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Perez v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

October 20, 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; Benefits Consulting Group; Jeffrey Ramsey;[1] 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 Defendant Marilyn Ward's Motion to Dismiss Counts I, VII, VIII, IX, and X of the First Amended Complaint (ECF No. 124). The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated herein, Defendant Marilyn Ward's Motion to Dismiss Counts I[2], VII, VIII, IX, and X of the First Amended Complaint (ECF No. 124) 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 Marilyn Ward in Counts VII, VIII, IX, and X of the First Amended Complaint, the subject of the pending motion:

         I. Defendant Marilyn Ward, Plan Trustee

         “Marilyn Ward [(“Defendant” or “Ward”)] was a Plan trustee and named fiduciary of the Plan.” First Am. Compl., ¶ 20, ECF No. 102. Ward “exercised discretionary authority and/or discretionary control respecting management of the Plan and/or exercised any authority or control respecting management or disposition of its assets, and had discretionary authority and/or discretionary responsibility in the administration of the Plan.” Id. “Under the Amended and Restated Trust Agreement governing her appointment as Trustee, Ward had ‘exclusive authority and discretion to manage and control funds' except to the extent delegated to the Plan Administrator (Chimes DC) or an investment manager, and ‘[a]ll discretions . . . conferred on her' were ‘absolute' ‘unless specifically limited[.]' ” Id. “The Trust Agreement granted Ward exclusive powers over various aspects of the Plan, including but not limited to investments, obligations and litigation, deposits, insurance benefits, insurance protection, advances to the trust, distributions, and hiring agents.” Id. “The Trust Agreement also required Ward to ‘maintain full and complete records of her transactions for, and funds held for the account of, the Trust, ' and she had discretionary authority and/or responsibility over such records, including payments to FCE.” Id. “In addition to her enumerated powers and responsibilities, Ward exercised discretionary control and authority over her and FCE's fees by authorizing fees that were not made in accordance with the fee schedules agreed upon and approved by Chimes DC.” Id. Therefore, the Secretary alleges that Ward “was a Plan fiduciary within the meaning of Section 3(21)(A) of ERISA, 29 U.S.C. § 1002(21)(A)” and “a party in interest under ERISA [Section] 3(14)(A) and (B), 29 U.S.C. § 1002(14)(A) and (B).” Id.

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

         A. FCE's Receipt of Payments from Plan Service Providers

         “At relevant times, and 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. “Such service providers included the Plan's trustees as well as service providers related to the Plan's stop loss insurance, prescription drug benefits, behavioral health and employee assistance programs, and medical benefits.” Id. “In connection with the Plan's contracts with the service providers, the FCE Defendants caused FCE to receive rebates, commissions, and other payments from the service providers.” Id. “This compensation, received from Plan service providers, was paid in addition to fees paid directly by the Plan.” Id. “FCE's Third Party Administrator Agreement with Chimes DC attaches fee schedules for various service providers, including FCE, BCG, and the Plan trustee, and states that ‘no change in any Service Provider to the Plan and Trust will be effective unless approved in writing by both TPA and Employer.' ” Id. at ¶ 46. “Ward could not be removed as Trustee without FCE's consent.” Id. at ¶ 46. “At all relevant times, FCE recommended and retained Ward as the Plan trustee and at no time did the Chimes Defendants question or independently review Ward's appointment as a Trustee.” Id.

         B. Ward's Payments to FCE and Knowledge of FCE's Payments to Chimes

         “FCE's own records characterized the charitable contributions made by FCE to The Chimes Foundation as ‘promotional expenses' that FCE itemized as ‘Business Development and Retention Expenses.' ” Id. at 54. “As a result, at least some of Ward's payments to FCE for business development and retention expenses were used to pay charitable donations to The Chimes Foundation.” Id. “The FCE Defendants told Ward that the Chimes Defendants had solicited and FCE paid donations to the Chimes Foundations.” Id. “On information and belief, Ward knew or should have known that her payments to FCE were being used to pay donations to The Chimes Foundation.” Id. “Ward also knew that FCE agreed to and did employ Martin Lampner's child in connection with the Plan's retention of FCE as a service provider for the Plan.” Id. at 54.

         “During Ward's tenure as Plan trustee, Ward paid the FCE Defendants the following payments: (1) 10.9% of total trustee fees received by Ward for ‘Business Development and Retention Costs;' (2) payments for ‘trustee assistants' who were employed by FCE, received W-2s from FCE, and worked in FCE's offices, for performing work, including but not limited to Plan work; (3) an additional 10% Management Fee of the total of all trustee assistant costs, as well as $250/month in ‘overhead' fees; and (4) rent payments for use of property owned by JMA Investments (“JMA”), an entity owned by Porter and Beckman. Id. at 55. “Ward had no written agreement regarding the rent payments, and she did not compare the rental price to any alternative facilities.” Id. at ¶ 56. “The facilities were used for Plan work, along with other work.” Id. “Ward did not disclose her arrangements with FCE to the Chimes Defendants, despite the fact that FCE had fiduciary authority and control over Ward's continuing appointment as Plan Trustee and thus the Plan's payment of her fees, and despite the fact that Ward had fiduciary authority and control over the Plan's payment of FCE's fees and responsibility for ensuring their accuracy.” Id. at 57.

         C. Ward's Imprudent Payment of Fees from Plan to FCE and Ward

         “Ward had authority and control over the Plan's payment of fees to service providers, and responsibility for verifying that fees-including her own fees-were being calculated in accordance with the fee schedules agreed upon by Chimes DC.” Id. at 58. However, “Ward failed to prudently verify whether the fees paid by the Plan matched the fee schedules agreed upon by Chimes DC.” Id. at ¶ 59. “She imprudently failed to request or review supporting documentation and invoices for fees, including insurance premiums.” Id. “

         The Chimes Defendants had negotiated a tiered fee structure with FCE and Ward, with the fee rates based on the number of participants.” Id. at 60. “At relevant times, FCE informed Ward that their computer system could not handle the fluctuations in participant counts, and thus FCE provided Ward with a blended fee rate and average participant count, which Ward used to authorize fee payments from the Plan to FCE and herself.” Id. at 61. “These rates differed from the fee schedule agreed upon by Chimes DC.” Id.

         “Ward failed to alert Chimes DC that FCE's computer system was unable to adequately manage fluctuations in participant counts.” Id. at 62. “The inadequate computer system contributed to many of FCE's administrative problems . . . including FCE's inability to accurately maintain accurate expense and claims records, timely update participant coverage information, and administer a reasonable claims process.” Id. “Ward caused the Plan to pay administrative fees for non-Service Contract Act employees which differed from the fee schedule agreed upon by Chimes DC.” Id. at 63. “Ward also paid administrative fee rates for the unemployment insurance fund, also known as the DUB, that differed from the written fee schedule.” Id. “Ward failed to disclose to ...


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