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Acosta v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

December 11, 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 two motions: the instant Secretary's Motion for Partial Summary Judgment Against Defendants FCE Benefit Administrators, Inc., Stephen Porter and Gary Beckman (ECF No. 339); and FCE Benefit Administrators, Inc., Gary Beckman, and Stephen Porter's Cross-Motion for Partial Summary Judgment Against Plaintiff, R. Alexander Acosta, Secretary of Labor (ECF No. 362).[2] By his motion, the Secretary seeks partial summary judgment establishing that FCE is a fiduciary, committed prohibited transactions and fiduciary breaches, and is liable as a co-fiduciary; FCE, Porter, and Beckman were knowing participants in prohibited transactions and fiduciary breaches; and remedies to include disgorgement, an accounting for profits, and an injunction that would enjoin FCE from serving as a fiduciary or service provider for other ERISA plans. By their cross-motion for partial summary judgment, FCE, Beckman, and Porter seek to establish that FCE's claims processing did not constitute a fiduciary activity, requesting summary judgment in their favor on Count V, and they request that this Court deny the Secretary's motion. 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, Secretary's Motion for Partial Summary Judgment Against Defendants FCE Benefit Administrators, Inc., Stephen Porter and Gary Beckman (ECF No. 339) is DENIED and FCE Benefit Administrators, Inc., Gary Beckman, and Stephen Porter's Cross-Motion for Partial Summary Judgment Against Plaintiff, R. Alexander Acosta, Secretary of Labor (ECF No. 362) is DENIED. Quite simply, there are genuine issues of material fact with regard to whether there was fiduciary activity, and if so, whether there was a breach of fiduciary responsibility.

         Accordingly, all remaining claims and Defendants shall proceed to trial, which will commence on January 7, 2019.

         BACKGROUND

         The factual background and procedural history of this case has previously been set forth in this Court's Memorandum Opinions in related motions (ECF Nos. 452, 459, 462, 487). The following pertains specifically to the instant motions related to FCE, Beckman, and Porter, who are collectively referred to as the "FCE Defendants."

         I. Factual Background Relevant to FCE 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.)

         Defendant FCE has been providing third-party administrator ("TPA") services to health and welfare plans for federal government contractors for nearly thirty years. (ECF No. 363-1 at 1, 4.) FCE was the Plan's TPA from its inception in 1995 until December 31, 2017.[3] (ECF No. 102 at ¶ 14; ECF No. 363-1 at 1, 6.) Defendants Beckman and Porter were each 50% owners and officers of FCE. (ECF No. 102 at ¶¶ 15-16; ECF No. 363-1 at 4 n.2.) As TPA, FCE was responsible for the administration of the Plan, including designing benefits, administering employee eligibility, handling claims, and maintaining insurance. (ECF No. 339-1 at 1.) 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 4-5.) Under the tiered fee schedule, FCE's fees fluctuated depending on the level of Plan contributions from Chimes DC.[4] (Id. at 4.) The 2004 amendment also provided that "[n]o amendment to the Plan" nor any "change in any Service Provider to the Plan" would be effective without FCE's approval, and it 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 5-6.) Both Chimes DC and FCE could terminate the agreement on 60 days' prior written notice. (ECF No. 363-1 at 8.)

         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. 339-1 at 7.) Consequently, FCE charged a single blended fee rate. [5] (Id.) In 2013, FCE added a two percent "compliance fee" to the Plan budget, which was to be paid to FCE.[6] (Id. at 11.) At times, FCE also reduced or froze its fees. (Id. at 11, 20.) In 2005, Chimes DC negotiated with FCE to reduce its annual fee by $109, 400 for two years, and FCE subsequently agreed to freeze its fees for five years in September 2009. (ECF No. 363-1 at 13.)

         From 2007 to 2014, Porter and Beckman made monetary contributions totaling $476, 950 to the Chimes Foundation. (ECF No. 339-1 at 19; ECF No. 363-1 at 22.) Some of these donations were made pursuant to a pledge of $330, 000 jointly made by FCE and BCG in November 2009. (ECF No. 339-1 at 20). During this same time period, FCE agreed to freeze its fees for five years. (ECF No. 339-1 at 20; ECF No. 363-1 at 23.)[7]

         Marilyn Ward served as the Plan's trustee from the Plan's inception until she retired in December 2013. (ECF no. 339-1 at 22; ECF No. 363-1 at 28; see also ECF No. 462 at 12 ("Ward effectively resigned as trustee on December 13, 2013.").) She had been employed by FCE in the early 1990s as its Chief Financial Officer, and in 1992, she resigned and began to serve as a trustee for FCE's clients. (ECF No. 339-1 at 20-21; ECF No. 363-1 at 29.) Ward rented office space in the same building, and shared FCE's facilities and employees, for which she reimbursed FCE. (ECF No. 339-1 at 21; ECF No. 363-1 at 29-30.) Ward was replaced after her retirement by Fiduciary Plan Management Services, Inc., d/b/a Trust Management Services ("TMS"). (ECF No. 339-1 at 23; ECF No. 363-1 at 31-32.)

         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 FCE 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 ...

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