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Acosta v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

December 10, 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 DC"); Chimes International, Ltd. ("Chimes International"); FCE Benefit Administrators, Inc. ("FCE"); Gary Beckman ("Beckman"); Stephen Porter ("Porter"); Martin Lampner ("Lampner"); Albert Bussone ("Bussone"); Benefits Consulting Group ("BCG"); Jeffrey Ramsey ("Ramsey"); and Marilyn Ward ("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 five motions, including the instant Secretary of Labor's Motion for Partial Summary Judgment Against Defendants Chimes District of Columbia, Inc., Chimes International, Ltd., Martin Lampner, and Albert Bussone (ECF No. 341), Cross-Motion for Summary Judgment of Defendants Martin Lampner and Albert Bussone (ECF No. 371), and Chimes Defendants'[2] Cross-Motion for Summary Judgment (ECF No. 375).[3] By his motion, the Secretary seeks partial summary judgment establishing that the Chimes Defendants were fiduciaries, and they are jointly and severally liable for breaching certain fiduciary duties and committing prohibited transactions. By their cross-motions, the Chimes Defendants seek summary judgment in their favor on all Counts asserted against them. 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 Defendants Chimes District of Columbia, Inc., Chimes International, Ltd., Martin Lampner, and Albert Bussone (ECF No. 341) is GRANTED IN PART and DENIED IN PART; Cross-Motion for Summary Judgment of Defendants Martin Lampner and Albert Bussone (ECF No. 371) is GRANTED; and Chimes Defendants' Cross-Motion for Summary Judgment (ECF No. 375) is DENIED.

         Accordingly, this Court holds that although Chimes DC is a Plan Administrator and named fiduciary, and Chimes International is a Plan Administrator, there are material factual disputes that prevent judgment as a matter of law that they are de facto fiduciaries. This Court holds that Martin Lampner and Albert Bussone are not de facto fiduciaries, and they cannot be found liable as non-fiduciaries, so judgment shall be granted in their favor on all Counts asserted against them. The remaining issues related to fiduciary breaches and prohibited transactions shall proceed to trial for resolution.

         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 No. 452). The following pertains specifically to the instant motions related to Chimes DC, Chimes International, Lampner, and Bussone ("the Chimes Defendants").

         I. Factual Background Relevant to Chimes Defendants

         Chimes DC is a non-profit corporation that employs individuals with disabilities to perform janitorial and custodial work on government contracts awarded to Chimes DC. (ECF No. 102 at ¶ 10.) Chimes DC established 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 an employee benefit plan as defined by ERISA, and Chimes DC, as Plan Administrator, is a named fiduciary. (Id. at ¶¶ 10, 21.) Defendant Chimes International is the parent company of Chimes DC and the Chimes Foundation, "a fundraising arm of Chimes International and its subsidiaries." (Id. at ¶ 11.) Defendant Bussone was Vice President of Chimes DC and Chief Operating Officer and Executive Vice President of Chimes International from at least 2008 until his retirement in December 2014. (Id. at ¶ 12.) He was also Chief Development Officer and Vice President of Chimes DC and Chimes International from February 2012 until December 2014. (Id.) Defendant Lampner was Executive Vice President of Chimes DC and Chimes International from at least 2008 until July 2010, and from July 2010 to the present, [4] he has been President of Chimes DC and Chimes International. (Id. at ¶ 13.) Lampner was also the Chief Financial Officer of Chimes DC and Chimes International from at least 2008 until January 2011, and from January 2011 to the present, he has been Chief Executive Officer of Chimes DC and Chimes International. (Id.)

         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"), [5]responsible for claims, eligibility, membership, premium, and pharmacy administration for the Plan. (ECF No. 341-1 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 8-9.) 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.) The 2004 amendment included an additional disclosure allowing for FCE to collect commissions and/or administrative fees from third party insurance companies and benefit providers for services provided by FCE to the Plan. (Id. at 10.)

         When FCE was retained as Chimes DCs TPA, Ward was appointed as the Plan's trustee. (Id. at 13.) Ward had worked for FCE as its Chief Financial Officer for a few months in 1991. (Id. at 11.) In 1992, she 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. (Id. at 12-13.) 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. 341-1 at 16.) Consequently, Ward performed a manual calculation to determine a blended fee rate. (Id.)

         Shortly after the 2004 agreement went into effect, Bussone arranged through FCE and Ward to have the Plan reimburse Chimes DC for a portion of Karen Holcomb's ("Holcomb") salary and benefits. (Id. at ll.)[6] Holcomb was a Chimes DC employee whose primary role was to work with the disabled employees[7] and provide human resources services as well as explaining the Plan to participants and helping with the annual open enrollment process. (Id.)

         Chimes DCs board and executives conducted an annual review of the Plan with FCE and BCG that included the reasonableness of the costs and fees charged to the Plan as well as making a determination whether changes in benefits and/or rates should be made for the upcoming year. (ECF No. 375-1 at 20-22.) As part of Chimes DCs ongoing efforts to control the Plan's costs, Bussone negotiated with FCE to reduce its fee by one-third for each of the next two years (January 2006 through December 2007), and with BCG to reduce its annual fees by 20% each year for the same two-year period. (Id. at 25.) Chimes DC also secured a promise from FCE and BCG to freeze their fees at the 2005 level through 2014. (Id. at 26-28.)

         As a non-profit engaged in fund-raising, Chimes DC and other Chimes entities amended their bylaws in 2005 to adopt a Conflict of Interest Policy, which required that Chimes DC have at least four independent directors who had no conflicts and were not affiliated with any vendors or clients. (Id. at 31-32.) These independent directors formed a Governance Committee that was responsible for approving all contractual arrangements between Chimes companies and vendors identified as having possible conflicts of interest. (Id.) Some vendors make contributions to the Chimes Foundation, and some do not; FCE and BGE were among the vendors who made contributions to the Chimes Foundation. (Id. at 34, 36.) Between 2007 and 2014, FCE contributed $476, 750 to the Chimes Foundation, and BCG contributed $292, 500. (ECF No. 341-1 at 19.) Bussone and Lampner were actively involved in soliciting these contributions for the Chimes Foundation. (Id.)

         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 counts against the Chimes Defendants:

• Count I - Excessive Plan Expenses (alleged against the Chimes Defendants, the FCE Defendants, and the BCG Defendants)[8]
• Count II - Chimes Defendants' Receipt of Benefits in Connection with Plan's Retention of FCE (alleged against the Chimes Defendants and the FCE Defendants)
• Count III - Chimes Defendants' Receipt of Payments and Discounts from BCG and Ramsey in Connection with Plan's Retention of BCG (alleged against the Chimes Defendants and the BCG Defendants)
• Count IV - FCE's Receipt of Payments from Service Providers (alleged against the FCE Defendants and the Chimes Defendants)
• Count V - Failure to Prudently and Loyally Administer the Plan (alleged against the FCE Defendants and Chimes DC as Plan Administrator)
• Count VI - Plan's Reimbursements to Chimes DC for Work of Its Full-Time Employee (alleged against Chimes DC, Bussone, and FCE)

         Nine motions were filed by Defendants for summary judgment, including partial summary judgment and cross-motions, five 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 Chimes District of Columbia, Inc., Chimes International Ltd., The Chimes DC Health and Welfare Plan, Martin Lampner, and Albert Bussone, the Secretary is precluded from any relief that arises out of claims concerning information prior to May 23, 2011, [9] specifically including claims concerning essential facts disclosed in the Form 5500s for the years 2007, 2008, and 2009.

         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. On December 3, 2018, this Court GRANTED IN PART and DENIED IN PART (ECF No. 462) the 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). This Court held that the Chimes District of Columbia, Inc. Health and Welfare Plan (the Plan) is an employee welfare benefit plan, as defined under 29 U.S.C. $ 1002(1), and governed by the Employee Retirement Income Security Act of 1974 (ERISA), and that Ward is not liable for any alleged transaction that occurred after her effective resignation date of December 13, 2013. (ECF No. 462.) A bench trial is. scheduled to commence on January 7, 2019.

         By his instant motion, the Secretary seeks partial summary judgment establishing as a matter of law that Chimes DC is the Plan Administrator and a fiduciary; Chimes International, Lampner, and Bussone are de facto fiduciaries; the Chimes Defendants engaged in prohibited transactions by hiring and retaining FCE and BCG, by causing the Plan to reimburse Chimes DC for Karen Holcomb's salary and benefits, and by accepting monetary gifts from FCE and BCG; the Chimes Defendants breached their duties of loyalty and prudence by allowing FCE to engage in prohibited transactions through the collection of commissions from third parties, and by failing to properly monitor the service providers' conduct and fees; Lampner and Bussone were knowing participants in the fiduciary breaches and prohibited transactions; and the Chimes Defendants are jointly and severally liable for compensating the Plan in stated amounts.

         By their instant cross-motions, the Chimes Defendants seek judgment as a matter of law in their favor on all Counts asserted against them.

         SUMMARY JUDGMENT STANDARD

         Rule 56 of the Federal Rules of Civil Procedure provides that a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A material fact is one that "might affect the outcome of the suit under the governing law." Libertarian Party of Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013)

         (quoting Anderson v. Liberty Lobby, Inc., A77 U.S. 242, 248 (1986)). A genuine issue over a material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. When considering a motion for summary judgment, a judge's function is limited to determining whether sufficient evidence exists on a claimed factual dispute to warrant submission of the matter for resolution at trial. Id. at 249. Trial courts in the Fourth Circuit have an "affirmative obligation ... to prevent factually unsupported claims and defenses from proceeding to trial." Boucbat v. Bait. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir. 2003) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993)).

         In undertaking this inquiry, this Court must consider the facts and all reasonable inferences in the light most favorable to the nonmoving party. Libertarian Party o/Va., 718 F.3d at 312; see also Scott v. Harris, 550 U.S. 372, 378 (2007). This Court "must not weigh evidence or make credibility determinations." Foster v. University of MdFastern Shore, 787 F.3d 243, 248 (4th Cir. 2015) (citing Mercantile Peninsula Bank v. French, 499 F.3d 345, 352 (4th Cir. 2007)); see also Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 569 (4th Cir. 2015) (explaining that the trial court may not make credibility determinations at the summary judgment stage). Indeed, it is the function of the fact-finder to resolve factual disputes, including issues of witness credibility. See Tolan v. Cotton, 572 U.S. 650, 656-59 (2014).

         When both parties file motions for summary judgment, as here, this Court applies the same standard of review to both motions, considering "'each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.'" Defenders of Wildlife v. North Carolina Dept. of Tramp., 762 F.3d 374, 392 (4th Cir. 2014) (quoting Bacon v. City of Richmond, Va., 475 F.3d 633, 638 (4th Cir. 2007)). "[B]y the filing of a motion [for summary judgment, ] a party concedes that no issue of fact exists under the theory he is advancing, but he does not thereby so concede that no issues remain in the event his adversary's theory is adopted." Brown v. Perez, 835 F.3d 1223, 1230 n.3 (10th Cir. 2016) (citation omitted); see also Sherwood v. Washington Post, 871 F.2d 1144, 1148 n.4 (D.C. Cir. 1989) ("[N]either party waives the right to a full trial on the merits by filing its own motion."). "However, when cross-motions for summary judgment demonstrate a basic agreement concerning what legal theories and material facts are dispositive, they "'may be probative of the non-existence of a factual dispute." Syncrude Canada Ltd. v. Highland Consulting Group, Inc., 916 F.Supp.2d 620 (D. Md. 2013) (quoting Shook v. United States, 713 F.2d 662, 665 (11th Cir. 1983)); Georgia State Conference of NAACP v. Fayette County Bd. of Comm'rs, 775 F.3d 1336, 1345 (11th Cir. 2015).

         DISCUSSION

         I. Fiduciary Status

         A plan must be established by written instrument, which provides for "one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan." 29 U.S.C. § 1102. A "fiduciary" is defined in ERISA with reference to the functions performed:

a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys .or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A). An ERISA fiduciary differs from a traditional trustee, because a fiduciary may take actions to the disadvantage of the beneficiaries when acting in another capacity-referred to by the United States Supreme Court as wearing a different hat. Pegram v. Herdrich,530 U.S. 211, 225-26 (2000). Fiduciary status is determined in functional terms, so administrators or managers or advisers are only fiduciaries to the extent that they were performing a fiduciary ...


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