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Hugler v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

March 30, 2017

EDWARD C. HUGLER, Acting Secretary of Labor, Plaintiff,
v.
CHIMES DISTRICT OF COLUMBIA, INC., et al., Defendants.

          MEMORANDUM OPINION

          Richard D. Bennett United States District Judge

         Acting United States Secretary of Labor Edward C. Hugler[1], (“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. Defendant Benefits Consulting Group (“BCG”) is a sole proprietorship owned by Defendant Jeffrey Ramsey (“Ramsey”) (collectively the “BCG Defendants”) and was engaged to provide plan representation services to the Plan. Id. ¶ 18. Via Memorandum Opinion and Order dated October 12, 2016 (ECF Nos. 145 & 146), this Court denied the BCG Defendants' Motion to Dismiss the Secretary's ERISA claims against them as set forth in Counts I and III of the Amended Complaint. Perez v. Chimes D.C., Inc., et al., No. RDB-15-3315, 2016 WL 5938827, at *1 (D. Md. Oct. 12, 2016). Subsequently, the BCG Defendants have brought a three-count Counterclaim against the Secretary alleging violations of the Right to Financial Privacy Act (“RFPA”), 12 U.S.C. § 3401, et seq., in connection with a subpoena issued on February 4, 2014 by the Secretary to First Security Bank, N.A. (and its successor, Cierra Bank) (collectively “First Bank”) for “all documents in the name of Benefits Consulting Group or any predecessors, successors, affiliates or subsidiaries.” BCG Countercl., ¶ 10, ECF No. 158 (internal quotation omitted).

         Currently pending before this Court is the Secretary's Partial Motion to Dismiss the BCG Defendants' Counterclaim (ECF No. 172). As discussed herein, the Secretary has moved to dismiss Count III of the Counterclaim in its entirety. Mem. Supp. Mot., p. 4, ECF No. 172-1. Additionally, the Secretary contends that any civil penalty assessed against the Secretary and awarded to the BCG Defendants under the Right to Financial Privacy Act should be limited to $100 and that the BCG Defendants have failed to state a claim for any actual or punitive damages. Id. at 5-8. Finally, the Secretary requests that attorneys' fees not be awarded with respect to the Counterclaim as the BCG Defendants should not prevail on any of the claims raised. Id. at 8. 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 Secretary's Partial Motion to Dismiss the BCG Defendants' Counterclaim (ECF No. 172) is GRANTED IN PART and DENIED IN PART. Specifically, the Motion is GRANTED with respect to Count III of the Counterclaim, alleging a violation of 12 U.S.C. § 3403. Accordingly, Count III of the Counterclaim is DISMISSED. Additionally, the Motion is GRANTED with respect to civil penalties, actual damages, and punitive damages. Any civil penalty assessed in this action shall be limited to $100, and the BCG Defendants' claims for actual and punitive damages in Counts I and II are DISMISSED. The Motion is DENIED with respect to attorneys' fees and costs. Counts I and II of the BCG Defendants' Counterclaim remain pending, although limited to recovery in the amount of a $100 civil penalty, declaratory relief, and “such other and further relief” as requested in the Counterclaim, and this Court will defer ruling on the matter of reasonable attorneys' fees and costs until the conclusion of litigation on the merits.

         BACKGROUND

         In ruling on a motion to dismiss, this Court must accept the claimant's factual allegations as true and construe those facts in the light most favorable to the claimant. 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). Although the facts of this case have previously been set forth in this Court's Memorandum Opinion of October 12, 2016 (ECF No. 145), see Perez v. Chimes D.C., Inc., et al., No. RDB-15-3315, 2016 WL 5938827, at *1 (D. Md. Oct. 12, 2016), the BCG Defendants have subsequently raised the following additional factual allegations in their Counterclaim:

         On April 19, 2013, more than two years prior to the filing of this ERISA action, Defendant Jeffrey Ramsey (“Ramsey”), owner of the sole proprietorship Defendant Benefits Consulting Group (“BCG”) (collectively the “BCG Defendants”), “voluntarily participated in an interview” with Investigator Gharanfoli, a United States Department of Labor (“DOL”) Investigator, concerning the Chimes D.C., Inc. Health & Welfare Plan (the “Plan”). Countercl., ¶ 7, ECF No. 158. Investigator Siamack Gharanfoli (“Gharanfoli”) interviewed Ramsey for approximately seven hours, during which time Ramsey informed him that BCG was a sole proprietorship and not a separate legal entity. Id., ¶¶¶ 3, 8-9.

         Subsequently, on February 4, 2014, the DOL and Investigator Gharanfoli issued a subpoena to First Security Bank, N.A. (and its successor, Cierra Bank) (collectively “First Bank”) for “all documents in the name of Benefits Consulting Group or any predecessors, successors, affiliates or subsidiaries.” Id., ¶ 10 (internal quotation omitted). “The DOL did not provide notice to Mr. Ramsey concerning the subpoena.” Id., ¶ 11. “On or around February 14, 2014, First Bank sent, and the DOL received, bank records for ‘Jeff Ramsey d/b/a Benefits Consulting Group' as well as records for BCGHR, LLC.” Id., ¶ 12. The BCG Defendants allege, “[u]pon information and belief, ” that “DOL used the financial records of ‘Jeff Ramsey d/b/a Benefits Consulting Group' to further its investigation of the Plan and to harass [ ] Ramsey by investigating matters unrelated to the Plan.” Id., ¶ 13.

         The BCG Defendants allege in their Counterclaim that “[t]he subpoena and receipt of [ ] Ramsey's personal bank records without providing notice to him violated DOL policy and procedure.” Id., ¶ 14. The DOL's Employee Benefits Security Administration's (“EBSA”) Enforcement Manual provides as follows:

Documents Covered by the Right to Financial Privacy Act. The Right to Financial Privacy Act, 12 U.S.C. §§ 3401 et seq. (RFPA), preserves the confidentiality of financial records while at the same time allowing access for legitimate law enforcement activities. The RFPA prohibits any agency or department of the United States from obtaining financial records of a customer from a financial institution, such as a bank, savings and loan, credit union, consumer finance institution, or credit card company, unless the records are reasonably described and 1) either the customer authorizes such disclosure or 2) the records are disclosed in response to an administrative subpoena which meets specific requirements as set forth in the RFPA.
a. Coverage. The RFPA applies only to financial records of individuals or partnerships of five or fewer individuals. The RFPA does not protect corporations, associations, larger partnerships, employee benefit plans, or other legal entities. When requesting documents which are not protected by the RFPA it is good practice to enclose a cover letter to the financial institution explaining why the RFPA does not apply (See Figure 8).
b. Certification of Compliance Requirement. Before records may be obtained, the RD must submit to the financial institution a certificate stating that the RD has complied with all applicable provisions of the RFPA (See Figure 9). Good faith reliance by the employees and agents of the financial institution upon this certification of compliance absolves the institution of civil liability for any improper disclosure of records.
c. Customer Authorization. Customers may authorize access to identified records by giving approval in writing for a period of no more than three months; such authorization is revocable at any time before the records are disclosed (See Figure 10).
d. Customer Notice Requirements. Notice must be sent to a customer before the records can be obtained from the financial institution. The notice must include a description of the records sought, a statement of the purpose of the inquiry, and an explanation of the procedure by which the customer may challenge the government request in court. Along with the notice, the customer is to be provided a copy of the subpoena and blank motion and affidavit forms suitable for filing in court if properly completed (See Figures 11a-e). The customer may then move to quash the subpoena. If notice to the customer will seriously jeopardize the investigation, the required notice to the customer may be delayed up to 90 days by court order.
e. Costs. The RFPA provides that the government must pay the financial institution any reasonable costs which are directly incurred in searching for, reproducing, or transporting the records requested to be produced.
f. Civil Penalties. Violations of the RFPA may result in a penalty of $100, plus actual damages, plus punitive damages, plus court costs, plus attorneys fees, plus investigation by OPM, plus disciplinary action against the responsible government official.
g. Custody of Documents. Keep documents obtained pursuant to the RFPA segregated, since there are certain prohibitions against giving the documents to others, including other government agencies. (See Chapter 20, paragraph 5 and Chapter 32, paragraph 1.e.2).

Id., ¶ 15.

         The BCG Defendants allege, “[u]pon information and belief, ” that the DOL “in violation of the DOL's Employee Benefits Security Administration's Enforcement Manual, . . . failed to enclose a cover letter to the financial institution explaining why the RFPA does not apply.” Id., ¶ 16. Also “[i]n violation of the DOL's Employee Benefits Security Administration's Enforcement Manual, the DOL failed to send notice to [ ] Ramsey before obtaining his personal financial records from First Bank.” Id., ¶ 17. “Upon information and belief, ” the BCG Defendants contend that “after receiving the records in violation of DOL policy, the DOL used the financial records of ‘Jeff Ramsey d/b/a Benefits Consulting Group' to identify [ ] Ramsey's professional business associates and customers.” Id., ¶ 18. Subsequently, “[o]n November 6, 2014, [ ] Ramsey participated in a deposition conducted by the DOL, ” in which “the DOL used records and information derived from the financial records of ‘Jeff Ramsey d/b/a Benefits Consulting Group.' ” Id., ¶ 19.[2]

         On October 30, 2015, the United States Secretary of Labor (“the Secretary”)[3] initiated the present action 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; BCG; 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. Subsequently, the BCG Defendants filed a Motion to Dismiss the Secretary's ERISA claims against them, which this Court denied via Memorandum Opinion and Order dated October 12, 2016 (ECF Nos. 145 & 146). See Perez v. Chimes D.C., Inc., et al., No. RDB-15-3315, 2016 WL 5938827, at *1 (D. Md. Oct. 12, 2016).

         The BCG Defendants have now brought a three-count Counterclaim against the Secretary alleging violations of the Right to Financial Privacy Act (“RFPA”), 12 U.S.C. § 3401, et seq., in connection with the February 4, 2014 subpoena. BCG Countercl., ¶¶ 20-35, ECF No. 158. Specifically, the BCG Defendants allege that the Secretary failed to provide notice of the February 4, 2014 subpoena, in violation of 12 U.S.C. § 3405 (Count I); disclosed financial records or information, in violation of 12 U.S.C. § 3402 (Count II); and failed to provide a certificate of compliance, in violation of 12 U.S.C. § 3403 (Count III). Id. The BCG Defendants seek civil penalties in the amount of $300 ($100 for each Count); actual damages, punitive damages, a declaration that the Secretary violated the RFPA, attorneys' fees and costs, and “such other and further relief” as outlined in the Counterclaim. The Secretary has now filed a Partial Motion to Dismiss the BCG Defendants' Counterclaim (ECF No. 172), specifically seeking to dismiss Count III of the ...


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