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Perez v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

September 19, 2016

THOMAS E. PEREZ, Secretary of Labor, Plaintiff,
v.
CHIMES DISTRICT OF COLUMBIA, INC., et al., Defendants.

          MEMORANDUM OPINION

          Richard D. Bennett United States District Judge.

         United States Secretary of Labor, Thomas E. Pere2, ("the Secretary") has brought a ten-count Amended Complaint against Chimes D.C. Inc. Health & Welfare Plan (the "Plan") and its alleged fiduciaries and service providers, including Defendants Chimes District of Columbia, Inc.; Chimes International Ltd; FCE Benefit Administrators, Inc.; Gary Beckman; Stephen Porter; Martin Lampner; Albert Bussone; Benefits Consulting Group; Jeffrey Ramsey; and Marilyn Ward, alleging violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001, et seq. First Am. Compl., p. 1-2, ECF No. 102. Currently pending before this Court is Defendants FCE Benefit Administrators, Inc. ("FCE"), Gary Beckman, and Stephen Porter's[1] (the "FCE Defendants") Motion to Dismiss (ECF No. 67)[2]. The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated herein, the FCE Defendants' Motion to Dismiss (ECF No. 67) is DENIED[3].

         BACKGROUND

         In a ruling on a motion to dismiss, this Court must accept the factual allegations in the plaintiff's complaint as true and construe those facts in the light most favorable to the plaintiff. See, e.g., Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999); Harris v. Publish Am., LLLP, No. RDB-14-3685, 2015 WL 4429510, at *1 (D. Md. July 17, 2015). The alleged facts of this case, in relevant part[4], are as follows:

         Chimes D.C., Inc. (“Chimes DC”) is a Washington, D.C. corporation established under Section 501(c)(3) of the Internal Revenue Code. First Am. Compl., ¶ 10, ECF No. 102. Chimes DC “is a federal government contractor who employs disabled workers for janitorial and custodial service.” Id. Chimes DC “established the [Chimes D.C. Inc. Health & Welfare Plan (the “Plan”)] to provide a package of medical, prescription, life insurance, accidental death and dismemberment, disability, and unemployment benefits” to its employees. Id. at ¶ 2. Defendant Marilyn Ward (“Ward”) was a “Plan trustee and named fiduciary of the Plan.” Id. at ¶ 20. At all relevant times, Chimes DC “was the Plan Sponsor and named Plan Administrator of the Plan” and “had and exercised discretionary authority and discretionary control respecting the appointment, retention, and payment of the Plan's service providers, insurers, and/or fiduciaries, including FCE Benefit Administrators, Inc. (“FCE”). Id. at ¶ 10. Defendant Chimes International, Ltd (“Chimes International”) was the parent company of Chimes DC and the Chimes Foundation, Inc. (the “Chimes Foundation”), a fundraising arm of Chimes International and its subsidiaries. Id. at ¶ 11.

         Defendant Albert Bussone (“Bussone”) has served as Chief Development Officer and Vice President of Chimes DC and Chief Operating Officer and Executive Vice President of Chimes International. Id. at ¶ 12. Martin Lampner (“Lampner”) has served as Executive Vice President, President, and Chief Financial Officer of Chimes DC and Executive Vice President and Chief Financial Officer of Chimes International. Id. at ¶ 13.

         At all relevant times, “Defendant FCE was the third party administrator of the Plan.” Id. at ¶ 14. As the Plan's third party administrator, FCE exercised “discretionary control or discretionary authority over claims processing, payment of claims, recordkeeping, coverage administration, and negotiating the Plan's contracts with service providers and/or insurers, and exercised authority or control over Plan assets.” Id. Accordingly, the Secretary alleges that “FCE was a Plan fiduciary” under Section 3(21)(A) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1002(21)(A). Id. Defendant Gary Beckman (“Beckman”) and Defendant Stephen Porter (“Porter”)[5] were 50 % owners and officers of FCE and, accordingly, were parties in interest under ERISA Sections 3(14)(B) and (H), 29 U.S.C. § 1002(14)(B), (H). Id. at ¶¶ 15-16. The Plan's relationship with FCE was governed by the Amended and Restated Adoption Agreement for the Health & Welfare Plan of The Chimes, D.C., Inc. and its accompanying exhibits, including the fee schedule for the Third Party Administrator Agreement (collectively, the “Adoption Agreement”). Id. at ¶ 25.

         From at least 2008 to the present, Chimes DC, Chimes International, Lampner, and Bussone (collectively the “Chimes Defendants”) “have had responsibility for prudently and loyally monitoring the Plan's administration and expenses, including the performance and fees of service providers appointed by the Chimes Defendants.” Id. at ¶ 22. “Every year, the Chimes Defendants received financial and other reports summarizing the Plan's expenses and administration.” Id. at ¶ 23. However, “the Plan has spent millions of dollars more than would be reasonable for a partially self-funded plan of this size and nature.” Id. at ¶ 24. “Most of the Plan's expenses were used to pay FCE and [Benefits Consulting Group's (“BCG”)][6] fees and to pay service providers who were selected and recommended by FCE and whose fees were negotiated by FCE.” Id.

         “The Adoption Agreement granted Chimes DC authority to appoint, retain, and/or remove the Plan's service providers, including [FCE].” Id. at ¶ 26. While serving as officers of Chimes DC and/or Chimes International, Defendants Lampner and Bussone “solicited” FCE “to make donations to the Chimes Foundation.” Id. at ¶ 28. The assets of the Chimes Foundation “could be used by Chimes International and any subsidiary of Chimes International, including Chimes DC.” Id. FCE made donations to the Chimes Foundation as early as 2008. Id. at ¶ 29. “In 2009 and thereafter . . . FCE [and BCG] jointly pledged at least $330, 000 to the Chimes Foundation.” Id. at ¶ 30. “In making one such pledge, FCE and BCG expressly referenced their status as service providers to Chimes and their ‘special relationship' and ‘gratifying partnership' with the Chimes.” Id. Between 2009 and 2014, “FCE paid at least $400, 000 to the Chimes Foundation in connection with its engagement as service provider to the Plan.” Id. at ¶ 31. Additionally, “[i]n 2010, Lampner solicited FCE to employ his child and FCE hired his child.” Id. at ¶ 32. The Secretary alleges that FCE's employment of Lampner's child was “in connection with the Plan's retention of FCE.” Id. at ¶ 82.

         “[D]uring the Chimes Defendants' renewal of FCE's engagement in 2009 and 2011, Lampner took part in the negotiation of FCE's fees and recommended . . . that FCE's engagement under the Adoption Agreement be renewed.” Id. “In 2009 and 2011, the Governance Committee of the Board of Directors of Chimes International and Chimes DC (the “Governance Committee”) reviewed Chimes DC's contract with FCE and BCG . . . and were informed by Bussone and Lampner of the amount of donations pledged by FCE to BCG.” Id. at ¶ 36. “Lampner and Bussone assured the Governance Committee that they had consulted with an independent broker, who was unable to find suitable alternative providers to FCE.” Id. at ¶ 37. However, in 2004 “an independent broker had identified possible alternative providers for Bussone and Lampner, but the Chimes Defendants failed to request bid proposals from these alternative providers or even set up meetings to discuss their services and fees.” Id. at ¶ 38. “The Chimes Defendants did not take other steps to ensure that FCE's fees were reasonable, such as consulting with an independent expert regarding FCE's fees or comparing FCE's fees to industry benchmarks.” Id. at ¶ 41. In 2009 and again in 2011, “the Governance Committee approved the extensions to Chimes DC's contract with FCE and BCG to perform services for the Plan.” Id. at ¶ 43. “The retention of FCE and BCG in connection with the Chimes Defendants' receipt of payments and other benefits caused losses to the Plan, including but not limited to FCE and BCG's excessive fees, and profited the Chimes Defendants in the form of [inter alia] the charitable contributions . . . .” Id. at ¶ 44.

         Consistent with the Adoption Agreement, “FCE had and exercised fiduciary authority to recommend, negotiate, and execute contracts between the Plan and various service providers, thereby exercising authority and control over the management of Plan assets.” Id. at ¶ 45. In connection with the Plan's contracts with these service providers, “the FCE Defendants caused FCE to receive rebates, commissions, and other payments from the service providers . . . in addition to fees paid directly by the Plan.” Id. “Chimes DC and FCE had agreed that, with a few specific exceptions, any commissions or rebates paid by the Plan service providers to FCE should be forwarded to the Plan.” Id. at ¶ 47. However, “[c]ontrary to this agreement . . . FCE failed to forward all payments that it received from service providers to the Plan” and failed to disclose this to Chimes DC, “fraudulently concealing its receipt of additional, unauthorized compensation.” Id. at ¶¶ 48-49. “In addition to the payments that FCE retained without Chimes DC's approval, FCE received other payments from Plan service providers that FCE disclosed to Chimes DC and that Chimes approved.” Id. at ¶ 52. These payments “were made in connection with the Plan's contracts for life insurance, accidental death and dismemberment insurance, and prescription drug benefits.” Id. “FCE's retention of payments from Plan service providers . . . caused losses to the Plan, and FCE improperly received profits.” Id. at ¶ 53.

         Additionally, FCE “failed to prudently manage the Plan and its assets.” Id. at ¶ 66. In particular, FCE [f]ailed to maintain a computer system capable of accurately calculating fees to FCE and the Plan's trustees; [f]ailed to maintain accurate records, including calculations and supporting documentation for Plan expenses and payments to FCE and participant information; [f]ailed to administer a reasonable claims procedure, including establishing protocols such as claims audits, claims manuals, and trainings, to ensure timely and consistent adjudication of claims; [f]ailed to timely update coverage information for participants; and [a]ltered data to conceal errors.” Id. “FCE failed to take other measures to ensure that benefit claim determinations were made in accordance with governing plan documents.” Id. at ¶ 67. “FCE's failure to properly administer the Plan caused losses to the Plan and provided improper profits to FCE, including but not limited to excessive fees.” Id. at ¶ 69. Furthermore, “Chimes DC provided administrative services to the Plan relating to participant communications, ” which “were performed by a full-time employee of Chimes DC who otherwise would have been employed by Chimes DC.” Id. at ¶ 70. However, “Chimes DC and Bussone directed FCE and Ward to reimburse Chimes DC for this work using Plan assets.” Id. at ¶ 71. “Chimes DC set its own fees, without a contract for the arrangement, and in so doing caused losses to the Plan and received profits.” Id.

         In connection with these allegations, Secretary Perez has brought a ten-count Amended Complaint (ECF No. 102)[7] against the Defendants, pursuant to ERISA, 29 U.S.C. § 1001, et seq. As discussed herein, the Secretary alleges breach of fiduciary duties, prohibited transactions, co-fiduciary liability, and non-fiduciary “knowing participation” in these violations. Subsequently, the FCE Defendants have filed a Motion to Dismiss (ECF No. 67) pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the allegations raised against them, specifically Counts I, II, IV, V, and VI.

         STANDARD OF REVIEW

         Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the dismissal of a complaint if it fails to state a claim upon which relief can be granted. The purpose of Rule 12(b)(6) is “to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).

         The Supreme Court's recent opinions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), “require that complaints in civil actions be alleged with greater specificity than previously was required.” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citation omitted). In Twombly, the Supreme Court articulated “[t]wo working principles” that courts must employ when ruling on Rule 12(b)(6) motions to dismiss. Iqbal, 556 U.S. at 678. First, while a court must accept as true all the factual allegations contained in the complaint, legal conclusions drawn from those facts are not afforded such deference. Id. (stating that “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to plead a claim); see also Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012) (“Although we are constrained to take the facts in the light most favorable to the plaintiff, we need not accept legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.” (internal quotation marks omitted)). Second, a complaint must be dismissed if it does not allege “a plausible claim for relief.” Iqbal, 556 U.S. at 679.

         ANALYSIS

         I. Count I: Excessive Plan Expenses

         Count I of the First Amended Complaint (ECF No. 102) alleges that “the Chimes Defendants failed to prudently and loyally monitor the Plan's expenses, thereby resulting in excessive Plan expenses, including the fees of FCE, BCG, certain service providers recommended by FCE, and administrative reimbursements to Chimes DC.” First Am. Compl., ¶ 74, ECF No. 102. Therefore, the Secretary alleges that the Chimes Defendants breached their fiduciary duties of loyalty and prudence, in violation of 29 U.S.C. §§ 1104(a)(1)(A)-(B), and ...


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