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Perez v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

October 5, 2016

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

          Thomas E. Perez, Plaintiff, represented by Geoffrey Forney, United States Department of Labor.

          Thomas E. Perez, Plaintiff, represented by Evelyn H Chung, U.S. Department of Labor.

          Chimes District of Columbia, Inc., Defendant, represented by Douglas William Desmarais, Smith and Downey PA, Harold M Walter, Offit Kurman PA, Angela Davis Pallozzi, Offit Kurman P.A., Henry A Smith III, Smith & Downey, PA, Howard K Kurman, Offit Kurman PA, Kerstin Marie Miller, Smith and Downey PA & Scott Moeves, Smith & Downey, PA.

          Chimes International Ltd, Defendant, represented by Douglas William Desmarais, Smith and Downey PA, Harold M Walter, Offit Kurman PA, Angela Davis Pallozzi, Offit Kurman P.A., Henry A Smith III, Smith & Downey, PA, Howard K Kurman, Offit Kurman PA & Kerstin Marie Miller, Smith and Downey PA.

          FCE Benefit Administrators, Inc., Defendant, represented by David F Crutcher, David F. Crutcher, Attorney At Law, Dawn Elise Murphy-Johnson, Miller and Chevalier Chtd, Delia A Isvoranu, Sedgwick LLP, Marc A Koonin, Sedgwick LLP, Meredith Ryan Philipp, Sedgwick, LLP, Robert D Eassa, Sedgwick LLP & Theresa S Gee, Miller and Chevalier Chartered.

          Gary Beckman, Defendant, represented by David F Crutcher, David F. Crutcher, Attorney At Law, Dawn Elise Murphy-Johnson, Miller and Chevalier Chtd, Delia A Isvoranu, Sedgwick LLP, Marc A Koonin, Sedgwick LLP, Meredith Ryan Philipp, Sedgwick, LLP, Robert D Eassa, Sedgwick LLP & Theresa S Gee, Miller and Chevalier Chartered.

          Stephen Porter, Defendant, represented by David F Crutcher, David F. Crutcher, Attorney At Law, Dawn Elise Murphy-Johnson, Miller and Chevalier Chtd, Delia A Isvoranu, Sedgwick LLP, Marc A Koonin, Sedgwick LLP, Meredith Ryan Philipp, Sedgwick, LLP, Robert D Eassa, Sedgwick LLP & Theresa S Gee, Miller and Chevalier Chartered.

          Martin Lampner, Defendant, represented by Douglas William Desmarais, Smith and Downey PA, Harold M Walter, Offit Kurman PA, Angela Davis Pallozzi, Offit Kurman P.A., Henry A Smith III, Smith & Downey, PA, Howard K Kurman, Offit Kurman PA & Kerstin Marie Miller, Smith and Downey PA.

          Albert Bussone, Defendant, represented by Douglas William Desmarais, Smith and Downey PA, Harold M Walter, Offit Kurman PA, Angela Davis Pallozzi, Offit Kurman P.A., Henry A Smith III, Smith & Downey, PA, Howard K Kurman, Offit Kurman PA & Kerstin Marie Miller, Smith and Downey PA.

          Benefits Consulting Group, Defendant, represented by Brooks R Amiot, Jackson Lewis P.C., Ramsay C McCullough, Jackson Lewis PC & Rene E Thorne, Jackson Lewis LLP.

          Jeffrey Ramsey, Defendant, represented by Brooks R Amiot, Jackson Lewis P.C., Ramsay C McCullough, Jackson Lewis PC & Rene E Thorne, Jackson Lewis LLP.

          Marilyn Ward, Defendant, represented by Marilyn Marie Montano, Jackson Walker LLP & Rebecca Newman Strandberg, Strandberg and Associates PA.

          MEMORANDUM OPINION

          RICHARD D. BENNETT, District Judge.

         United States Secretary of Labor, Thomas E. Perez, ("the Secretary") has brought a ten-count Amended Complaint against The 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 Chimes District of Columbia, Inc. ("Chimes DC"), Chimes International, Ltd. ("Chimes International"), Martin Lampner ("Lampner"), and Albert Bussone's ("Bussone") (collectively, the "Chimes Defendants") Motion to Dismiss or, in the alternative, for Summary Judgment (ECF No. 86)[1]. 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 Chimes Defendants' Motion to Dismiss the First Amended Complaint (ECF No. 86) is DENIED.[2]

         BACKGROUND

         In 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 facts of this case have previously been set forth in this Court's Memorandum Opinion of September 19, 2016 (ECF No. 135). See Perez v. Chimes D.C., Inc., et al., No. RDB-15-3315, 2016 WL 4993293, at *1 (D. Md. Sept. 19, 2016). The following factual allegations pertain specifically to those claims raised against the Chimes Defendants in Counts I through VI of the First Amended Complaint, the subject of the pending motion:

         I. The Chimes Defendants

         Chimes D.C., Inc. ("Chimes DC") "is a federal government contractor who employs disabled workers for janitorial and custodial services." First Am. Compl., ¶ 10, ECF No. 102. 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. "The Plan is a partially self-insured health and welfare plan and is mostly funded by contributions required to be paid under Chimes DC's federal government contracts and federal prevailing wage laws." Id. at ¶ 21. "At all relevant times, [the Plan] was an employee benefit plan as defined by... 29 U.S.C. § 1002(3), and was subject to [the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001, et seq. ] pursuant to 29 U.S.C. §1003(a)(1)." Id. "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 and BCG, as well as other aspects of managing and administering the Plan and its assets." Id. at ¶ 10. Accordingly, the Secretary alleges that Chimes DC was a Plan fiduciary within the meaning of 29 U.S.C. §1002(21)(A) and a party in interest within the meaning of 29 U.S.C. §1002(14)(A), (B) and (C). Id.

         "At all relevant times, Defendant Chimes International Limited ("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. "During the relevant time period, Chimes International, through the Governance Committee of its Board of Directors, had and exercised discretionary authority and discretionary control respecting appointment, retention, and payment of the Plan's services providers, insurers, and/or fiduciaries, including FCE and BCG." Id. Accordingly, the Secretary alleges that Chimes International was a Plan fiduciary within the meaning of 29 U.S.C. § 1002(21)(A) and a party in interest within the meaning of 29 U.S.C. § 1002(14)(A) and (E). Id.

         "From at least 2008 until his retirement in December 2014, Defendant Albert Bussone ("Bussone") was Vice President of Chimes DC and Chief Operating Officer and Executive Vice President of Chimes International." Id. at ¶ 12. "From February 2012 until December 2014, he was also Chief Development Officer and Vice President of Chimes DC and Chimes International." Id. "While negotiating, vetting, and/or executing the Plan's contracts with FCE and BCG, Bussone individually exercised discretionary authority or discretionary control respecting appointment, retention, and payment of Plan service providers, insurers, and/or fiduciaries, including FCE and BCG, and exercised discretionary authority or discretionary control over other aspects of managing and administering the Plan and its assets." Id. Accordingly, the Secretary alleges that Bussone was a Plan fiduciary within the meaning of 29 U.S.C. §1002(21)(A) and a party in interest within the meaning of 29 U.S.C. § 1002(14)(A) and (H). Id.

         "From at least 2008 until July 2010, Defendant Martin Lampner ("Lampner") was Executive Vice President of Chimes DC and Chimes International." Id. at ¶ 13. "From July 2010 to the present, he has been President of Chimes DC and Chimes International." Id. "From at least 2008 until January 2011, Lampner was Chief Financial Officer of Chimes DC and Chimes International." Id. "From January 2011 to the present, he has been Chief Executive Officer of Chimes DC and Chimes International." Id. "While negotiating, vetting, and/or executing the Plan's contracts with FCE and BCG, Lampner individually exercised discretionary authority or discretionary control respecting appointment, retention, and payment of Plan service providers, insurers, and/or fiduciaries, including FCE and BCG, and exercised discretionary authority or discretionary control over other aspects of managing and administering the Plan and its assets." Accordingly, the Secretary alleges that Lampner was a Plan fiduciary within the meaning of 29 U.S.C. § 1002(21)(A) and a party in interest within the meaning of 29 U.S.C. § 1002(14)(A) and (H). Id.

         II. Alleged Violations of the Employee Retirement Income Security Act ("ERISA")

         A. The Plan's Excessive Expenses, Including FCE and BCG's Fees

         The Secretary alleges that the "Chimes Defendants failed to meet their obligations [to the Plan], resulting in substantial losses to the Plan, " including "millions of dollars in excessive expenses, most of which benefitted the Plan's third party administrator, FCE, and the plan representative, BCG." Id. at ¶ 22. "Each year, the Chimes Defendants received financial and other reports summarizing the Plan's expenses and administration." Id. at ¶ 23. "Based on these reports, the Chimes Defendants knew or should have known that the Plan's expenses were excessive for a plan of its size and nature, but failed to take adequate steps to reduce expenses by searching for alternate providers." Id. "From at least 2008 through the present, 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 BCG's fees and to pay service providers who were selected and recommended by FCE and whose fees were negotiated by FCE." Id.

         B. The Chimes Defendants' Conflicted Relationships With FCE and BCG

         "[T]he Plan's relationship with FCE and BCG, including the fees paid by the Plan to FCE and BCG, 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 and the Third Party Administrator Agreement executed by FCE, BCG, and Chimes DC (collectively, the "Adoption Agreement")." Id. at ¶ 25. "The Adoption Agreement granted Chimes DC authority to appoint, retain, and/or remove the Plan's service providers, including the third party administrator, FCE, and plan representative, BCG." Id. at ¶ 26. "[T]he Adoption Agreement allowed Chimes DC, as the employer, to terminate the Plan's contract with FCE, and thus BCG, upon 60 days' notice." Id.

         "At all relevant times, Bussone and Lampner solicited FCE and BCG to make donations to the Chimes Foundation." Id. at ¶ 28. "The Chimes Foundation was the fundraising entity of Chimes International and its other subsidiaries, and its assets could be used by Chimes International and any subsidiary of Chimes International, including Chimes DC." Id. "[A]s early as 2008, FCE and BCG made donations to the Chimes Foundation." Id. at ¶ 29. "In 2009 and thereafter, the Plan's third party administrator, FCE, and the Plan's representative, 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, ' and FCE and BCG specifically stated that [a]n additional $55, 000 will be paid for a one (1) year option of continuing benefit services to our Chimes partner.'" 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. "Between 2009 and 2014, BCG paid at least $282, 500 to the Chimes Foundation in connection with its engagement as service provider to the Plan." Id. at ¶ 33.

         Additionally, "[i]n 2010, Lampner solicited FCE to employ his child and FCE hired his child." Id. at ¶ 32. "At relevant times, including during the Chimes Defendants' renewal of FCE's engagement in 2009 and 2011, Lampner took part in the negotiation of FCE's fees and recommended to Chimes DC and Chimes International that FCE's engagement under the Adoption Agreement be renewed." Id. Furthermore, "[i]n 2013, Jeffrey Ramsey, the owner of BCG, provided discounts to Chimes DC on work performed by BCGHR LLC, another company owned by Ramsey." Id. at ¶ 34.

         "In connection with" these payments and benefits, "the Chimes Defendants exercised their authority to cause the Plan to retain and pay FCE and BCG as service providers." Id. at ¶ 35. "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 to perform services for the Plan and were informed by Bussone and Lampner of the amount of donations pledged by FCE and BCG." Id. at ¶ 36. "In 2009 and 2011, Lampner and Bussone assured the Governance Committee that they had consulted with an independent broker, who was unable to find suitable alternative service 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. "After 2004 and at the time of their recommendations to the Governance Committee in 2009 and 2011, Bussone and Lampner failed to conduct a full request for bid proposals from alternative providers, or request that an independent broker obtain and compare bid proposals from alternative providers." Id. at ¶ 39. "At most, Bussone and Lampner relied on BCG and Ramsey's recommendation to continue retaining FCE, even though BCG and Ramsey were conflicted." Id. at ¶ 40. "From the beginning of the Plan's relationship with FCE and BCG, FCE and BCG jointly marketed FCE's products to Chimes DC, and BCG was at all times being paid from the Plan pursuant to the same agreement as FCE." Id. "BCG did not conduct a request for bid proposals from alternative providers." Id. "The ...


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