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Acosta v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

December 3, 2018

R. ALEXANDER ACOSTA, Secretary of Labor, Plaintiff,
v.
CHIMES DISTRICT OF COLUMBIA, INC., et al., Defendants.

          MEMORANDUM OPINION

          Richard D. Bennett United States District Judge.

         The United States Secretary of Labor (“the Secretary”)[1] 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.) The Secretary alleges that the Defendants charged the Plan excessive fees for services and engaged in prohibited transactions by receiving commissions, kickbacks, and inappropriate reimbursements.

         Currently pending before this Court are seven motions, including the instant Secretary of Labor's Motion for Partial Summary Judgment Against Defendant Marilyn Ward (ECF No. 342) and Defendant Marilyn Ward's Motion for Partial Summary Judgment (ECF No. 369).[2]By the instant motions, both parties seek judgment as a matter of law related to the effective date of Marilyn Ward's resignation as Trustee as well as several findings regarding specific violations, and a declaration regarding the appropriateness of disgorgement as a remedy. This Court has reviewed the parties' submissions and heard arguments of counsel at a motions hearing held November 13, 2018. For the reasons stated herein, the Secretary of Labor's Motion for Partial Summary Judgment Against Defendant Marilyn Ward (ECF No. 342) shall be GRANTED IN PART and DENIED IN PART, and Defendant Marilyn Ward's Motion for Partial Summary Judgment (ECF No. 369) shall be GRANTED IN PART and DENIED IN PART. In summary, this Court holds that Marilyn Ward's resignation was effective as of December 13, 2013, which means that her potential liability in the instant case is limited to the period from March 13, 2012 to December 13, 2013.[3] All remaining requests for judgment as a matter of law are premature, requiring findings of fact, and will proceed to trial commencing on January 7, 2019.

         BACKGROUND

         The factual background and procedural history of this case has previously been set forth in this Court's Memorandum Opinion of November 21, 2018 (ECF Nos. 452). The following pertains specifically to the instant motions related to Defendant Marilyn Ward.

         I. Factual Background Relevant to Marilyn Ward

         Chimes D.C., Inc. (“Chimes DC”) established its 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. (ECF No. 102 at ¶ 2.) The Plan is an employee benefit plan as defined by ERISA, and Chimes DC, as Plan Administrator, is a named fiduciary. (Id. at ¶¶ 10, 21.)

         Since the inception of the Plan in 1995, Chimes DC appointed FCE Benefits Administrator, Inc. (“FCE”) to serve as the Plan's third-party administrator (“TPA”), responsible for claims, eligibility, membership, premium, and pharmacy administration for the Plan. (ECF No. 342-1 at 7.) In 2002 and 2004, an Amended Adoption Agreement provided a fee schedule setting out a tiered fee rate that FCE was authorized to collect from the Plan for its services. (Id. at 8.) Under the tiered fee schedule, FCE's fees fluctuated depending on the level of Plan contributions from Chimes DC and the number of participants in the Plan. (Id. at 9.)

         For a few months in 1991, Defendant, Marilyn Ward (“Ward”) worked for FCE as its Chief Financial Officer. (Id. at 11; ECF No. 368 at 3.) She resigned from that position in 1992 and became a trustee for several FCE-administered ERISA plans. (Id.) Ward and her employees shared office space, facilities, and computer systems with FCE, for which she paid fees to FCE. (ECF No. 342-1 at 12-13; ECF No. 368 at 3-4.) When FCE was retained as Chimes DC's TPA, Ward was appointed as the Plan's trustee. (ECF No. 342-1 at 13; ECF No. 368 at 4.) As trustee, Ward was authorized to hold title to and manage the employer contributions to the Plan and was vested with all the powers and discretions appropriate to the trustee. (ECF No. 342-1 at 14.) Ward describes her role as a “directed trustee” or “co-trustee” of the Plan. (ECF No. 368 at 4-7.)

         FCE developed a proprietary software-the Trust Accounting System (“TAS”)-to coordinate its claims and eligibility administration functions, but the software was not capable of calculating FCE's administrative expenses under the tiered fee schedule. (ECF No. 342-1 at 16; ECF No. 368 at 8.) Consequently, Ward performed a manual calculation to determine a blended fee rate. (Id.)

         Because the Plan served a disabled workforce, additional support was required by human resources.[4] (ECF No. 368 at 19-20.) Chimes DC's employee, Karen Holcomb, worked with the disabled employees and provided human resources services to them in relation to the Plan. (ECF No. 342-1 at 11.) Although no written contract governed reimbursement from the Plan for her services, Ward paid reimbursements to Chimes DC for Karen Holcomb's time spent on Plan services. (ECF No. 342 at 11; ECF No. 368 at 19-20.)

         On October 23, 2013, Ward sent a letter to Chimes DC advising them of her intention to retire as of December 13, 2013. (ECF No. 342-1 at 17; ECF No. 368 at 9-10.) FCE located Trust Management Services (“TMS”), which was selected to serve as a replacement trustee. (ECF No. 342-1 at 17-18; ECF No. 368 at 10.) A Trustee Assignment Agreement was provided to Chimes DC, although it appears it may never have been signed. (ECF No. 342-1 at 18.) Ward entered into a consulting agreement with TMS to “make herself available” in case there were questions about the Plan. (ECF No. 368 at 10.) TMS began providing trustee services for the Plan in January 2014 and served in that role until their termination in December 2017. (ECF No. 342-1 at 19.)

         II. Procedural History

         The Secretary filed a Complaint (ECF No. 1) against all Defendants but Ward on October 20, 2015. The Complaint was amended on June 7, 2016, adding Ward as a Defendant. (ECF No. 102.) The First Amended Complaint (ECF No. 102) alleged the following four[5] counts against Ward:

• Count VII - Ward's Liability for FCE's Payments to the Chimes Foundation and FCE's Employing Lampner's Child (alleged against Defendant Ward)
• Count VIII - Ward's Conflicted Arrangements with FCE (alleged against Defendant Ward)
• Count IX - Ward's Liability for Payment of Fees that Differ from Approved Fee Schedules and for FCE's Administrative Failures (alleged against Defendant Ward)
• Count X - Ward's Liability for Plan's Reimbursements to Chimes DC for Work of Its Full-Time Employee (alleged against Defendant Ward)

         Ward moved for dismissal, which was DENIED on October 20, 2016. (ECF No. 151.)

         Nine motions were filed by Defendants for summary judgment, including partial summary judgment and cross-motions, seven of which remain pending before this Court. The Moving Defendants' Joint Cross-Motion for Partial Summary Judgment (ECF No. 372) was GRANTED on November 21, 2018 (ECF No. 453), precluding the Secretary from pursuing claims against the Defendants that relate to a time period more than three years prior to each of the Defendants' respective tolling agreements. For Marilyn Ward, the Secretary is precluded from any relief that arises out of claims concerning information prior to March 13, 2012, [6] specifically including claims concerning essential facts disclosed in the Form 5500s for the years 2007, 2008, 2009, and 2010. On November 29, 2018, the Motion for Summary Judgment on Behalf of Non-Fiduciary Defendants/Counter-Claimants, Benefits Consulting Group and Jeffrey Ramsey (ECF No. 365) was GRANTED (ECF No. 457), resulting in Judgment being entered in favor of the Benefits Consulting Group and Jeffrey Ramsey. A bench trial is scheduled to commence on January 7, 2019.

         By his instant motion, the Secretary seeks partial summary judgment establishing the following: (1) Ward did not effectively resign in December 2013 and remained a fiduciary until January 2018; (2) Ward engaged in prohibited transactions and violated 29 U.S.C. § 1103(c) by causing the Plan to pay Chimes DC $467, 956 as reimbursement for Karen Holcomb's salary and benefits, and she is jointly and severally liable to compensate the Plan for that amount; (3) Ward breached her fiduciary duty and engaged in prohibited transactions by causing the Plan to pay fees to FCE that varied from the fee schedule, failing to maintain accurate records about the calculation of fees, and by engaging in financial dealings with FCE; and (4) Ward must disgorge all the fees she received from the Plan for her work as trustee.

         By her instant motion, Ward seeks partial summary judgment establishing the following: (1) Ward is not liable for any alleged transactions after her effective resignation date of December 13, 2013; (2) Ward is not liable under Count VIII for any transactions in which she did not act as a fiduciary; (3) Ward is not liable under Counts VIII or IX to the extent that the alleged violations did not result in a loss to the Plan; (4) Ward is not liable as a co-fiduciary; and (5) disgorgement is not a proper remedy.

         SUMMARY ...


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