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Perez v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

October 12, 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. 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[1]; 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 Benefits Consulting Group (“BCG”) and Jeffrey Ramsey's (“Ramsey”) (collectively, the “BCG Defendants”) Motion to Dismiss (ECF No. 87) Counts I and III of the Complaint[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 BCG Defendants' Motion to Dismiss Counts I and III of the First Amended Complaint (ECF No. 87) is DENIED.

         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 October 5, 2016 (ECF No. 141). See Perez v. Chimes D.C., Inc., et al., No. RDB-15-3315, 2016 WL 5815443, at *1 (D. Md. Oct. 5, 2016). The following factual allegations pertain specifically to those claims raised against the BCG Defendants in Counts I and III of the First Amended Complaint, the subject of the pending motion:

         I. The BCG Defendants

         “Defendant BCG was a sole proprietorship and was engaged to provide plan representation services to the Plan.” First Am. Compl., ¶ 18, ECF No. 102. “At all relevant times, Defendant Jeffrey Ramsey (“Ramsey”) was the owner [of BCG, ] an officer of BCG, ” “and 10 percent or more shareholder [of BCG].” Id. Accordingly, the Secretary alleges that both BCG and Ramsey were parties in interest under 29 U.S.C. §§ 1002(14)(B) 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 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.

         “The Chimes Defendants also did not take steps to ensure that BCG's fees were reasonable for the services actually provided by BCG.” Id. at ¶ 42. “BCG's services amounted to participant communications and client assistance that did not justify its compensation, which ranged from $400, 000 to $600, 000 per year from 2008 to the present.” Id. “In 2009 and 2011, relying on Lampner and Bussone's recommendations, the Governance Committee approved the extensions to Chimes DC's contract with FCE and BCG to perform services for the Plan.” Id. at ¶ 43. “To date, the Plan continues to retain and pay FCE and BCG as service providers.” Id. The Secretary alleges that “[t]he 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 the charitable contributions and discounts for work performed by BCGHR LLC.” Id. at ¶ 44.

         STANDARD ...


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