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Acosta v. Chimes District of Columbia, Inc.

United States District Court, D. Maryland

February 26, 2019

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 eleven Defendants-Chimes D.C., Inc. Health & Welfare Plan (the “Plan”) and its alleged fiduciaries and service providers, including 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 contends that the Defendants charged the Plan excessive fees for services and engaged in prohibited transactions by receiving commissions, kickbacks, and inappropriate reimbursements.

         Defendants BCG, Ramsey, Bussone, and Lampner were granted summary judgment, and Defendants Ward, FCE, Porter, and Beckman settled. The Chimes Defendants[2] proceeded to an eleven-day bench trial on the remaining five counts.

         For the reasons set forth below, this Court concludes as follows:

• The Chimes Defendants took reasonable measures to oversee and monitor the Plan and its service providers, and they made reasoned decisions that were consistent with that of a prudent person acting in a like capacity in similar circumstances.
• Chimes DCs agreements with FCE and BCG were for the provision of necessary services to the Plan, for which they were paid reasonable compensation.
• The Chimes Defendants did not engage in prohibited transactions when the Chimes Foundation, which is not a party to this litigation, received charitable contributions from FCE, BCG, and their principals.
• The Plan's fees in the aggregate were reasonable, so there is no evidence of loss to the Plan.
• Regardless whether FCE committed a fiduciary breach by its collection of commissions and fees, Chimes DC was not aware that such monies were not paid into the Plan and did not knowingly participate in any misconduct.
• There was no evidence of denied benefit claims that were not afforded a proper review.
• Judgment shall be entered in favor of the Chimes Defendants under Rule 58 of the Federal Rules of Civil Procedure.

         The Court now issues this Memorandum Opinion as its findings of fact and conclusions of law in compliance with Rule 52(a) of the Federal Rules of Civil Procedure.[3]The Court finds the facts stated herein based upon its evaluation of the evidence, including the credibility of witnesses, and the inferences that the Court has found reasonable to draw from the evidence.

         BACKGROUND

         I. Chimes History

         The Chimes companies (“Chimes”) began as the School of the Chimes in 1947 in Baltimore, offering a special education day school for children with intellectual developmental disabilities. See Chimes History, https://chimes.org/about/history/ (last visited: February 14, 2019.) It expanded to provide adult programs, and by 1971, provided a 36-bed Hill-Burton[4]funded residential program, the first community alternative to institutional care for the disabled in the state of Maryland. (Perl Dep., GX[5] 201, at 8-9.)[6] In 1974, the name was changed to The Chimes, Inc. (Id. at 9.) The company grew in response to the changing needs of the people it was serving, developing a network of group homes, apartments, independent living, a full range of day habilitation, vocational, and employment programs, and a network of clinical services. (Id.)

         In 1986, Chimes embarked on a strategic plan to diversify its revenue source as well as geographically. (Id. at 10). As a result, Chimes developed a vocational and office center in Baltimore County, Maryland in 1989, expanding and growing its services. (Id. at 10-11.) Chimes Israel was created as a not-for-profit organization in Tel Aviv, Israel, and Chimes Metro, Inc. d/b/a Chimes Delaware became a community-based services provider in Delaware. (Id. at 11-12.) In 1991, Chimes International was established as an umbrella organization to provide services to the other companies. (Id. at 17.) Around that same time, Chimes Foundation was also established as the fund-raising arm of the Chimes companies. (Id. at 17-18.) Chimes Foundation became the mechanism for charitable support and for advocacy for not only the Chimes companies but also for people with disabilities. (Id. at 18.)

         Chimes also moved into a new business line, becoming certified as a vocational center under National Industries for the Severely Handicapped (“NISH”)[7]. (Id. at 11-12.) NISH is the central nonprofit agency coordinating the participation of other nonprofit organizations participating in a government contracting program established by the Javits-Wagner-O'Day Act (“JWOD”), 41 U.S.C. §§ 8501 et seq., “to promote ‘employment and training opportunities for persons who are blind or have other severe disabilities.'” United States ex rel. Ahumada v. NISH, 756 F.3d 268, 271 (4th Cir. 2014) (quoting 41 C.F.R. § 51-1.1(a)). “To qualify for participation in the program, a nonprofit must certify, on an annual basis, that it ‘employs blind or other severely disabled individuals for at least 75 percent of the hours of direct labor required for the production or provision of the products and services.'” Id. (quoting 41 U.S.C. § 8501(6)(C)). The JWOD program was renamed AbilityOne in 2006. See AbilityOne Program - History Timeline, https://www.abilityone.gov/abilityone-program/ history.html (last visited February 6, 2019).

         In 1993, the first contract was obtained in the District of Columbia (D.C.), and Chimes DC was created as the employment entity for that contract and to serve as the employment arm for government contracting. (Perl Dep., GX 201, at 12, 18.) The contract was successful, more contracts were obtained, and the business grew. (Id. at 12-13.) Chimes became the largest contractor employing people to provide janitorial and maintenance services under JWOD/AbilityOne to government facilities[8] in D.C. (Id. at 13). Perl testified that at the height of Chimes work during his term, there were nearly 1, 500 people with disabilities and approximately 1, 900 employees at Chimes DC. (Id.) By the time Perl retired in December 2010, the Chimes Family of Services comprised Chimes DSNJ in New Jersey; Holcomb Behavioral Health Systems in Pennsylvania and Delaware; The Chimes, Inc., d/b/a/ Chimes Maryland; Chimes DC; Chimes Virginia; Chimes International; Chimes Foundation; and Chimes Israel. (Id. at 16.)

         Currently, Chimes DC is a certified federal contractor, managing federal, state, and local government contracts to provide primarily janitorial and custodial services at various government sites pursuant to the McNamara-O'Hara Service Contract Act of 1965, 41 U.S.C. § 6701, et seq., and the Javits-Wagner-O'Day Act, 41 U.S.C. § 46, et seq.

         II. The Chimes Plan

         In 1993, when Chimes DC was created as the employment entity for the first contract, Chimes also established the first Chimes D.C. Health and Welfare Plan. (Perl Dep., GX 201, at 21.) Since Chimes DC was providing services by contract to the government, it was subject to the rules and regulations of the McNamara-O'Hara Service Contract Act of 1965, codified at 41 U.S.C. §§ 6701-6707 (“Service Contract Act” or “SCA”). (Perl Dep., GX 201, at 21-22; see also Trial Tr., [9] ECF No. 546 at 83-84.) Under the Service Contract Act, the Secretary of Labor makes determinations of the minimum monetary wages and fringe benefits for the various classes of service employees working under the contracts that the Act covers. 41 U.S.C. § 6707. Chimes DC had the option of paying the fringe benefits portion of the wages as cash or by providing meaningful health and welfare benefits to the employees. (Perl Dep., GX 201, at 22; 29 C.F.R. §§ 4.170(b), 4.171.) Chimes DC elected to pay the fringe benefit amounts into a trust pursuant to a health and welfare benefit plan, rather than provide cash payouts, because of the severe disabilities many of its employees faced, which would have made it difficult, if not impossible, for them to purchase benefits in the marketplace by themselves. (Perl Dep., GX 201, at 22.) It also provided a tax benefit to the Chimes organization. (Id.)

         Chimes DC executives felt that the company could not administer the plan by itself and chose the Boon Group (“Boon”) as the Third Party Administrator (“TPA”). (Id. at 22-24; ECF No. 547 at 9.) The number of employees continued to grow as Chimes DC took on new contracts, in some cases assuming contracts that were under collective bargaining agreements, which required Chimes DC to work collaboratively with the unions. (Perl Dep., GX 201, at 23.) As the size and complexity of the plan increased, Chimes DC executives decided to look for a new TPA, specifically one with Service Contract Act experience that would be capable of providing a self-funded plan with coordinated stop-loss insurance[10] to reduce the exposure to catastrophic medical expenses. (Id. at 24-29; ECF No. 547 at 9-11.) Chimes DC was concerned that Boon was moving towards implementing a defined contribution plan, under which a monthly per-employee premiums would be paid to the insurance provider, precluding an employer from saving any money left over from the premium amount following payment of claims and benefits.[11] (Perl Dep., GX 201, at 26-27.)

         In 1995, while attending a National Industries for the Severely Handicapped (NISH) conference, Perl and other executives met Jeffrey Ramsey, [12] who was promoting insurance coverage. (Id. at 24-25.) Ramsey introduced them to Steven Porter and Gary Beckman from FCE, who were also exhibiting at the NISH conference. (Id. at 25.) A separate plan was created in May 1995, BCG became the Plan's broker and plan representative, and FCE was selected as TPA for the Plan. (Id. at 28-29; ECF No. 547 at 6; Stip. 11, 14, ECF No. 543 at 55.) Marilyn Ward and Vivian Lewis became the Plan's co-trustees. (Stip. 17, 18, ECF No. 543 at 55.) The Plan is an employee welfare benefit plan, as defined under Section 3(1) of ERISA, 29 U.S.C. § 1002(1). (Stip. 2, ECF No. 543 at 54.) Chimes DC was the plan sponsor, plan administrator, and named fiduciary as defined by ERISA. (Stip. 5, 6, 7, ECF No. 543 at 54.) From 1995 until 2014, the Plan was self-insured for medical benefits through employer contributions paid into a trust. (JX18-40.) After 2014, in response to the impact of the Affordable Care Act (“ACA”), the Plan was self-insured for medical benefits for full-time employees, but it was fully-insured for part time employees. (JX19-24; ECF No. 547 at 3-4, 51-52.)

         Through the Plan, Chimes DC was able to provide a full array of benefits to Plan participants, including: (1) medical insurance, (2) dental insurance, (3) vision insurance, (4) prescription drug coverage, and (5) life and supplemental accident insurance. (ECF No. 550 at 47-48.) Chimes DC's primary focus with respect to the Plan was to make sure it provided comprehensive benefits to its employees with disabilities. (Id. at 48.) Through the Plan, Chimes DC also provided benefits through a wellness program under which Plan participants were entitled to a free annual physical examination, prostate exams, pap smears, mammograms, and vaccines. (Id. at 48-49.) Also, because health insurance from the employer displaces the employee's Medicaid coverage where the two overlap, Chimes DC added to the Plan a number of benefits, such as hearing aids, not covered by Medicaid, that were useful to its employees. (ECF No. 554 at 30, 72-73.)

         BCG/Ramsey and FCE continued in their roles with the Plan until December 31, 2017. (Stip. 11, 12, 13, ECF No. 543 at 55.) During that time, the events at issue in this case occurred, resulting in the filing of this lawsuit in 2015.

         III. Procedural History Summary[13]

         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, Lampner, Bussone, the FCE Defendants, [14] and the BCG Defendants[15])[16]
• Count II - Chimes Defendants' Receipt of Benefits in Connection with Plan's Retention of FCE (alleged against the Chimes Defendants, Lampner, Bussone, 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, Lampner, Bussone, and the BCG Defendants)
• Count IV - FCE's Receipt of Payments from Service Providers (alleged against the FCE Defendants, the Chimes Defendants, Lampner, and Bussone)
• 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)

         The remaining four counts were alleged against Ward as Trustee of the Plan. BCG and Ramsey filed a three-count Counterclaim (ECF No. 158), alleging violations of 12 U.S.C. § 3402-3405 based on the Secretary's failure to provide proper notice related to an administrative subpoena of bank records. The Secretary moved for dismissal, which was partially granted; Count III of the Counterclaim was dismissed on March 30, 2017. (ECF No. 184.) Summary judgment was granted to the BCG Defendants on Counts I and II on November 29, 2018. (ECF No. 457.) By the same Order, the BCG Defendants were granted summary judgment on the two counts (Counts I and III) alleged against them. (Id.) Defendants Lampner and Bussone were also granted summary judgment on all counts alleged against them[17] removing them from this case. (ECF No. 488.)

         Before the original Complaint was filed, the Defendants had each entered into an Agreement and Stipulation (“Tolling Agreement”) with the Secretary that provided, among other things, that the “statute of limitations contained in Section 413 of ERISA, 29 U.S.C. § 1113, shall be tolled” as to the party as of the date of execution. (See, e.g., ECF No. 372-3 at ¶ 2.) On June 12, 2018, Defendants filed a joint motion for partial summary judgment seeking to time-bar certain claims pursuant to ERISA's three-year statute of limitations. (ECF No. 372.) This Court held that the Secretary had actual knowledge of sufficient facts relied upon in the claims that were pleaded to trigger the limitations period and precluded the Secretary from pursuing claims related to a time period more than three years prior to each of the Defendants' respective tolling agreements. (ECF Nos. 452, 453.) As relevant to the Chimes Defendants, the Secretary is precluded from any relief that arises out of claims concerning information prior to May 23, 2011, specifically including claims concerning essential facts disclosed in the Form 5500s for the years 2007, 2008, and 2009. (Id.)

         After the filing of the Proposed Pretrial Order (ECF No. 531) on January 3, 2019, the following Defendants settled:

• Ward by Consent Judgment (ECF No. 535) on January 7, 2019. This settlement also resulted in Counts 7-10 being dismissed.
• FCE, Porter, and Beckman by Consent Judgment (ECF No. 542) on January 10, 2019.

         Remaining in this lawsuit are the Chimes Defendants. As a result of this Court's granting Chimes Motion in Limine to Prevent the Secretary from Offering Evidence of Payments made by the Plan to Reimburse Chimes D.C., Inc. for Work Performed by Chimes D.C., Inc. Employee Karen Holcomb (ECF No. 482), Count VI became moot. (ECF No. 524.) Accordingly, the Chimes Defendants proceeded to a bench trial on Counts I-V. The eleven-day bench trial started on Monday, January 14, 2019 and ended on Wednesday, January 30, 2019, after the testimony of 11 witnesses, [18] including 4 experts, and the introduction of more than 140 exhibits.

         RELEVANT FINDINGS OF FACT

         I. The Amended Agreements

         In 2002, Chimes DC and FCE entered into a new adoption agreement, which gave FCE authority to approve and deny welfare benefit claims and to establish and maintain insurance and reinsurance coverage for the Plan. (JX52.) Effective March 15, 2004, Chimes DC adopted the Amended and Restated Adoption Agreement for the Plan (the “Plan Agreement”), which included the Fee Schedule as Exhibit A (the “Fee Schedule”) and the third party administrator agreement as Exhibit B (the “2004 TPA Agreement”). (JX 53.)

         Under the 2004 TPA Agreement, Chimes DC delegated fiduciary duties to FCE, including: (1) administration of claims; (2) preparation and execution of reports and tax returns; (3) maintenance of DC's books and records for administration, as well as reporting and disclosure requirements; and (4) submission and aggregation of reports concerning paid claims. (JX53 at 29-30.) The Summary Plan Descriptions distributed to the Chimes Plan's participants stated that the Plan is “FCE Administered” and that FCE will handle the day-today operations of the Plan. (JX57 at 124, 144.) Chimes DC also appointed Ramsey and BCG as the Plan's representative. (JX 53 at 31-32.)

         Any party could terminate the agreement for any reason or no reason upon 60 days' prior written notice. (JX 53 at 34 (Article VII(b)).) Perl, Bussone, and Lampner all testified that Chimes DC retained the right to terminate FCE and/or BCG upon 60 days' written notice. (ECF No. 547 at 69; ECF No. 551 at 40; Perl Dep., GX 201, at 32.)

         Under the 2004 Amended Trust Agreement, Chimes DC delegated fiduciary duties to the Trustees of the Plan, including: (1) controlling and managing Trust Assets; (2) compromising, compounding, and settling any debts, obligations, and litigations; (3) making distributions to the Trust Fund; (4) “with the advance written approval of [Chimes DC], ” hiring and employing agents for the administration, advice, and management necessary to carry out the Trustee's obligations under the Trust Agreement; and (5) withholding and paying any and all applicable taxes, including payroll taxes. (JX54 at 12-14; see also DX 173 at 11-12 (Requests Nos. 36-38); ECF No. 575 at 28.)

         Under the 2004 Fee Schedule, FCE was to be paid a per-employee-per-month (“PEPM”) fee for claims administration, decreasing as the number of employees in the Plan increased. (JX 53 at 23.) FCE was also to receive a percentage of the Plan's total contributions, starting at 13% and declining to 10% as the number of employees in the Plan increased. (Id. at 24.) BCG was to receive 7.5 percent of the Plan's total contributions. (Id.) The fee for Trustee services was also a percentage of total contributions to the Plan, starting at 2% and declining to 1.9% as the number of employees in the Plan increased. (Id.)

         A disclosure in the Fee Schedule stated that FCE, and/or Porter and Beckman, “may receive commissions and/or administrative fees from insurance companies and benefit providers for services provided by FCE to this Plan. Whether any commissions and/or fees are received, as well as the actual amount received, if any[, ] varies from time to time and in accordance with benefit design changes.” (Id. at 25.) Perl, Bussone, and Lampner all testified that their understanding of the disclosure was that any rebates, discounts, commissions, and/or fees that “may” be received by FCE were to be returned to the Plan. (ECF No. 547 at 34-35, 42, 59; ECF No. 550 at 72; ECF No. 554 at 42-45; ECF No. 555 at 28; JX 67 at 4; GX 131 at 5; Perl Dep., GX 201, at 31-32.) This Court finds their testimony to be highly credible, despite intense cross-examination by counsel for the Secretary.

         Before the 2004 agreements were finalized, Chimes DC had the documents reviewed by its ERISA counsel, Smith & Downey, who suggested modifications to FCE's draft of the Plan Agreement. (See CX 1.) Counsel made multiple suggestions, including advice to remove a sentence providing that commissions and administrative fees be paid to the Plan's representative, and to add language that would require FCE to contribute its fees and commissions to the Plan. (Id.) The final version of the Plan Agreement incorporated the removal but not the addition. (See JX 53.) The final version of the Plan Agreement was approved, and it governed the parties' relationship until FCE's and BCG's services were terminated on December 31, 2017.

         II. Monitoring & Oversight

         Since the inception of the Plan in 1993, Chimes DC has monitored the effectiveness of the TPA, regularly reviewing and evaluating options and alternatives. Boon and FCE were the two main providers having SCA experience. (ECF No. 570 at 53.) Lampner testified that as much as 90% of the employers who required specialized TPA services for the disabled worked with either Boon or FCE. (ECF No. 551 at 48-49.) Indeed, this Court specifically finds that it is undisputed that these two companies dominated the industry with respect to disabled participants. In 1995, FCE was selected to replace Boon after Chimes DC had identified issues with Boon. (Perl Dep., GX 201, at 24-29.) Chimes DC executives reasonably believed that Boon was moving away from a self-insured model, which they believed was not in the best interests of the Plan, and they had also experienced some claims processing timeliness issues. (Id.)

         Chimes DC executives searched for an alternative to Boon by visiting the exhibit hall at a NISH conference, where they met, and ultimately hired, a broker for the Plan. (Id. at 25.) That broker, Jeffrey Ramsey, introduced them to Steven Porter and Gary Beckman of FCE. (Id.) In light of the unique circumstances of its disabled workforce, Chimes DC did not issue any Requests for Proposals (“RFPs”) to other TPAs before selecting FCE to replace Boon. (ECF No. 547 at 16.) However, this Court finds that Chimes DC engaged in an adequate investigative process, including contacting other organizations in similar circumstances and being informed that FCE was a reputable, credible, and effective health and welfare plan manager and administrator for benefits under the Service Contract Act.

         Chimes DC executives continued to monitor which service providers exhibited at the annual NISH conference. (ECF No. 550 at 81-82, 94.) They found the same reality every year: FCE and Boon dominated the market for administration of SCA-compliant benefit plans. (Id. at 81-82.) They periodically spoke with similar or peer organizations to gauge whether the value they were receiving was reasonable in comparison to the fees they were paying. (ECF No. 547 at 19-22; ECF No. 550 at 77-79.) The evidence clearly establishes that Chimes DC offered excellent and valuable benefits to its employees. In fact, Bussone and Lampner credibly testified that the Plan's benefits were superior to the benefits offered by the unions whose workers became employees when Chimes DC was awarded government contracts at specific sites. (ECF 550 at 68-69.) There was absolutely no evidence to the contrary presented by the Secretary.

         Chimes DC relied on its broker to monitor the TPA marketplace. As the broker, Ramsey kept tabs on the marketplace, received and reviewed proposals and marketing packages from start-up companies, assisted other service providers searching the marketplace, provided regular reports and pricing information, and presented comparison information during Plan review meetings. (ECF No. 547 at 29-31, 86-87; ECF No. 550 at 4-8, 25, 44-47, 74-75; ECF No. 551 at 27-29, 32, 44, 49, 57-58; ECF No. 554 at 31; ECF No. 555 at 30, 59-60; Perl Dep., GX 201, at 33-34; JX 84, 86.) By letter dated August 31, 2012, Bussone explicitly asked Ramsey to conduct a new comparison of the Boon and FCE plans so that “Chimes DC can make a determination of how it wishes to proceed in the future.” (JX84.1; ECF No. 550 at 44.) As requested, in September 2012, Ramsey conducted the requested comparison and provided a report advising Chimes DC that the current Plan structure with FCE as TPA was better than what was being offered by Boon, confirming once again that the market had not changed. (JX67-5.)

         Chimes DC executives also had discussions regarding potential TPAs with brokers that were not specializing in Service Contract Act plans. For example, in 2004, before Chimes DC signed the 2004 Plan Agreement, Ramsey contacted Kenneth Huber (“Huber”) (employed by HuberOros at the time) to investigate possible alternative TPAs for the Plan. (ECF No. 562 at 9-10.) Huber testified that Ramsey was highly incentivized to find a replacement for FCE.[19](ECF No. 562 at 41-42.) In June 2004, in coordination with Ramsey, HuberOros considered and reviewed six companies as potential TPAs for the Plan. (GX 48.3.) HuberOros and Ramsey determined that all but one of the six, CoreSource, were not viable alternatives. (GX 48.4.) Following a meeting with CoreSource in July 2004, Chimes DC decided not to further pursue CoreSource as a potential TPA for the Plan. There is no evidence that this was an unreasonable decision. Lampner testified that in June 2009, he reached out again to Huber, now of PSA Financial, regarding potential TPA alternatives, but Huber advised him that the marketplace had not changed. (ECF No. 554 at 78; JX 72 at 93; JX 73.)

         Other searches for alternate TPAs also resulted in a decision that a change was not in the best interest of the Plan and its participants. (See, e.g., ECF No. 551 at 34-36, 38-41.) For example, Lampner spoke with Gary Barone of RJ Prizinsky, Co. about a possible multi-employer, captive insurance structure. (Id. at 35, 39-41.) Chimes DC reasonably determined that this approach was too risky for the Plan. (Id. at 35, 39-41.)

         Accordingly, Chimes DC did not send out formal, written RFPs for the purchase of TPA services. Perl, Lampner, and Bussone all credibly testified that their informal search activities were the functional equivalent given the few choices available, and they believed that sending out a formal RFP did not make practical sense. (ECF No. 550 at 103-105; ECF No. 551 at 44-46; Perl Dep., GX 201, at 104-105.) Indeed, the Secretary's expert, Andrew Naugle (“Naugle”), acknowledged that had Chimes DC issued a formal RFP, it “could have selected FCE again.” (ECF No. 563 at 37.)

         Chimes DC was not just a Service Contract Act employer but also a provider under the AbilityOne program, which means that the Plan's needs were unique in light of the disabilities of the Plan participants. There were additional complex issues such as the intersection between health insurance and Medicaid. (ECF No. 551 at 29-30; ECF No. 554 at 72.) A very important consideration for Chimes DC was to not disrupt the Plan participants with a change unless it was necessary or worthwhile. (ECF No. 551 at 45-46; ECF No. 554 at 79-80.) The large majority of the Plan participants were atypical-disabled, often with mental health or intellectual disabilities, possibly unable to properly articulate issues or understand changes- so change is very disruptive for them. (Id.) This Court finds that these are important unique facts in this case which have never been adequately addressed by the Secretary. Consequently, Chimes DC chose to take a “best value” approach to their searches-not just looking for the cheapest price, although mindful of cost, but looking for a good fit that meets the needs and provides the best benefits. (ECF No. 550 at 62-63; ECF No. 555 at 36-37.)

         Chimes DC conducted annual reviews. In late October or early November of every year, the Chimes DC Board and executives conducted an annual review of the Plan with FCE and BCG, and sometimes the Trustee, to review the Plan as a whole, including the costs and fees paid by the Plan to its service providers (the “Annual Review”). (ECF No. 547 at 3, 14, 36; ECF No. 550 at 63-66, 89-91; ECF No. 551 at 7-8; ECF No. 554 at 46, 48; ECF No. 555 at 21; JX 66, 67, 69, 71; Perl Dep., GX 201, at 71-73; GX 131; DX 44, 69, 70.) Chimes DC's and the Plan's financial statements were audited annually by an external auditing firm. (ECF No. 550 at 63; ECF No. 554 at 44, 82.)

         In addition to relying upon the information reported by their service providers, the Chimes executives also relied upon the Plan's Trustee, reasonably believing that the Trustee had the duty to ensure that the fees charged to the Plan were consistent with the terms of the 2004 TPA Agreement. As agreed by the Secretary, Ward, as Trustee, had broad power and authority regarding the service providers and paying reasonable compensation for services performed. (DX 173 at 11-12 (Requests Nos. 36-38); ECF No. 575 at 28-37.) Ward reported to the Chimes executives that the Plan was healthy. (JX 67 at 3.) Lampner testified that he understood her to report that the Plan “was fiscally sound, that there were adequate reserves to meet any expected needs, that there was good compliance, that claims were being paid in an effective manner.” (ECF No. 555 at 22.)[20]

         Chimes DC also continually negotiated fees with both FCE and BCG. In 2005, a little over a year after executing the Fee Schedule and 2004 TPA Agreement, Bussone negotiated with FCE to reduce its annual Plan Management Fee by $109, 400, for each of the next two years, from January 1, 2006 through December 31, 2007, and also negotiated with BCG to reduce its annual fees by $87, 000, for each of the next two years. (JX5; JX5a.) The same reduced rate was extended after 2007. (ECF No. 555 at 33-34.) In September 2009, Chimes DC secured a promise from FCE and BCG to freeze their fees for another five years, from 2010-2014. (JX6; JX7.) In November 2011, Chimes DC once again secured an agreement from FCE to freeze the then current rate structure (including the fee reductions from 2005) for an additional five-year period starting in 2015, extending the rate freeze through 2019. (ECF No. 550 at 44; ECF No. 554 at 33-34; JX72-130-134.) In sum, Chimes DC's negotiations with FCE and BCG resulted in the annual fees charged to the Plan remaining at the 2005 level through to at least 2016. (Perl Dep., GX 201, at 38; ECF No. 555 at 34.)

         Regarding claims oversight, Chimes executives physically visited FCE's facilities in Burlingame, California, and San Antonio, Texas, on multiple occasions to review their operations, claims processing, and technology. (ECF No. 550 at 76-77.) At all relevant times, FCE maintained a team specifically designated to work on Chimes' Plan claims processing. (Id.; ECF No. 554 at 59-61; ECF No. 573 at 23-24, 28-29.) Lampner also testified to having reviewed reports of FCE's internal claims auditing process. (ECF No. 551 at 9-10.)

         III. Corporate Structure & Governance Committee

         The Chimes companies restructured during 2004 to 2005, as part of an overall policy review to implement best practices. (Perl Dep., GX 201, at 113; ECF No. 555 at 41-42; ECF No. 573 at 94-98.) Chimes DC had been a controlled entity of Chimes International, and the restructure separated the two entities. (GX 573 at 96.) One of the considerations for the change was related to the Service Contract Act and AbilityOne program requirements, which were unique to Chimes DC. (Id.) Chimes DC and Chimes ...


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