defined Benefit Plan, took an improper loan from the Acramold Engineering, Inc. 401(k) Profit Sharing Plan, and failed to administer both plans. The violations occurred from November 2008 to the present. The complaint seeks an order requiring that fiduciaries restore all losses to the plans, removing them as fiduciaries, enjoining them from being fiduciaries or service providers to any ERISA-covered plan, and appointing an independent fiduciary to administer the plans. On April 24, 2019 and June 4, 2019, the court entered consent judgments that require the Defendants to restore $12,136 to the 401(k) Profit Sharing Plan and $228,067 to the Defined Benefit Plan. The consent judgments also enjoin Defendant Gail Trinkle (the only surviving fiduciary) from serving as a fiduciary to any ERISA-covered plan and require her (through her guardian) to terminate the 401(k) Plan. The Defined Benefit Plan was previously terminated pursuant to a trusteeship agreement with the Pension Benefit Guaranty Corporation. See also Acosta v. Trinkle, Section K. Orphan Plans. Cleveland Office

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C. Financing the Union

Acosta v. Fischer (N.D. Ohio)

On September 28, 2018, the Secretary filed a complaint against the Board of Trustees for, and the individual trustees of, the Toledo Electrical Joint Apprenticeship & Training Trust Fund. The complaint alleges that the fund's fiduciaries caused the fund to pay impermissible travel, entertainment, and other expenses and allowed a fund-owned tool to be used for impermissible purposes. The violations occurred from December 2011 to April 2016. The complaint seeks an order requiring that the fiduciaries restore all losses to the fund with interest and develop and implement policies or procedures to ensure that the fund does not enter into a prohibited transaction in the future.

On July 22, 2019, the court entered a consent judgment requiring the Defendants to restore $25,000 to the plan and pay a $2,500 § 502(l) penalty. The Defendants are also permanently enjoined from violating ERISA. Cleveland 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. Cleveland Office

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 seeks 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. 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 an undetermined amount 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. Between 2011 and 2013, the fiduciaries transferred over $3.6 million directly to Em Kol Chai.

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 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. Chaim Stern was removed from being trustee of the Retirement Plan, rendering the Secretary’s appeal as unnecessary, and it was withdrawn.

Approximately $4.1 million dollars has been returned to the Retirement Plan. The district court has also appointed an independent fiduciary for the Retirement Plan. Currently, the case continues in mediation with the district court. 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

Putnam Investments, LLC v. Brotherston (S. Ct.)

This case concerns the burden of proof for causation in ERISA fiduciary breach claims. The Supreme Court sought the government’s views on a certiorari petition with two questions presented: (1) which party bears the burden of proof on the issue of causation in ERISA fiduciary breach claims, and (2) whether comparing passively managed index funds to actively managed funds is insufficient as a matter of law to support a finding of loss. On April 22, 2019, the Supreme Court requested the government’s views on the petition. In November 2019, the United States filed a brief urging the Court to deny the petition for certiorari. The brief argued that the court of appeals correctly concluded that (1) petitioners, the fiduciaries in the case, bore the burden of proving that their failure to engage in appropriate monitoring did not cause the Plan’s losses and (2) that passively managed index funds are not, as a matter of law, improper comparators for determining whether a loss has occurred from an ERISA fiduciary’s breach involving the improper monitoring of actively managed funds. On January 13, 2020, the Court denied the petition. 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’s assets.

On December 10, 2019, in accordance with local rules, DST and certain other defendants filed a letter motion requesting a pre-motion conference for their anticipated motion to dismiss. The 16 DST individual defendants joined in this request. DST asserted that the Secretary’s claims are time-barred arguing that, through the Plan’s Forms annual Forms 5500 filed with the Department and through a private complaint that the Department had received under ERISA section 502(h), the Department had actual knowledge of the alleged ERISA violations more than three years before filing the complaint. DST also asserted that Secretary’s claims are time barred because the investment strategy at issue was in place for more than 45 years before the Secretary filed suit.

On the same date, Ruane and Goldfarb filed a similar letter motion for dismissal of the complaint for the same reasons asserted by DST. Ruane and Goldfarb also asserted that the complaint should be dismissed for failure to state a claim because, they argued, ERISA section 3(38) investment managers cannot be held responsible for determining what percentage of a plan’s assets are delegated to it for investment.

The Secretary filed a letter opposition to the DST and Ruane letters on December 13, 2019. The Secretary argued that the defendants’ statute of limitations arguments regarding the Forms 5500 amounted to charging the Secretary with constructive knowledge, not actual knowledge, and that, because complaints contain mere allegations, defendants’ arguments regarding ERISA section 502(h) service of the private complaint cannot establish even constructive knowledge. The Secretary explained that the defendants’ arguments under the ERISA section 413(1) six year limitations period are not on point because the violations at issue are ongoing failures to correct ongoing breaches, including a failure to monitor an investment manager, during the six years preceding the filing of the complaint. Finally, the Secretary also explained that Ruane’s and Goldfarb’s argument 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 profit-sharing portion of the Plan’s assets, which apply regardless of the percentage of Plan assets that Ruane managed. The Court has not scheduled a pre-motion hearing.

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 seeks declaratory judgments and injunctive relief. On that same date, Ruane filed a motion for a preliminary injunction and appointment of a special master. Ruane seeks to stay the arbitrations and seeks 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." 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 alleges 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 $6,355,972.35 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. Philadelphia Office

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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 October 15, 2019, defendants filed a reply brief opposing the Department’s brief. Plan Benefits Security Division

Rudel v. Hawai’i Management Alliance Association (9th Cir.)

This case addressed whether ERISA preempted a Hawaii anti-subrogation statute. The Secretary filed an amicus curiae brief arguing that ERISA section 502(a) completely preempted the case and therefore provided the district court jurisdiction over the claim, because the claim was essentially one to recover benefits. The Secretary then argued that ERISA section 514 saved Hawaii’s statute from express preemption and became the relevant rule of decision; that is, operatively the statute became a term of the plan. The Secretary lastly argued that the Hawaii statute merely defined the benefits and did not create additional remedies such that the statute was not conflict preempted. The Ninth Circuit heard oral argument on June 12, 2019, and on September 11, 2019, issued its decision fully adopting and citing the Secretary’s brief. 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. Plan Benefits Security Division

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F. Participants' Rights and Remedies

Cunningham v. Wawa (3d Cir.)

This case concerns whether plan participants who allege fiduciary misrepresentations need to show detrimental reliance to establish an ERISA violation or to seek ERISA remedies of surcharge or reformation. The plaintiffs are former Wawa employees whose holdings in the Plan’s ESOP were liquated involuntarily by the Plan’s fiduciaries after the participants’ separation from the company. Plaintiffs allege in a putative class action that the Plan’s fiduciaries violated ERISA sections 102 and 404(a) by misrepresenting, in the SPD and elsewhere, that they would be able to retain company stock upon separation from the company, and plaintiffs seek reformation and surcharge under section 502(a)(3). The defendants opposed class certification, arguing that circuit precedent requires a showing of detrimental reliance in order to state a fiduciary misrepresentation claim. The district court certified the class, holding that the circuit precedent the defendants relied upon was no longer good law in light of the Supreme Court’s decision in CIGNA Corp. v. Amara.

The defendants perfected an interlocutory appeal to challenge the order. In support of the plaintiffs, the Secretary filed an amicus curiae brief on December 11, 2019, arguing that the district court correctly applied Amara in holding that a showing of detrimental reliance is not necessary to bring these types of misrepresentation claims or to seek the equitable remedies of reformation or surcharge. The parties have informed the court that they anticipated settling the case. Plan Benefits Security Division

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 argues 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 June 23, 2019, the Ninth Circuit stayed proceedings pending a decision by the United States Supreme Court in Intel v. Sulyma. 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. Plan Benefits Security Division

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Laurent v. PwC (2d Cir.)

In a 2015 decision, the Second Circuit held that 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 of" or "to enforce any provisions of" 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)." 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. Plan Benefits Security Division

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 sections 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 sections 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. Plan Benefits Security Division

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G. Section 510

Acosta v. FCE Benefits Administrators, Inc. (N.D. Cal.)

On September 20, 2017, the Secretary filed a complaint against FCE Benefits Administrators, Inc. for unlawfully retaliating against an employee and two former employees in connection with the Department's ongoing ERISA lawsuit in Chimes District of Columbia, Inc. in the District of Maryland. FCE is the third party administrator of the employee health and welfare plan at issue in that litigation and is also a named Defendant in the lawsuit. The complaint alleges that approximately one month after the Secretary filed the Chimes lawsuit, FCE fired a longtime employee because it believed that she provided information to the Department. In addition, the complaint alleges that FCE sued that employee in Texas state court, alleging that she violated the confidentiality and non-compete clauses of her employment agreement. In the Texas litigation, FCE issued subpoenas to two former employees that required them to produce their computers and cell phones for imaging and testify at depositions. Both of those former employees are named witnesses in the Chimes litigation. The complaint further alleges that at the depositions of the fired employee and one of the former employees, FCE questioned the employee witnesses extensively about whether they spoke with the Department and other law enforcement agencies.

On September 11, 2017, the Secretary filed a response in opposition to a motion to dismiss filed by FCE. The court denied FCE's motion to dismiss the claim that it unlawfully retaliated against the informant and specifically rejected FCE's claims that the Department's lawsuit was an unlawful attempt to regulate discovery in the Texas state court action. The court dismissed the retaliation claim arising from FCE's state lawsuit, without prejudice. To proceed with a claim for retaliation arising from the Texas state court action, the court held that the Department must plausibly allege that FCE's conduct in the Texas state court action was "a sham." After the start of discovery, on June 3, 2019, the Secretary filed a notice of stipulated dismissal resolving the matter. See also Perez v. Chimes District of Columbia, Inc., Section J. Financial Institution and Service Provider Cases. Philadelphia Office

Perez v. Scott Brain (C.D. Cal. and 9th Cir.)

On May 21, 2014, the Secretary filed a retaliation complaint under section 510 of ERISA, alleging that the trustees and administrator of several Southern California Cement Masons Union pension and welfare funds terminated a fund employee, Cheryle Robbins, because she cooperated with a Department investigator who was investigating Scott Brain, president of the local and one of the funds' trustees and also because she participated in a complaint to the union's international leadership, alleging that Brain was engaging in several schemes resulting in underpayment to the funds and which, if true, would violate ERISA. On June 30, 2014, the Secretary amended the complaint to name Melissa Cook and her law firm, Melissa W. Cook & Associates, as Defendants. Cook was counsel to the trust funds and was also Brain's romantic partner from at least May 2013 through at least March 2014, although she never disclosed this conflict to the other trustees. The complaint alleges that Cook stepped outside her role as counsel to effect the removal of Robbins in an effort to protect Brain and that the Cook Defendants knowingly participated in ERISA violations.

On August 26, 2014, the Cook Defendants filed a motion to dismiss. On January 30, 2015, the court denied the motion, adopting the Secretary's position that: (1) there is no statute of limitations applicable to claims brought by the Secretary under ERISA section 510; (2) the Secretary's demand for back pay is not futile; (3) informal, internal complaints are protected under ERISA section 510; (4) the decision to outsource the work of the whistleblower's department was an adverse action; (5) the attorney to the trust funds may be held liable for knowingly participating in the trustees' violations of ERISA; (6) ERISA section 510 applies to "any person," including an attorney to the trust funds; and (7) California law does not immunize an attorney from liability under ERISA sections 404 and 510. The court also permitted the Secretary to file a second amended complaint, which varies from the first in three ways. First, relief is sought from the individual trustees who voted to outsource Robbins' department. Second, it added one additional trustee who participated in such vote. Third, relief is sought from certain Defendants for the terminations of Louise Bansmer and Cory Rice (mother and son), who allegedly were terminated by the trust funds' administrator in violation of section 510 for their participation in making internal ERISA-protected complaints and refusing requests by Brain to change contribution rates and because she continued to speak to Robbins while Robbins was on administrative leave.

On August 25, 2015, the court entered a partial consent judgment resolving the case against all Defendants except two trustees (including Brain), Cook, and Cook’s firm. It provides for $630,000 in back pay and other damages to the three whistleblowers as well as critical injunctive relief, requiring the trustee Defendants to make a statement that Robbins's termination was unlawful and calling for Brain's resignation as trustee. Previously, on August 6, 2015, the court had ruled that the Secretary's communications with the whistleblowers are protected by the common interest doctrine. This order was the result of the Secretary's emergency motion for protective order filed after the Secretary's attorneys were forced to suspend the deposition of a whistleblower because defense counsel refused to stop asking questions about the whistleblower's communications with the Department.

On December 14, 2015, the Secretary presented oral argument against Defendants' motions for summary judgment. The two remaining trustee Defendants sought summary judgment primarily on grounds that they could not be liable for actions taken by votes of the trust funds' full board of trustees or third-party administrator. The Secretary argued that material evidence disputes these asserted facts, showing the trustee Defendants' participation in certain votes and influence on other trustees and the funds' administrator in connection with all of the relevant retaliatory votes and actions. The Secretary further contended that Cook conspired with one of the remaining trustee Defendants to retaliate, arguing that the co-conspirator exception to hearsay, FRE 801(d)(2)(E), allows the court to impute to her trustee co-conspirator the funds' attorney's statements planning retaliation against the whistleblowers. On January 8, 2016, the court denied Cook's motion and denied Brain and Briceno's motions in part. The court granted summary judgment to Brain and Briceno with regard to their liability under section 510 for the third-party administrator's failure to rehire Robbins after her department was dissolved. The Secretary moved for reconsideration of the court's ruling with regard to Brain. As discussed below, the Secretary's motion was granted following trial.

Trial took place on May 17-24, 2016, after which the court issued a decision on July 25, 2016, finding that Brain and Cook violated section 510 by retaliating against Robbins for her participation in a DOL investigation and in an internal complaint about Brain and by retaliating against Rice for his participation in the internal complaint about Brain The decision established that section 510 violations warrant fiduciary and service provider bars; that such violations constitute breaches of fiduciary duties; that section 510 protects complaints to internal personnel; that the "cat's paw" theory of liability applies under section 510 and can reach individual Defendants; and that attorneys are not immune from liability under ERISA's anti-retaliation provision.

On October 14, 2016, and October 17, 2016, Brain and Cook filed separate notices of appeal from the district court's decision. The Ninth Circuit subsequently denied their motion for a stay during appeal and, on April 18, 2018, heard oral argument.

On December 4, 2018, the Ninth Circuit issued a partially favorable decision in the appeal, unanimously affirming the district court's ruling that the Defendants violated ERISA's anti-retaliation provision, section 510, but reversing by a 2-1 vote the district court's ruling that Brain breached his ERISA fiduciary duties imposed by section 404. The Ninth Circuit made several favorable rulings in affirming the district court's holding that the Defendants violated section 510. First, it affirmed that Robbins's participation in the Department of Labor investigation and Robbins's efforts to report Brain to international union leadership constituted protected activity. Second, the Ninth Circuit affirmed the district court's finding that while Brain and Cook were not the ultimate decision-makers, they were still liable for setting the retaliation into motion. The Ninth Circuit affirmed the district court's order requiring Cook and her law firm to disgorge fees that they had received in connection with their section 510 violation. By a 2-1 vote, the Ninth Circuit reversed the district court's finding that Brain also had violated his fiduciary duties under section 404. The panel majority held that the district court did not address whether Brain was acting in his fiduciary capacity, and rejected the Secretary's argument that Brain's actions to retaliate against Robbins were taken in the course of plan management and administration. Based on this ruling, the panel majority also reversed the district court's holding that Cook and her law firm knowingly participated in Brain's fiduciary breach, and the permanent injunction against the Defendants. The remaining panel member dissented, finding that Brain was clearly acting as fiduciary and stating that actions to cover up trust fund mismanagement should not be considered business, rather than fiduciary decisions.

The Secretary filed a petition for panel or en banc rehearing on January 18, 2019. The Ninth Circuit denied the petition on February 13, 2019. In line with the December 4, 2018 decision, two panel members recommended denying panel and en banc rehearing, and one panel member recommended granting panel and en banc rehearing. Los Angeles Office and, on appeal, Plan Benefits Security Division

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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.

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I. MEWAs

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. 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 post trial briefs on July 19, 2019. New York Office and, on appeal, Plan Benefits Security Division

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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. Philadelphia Office and, on appeal, Plan Benefits Security Division

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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. 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 alleges 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 alleges 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 to January 30, 2019. On February 26, 2019, the court issued a memorandum opinion which found in favor of the remaining Defendants. See Acosta v. FCE Benefits Administrators, Inc., Section G. Section 510. Philadelphia Office

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Perez v. City National Corporation (C.D. Cal. and 9th Cir.)

On April 24, 2015, the Secretary filed a complaint against the fiduciaries of the City National Corporation Profit Sharing Plan, alleging that from January 1, 2011, through June 1, 2012, the plan lost more than $4 million when fiduciaries engaged in self-dealing and conflicted transactions involving plan assets and caused the plan to pay excessive fees to City National Bank and its affiliates. Rather than outsource plan services to avoid potential conflicts of interest, or reimburse themselves for only direct expenses, City National and other fiduciaries established compensation rates for the plan on par with those charged to the Bank's retail clients. The compensation rate issues were compounded when Bank employees were not required to track the amount of time they spent working on plan issues.

On February 26, 2016, the Secretary filed a motion for partial summary judgment on liability, which was granted on April 5, 2016. The court found that City National had engaged in years of rampant self-dealing by choosing itself to provide in-house services to its own plan in exchange for millions of dollars of unchecked, admittedly high compensation. Notably, City National never refunded any money to the plan even though its own calculations acknowledged that the plan had overpaid for City National's services. Because City National lacked contemporaneous records showing the compensation it had received from the plan, the court ordered City National to perform an accounting, with the assistance of an independent fiduciary, of all of the compensation they had received from the plan from 2006 through 2012, plus lost-opportunity costs, to be returned to the plan.

On August 15, 2016, City National filed the accounting, in which the independent fiduciary concluded that City National had received nearly $8.2 million in compensation (plus lost opportunity costs using the plan’s rate of return) or, alternatively, $6.06 million in compensation (plus lost opportunity costs using the lower IRC rate of return). The Secretary and City National then filed cross motions for partial summary judgment on the issue of losses. The Secretary argued that City National was liable for all of the compensation it had received from the plan for its service provider work using the higher rate of return, less limited offsets that the Department did not oppose, for a total of $7.4 million. City National's motion argued that the plan had suffered no losses, or in the alternative, had lost only $1.1 million, claiming that City National was entitled to various credits, including the value of its own employees' alleged plan related work, for which City National had kept no contemporaneous records.

On February 8, 2017, the district court granted summary judgment for the Secretary on losses. The district court rejected City National's arguments that the plan was entitled to no damages and that all purported credits should offset damages. Thus, relying on the accounting, the district court agreed with the Secretary's damages calculation of $8,185,596.13. The district court then deducted from that amount the offsets ($818,214) that the Secretary did not oppose. The district court awarded damages of $7,367,382.13 (i.e., $8,185,596.13 minus $818,214).

The Defendants filed a notice of appeal on March 28, 2017, and filed their opening brief on November 7, 2017. After the Defendants filed their notice of appeal, the Secretary and City National agreed to dismiss the individual board Defendants from the lawsuit. The Ninth Circuit held oral argument on January 11, 2019.

On April 23, 2019, the Ninth Circuit affirmed all of the district court’s decision on liability and the majority of its damages award. As to liability, the court rejected City National’s argument that its compensation was exempt under ERISA section 408(b)(2) as reasonable compensation. The Ninth Circuit made clear that the reasonable compensation exemption is categorically inapplicable to self-dealing prohibited by section 406(b), even if the services provided by the fiduciary were for “actual and legitimate services rendered."

As to damages, the Ninth Circuit rejected City National’s argument that the district court’s damages award should have been reduced by “direct expenses" that it claimed to have incurred on the plan’s behalf, such as compensation paid to its employees to service the plan. The Ninth Circuit held that City National failed to meet its burden of establishing its entitlement to these claimed offsets because they were “based on unreliable and insufficient evidence." While making clear that “contemporaneous records are not required in all cases," the court held that the expense evidence marshalled by City National — which included a “rough" post-hoc estimate of employee expenses and “speculation that five or six employee positions would have been eliminated but for their work on the plan" — was inadequate. Los Angeles Office and, on appeal, Plan Benefits Security Division

Acosta v. DeWalt (E.D. Wash.)

On February 24, 2017, the Secretary filed a complaint concerning the administration of the Associated Employers Health and Welfare Trust, which held the assets of ERISA-covered plans that funded and paid for benefits through the Trust. The defendants are the trustees, a service provider, and the service provider’s corporate parent. The complaint alleges that the trustees caused the trust to pay unjustifiably high and ever-increasing fee rates to a third party administrator, Associated Industries Management Services, Inc. ("AIMS"), for which two of the trustees served as officers and employees. The complaint also alleges that the trustees repeatedly paid and increased AIMS's fee rates without researching other firms' fee rates, seeking competing bids, seeking a consultant's evaluation of the reasonableness of the increased fees for AIMS's services, or otherwise making any efforts to determine if AIMS's services could have been purchased from another firm for less. The complaint further alleges that AIMS's parent company failed to monitor the actions of the trustees and that AIMS knowingly participated in the trustees’ fiduciary breaches. As a result, the Trust allegedly paid AIMS millions of dollars of additional fees, largely taken from financial reserves held by the Trust, without disclosing to the employers or employees that AIMS's fees had been increased or that money to pay for the increased fees was being taken out of the Trust's reserve funds. The Secretary seeks to recover losses from the fiduciaries resulting from the improper payments to AIMS and disgorgement from AIMS.

On July 31, 2017, the court denied in their entirety defendants’ two motions to dismiss, rejecting the defendants' arguments that: (1) the court lacked subject matter jurisdiction because the Secretary failed to adequately plead that the service provider’s fees were paid from "plan assets" under ERISA; (2) the Secretary failed to adequately plead that the defendants were fiduciaries; (3) the Secretary failed to adequately plead that one fiduciary breached its duty to monitor its co-fiduciaries; and (4) part of the claims were barred by the six year statute of limitations. On August 8, 2017, the defendants filed their answer.

On September 18, 2017, the Secretary filed a motion to strike five of the defendants' affirmative defenses. On October 11, 2017, the court granted the Secretary's motion, striking two of the affirmative defenses (laches and good faith) with prejudice, and allowing the defendants the opportunity to amend three others (waiver, statutory and regulatory exemptions) with additional detail. The defendants filed an amended answer on November 14, 2017.

The parties met in a court-sponsored mediation in January 2018. Following negotiation after the Secretary's settlement presentation to defendants in April 2018, the parties negotiated basic terms for a settlement consent order and obtained stays of discovery to permit continued negotiation on proposed consent order terms.

On June 7, 2019, the court entered a consent order requiring the defendants to pay the Trust $1,000,000 and to pay a $200,000 ERISA §502(l) penalty. The order also required the Trust to retain an independent fiduciary, required specific procedures for the independent fiduciary’s selection of third-party administrators for the trust, and required disclosures to the Trust’s sponsoring employers about service providers’ proposed fees and fees received. Plan Benefits Security Division

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K. Orphan Plans

Acosta v. ERI-Environmental Resources Inc. (D. Minn.)

On June 26, 2018, the Secretary filed a complaint alleging ERI-Environmental Resources Inc. (“ERI") breached its ERISA fiduciary duties by failing to administer the plan since January 2008 when ERI was administratively dissolved by the Minnesota Secretary of State. ERI’s chief executive officer and sole trustee of the plan died on April 30, 2008. No successor trustee was appointed. As a result, participants have been unable to obtain distributions from their individual account balances. The complaint seeks to remove ERI as fiduciary to the plan and to appoint an independent fiduciary to administer the plan, distribute a total of $61,055 in plan assets to eligible participants, and terminate the plan. On November 1, 2018, the clerk of court entered a default against Defendants for failure to plead or otherwise defend in this action. On March 15, 2019, the court entered a default judgment against Defendants and appointed an independent fiduciary to terminate the plan and distribute the plan’s assets. Chicago Office

Acosta v. Estate of James D. Blankenbeckler (M.D.N.C.)

The Department simultaneously filed a complaint and a consent judgment ordering the appointment of an independent fiduciary to distribute assets and terminate the plan. The court signed and entered the consent judgment on October 15, 2018, and appointed AMI Benefit Plan Administrators, Inc., as the successor fiduciary for the James D. Blankenbeckler, DDS Profit Sharing Plan. After the death of James D. Blankenbeckler in 2010, his daughter Emily Bivins was appointed the administrator of the estate and the plan. After she failed to file a sufficient annual accounting, public administrator Bryan Thompson replaced her. The Department found that the estate had been closed in 2016 without ensuring the appropriate distribution of all plan assets to the participants. There were two remaining participants in the plan, which held assets of $46,371. In 2019, those assets were distributed, and the case has been closed. Atlanta 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 $11,205.66 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. Dallas 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 alleges 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 seeks 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 seeks 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. Chicago Office

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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 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 seeking the removal of Hoyt Enterprises, Inc., as fiduciary of the plan and seeking appointment of an independent fiduciary to terminate the plan and distribute the plan’s remaining assets. A hearing on this motion is set for January 31, 2020. Chicago Office

Acosta v. Nichols Food Service, Inc. (E.D.N.C.)

On January 18, 2017, the Secretary filed a complaint against Nichols Food Service, Inc. and James L. Nichols, alleging that from September to November 2013, they failed to forward $4,564 in employee contributions to the 401(k) Plan and commingled the funds with the company's general assets. Additionally, the defendants withheld premiums totaling approximately $86,962 from employees' compensation and failed to segregate the funds from the company's general assets and forward them to the Health Plan. As a result, participants incurred unpaid medical claims totaling $143,394. The company ceased operation in January 2014. 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 401(k) Plan and restore health plan participants' contributions that were withheld. The Secretary received waivers of formal service on April 1, 2017.

Litigation proceeded during 2019. The parties successfully mediated the case. Mr. Nichols agreed to pay $3,996.90 in restitution to the 401(k) Plan and $100,483.10 in restitution to the Health Plan. AMI was appointed as successor fiduciary to both plans. In the resulting consent judgment, the court enjoined Mr. Nichols from violating ERISA and from serving as a fiduciary or other representative of any ERISA-covered plan. On July 11, 2019, the court signed the consent judgment, ordering Mr. Nichols to comply with these terms. See also Acosta v. Nichols Food Service, Inc., Section B.1. Collection of Plan Contributions. Atlanta Office

Acosta v. Pain Management of Northern Ohio, Inc. (N.D. Ohio)

On June 5, 2019, the Secretary filed a complaint against Pain Management of Northern Ohio, Inc., alleging that it had failed to administer the Pain Management of Northern Ohio, Inc., 401(k) Profit Sharing Plan and Trust after the plan’s sole trustee was indicted on federal criminal charges and fled the country. On October 31, 2019, the court entered a default judgment removing Pain Management of Northern Ohio, Inc., as a fiduciary of the plan and appointing an independent fiduciary to terminate the plan. Cleveland Office

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Acosta v. RP Martin LLC 401(k) Profit Sharing Trust (S.D.N.Y.)

On August 20, 2016, the Secretary filed a complaint against the RP Martin LLC 401(k) Profit Sharing Trust alleging failure to administer the plan. The complaint seeks the appointment of an independent fiduciary to secure distribution of about $280,000 to two participants. After the plan was served, but failed to answer, the Secretary requested and obtained entry of default from the clerk of the court on October 23, 2018. On December 17, 2018, the Secretary moved for default judgment. Default judgment was granted on January 9, 2019. New York 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 $2945.15 in employee contributions to the plan. In addition, from April 30, 2015 to March 15, 2016, they failed to forward $8,083.65 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 seeks the removal of Darryl Sharpton, Brittany Sharpton, and 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 seeks 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. See also Acosta v. Sharpton Brunson and Company, P.A., Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

Acosta v. Smedberg Machine Retirement Plan (N.D. Ill.)

On June 15, 2018, the Secretary filed a complaint alleging Jesse Smedberg and Smedberg Machine Corporation (“SMC") breached their ERISA fiduciary duties by failing to administer the plan since March 2015 when SMC ceased operations. Participants have been unable to obtain distributions from their vested account balances. The complaint seeks to remove Mr. Smedberg and SMC as fiduciaries to the plan and permanently enjoin them from serving as fiduciaries or service providers to any ERISA-covered plan in the future. The complaint also seeks to have an independent fiduciary appointed to administer the plan, distribute a total of $52,550 in plan assets to eligible participants, and terminate the plan.

On September 11, 2018, the court entered a default against Defendants for failure to timely answer or otherwise plead to the complaint. On September 10, 2019, the court entered a default judgment against Defendants and appointed an independent fiduciary to terminate the plan and distribute the plan assets. Chicago Office

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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 seeks 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. San Francisco Office

Acosta v. Trinkle (E.D. Ky.)

On March 6, 2018, the Secretary filed a complaint against Acramold, Inc., Christine Trinkle, as legal guardian of Gail Trinkle, and the Estate of Dallas Trinkle, II, alleging that the Defendants, who were fiduciaries of the plans, misappropriated funds from the Acramold, Inc. Defined Benefit Plan, took an improper loan from the Acramold Engineering, Inc. 401(k) Profit Sharing Plan, and failed to administer both plans. The violations occurred from November 2008 to the present. The complaint seeks an order requiring that fiduciaries restore all losses to the plans, removing them as fiduciaries, enjoining them from being fiduciaries or service providers to any ERISA-covered plan, and appointing an independent fiduciary to administer the plans.

On April 24, 2019 and June 4, 2019, the court entered consent judgments that require the Defendants to restore $12,136 to the 401(k) Profit Sharing Plan and $228,067 to the Defined Benefit Plan. The consent judgments also enjoin Defendant Gail Trinkle (the only surviving fiduciary) from serving as a fiduciary to any ERISA-covered plan and require her (through her guardian) to terminate the 401(k) Plan. The Defined Benefit Plan was previously terminated pursuant to a trusteeship agreement with the Pension Benefit Guaranty Corporation. See also Acosta v. Trinkle, Section B.3. Miscellaneous. Cleveland Office

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L. Contempt and Subpoena Enforcement

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

On March 11, 2019, the Secretary filed a motion to hold Jeffrey Brast and Patricia Brast, Trustees of Special Care Home Oxygen & Medical Equipment, Inc. Profit Sharing Plan, (collectively “Brasts") in civil contempt of court. Previously, on September 3, 2015, the court had entered a consent judgment and order in which the Defendant fiduciaries promised to pay restitution of $41,666.65 to plan participants and provide proof of issuance of IRS Forms 1099. At the time of the contempt filing, the Defendants had failed to pay $20,523.16 in restitution to one plan participant and provide proof of the issuance of IRS Forms 1099. Before the scheduled contempt hearing, the Secretary secured from the Defendants a cashier’s check made out to the unpaid participant in the amount of $20,523.16. Dallas Office

Acosta v. Chainani (S.D. Tex.)

On April 20, 2015, the Secretary filed an amended complaint against AARC Environmental, Inc. (“AARC") and Kishore Chainani, AARC's sole owner. The original complaint, filed on December 26, 2014, alleged that they failed to forward employee contributions and loan repayments to the company's 401(k) Plan since December 29, 2007, resulting in more than $78,000 in losses. The amended complaint alleges that they failed to remit all employee and employer premiums to the company's Group Health Plan and allowed coverage to lapse multiple times since 2011, as a result of which they owe participants more than $40,000 in employee premiums and an additional unknown amount for unpaid medical claims.

On September 20, 2016, the court entered a default judgment against Defendants, granting full relief and awarding more than $86,000 in losses for the 401(k) Plan and more than $40,000 in losses for the Health Plan to 49 participants and beneficiaries. Defendants are also required to hire an independent fiduciary at their own expense and are barred from acting as fiduciaries in the future once the independent fiduciary is in place.

Because Defendants failed to comply with the default judgment, the Secretary on June 28, 2017, filed a motion to adjudge Defendants in contempt. On September 7, 2017, the court issued an order finding Defendants in civil contempt and ordered them to make immediate restitution of $86,085.43 to the 401(k) plan and immediate restitution of $39,601.47 to the health plan participants.

Defendants hired legal counsel and entered into negotiations with the Secretary to purge themselves of contempt. On December 22, 2017, the Secretary filed a request for stay of contempt pending Defendants' payment of the outstanding debt owed to both plans pursuant to an agreed repayment plan. On January 9, 2018, the court granted the Secretary's stay. As of December 17, 2019, the Defendants completed the payment plan agreement by paying $90,729.76 to the 401(k) Plan and $77,376.31 to 22 participants of the Group Health Plan. See also Acosta v. Chainani, Section B.1. Collection of Plan Contributions and Loan Repayments. Dallas Office

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Secretary v. Cherry Home Orchards, LLC (W.D. Mich.)

On March 29, 2019, the Secretary filed a petition to compel Cherry Home Orchards, LLC, to provide outstanding responsive documents requested by an administrative subpoena duces tecum issued by the Secretary on July 3, 2018. Respondent Cherry Home sponsors a 401(k) Plan. Despite several attempts to obtain compliance, respondent Cherry Home failed to comply with the subpoena. On July 9, 2019, the Court ordered the Respondent to produce all responsive documents and an affidavit affirming such within 30 days. 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. Cleveland Office

Secretary v. Cloverleaf Consulting Group, LLC (E.D. Mich.)

On October 23, 2018, the Secretary filed a petition to compel Cloverleaf Consulting Group, LLC, owned and operated by Ronald D. Bush II, to respond to an administrative subpoena duces tecum issued by the Secretary on April 6, 2018. Respondent Cloverleaf sponsors a 401(k) Plan. Despite the Secretary’s several attempts to obtain compliance, respondent Cloverleaf failed to comply with the subpoena. After receiving all the outstanding documents and a declaration from the Respondent attesting that it had no other responsive documents, on March 12, 2019, the Secretary filed a notice of voluntary dismissal. Chicago 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, Respondent 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 Respondent 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, Respondent 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. A status hearing is scheduled for January 9, 2020. 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. 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. Chicago

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. Chicago Office and, on appeal, Plan Benefits Security Division

Acosta v. Spectrum Fire Protection, Inc. (D. Md.)

On February 26, 2019, the Secretary filed a petition to enforce an administrative subpoena served on Spectrum Fire Protection, Inc. The Department had subpoenaed Spectrum for records relevant to the administration and operation of the Spectrum Fire Protection, Inc. 401(k) Profit Sharing Plan. The company president produced limited information in response to the subpoena and then stopped all communications with the Department. The petition asked the court to order Spectrum to supply all responsive documents. Spectrum subsequently produced the requested documents, and therefore the Secretary filed a notice of dismissal that the court entered on July 18, 2019. Philadelphia Office

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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 has provided various documents in response to the subpoena, but has 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 is scheduled for January 9, 2020. 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, Mr. Johnson had not ensured that the plan made some distributions required by the plan documents. The company and Mr. 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 Mr. 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. See also Acosta v. Williams-Russell & Johnson Inc., Section B.1. Collection of Plan Contributions and Loan Repayments. Atlanta Office

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

On September 27, 2018, after Stephen Woerner failed to appear to testify at an administrative deposition and to produce documents called for by an administrative subpoena, the Secretary filed a motion to compel. On October 18, 2018, the court granted the Secretary's motion and ordered Woerner to appear to testify and produce the documents. On October 30, 2018, the Secretary filed a letter seeking a pre-motion conference to file a civil contempt motion. On November 15, 2018, the court waived the pre-motion conference requirement and set a briefing schedule on the Secretary's motion for contempt. Contempt papers were served on Woerner. When Woerner failed to respond, the Secretary filed an unopposed motion for contempt on December 21, 2018. The Secretary was then able to obtain the documents and so, on February 25, 2019, the Secretary withdrew the motion. New York 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 has secured fully-insured health coverage for employees.

Approximately $4.1 million has been returned to the Retirement Plan. The district court has appointed an independent fiduciary for the Retirement Plan. Currently, the cases continue in mediation with the district court. 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 non-dischargeable. See also Acosta v. AIR, LLC d/b/a TantaComm, Section B.1. Collection of Plan Contributions and Loan Repayments. Chicago Office

In re Christopher and Jennifer Ferrell (Bankr. D.N.J.)

On May 7, 2019, the Chapter 13 trustee filed a motion seeking declaratory relief limiting his fiduciary duties or, in the alternative, modifying the bankruptcy plan. The Secretary filed an opposition on June 4, 2019. On September 30, 2019, the bankruptcy court denied the trustee’s motion. New York Office

In re David J. Kahler (Bankr. D. Mass.); Scalia v. Kahler (Bankr. D. Mass.)

On July 22, 2019, the Secretary filed an adversary proceeding for a determination of non dischargeability of debt against David H. Kahler, the trustee and fiduciary of the Geolabs 401(k) Plan and Geolabs 401(k) Profit Sharing Plan and Trust. Mr. Kahler had failed to remit to the plan some employee contributions and loan repayments, and the Secretary alleged that this constituted defalcation pursuant to 11 U.S.C. section 523(a)(4). These violations occurred from 2015 through 2018. Mr. Kahler had filed a voluntary petition for relief under Chapter 13 of the bankruptcy code on November 7, 2018.

The Secretary and Mr. Kahler entered into an agreement to resolve all claims in the adversary proceeding on November 25, 2019. Under the agreement, Mr. Kahler will pay $3,388.92, the full amount of the missing contributions and the lost opportunity earnings on missing and late contributions to the plan, no later than the final payment under his Chapter 13 bankruptcy plan or within twenty-four months of signing the agreement, whichever is earlier. Should Mr. Kahler fail to do so, any outstanding balance will be non-dischargeable. The bankruptcy court approved the settlement on December 30, 2019. Boston Office

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Acosta v. Hugo Key (Bankr. D.R.I.); In re: Hugo Key, III (Bankr. D.R.I.); Acosta v. Jonathan Key (Bankr. D.R.I.); In re: Jonathan P. Key (Bankr. D.R.I.)

On July 17, 2019, the Secretary filed two adversary complaints against fiduciaries, Jonathan and Hugo Key, who had both filed voluntary, no asset petitions for relief under Chapter 7 of the Bankruptcy Code. On August 29, 2018, Hugo Key filed a voluntary no asset petition for relief under Chapter 7 of the Bankruptcy Code; his brother Jonathan P. Key filed a separate voluntary no asset petition for relief under Chapter 7 of the Bankruptcy Code on November 21, 2018. The Secretary’s complaints sought a determination that $12,155.75 in salary deferrals, lost opportunity costs, and prevailing wage contributions that were not segregated and not transferred to the Contractors Retirement Plan during plan years 2013-2015 represented a non dischargeable debt owed by the bankruptcy Debtors.

The Secretary and the Debtors reached an agreement to resolve the matter by means of stipulations for judgment, which were filed with the court on August 15, 2019. Pursuant to the stipulations, the Debtors agreed that the $12,155.75 constituted a non dischargeable debt under section 523(a)(4) of the Bankruptcy Code. The Debtors agreed to repay all outstanding amounts owed to the non-fiduciary participants in the Plan by transferring funds from the Debtors’ plan accounts to all other plan participants’ plan accounts. The Debtors also agreed to ensure the proper allocation and distribution of these funds to the participants and to ensure the proper termination of the plan. On September 5, 2019, the court approved the stipulations for judgment, and, on September 16, 2019, entered the resulting judgment. Boston Office

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). The court approved the stipulation on August 27, 2018.

The Department continues to protect the interests of the 401(k) Plan in the two bankruptcies. The hearing on Sky-Skan's amended disclosure statement and the Savages' disclosure statement took place on December 17, 2018. The Department had filed an objection to Sky-Skan's amended disclosure statement because it failed to adequately describe how payments to the 401(k) Plan would be made to satisfy the outstanding amounts due. The Department further advised the court that counsel for the Savages had indicated he would be amending their disclosure statement, and in light of inconsistencies between the two current disclosure statements, the Department reserved the right to object to any amended disclosure statements. The U.S. Trustee also objected, citing inter alia, insufficient detail in the Sky-Skan amended disclosure statement on how the 401(k) amounts would be paid. The judge told the debtors to amend their disclosure statements to address the Department of Labor's and the U.S. Trustee's concerns and provide more detail on how the 401(k) claims would be paid.

After several months of negotiation, Debtor Sky-Skan filed an amended disclosure statement and Chapter 11 reorganization plan addressing the Secretary’s interests in obtaining employer and employee contributions over a 60-month period. The U.S. Trustee and Coastal Capital filed objections, and Debtor filed an amended disclosure statement and reorganization plan on July 26, 2019. The Secretary filed a limited objection to the language in the amended disclosure statement and reorganization plan and, at the August 28, 2019 hearing, argued his concerns the Debtor’s future and corresponding implications for to the 401(k) Plan participants. At the court’s direction, the Debtor filed an amended disclosure statement and reorganization plan on September 4, 2019, incorporating language negotiated with the Secretary. On November 4, 2019, the two largest creditors objected to the Debtor’s amended plan of reorganization, and the court set a plan confirmation hearing for February 13-14, 2020. Boston Office

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N. Miscellaneous

Acosta v. Azer (D. Md.)

On April 7, 2017, the Secretary filed a complaint against Rida N. Azer, president of the Metropolitan Washington Orthopaedic Associates, Chartered 1975 & Allied Specialties and fiduciary of the Metropolitan Washington Orthopaedic Associates, Chartered 1975 Employees Pension Plan and against plan fiduciary Donald Nobel. The Secretary alleges that Azer repeatedly over-reported the plan's assets and under-reported the plan's liabilities in the plan's Form 5500s and that Noble and Azer authorized the use of plan assets as collateral for a loan that did not exclusively benefit the plan. The Secretary seeks the appointment of an independent fiduciary and a permanent bar preventing the Defendants from serving as fiduciaries to any ERISA-covered plan in the future. The Defendants filed answers to the complaint on July 21, 2017.

On June 1, 2018, the Pension Benefit Guaranty Corporation (PBGC) filed a complaint against Metropolitan Washington Orthopaedic Association Chartered 1975, seeking appointment of the PBGC as the plan's statutory trustee. The Secretary's case was stayed until March 4, 2019, pending the outcome of the PBGC complaint.

On April 25, 2019, the Department filed a notice of stipulated dismissal in this action after the PBGC was appointed as the statutory trustee of the plan. Under that order, the PBGC will terminate the plan and pay benefits in accordance with ERISA. Philadelphia Office

Acosta v. Charles Simmons, Donald Hutchins, and the Sojourner Douglas College Health Plan (D. Md.)

On March 23, 2018, the Secretary filed a complaint against Charles Simmons, president and plan fiduciary; Donald Hutchins, vice president of administration and fiscal affairs, and plan fiduciary; and the Sojourner Douglas College Health Plan. The complaint alleges that Simmons and Hutchins failed to remit both employee and employer contributions to the health care plan, causing the plan to be cancelled, and failed to notify participants of the lack of coverage. As a result of the Defendants' actions and in reliance on the representation that health care coverage was in place, the plan participants incurred $271,841.11 in unpaid health care claims. The complaint seeks an order requiring Simmons and Hutchins to restore assets to the plan as necessary to pay the outstanding health claims, appointing an independent fiduciary, and permanently barring the Defendants from serving as fiduciaries to any ERISA-covered plan in the future. Following the close of discovery, the parties resolved the matter at a settlement conference with a magistrate judge. On July 31, 2019, the court entered a consent judgment that enjoined all Defendants from serving in any fiduciary capacity to any ERISA-covered plan. Philadelphia Office

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. Defendants failed to answer, and a motion for clerk’s default is pending. Philadelphia Office

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Peterson v. United Healthcare (8th Cir.)

On January 15, 2019, the Eighth Circuit issued a decision that found unreasonable United Healthcare’s interpretation that the ERISA-covered plans it administered permitted “cross-plan offsetting." “Cross-plan offsetting" is described as follows: United pays a healthcare provider for services rendered to a plan participant in Plan A, and later determines that it overpaid. Through cross-plan offsetting, United can recoup the overpayment by withholding a payment due to the same provider for services rendered to a different plan participant in a different ERISA-covered plan (Plan B).

Plaintiffs Dr. Louis Peterson and Riverview Health Institute were healthcare providers for participants in ERISA-covered health plans administered by United. Plaintiffs alleged that cross plan offsetting between self-insured and fully-insured plans violates ERISA and the terms of the participants' plans. In response, United claimed that, because the plans authorize the offsetting of overpayments with other payments within the same plan, United reasonably interpreted the plans to permit cross-plan offsetting.

The district court found United's interpretation unreasonable and then certified its decision for interlocutory appeal. On appeal, the Secretary filed an amicus brief stating that United’s practice of cross-plan offsetting directly violates its fiduciary duty of loyalty as required by ERISA section 404, and amounts to self dealing transactions prohibited by ERISA section 406.

The Eighth Circuit affirmed the district court’s holding that United’s interpretation was unreasonable. The court found that “the practice of cross-plan offsetting is in some tension with the requirements of ERISA." The court also found that a plan interpretation authorizing offsetting would likely run afoul of fiduciary duties, reasoning that “while administrators like United may happen to be fiduciaries of multiple plans, nevertheless ‘each plan is a separate entity’ and a fiduciary’s duties run separately to each plan. . . . Cross-plan offsetting is in tension with this fiduciary duty because it arguably amounts to failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another plan. While this benefits the latter plan, it may not benefit the former. It also may constitute a transfer of money from one plan to another in violation of ERISA’s ‘exclusive purpose’ requirement." Plan Benefits Security Division

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Acosta v. Stapleton (S.D. Ohio)

On September 20, 2017, the Secretary filed a complaint against the Board of Trustees of the Plumbers and Steamfitters Local No. 577 Annuity Plan and 11 trustees of the plan. The complaint alleges that the Defendants caused the plan to pay service provider fees for plan accounts of inactive participants, which should have been distributed prior to the fees being incurred. The complaint seeks injunctive relief and an order requiring the Defendants to restore all losses to the plan. On November 29, 2018, the parties notified the court that they had reached an agreement in principal to resolve the case. On March 15, 2019, the court entered a consent judgment requiring the Defendants to restore $245,454 in fees to the plan and pay a $24,545 § 502(l) penalty. The Defendants are also permanently enjoined from violating ERISA. Cleveland 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. The motion, although not responded to, remains pending with the district court. 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), Mr. 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 Mr. Delaney to assist in distributing the funds and completing the termination of the pension plan. Boston Office