Labor Department Participation in ERISA Litigation and Significant Issues in Litigation

Compiled by the Plan Benefits Security Division Office of the Solicitor

Calendar Year 2022

Table of Contents

1. Employer Stock
2. Financing the Employer
   1. Collection of Plan Contributions and Loan Repayments
   2. Insurance Rebates
   3. Miscellaneous
3. Financing the Union
4. Prudence of Investments
5. Preemption
6. Participants' Rights and Remedies
7. Section 510
8. Participant Loans
9. MEWAs
10. Financial Institution and Service Provider Cases
11. Orphan Plans
12. Contempt and Subpoena Enforcement
13. Bankruptcy
14. Miscellaneous

Table of Cases

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A. Employer Stock

Secretary v. Heritage (D. Haw.)

On April 27, 2018, the Secretary filed a complaint against Nicholas L. Saakvitne, Brian Bowers, and Dexter Kubota, fiduciaries of the Bowers and Kubota Consulting ESOP, alleging that in 2012 they caused the plan to purchase 100% of the Bowers + Kubota Consulting Company’s stock for $40 million, which was far in excess of the stock’s fair market value at the time of the purchase. On June 12, 2018, Bowers and Kubota filed a motion to dismiss. On July 10, 2018, Saakvitne answered the complaint.  On September 5, 2018, the Company filed a motion to dismiss based on its claim that it is not a necessary party. On September 28, 2018, the Department filed two opposition briefs responding to Defendants’ motions to dismiss the case.  On October 9, 2018, Saakvitne’s counsel filed a suggestion of death, stating that Saakvitne had died. On October 12, 2018, the district judge recused himself from hearing the case, and on October 13, 2018, the new judge postponed the oral arguments for the pending motions to dismiss to January 2019.  On January 18, 2019, the court ruled in the Secretary’s favor, denying the two separate motions to dismiss.

An initial case scheduling hearing was held on January 29, 2019.  A scheduling order was issued the next day. On February 1, 2019, the Secretary secured a stipulation from the widow of Nicolas Saakvitne, Sharon Heritage, in which she agreed to be substituted as a Defendant. On May 7, 2019, the court issued an order declining to enter a proposed protective order that the Secretary opposed.  The court agreed with the Secretary that the definition of “confidential” contained in the proposed protective order was overly broad and inconsistent with FOIA.  The court also agreed with the Secretary that the proposed protective order conflicted with DOL’s FOIA regulations because it did not allow the Department to be the decision-maker on whether disclosure is appropriate under FOIA and because it provided that all documents produced would be deemed confidential for six weeks. Defendants filed a motion to compel.  On November 22, 2019, the court granted, in part, Defendants’ motion to compel discovery responses.  The court affirmed the magistrate judge’s ruling on June 1, 2020.

On May 7, 2020, the magistrate judge issued an order denying the Defendants’ request to compel the Secretary to produce unredacted documents, but also determined that the Secretary was not substantially justified in withholding certain documents and ordered the Secretary to pay Defendants’ attorneys’ fees and costs. Both parties filed objections with the court.  On July 21, 2020, the court affirmed the magistrate judge’s denial of Defendants’ motion to compel, finding the Secretary properly asserted the applicable privileges.  While the court also affirmed the magistrate judge’s decision to award attorneys’ fees and costs, it modified the award by reducing the amount of attorneys’ fees.

On July 2, 2020, the Secretary filed a motion to compel Defendants to produce the documents they had withheld or redacted. On July 27, 2020, Defendants filed their opposition to the Secretary’s motion to compel. The court ordered Defendants to produce the documents at issue for in camera review.  On September 28, 2020, the court granted the Secretary’s motion in part and denied it in part.  After reviewing the documents in camera, the court ordered Defendants to produce the documents that fell within the fiduciary exception to the attorney-client privilege.

On July 29, 2020, the Secretary filed a motion for entry of a protective order, requesting that the court preclude Defendants from seeking information and documents previously deemed by the court as outside the scope of discovery, protected from disclosure by the investigative files privilege, irrelevant, and not proportional to the needs of the case.  Defendants filed their opposition on August 3, 2020.  On August 31, 2020, the parties filed simultaneous letter briefs regarding the Secretary’s request for a second protective order to preclude Defendants from asking deposition questions that have been previously deemed by the court as outside the scope of discovery and that are the subject of the Secretary’s motion for protective order.

On September 16, 2020, the magistrate judge issued two orders that largely granted the Secretary’s motion for a protective order by significantly limiting Defendants’ broad written discovery requests and by prohibiting Defendants from asking deposition questions regarding certain topics. Fact discovery was completed in November 2020. The parties completed expert discovery in February 2021.

On January 15, 2021, the parties filed cross-motions for summary judgment.  The district court held oral argument on the motions for summary judgment on March 1, 2021. On March 12, 2021, the district court issued its decision on the parties’ respective motions. The court granted in part the Secretary’s motion for partial summary judgment, which requested a ruling that the two selling shareholders, Brian Bowers and Dexter Kubota, were fiduciaries to the ESOP from the effective date of the ESOP. The court ruled that they were fiduciaries to the ESOP after December 3, 2012, after they adopted the ESOP and appointed the independent fiduciary, but questions of fact precluded a finding regarding fiduciary status prior to December 3, 2012. The court denied Defendants’ motion for summary judgment on all counts of the Secretary’s complaint.  The court found Defendants failed to substantiate their statute of limitations defense that the Secretary had actual knowledge of the violations alleged in this case or was willfully blind to the violations alleged in this case earlier than December 2014.  The court also found Defendants acted as fiduciaries when they appointed Nicholas Saakvitne as the independent fiduciary and that whether this appointment was prudent is an issue for trial. Finally, the court found that the Secretary could seek disgorgement of improper profits and that the Secretary had sufficiently alleged a claim for improper indemnification, except concerning an expired indemnification provision.

On February 3, 2021, Defendants filed a motion for contempt and sanctions against the Secretary, alleging the Department failed to produce documents ordered by the court. On February 5, 2021, the magistrate judge denied the motion on procedural grounds, finding that the deadline to file discovery motions passed months ago and that Defendants were not diligent in filing their motion after obtaining information on November 24, 2020. On February 18, 2021, Defendants filed motion requesting reconsideration of their motion for contempt and sanctions.  On February 23, 2021, the magistrate judge denied Defendants’ request for reconsideration. On March 9, 2021, the district court affirmed the magistrate judge’s denial of that reconsideration motion.  On April 2, 2021, the district court affirmed the magistrate’s decision that denied the merits of Defendants’ motion for contempt and sanctions, finding that Defendants were not diligent in seeking the discovery at issue and that the Secretary’s search was reasonable. To end the discovery dispute, the court ordered the Secretary to either conduct a search previously negotiated with Defendants and produce responsive documents or submit a declaration that all responsive documents have been produced.

On February 19, 2021, a motion for entry of a consent judgment between the Secretary and the Saakvitne Defendants was filed. Part of this proposed consent judgment barred the non‑settling Defendants from asserting contribution and indemnity claims against the settling Defendants. Following a hearing on objections to the proposed consent order, the Saakvitne Defendants filed an amended bar order. On April 29, 2021, the court entered the consent judgment and amended bar order, finding that the amended bar order does not prejudice any of the non-settling Defendants. Under the consent judgment, the Saakvitne Defendants agreed to pay $1,800,000 from their fiduciary insurance policy, with $1,458,000 to be paid to the ESOP, $292,000 to be paid in section 502(l) penalties, and $50,000 to be set aside for legal costs, with any remainder after the payment of legal costs to go to the ESOP.

On May 17, 2021, the court held the final pretrial conference. On the parties’ nine motions in limine, the court denied all the motions except three. The court granted Defendants’ motion to exclude the transcript of administrative deposition of Nicholas Saakvitne.  The court also granted Defendants’ motion to exclude the use of transcripts from the administrative depositions of Defendant Bowers and two other witnesses. The court also granted in part Defendants’ request to exclude certain testimony from another witness on his personal notes made prior to the Secretary’s filing of the complaint. The court granted in part the Secretary’s motion to deviate from the court’s trial procedures, allowing the parties to call hostile witnesses for live testimony on direct examination, with a limit of 4 hours per side.

Trial was held from June 21 to June 25, 2021. Following the trial, the parties submitted proposed findings of fact and conclusions of law. On September 17, 2021, the court issued its Post-Trial Findings of Fact and Conclusions of Law and Order Directing Entry of Judgment in Favor of Remaining Defendants. The court found the Secretary failed to establish that the company was worth less than $40 million on the day the ESOP purchased it and the Secretary failed to establish that Defendants violated any provisions of ERISA. The court also found that Defendants failed to establish any of the Secretary’s claims were barred by the statute of limitations.

On October 1, 2021, Defendants filed their bill of costs, seeking $78,341 in taxable costs from the Secretary. The Secretary filed the objections to the bill of costs on October 8, 2021. On November 18, 2021, the magistrate judge issued findings and recommendation to grant in part and deny in part Defendants’ bill of costs. The magistrate judge also recommended the district court award $72,962 in taxable costs. The Secretary filed objections to the magistrate’s findings and recommendation on taxable costs on December 2, 2021. Defendants filed their response to the Secretary’s objections on December 13, 2021.

On October 1, 2021, Defendants also filed a motion for extension of time to file their motion for attorneys’ fees and non-taxable costs. On October 4, 2021, the magistrate judge entered a briefing schedule limited only to Defendants’ eligibility to recover attorneys’ fees and nontaxable costs. On October 19, 2021, Defendants filed their motion regarding their eligibility to recover attorneys’ fees and non-taxable costs under the Equal Access to Justice Act (EAJA). The Secretary filed a response on October 29, 2021.  On December 8, 2021, the magistrate judge issued findings and recommendation to deny Defendants’ motion for attorneys’ fees and non-taxable costs.  Defendants filed objections to the magistrate’s findings and recommendation on December 13, 2021. On January 12, 2022, the Secretary filed a response to Defendants’ objections.

On February 7, 2022, the district court ruled on the parties’ respective objections to the magistrate judge’s recommendation to award taxable costs and recommendation denying attorneys’ fees and non-taxable costs. The district court adopted in part and modified in part the magistrate’s recommendation to award taxable costs, reducing the amount of taxable costs to $41,810. The district court also adopted the magistrate’s recommendation to deny attorneys’ fees and nontaxable costs, finding that Defendants are not eligible to recover attorneys’ fees and non-taxable costs under section 2412(b) or (d).

On March 14, 2022, Defendants appealed the district court’s EAJA ruling.  On October 25, 2023, the Ninth Circuit Court of Appeals affirmed the district court’s denial of attorneys’ fees and nontaxable costs, and remanded the district court’s award of taxable costs.  Chicago Office

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Walsh v. Lines of Communication, Inc. (D. Neb.)

On May 17, 2022, the Secretary filed a complaint against Lines of Communications Inc., 401(k) Plan, Lines of Communication, Inc., and trustee, Scott Benson. The complaint, which was filed alongside a consent judgment, alleged Benson failed to remit $49,512 in employee contributions and $6,535 in loan payments to the plan.  The complaint also sought an additional $14,932 in lost opportunity costs to the plan and its ten participants. Pursuant to the consent order, Benson agreed to make an initial payment of $20,000, and then further payments to plan participants based upon his individual annual income. Kansas City Office

Scalia v. Maine Oxy-Acetylene Supply Company, Daniel Guerin, Bryan Gentry and Carl Paine (D. Me.)

On September 15, 2020, the Secretary filed a complaint alleging that fiduciaries of the terminated Maine Oxy, Inc. ESOP participated in a scheme to pay significantly less than fair market value for the Maine Oxy shares owned by the ESOP, thereby facilitating complete ownership of the company by new purchasers, including a corporate insider.  As a result, upon termination of the ESOP in the fall of 2013, the workers who built the company into a growing and prosperous enterprise received significantly less for the shares they owned than what was required under ERISA.  A class of former participants also filed suit.  The parties engaged in settlement discussions in early 2021.  The Secretary’s action and the private class action were subsequently consolidated for discovery purposes.  After approximately 18 months of vigorous discovery between the parties, the court consolidated the two related actions for trial and ordered the parties to be ready for trial by June 6, 2022.  The parties’ private mediation on July 1, 2022 resulted in a global settlement. The court granted the class motion for approval of the settlement agreement on December 13, 2022.  The settlement restores $6.3 million to the ESOP participants and includes payment of a $630,000 section 502(l) penalty. Boston Office

Walsh v. Perez

On September 10, 2021, the Secretary filed a complaint against Jorge A. Perez, HMC/CAH Consolidated, Inc. Employee Savings Plan, HMC/CAH Consolidated, Inc. Life and AD&D Plan and HMC/CAH Consolidated, Inc. Vision Plan. The complaint alleged that between January 2017 and May 2019, Perez failed to remit over $284,700 in employee contributions to the plans. Perez also caused over $466,880 in employee contributions and loan repayments to be untimely remitted and permitted the plans’ assets to be transferred to other Perez-owned companies.

Due to Perez's failure to respond to the complaint, on June 21, 2022, the court entered default judgment ordering Perez to immediately pay $174,843 in unremitted employee contributions, loan payments, and lost earnings to the Savings Plan participants, $117,159 in unremitted employee contributions to the Life/ADD Plan participants, and $9,680 in unremitted employee contributions to the Vision Plan participants. The court also issued a permanent injunction restraining Perez from serving, either directly or indirectly, as a fiduciary for ERISA-covered plans, and restraining him from violating Title I of ERISA in the future. Kansas City Office

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Walsh v. Peterson (E.D. Tex.)

On October 29, 2021, the Secretary filed a complaint against Neil Brozen, as trustee of the RVNB, Inc. ESOP, as well as RVNB’s founders, Robert and Vasilia Peterson (along with their children’s trusts), and RVNB Board member Paul Generale, in connection with the 2017 sale of the company to a private equity group. Prior to that transaction, Brozen authorized the ESOP—which at the time owned 100% of RVNB’s stock—to sell its shares of company stock to the plan sponsor, RVNB, for $12.5M and cancellation of the internal ESOP loan. As a result, RVNB’s founders, Robert and Vasilia Peterson (along with their children’s trusts) became 100% owners. RVNB was then purchased by a private equity firm for $252 million. The complaint contends that these transactions obtained less than fair market value for the ESOP by $31.5M to $45.5M and allowed the Petersons to reap the benefits of the sale. The Secretary alleged that, in connection with the ESOP’s sale of its assets to the plan sponsor, RVNB Holdings, Inc., for less than adequate consideration, Brozen, the Petersons, and Generale breached their fiduciary duties of prudence and loyalty, committed a prohibited transaction, and that the Petersons and the Peterson trusts were knowing participants in a prohibited transaction. On September 13, 2022, Defendants filed motions for judgment on the pleadings, which the Secretary opposed. On May 23, 2023, the case was stayed pending a decision in a related case in the same court brought by private plaintiffs concerning Defendants’ motion to compel arbitration. Dallas Office and Plan Benefits Security Division

Scalia v. Reliance Trust Company (D. Ariz.)

This case involves the purchase by the RVR Inc. ESOP of 100% of the shares of RVR, Inc., in May 2014 (the “Transaction”). On May 16, 2019, the Secretary filed an ERISA enforcement suit against Reliance Trust Company (“Reliance”) (the ESOP’s trustee in the Transaction) and the sellers of the RVR stock – RVR’s principal officers, sole shareholders, plan fiduciaries, Randall Smalley (“Smalley”) (through three trusts (the “Smalley Trusts”)), Robert Smalley, Jr. (“Smalley Jr”), and Eric Bensen (“Bensen”) (collectively “Sellers”). The Secretary also named the RVR Inc. ESOP Plan (“Plan”) and RVR as Rule 19 Defendants. The Secretary alleged that Reliance caused the Plan to purchase RVR’s stock from the Sellers for more than fair market value, paying $105 million for stock that was worth tens of millions of dollars less, and that Reliance violated its fiduciary duties of prudence, loyalty, and adherence to the terms of the Plan and engaged in a transaction prohibited by ERISA by causing the Plan to purchase the RVR stock in the transaction.

The Secretary alleged, among other things, that Reliance: failed to hire a truly independent appraiser, given the prior business dealings and referral relationships between and among Reliance, the appraiser, and the Sellers’ representative; failed to provide its appraiser with complete information necessary to produce a reliable valuation report; failed to adequately scrutinize and critically question the appraiser’s valuation reports; and did not negotiate in good faith over the stock purchase price and other terms of the Transaction. The Secretary also alleged that, in allowing Reliance to enter into a transaction prohibited by ERISA, Smalley, Smalley Jr, and Bensen violated their duties of prudence, loyalty, and adherence to plan documents, and that Smalley, Smalley Jr., and Bensen failed in their duty to monitor Reliance and consequently have co‑fiduciary liability for Reliance’s fiduciary breaches. The Secretary further alleged that the Sellers knowingly participated in Reliance’s ERISA violations.

The Sellers and RVR filed a motion to dismiss on July 29, 2019, arguing generally that the Secretary’s complaint failed to allege any facts to support what they described as conclusory allegations. The Secretary filed an opposition to the motion to dismiss on August 12, 2019, arguing, among other things, that the motion ignored controlling Ninth Circuit authority, misstated the law on the fiduciary duty to monitor, and glossed over the complaint’s detailed factual allegations that sufficiently alleged the ERISA violations; that RVR is a party necessary to ensure that the Secretary may obtain complete relief for parties harmed by ERISA violations; and that all parties are able to represent their interests with respect to this action. The Sellers and RVR filed their reply in support of their motion on August 19, 2019. Reliance filed an answer to the complaint on July 30, 2019.

The court denied the Sellers’ and RVR’s motion to dismiss on February 18, 2020. Mandatory Initial Discovery Responses were served on Thursday, April 2, 2020. The Rule 26 conference was held April 7, 2020. A Rule 26(f) Report and Proposed Case Management Plan was filed on April 30, 2020. The court held a telephonic Rule 16 Scheduling Conference on May 7, 2020 and issued a Scheduling Order that extends into April 2022. The court also granted the parties’ motion to bifurcate the trial into separate liability and remedies phases, with corresponding discovery: if the Secretary prevails on the merits of any claim, there will be a discovery period following the court’s merits‑based order, during which the Secretary may conduct discovery related to Defendants’ assets, including tracing funds in Defendants’ accounts. The court also entered the protective order agreed to by the parties. Fact discovery ended July 17, 2021, and expert discovery began ended January 28, 2022.

The parties filed several motions on March 25, 2022. The Secretary filed a Motion for Partial Summary Judgment against Reliance, a Motion for Partial Summary Judgment against the Sellers, and two Motions in Limine. Reliance filed a Motion for Partial Summary Judgment and a Motion in Limine. The Sellers filed a Motion for Summary Judgment and two Motions in Limine. Defendants also filed a joint Daubert Motion seeking to exclude both of the Secretary’s experts. The parties timely filed all subsequent responses and replies. While the motions were pending, on October 3, 2022, the case was transferred sua sponte to a new judge.

On February 13, 2023, the court issued an order granting in part the Secretary’s motion for partial summary judgment and denying in whole the Sellers’ motion for summary judgment, Reliance’s motion for partial summary judgment, Defendants’ Daubert motions and all motions in limine. The court issued an Order on July 21, 2023 that: 1) set trial to begin on January 16, 2024; 2) set a pretrial conference for January 8, 2024; 3) tentatively allocated trial time as follows: the Secretary 60 hours; Reliance 25 hours; and the RVR Defendants 25 hours; and 4) expert declarations shall be filed at least 30 days prior to the date the expert will testify.

On August 16, 2023, Reliance agreed to a $22.5M settlement and the Secretary filed a motion for approval of the proposed consent order and judgment with the court. The proposed consent judgment directed that settlement proceeds should not be used to pay off the RVR ESOP loan but instead should be allocated to individual participant accounts, and that the remaining selling shareholder defendants should only get a pro tanto judgment credit of Reliance’s settlement amount as a setoff against any damages awarded to the Secretary. On August 29, the Sellers notified the court that they would not oppose the consent order. The court entered the consent order and judgment on August 30, 2023 directing Reliance to pay plan participants $20,454,545 and a section 502(l) penalty of $2,045,455.

On October 13, 2023, the Secretary and the remaining selling shareholder defendants filed a joint proposed pretrial order setting for the facts and issues in dispute ahead of trial in January. Plan Benefits Security Division

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Sentry Equipment Erectors, Inc. v. Evolve Bank and Trust; Evolve Bank and Trust v. The Sentry Equipment Erectors, Inc. Employee Stock Ownership and Savings Plan (W.D. Va.)

On January 31, 2022, Sentry Equipment Erectors, Inc. sued Evolve Bank seeking a judgment requiring Evolve to return the $1,634,951 in attorneys’ fees and costs that Sentry had advanced to Evolve during the Secretary v. Vinoskey litigation. On March 15, 2022, Evolve Bank filed an answer stating that it was entitled to keep the fees Sentry paid for its defense of its senior trust officer, Michael New. Evolve also filed a counterclaim against Sentry and a third-party complaint against the Sentry Equipment Erectors, Inc. ESOP. In the counterclaim, Evolve sought a declaratory judgment that Sentry has no claim for the funds that they advanced for New’s defense. In the same pleading, Evolve asserted a claim asserting that it had overpaid the ESOP by $1,091,512. On August 26, 2022, the Secretary moved to intervene to protect the ESOP’s assets. The Secretary argued its motion to intervene before the court on October 25, 2022. On November 15, 2022, Evolve dismissed its claim against the ESOP with prejudice, and agreed that it may not bring a claim, cause of action or other claim for monetary or equitable relief against the ESOP in the future. The ESOP represented that it had not paid any costs or legal fees in this matter. The Secretary dismissed its motion to intervene in reliance on Evolve’s dismissal with prejudice against its claims against the ESOP, Evolve’s agreement it will never bring suit against the ESOP in the future, and the ESOP’s representation it paid no costs or legal fees in the matter. The case was dismissed with prejudice. Philadelphia Office

Perez v. TPP Holdings Inc. (N.D. Ga. and 11th Cir.)

On December 30, 2014, the Secretary filed a complaint against TPP Holdings Inc. and TPP’s owner and chief executive officer Robert Nicholas Preston, alleging that the ESOP fiduciaries: (1) authorized the ESOP to purchase company stock in 2006 and 2008 for more than adequate consideration; (2) failed to act solely in the participants’ interests; (3) failed to follow ESOP documents; and (4) engaged in self-dealing. The fiduciaries also allegedly permitted improper co-mingling of ESOP and corporate funds. The complaint further alleged that the ESOP did not exercise its voting rights in company decision-making, did not release the proper number of shares, and did not make the proper distributions to participants. On May 15, 2015, Defendants filed a motion to dismiss, motion to stay pre-answer deadlines, and motion to extend time for Defendants to file a responsive pleading. On June 1, 2015, the Secretary filed an opposition to Defendants’ motion to dismiss. On June 15, 2015, the Defendants filed a reply. The Defendants’ motion to dismiss was predicated on arguments concerning enforceability of tolling agreements as to ERISA’s six-year time limit. The court granted the Defendants’ motion, finding that ERISA’s six-year time limit is a statute of repose and cannot be waived or contractually tolled. The Secretary, citing Eleventh Circuit and Supreme Court precedent, filed a motion for reconsideration. On May 2, 2016, the court denied the Secretary’s reconsideration motion, but the court invited the Secretary to file a motion for certification for interlocutory appeal. The Secretary filed the motion on September 9, 2016. The Defendants filed a response. The district court granted the Secretary’s motion and certified the dismissal order for interlocutory review on November 22, 2016.

The Secretary filed a petition for interlocutory review with the Eleventh Circuit on December 2, 2016, arguing that the ERISA six-year limitation is subject to waiver. Defendants filed a response on December 12, 2016. On February 24, 2017, the Eleventh Circuit granted the petition for interlocutory appeal. The Secretary filed an opening brief on April 5, 2017. Defendants filed a response on May 5, 2017. The Secretary filed a reply brief on May 19, 2017. Oral argument was held on August 24, 2017. On October 12, 2017, the Eleventh Circuit issued a favorable decision, reversing the district court and agreeing with the Secretary that ERISA’s six-year time limit is waivable. Defendants filed a petition for panel rehearing on November 22, 2017, which was denied on December 13, 2017. The case was remanded to the district court after the Eleventh Circuit’s decision and the denial of certiorari by the Supreme Court.

The district court referred the case to mediation by a magistrate judge. The Secretary and Defendants participated in mediation on November 6, 2018, but did not reach an agreement. The parties held their 26(f) scheduling conference on November 28, 2018, and submitted their joint report and proposed discovery plan to the district court on December 12, 2018. The Department also served initial disclosures on December 12, 2018, and first discovery requests to Defendants on December 13, 2018. Defendants served their initial disclosures on December 21, 2018. On December 26, 2018, in response to an emergency motion filed by the U.S. Attorney requesting a stay of all civil cases in which a federal agency is a party in light of the lapse in appropriations for the Department of Justice, the district court stayed the case.

Discovery continued throughout 2019. The parties exchanged tens of thousands of documents in discovery, and they exchanged expert reports regarding the valuation of the Company at the time of the ESOP transactions in 2006 and 2008. The parties took depositions of fact in February and March 2020. Discovery was originally scheduled to close on March 23, 2020. In mid-March, in response to the exigent circumstances created by the COVID-19 pandemic, the parties postponed the remaining depositions and requested an extension of discovery.

The parties agreed to mediate this matter on August 14, 2020.  The mediation was unsuccessful. The parties concluded fact witness depositions and completed expert witness depositions in February 2021, and the case proceeded to a seven-day bench trial starting on February 22, 2022.

On September 21, 2022, the court entered judgement in favor of the Secretary and against Defendants. The court found that Defendants violated their fiduciary duties to the ESOP and engaged in a transaction prohibited by ERISA because they failed to provide accurate and complete information to the appraiser who valued the Company and failed to meaningfully review the valuation of the Company at the time of the Stock Purchases. As a result, Defendants did not question or correct the original appraiser’s incorrect conclusion that the ESOP had meaningful control over the Company, justifying removal of a lack of control discount. The court also found that Defendants failed to act with the requisite prudence and loyalty when they relied upon a clearly marked “DRAFT” valuation report for purposes of the 2008 stock transaction. The court also found – for the same reasons – that the transactions were not for “adequate consideration” and therefore were prohibited under ERISA Section 406(a). The court found that these fiduciary breaches and prohibited transactions resulted in the ESOP overpaying in the 2006 and 2008 transactions by $350,977. The court then applied prejudgment interest to this amount at the IRC(c) Rate of 7%, as requested by the Secretary. In total, the court entered judgment against Defendants in the amount of $540,658.

The Secretary timely moved to amend the judgment to include appointment of an independent fiduciary (paid for by Defendants) to distribute the judgment amount. Defendants opposed this motion. On May 5, 2023, the court amended its judgment against Defendants to require them to pay $50,000 into an escrow account for the appointment of an independent fiduciary of the Secretary’s choosing to distribute the judgment amount of $540,000 to the former participants of their ESOP. The court reasoned that appointment of the independent fiduciary was necessary to ensure that the judgment reached the appropriate participants and beneficiaries of the ESOP, which had terminated in 2009. On May 10, 2023, the Secretary identified AMI Benefit Plan Administrators, Inc. as a qualified fiduciary willing to undertake the appointment. The court appointed AMI Benefit as independent fiduciary on June 6, 2023. As of October 4, 2023, Defendants have made full payment of settlement amount and have fully funded the escrow account for AMI Benefit's fees. AMI Benefit is in the process of making distributions.

On July 21, 2023, Defendants petitioned the court for attorney fees under EAJA’s “excessive demand” subsection, 28 USC section 2412(d)(1)(D). The Secretary has filed its opposition to the petition. The matter is fully briefed and pending before the court. Atlanta Office and, on appeal, Plan Benefits Security Division

Walsh v. Ungaro (W.D. Mo.)

On December 19, 2022, the Secretary filed a complaint against Courtney Ungaro and the Perspectives Preparatory Academy SIMPLE IRA Plan. The complaint alleged that between September 2018 and February 2020, Ungaro failed to remit $16,209 in employee contributions to the plan. When Ungaro failed to file an answer, the court granted the Secretary’s motion for default. Kansas City Office

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B. Financing the Employer

1. Collection of Plan Contributions and Loan Repayments

Secretary v. Anthony Lawrence and VOR Technology, LLC (D. Md.)

On November 4, 2021, the Secretary filed a complaint against Anthony Lawrence and his company, VOR Technology, LLC, fiduciaries of the VOR Technology Profit Sharing and 401(k) Plan, alleging that from June 29, 2018 through December 7, 2018, the Defendants failed to remit to the plan the company’s profit-sharing contributions and employee 401(k) plan contributions totaling at least $47,226. The Secretary alleged that interest owed to the plan on the unremitted employee contributions is $7,452 as of July 31, 2021. The Secretary also alleged that Defendants failed to distribute terminated employees’ vested account balances of $1,000 or less as required by the plan and failed to have a fidelity bond. Defendants failed to answer the complaint.

On August 31, 2022, the court entered a default judgment against Anthony Lawrence and VOR Technology, LLC, in the amount of $54,945 for missing employee contributions and lost opportunity costs. The court found that Lawrence and the company violated ERISA by failing to forward $47,266 in employee contributions to the plan. As a result, the plan and its participants suffered $7,679 in lost earnings. The court ordered Defendants to be: 1) jointly and severally liable to restore all losses to the plan, including lost interest; 2) removed as fiduciaries and all other positions to the plan; and 3) permanently enjoined from serving as ERISA fiduciaries. The court also granted the Secretary leave to appoint an independent fiduciary at the Defendants expense to administer and wind up the plan On November 14, 2022, the Secretary filed a motion to amend the consent judgment to appoint an independent fiduciary. Philadelphia Office

Secretary v. Bicallis, LLC (D. Md.)

On July 13, 2021, the Secretary filed a complaint against Bicallis, LLC and Bryan Hill, alleging they failed to remit to the Bicallis, LLC 401(k) Plan at least $51,217 in employee contributions and failed to collect for that same plan at least $25,329 in employer matching contributions and $46,251 in safe harbor contributions from October 20, 2017, through December 30, 2019. After the clerk entered default against them, Defendants filed an answer on November 4, 2021, in which they primarily contested liability for the employer contributions.

The Defendants ultimately agreed to all the relief that the complaint demanded, which was memorialized in a consent judgment executed on May 5, 2022. The court entered the consent judgment on May 6, 2022. Through the consent judgment, the Defendants were required to pay $152,591.93 in installment payments by December 2022. This monetary recovery reflected all the equitable restitution plus the increased costs attributable to the independent fiduciary. The consent judgment also ordered that a section 502(l) penalty be assessed, and outlined the Defendants’ ability to petition the Department for relief from that penalty. On May 23, 2022, the court entered a jointly requested modification of the consent judgment to increase the amount of the independent fiduciary’s fees.

After an initial period of untimely compliance, Defendants refused to make any further payments. On September 27, 2022, the Secretary sought civil contempt, and on October 26, 2022, the court convened a hearing during which Defendants testified about their inability to pay. Following the hearing, the parties negotiated a new payment schedule for the consent judgment, including a large installment payment within 30 days and payment of the full balance by April 2023. The parties obtained these changes through their joint motion to amend the consent judgment which was granted on November 10, 2022.

Defendants made no payments scheduled under the amended consent judgment. Therefore, on December 9, 2022, the Secretary renewed the motion for Defendants to be held in civil contempt. The motion requests that the court convene a hearing at which Defendants must appear personally and show cause why they should not be found in civil contempt. The motion also requests that the court enter remedies intended to coerce Defendants’ compliance, including daily fines, an award of attorneys’ fees and costs, and potential civil confinement. On December 29, 2022, the court referred the matter to the Magistrate Judge for settlement or other ADR conference. See also Secretary v. Bicallis, LLC, Section L. Contempt and Subpoena Enforcement. Philadelphia Office

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Su v. Blackline Partners LLC and Marc Kubinski (N.D. Cal.)

On September 30, 2022, the Secretary filed a complaint against Blackline Partners LLC, a defunct company, and Marc Kubinski. The complaint alleges $17,710 in losses to the Blackline Partners LLC, 401(k) Plan for unremitted employee contributions plus loss opportunity costs. On December 28, 2022, the court granted the Secretary’s motion to deem the fiduciary served by email. Los Angeles Office

Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern (D. Conn.)

On February 1, 2018, the Secretary filed a complaint against Bridgeport Health Care Center, Inc. (“BHCC”) and Chaim Stern, fiduciaries of the company’s self-funded health plan (“Health Plan”). The complaint alleged that the fiduciaries failed to fund health reimbursement accounts from which third-party administrators paid health claims. As a result, checks were returned for insufficient funds and health claims remained unpaid. The fiduciaries failed to inform participants and beneficiaries that their claims may not be paid. Rather, the fiduciaries misrepresented to participants that they had health care coverage by continuing to withhold employee contributions to the Health Plan from employee paychecks and reassuring participants that their claims would be paid.

On April 18, 2018, BHCC filed for Chapter 11 bankruptcy. Shortly thereafter, various creditors, including the Secretary, moved to appoint a Chapter 11 trustee. After several days of hearing, the bankruptcy court granted the motion to appoint a Chapter 11 trustee. The Chapter 11 trustee secured fully-insured health coverage for employees.

As a result of several mediation sessions with the district court, the parties agreed to a consent judgment and order that was entered on July 13, 2020. Under the consent judgment and order, the fiduciaries paid $2,526,392 towards resolving the unpaid health claims and appointing a claims administrator.

On March 22, 2021, the district court entered an order under the All Writs Act prohibiting health care providers (or their collection agents) from direct billing and/or commencing or continuing any actions against participants and beneficiaries of the Health Plan while the claims administrator works to resolve unpaid health claims. On September 8, 2022, the district court extended its injunction under the All Writs Act until June 22, 2023. The parties continue to implement the provisions of the consent judgment and order. See also Walsh v. Chaim Stern, Section B.1 Collection of Plan Contributions and Loan Repayments; In re Bridgeport Health Care Center, Inc., Section M. Bankruptcy. Boston Office

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Secretary v. C&S Jones Group, LLC (D. Md.)

On November 4, 2022, the Secretary filed a complaint against C&S Jones Group, LLC, Charles Jones, and Sabria Jones alleging that from December 15, 2017 through March 31, 2022, Defendants failed to forward prevailing wage and employee contributions to the CSJG Collective Bargain 401(k) Plan. The Secretary seeks to recover outstanding contributions in the approximate amount of $86,626 on behalf of 14 employees, loss of earnings, removal of CSJG, Charles Jones, and Sabria Jones as fiduciaries, appointment of an independent fiduciary to administer the plan, and to permanently enjoin CSJG, Charles Jones, and Sabria Jones from serving as fiduciaries to any ERISA-covered plan in the future. Philadelphia Office

Walsh v. Chaim Stern (D. Conn.)

On December 14, 2022, the Secretary filed a complaint against Chaim Stern, a fiduciary of the Savings Plan for Employees of Bridgeport Health Care Center, Inc. The complaint alleged that the fiduciary failed to remit $63,743 in employee contributions and loan repayments to the plan and also failed to timely remit employee contributions and loan repayments to the plan. On January 20, 2023, the court approved a consent judgment and order, which provided for an offset of the fiduciary’s account in the plan totaling $77,861 to pay the unremitted employee contributions, loan repayments, and lost opportunity costs. See also Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern Section B.1 Collection of Plan Contributions and Loan Repayments; In re Bridgeport Health Care Center, Inc., Section M. Bankruptcy. Boston Office

Walsh v. Chicago Metropolitan Obstetricians and Gynecologists, Ltd (N.D. Ill.)

October 28, 2021, the Secretary filed a complaint alleging Chicago Metropolitan Obstetricians and Gynecologists, Ltd., and Dr. Hayes, fiduciaries of the Chicago Metropolitan Obstetricians and Gynecologists, Ltd. 401(k) Plan, failed to remit and timely remit employee contributions to the plan and failed to collect employer contribution owed to the plan. The plan’s total loss alleged from these violations, including lost opportunity costs, is over $140,000. The complaint sought injunctive relief enjoining these fiduciaries from serving as an ERISA fiduciary in the future, appointing an independent fiduciary, and requiring that the fiduciaries correct the prohibited transactions by restoring delinquent contributions (with interest) to the plan. The consent order between the parties was entered on May 25, 2023.  Chicago Office

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Secretary v. DuPenn, Inc. d/b/a IGM Carbon (W.D. Pa.)

On December 1, 2022, the Secretary filed a complaint against DuPenn, Inc. d/b/a IGM Carbon and its president, Patrick Bankovich, alleging that trustee Bankovich and plan administrator DuPenn are fiduciaries of the 401(k) Profit Sharing Plan and that they failed to remit employee $24,690 in participant contributions to the plan. Moreover, the Secretary alleges Bankovich failed to collect $21,327 in mandatory matching employer contributions to the plan when DuPenn was financially capable of paying the contributions. The alleged violations resulted in losses of $57,679, inclusive of $11,661 in lost opportunity costs. See also Secretary v. DuPenn, Inc. d/b/a IGM Carbon, Section L. Contempt and Subpoena Enforcement. Philadelphia Office

Walsh v. Elmhurst Academy of Early Learning (N.D. Ill.)

On December 13, 2022, the Secretary filed a complaint against Elmhurst Academy of Early Learning and Colleen Odegaard, fiduciaries of the Elmhurst Academy of Early Learning SIMPLE IRA Plan and the Elmhurst Academy of Early Learning Health Plan, for failure to remit and timely remit employee salary deferral contributions to the SIMPLE IRA Plan and failure to remit participant premium contributions to the Health Plan. The complaint seeks the restoration of over $24,000.  Chicago Office

Secretary v. Filerman (W.D. Va.)

On December 22, 2021, the Secretary filed a complaint against Joseph Filerman alleging that he failed to remit $6,361 in employee contributions to his company’s SIMPLE IRA plan from January 2016 to December 2016. Filerman sold the company in or around January 2017.  The Secretary further alleged that $1,106 in interest is owed to the plan. On August 11, 2022, the court held a hearing and granted the Secretary’s motion to enter the consent judgment which ordered Joseph Filerman to restore $7,301 in restitution, which reflects unremitted employee contributions and interest. The consent judgment removes Filerman as a plan fiduciary and permanently bars him from serving as a fiduciary to any ERISA-covered plan in the future. With respect to Filerman’s pro se status, the court did not consider the Defendant’s pro se status as a factor in determining whether to approve a consent judgment. Finally, as to the relief, the court found that the restitution and injunctive relief, including the permanent fiduciary bar, were “fair and reasonable . . . for the harms sustained by the employees,” and that they “ensure[] that the employees promptly receive their owed money without protracted litigation, which serves the public interest.”  Philadelphia Office

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Secretary v. Great Atlantic Graphics, Inc. (E.D. Pa.)

On July 22, 2021, the Secretary filed a complaint against Great Atlantic Graphics, Inc, Frederick Duffy, Jr., and Vincent Giarrocco, alleging that they improperly failed to terminate the company’s 401(k) plan and distribute its assets to 19 participants when the company was sold in bankruptcy in 2018, and that, from January 2016 to December 2017, they failed to forward insurance premiums and employee contributions for payment of health insurance premiums to the company’s health plan, resulting in termination of employees’ health insurance and $464,000 in unpaid health claims. The Secretary alleges that the health plan’s participants and beneficiaries are entitled to a surcharge remedy against Defendants to compensate them for the loss in healthcare coverage and related expenses, including the unpaid health claims.  Defendants did not answer the complaint, and the Secretary requested that the clerk enter default against them on December 17, 2021.  

On September 19, 2022, the court entered a default judgment against Defendants. The court found that Defendants violated ERISA by failing to distribute the 401(k) Plan’s $3,062,276 in assets to the 19 participants following cessation of Great Atlantic’s business operations. 

The court further found that Defendants failed to fund and properly administer the company’s self-funded health plan, resulting in $463,494 in unpaid health claims for which it imposed on Defendants an equitable surcharge.  

In addition to the equitable surcharge, the court removed Defendants as fiduciaries of both plans, granted the Secretary leave to appoint an independent fiduciary over each plan, and permanently enjoined Defendants from violating ERISA and serving as fiduciaries for any ERISA-covered plan in the future.  See also Secretary v. Great Atlantic Graphics, Inc., Section F. Participants’ Rights and Remedies. Philadelphia Office

Walsh v. Hatfield (S.D.W. Va.)

On September 1, 2022, the Secretary filed a complaint against Charles Hatfield, former President of Williamson Memorial Hospital and fiduciary to the Williamson Memorial Hospital, LLC Employee Benefit Plan (Health Plan). This rural hospital is involved in Chapter 7 bankruptcy proceeding. The Secretary alleges that Hatfield failed to forward employee contributions to the Health Plan to pay for insurance premiums and, as a result, Hatfield is liable for at least $703,398 in unpaid health claims. The complaint requests that the court order Hatfield to restore all losses to the plan and its participants, remove Hatfield from his position as fiduciary, and permanently enjoin him from serving as fiduciary to any ERISA-covered plan in the future. See also Walsh v. Hatfield, Section F. Participants’ Rights and Remedies; In re Williamson Memorial, Section M. Bankruptcy. Philadelphia Office

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Secretary v. Herbert Long III, Legion Design/Campbell & Associates Chartered 401(k) Plan (D.D.C.) 

On September 27, 2019, the Secretary filed a complaint seeking the restoration of $43,117 in employee contributions and $2,942 in participant loan repayments to the Legion Design/Campbell & Associates Chartered 401(k) Plan and at least $8,918 in related interest. Legion Design sponsored the 401(k) Plan and is now defunct.  Herbert Long III was the CEO and Director of Operations for Legion Design. He also was the named plan trustee at the time of the losses. Long, who filed an answer to the complaint pro se, has represented to the court that he is unable to effectively participate in his defense. Long is in personal bankruptcy.  The court issued a scheduling order closing discovery by December 4, 2020, and setting a January 29, 2021 deadline for motions for summary judgment. The Secretary did not file a motion for summary judgment. The consent judgment approved March 24, 2021 provided that Defendant will make full restitution to plan participants, will pay a section 502(1) penalty, and will be permanently enjoined from serving as trustee, fiduciary, advisor, or administrator to any ERISA-covered plan in the future.  Philadelphia Office

Secretary v. Hoops (S.D.W. Va.)

On June 15, 2022, the Secretary filed a complaint against Jeffrey Hoops, Drew Kesler, and Donald Hetrick, three individual fiduciaries and trustees of the BlackJewel LLC 401(k) Plan. They were senior officers of Blackjewel (formerly known as Revelation Energy, LLC), which sponsored the plan. The Secretary alleges that between June 2017 and June 2019, the Defendants committed or otherwise knowingly countenanced numerous violations of ERISA with respect to the plan, resulting in the loss to the plan of $423,589 in missing employee contributions and $290,485 in missing employer safe harbor contributions. The Secretary further alleges that Defendants failed to pursue recovery of these unremitted employer contributions, notwithstanding their obligation to do so both under the plan’s terms and ERISA’s fiduciary obligations. Defendants also failed to file a claim on the plan’s fidelity bond. The complaint requests, inter alia, that the Defendants restore all losses, including lost opportunity costs, to the plan, and that the court remove them from their positions as fiduciaries, appoint an independent fiduciary to administer the plan, and permanently enjoin Defendants from serving as fiduciaries to any ERISA-covered plan in the future. Philadelphia Office

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Walsh v. Kendi (W.D. Pa.)

On November 30, 2022, the Secretary filed a complaint against Ken-Co Fabricating Company, Inc. and Robert Kendi, the company’s owner and president.  The complaint alleges that during the period from April 2019 through October 2019, Defendants failed to forward or untimely forwarded employee contributions to the Ken-Co Fabricating Co., Inc. Health Care Plan to pay insurance premiums, but never advised plan participants and beneficiaries that health coverage had been cancelled.  As a result, participants and beneficiaries incurred up to approximately $40,000 in uninsured medical claims. The Secretary seeks a surcharge remedy for plan participants and beneficiaries who incurred unpaid health claims and a permanent fiduciary bar. See also Walsh v. Kendi, Section F. Participants’ Rights and Remedies.  Philadelphia Office

Su v. KMH Systems, Inc. (S.D. Ohio)

On January 10, 2022, the Secretary filed a complaint against KMH Systems, Inc., Michael Guenin, Brian Ritchey, and KMH Systems 401(k) Plan. The complaint alleged that from January 15, 2016 through March 20, 2020, KMH Systems, Inc. failed to remit $166,198 in participant contributions and loan repayments to the Plan and untimely remitted $937,296 in employee contributions and loan repayments to the Plan up to 435 days after they should have been remitted. KMH Systems, Inc. retained the untimely remitted employee contributions and loan repayments in its own corporate bank account until they were remitted to the Plan.

On May 4, 2022, the Secretary applied for an entry of default against all Defendants.  On May 26, 2022, Michael Guenin and Brian Ritchey filed a motion to stay discovery pending the outcome of a related criminal case involving KMH Systems, Inc.  On May 27, 2022, the court granted the motion and stayed the civil case. Cleveland Office

Scalia v. Krieger (E.D. Wis.)

On May 6, 2020, the Secretary filed a complaint against Gary Krieger and Stratagem, Inc., alleging the Defendants as fiduciaries failed to remit and timely remit employee contributions to the Stratagem, Inc. Savings Plan from February 29, 2016 through March 29, 2019, and failed to process participants’ distribution requests since March 2019.  The complaint seeks payment of the unremitted employee contributions, payment of accrued interest on unremitted employee contributions and delayed remittances; reversal of the prohibited transactions; an injunction permanently enjoining Defendants from serving as fiduciaries and/or service providers to any ERISA-covered plan and removing them as plan fiduciaries, appointment of an independent fiduciary, and an order requiring Defendants to pay the reasonable fees and expenses of the independent fiduciary.  Defendants did not waive service of the complaint and were ultimately served with a copy of the complaint and summons by the U.S. Marshals Service. 

Defendants never filed an answer, and the Secretary filed a motion for a default judgment on December 16, 2020. 

On January 29, 2021, the court granted the Secretary’s motion for a default judgment, entering a permanent injunction, removing Defendants from their fiduciary roles, ordering Defendants to restore $30,296 in losses to the plan, to pay $3,903 in lost opportunity costs, ordering Defendants to correct prohibited transactions, and appointing an independent fiduciary.  Defendants have not attempted to comply with any part of this default judgment order.

On June 25, 2021, the Secretary moved for an order of civil contempt and a $100 daily coercive fine until Defendants purge themselves of contempt. The Secretary’s motion also sought an order requiring Defendants to pay independent fiduciary’s reasonable fees and expenses, to reimburse the plan for those amounts, and to pay the Secretary’s costs and fees for bringing the contempt action. On February 16, 2022, the court ordered Defendants to respond to the petition by March 25, 2022.  Defendants failed to respond to the petition. On March 30, 2022, the court granted the Secretary’s motion for adjudication of civil contempt and to amend the default judgment. The court order appointed an independent fiduciary and required Defendants to pay $34,830 plus interest to the plan within 14 days. For their failure to respond to the Secretary’s petition, the court also required Defendants to pay all reasonable fees and expenses that the independent fiduciary incurred to make distributions and terminate the plan.  Until purged of their contempt, Defendants are required to pay a fine of $100 per day for failure to comply with the default judgment. On December 9, 2022, the court also awarded attorney’s fees and costs in the amount of $5,687. Chicago Office

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Scalia v. Krieger (E.D. Wis.)

On March 21, 2022, the Secretary filed a complaint against Stratagem, Inc. and Gary Krieger, fiduciaries of the Stratagem, Inc. Group Medical Insurance Plan. The Secretary alleges that from at least October 15, 2018, through at least January 15, 2019, the fiduciaries failed to remit more than $15,000 in employee premium contributions to the Plan. The complaint seeks a court requiring the fiduciaries to restore more than $15,000 in losses owed to the Plan and enjoin them from serving as fiduciaries or service providers to any ERISA-covered plan. Chicago Office 

Secretary v. Morse (W.D. Mich.)

On August 17, 2022, the Secretary filed a complaint against Aaron Morse, Mor-Dall Enterprises, Inc. Simple IRA Plan, and Mor-Dall Enterprises, Inc. Health Plan. Morse was the owner and fiduciary for the Mor-Dall Enterprises, Inc. Simple IRA Plan, and Mor-Dall Enterprises, Inc. Health Plan. The complaint alleges that from at least October 21, 2016, Morse failed to remit $50,623 in employee contributions to the IRA Plan, from at least June 3, 2019 until August 12, 2019, Morse failed to remit $9,230 for a Blue Cross Blue Shield of Michigan Health Plan, and that from at least October 21, 2019 until January 27, 2020, Mr. Morse failed to remit $15,261 for a Priority Health Insurance Plan. The complaint seeks the lost opportunity costs caused by Morse’s failure to remit the contributions to the plans.  The complaint also alleges Morse is liable for $38,941, including lost opportunity costs, for the unpaid health plan claims for Blue Cross Blue Shield and that Morse is also liable for $15,261, including lost opportunity costs, for unpaid health plan claims for Priority Health.

On March 9, 2023, the Secretary filed a motion for default judgment against Morse, Mor-Dall Enterprises, Inc. Simple IRA Plan, and Mor-Dall Enterprises, Inc. Health Plan. The Secretary is seeking an order to have the SIMPLE IRA Plan and Health Plans losses restored to plan participants and unpaid health claims restored to the Health Plans’ participants with additional lost opportunity costs.  The Secretary is also seeking an order to enjoin Morse from serving as a fiduciary or service provider to any ERISA-covered plan. Chicago Office

Walsh v. Owen Software Development Company Ltd. (D. Md.)

On April 20, 2022, the Secretary filed a complaint against Owen Software Development Company Ltd., Owen Software Development Company Ltd. 401(k) Plan, Adeboyejo Oni, company CEO, and Babatunde Ogunnaike, company CFO. Oni, Ogunnaike, and the company acted as fiduciaries to the Owen Software Development Company Ltd. 401(k) Plan and Oni and Ogunnaike served as plan trustees. The complaint alleges that, in 2017 and 2018, the Defendants failed to remit employee contributions to the plan. The complaint seeks to have Defendants restore all losses to the plan, to have Defendants removed as fiduciaries, have an independent fiduciary appointed to administer the plan, and to permanently enjoin Defendants from serving as fiduciaries to any ERISA-covered plan in the future. Philadelphia Office

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Scalia v. Paramount Industrial Machining, Inc. (E.D. Mich.)

On September 10, 2020, the Secretary filed a complaint against Paramount Industrial Machining, Inc., Sheila Rossman, and Maxwell Schwartz, as fiduciaries of the Paramount Precision Products, Inc. 401(k) Plan and the Paramount Industrial Machining, Inc. Welfare Benefit Health Plan. The complaint alleges that Rossman, a directed trustee, and Schwartz, the company’s owner, committed various ERISA violations, including failing to remit participant contributions and loan repayments to the 401(k) Plan and failing to allocate approximately $15,000 in 401(k) Plan forfeitures to participants’ accounts in accordance with the plan documents. The complaint also alleges that Paramount Industrial and Schwartz, as fiduciaries of the Health Plan, committed various ERISA violations that included failing to remit to the Health Plan participant contributions for the payment of insurance premiums, which resulted in one participant incurring unpaid health benefit claims. The 401(k) Plan violations occurred between September 18, 2015, and March 18, 2016, and between February 10, 2017, and September 8, 2017. The Health Plan violations occurred between July 1, 2017, and September 29, 2017.  The Secretary is seeking restoration of losses (including lost opportunity costs) of approximately $18,000 to the 401(k) Plan and approximately $17,000 to the Health Plan, an injunction to bar the fiduciary Defendants from acting as fiduciaries or service providers to any ERISA-covered plan, and appointment of an independent fiduciary to terminate the plans. The Secretary also seeks payment of approximately $3,000 in unpaid health benefit claims. 

The Secretary filed an amended complaint on December 4, 2020, alleging that Rossman is liable as a co-fiduciary for the 401(k) Plan violations from February 10, 2017, to September 8, 2017.  The Defendants filed amended answers on December 16, 2020, and December 28, 2020. The court issued a scheduling order on December 10, 2020 after the initial status conference on the same date.  

The court approved a consent order and judgment on October 11, 2022 restoring all losses plus lost opportunity costs, enjoining Schwartz from acting as a fiduciary or service provider to any ERISA-covered plan, and requiring Rossmann to undergo eight hours of education relating to fiduciary duties imposed under ERISA.  Chicago Office

Acosta v. Puccio (D. Conn.)

On March 29, 2018, the Secretary filed a complaint against Kathryn Puccio, trustee of the Thomas P. Puccio Pension Plan, alleging that while Kathryn Puccio was a trustee, she and her husband Thomas Puccio (who died in 2012) withdrew plan assets from various plan investment accounts for their own personal use and left the plan unable to satisfy the pension benefit entitlements of two plan participants. The parties engaged in discovery during 2019.  

On November 2, 2020, the Secretary filed a motion for summary judgment on the issues of liability and damages. The Defendant failed to file an opposition or any other substantive reply. On February 15, 2021, the court granted the Secretary’s motion for summary judgment, ordering the Defendant to pay full restitution of $484,321 into a trust for the two non-fiduciary plan participants and enjoining the Defendant from serving as a fiduciary to any ERISA-covered plan. The trustee for Kathryn Puccio’s probate estate filed a financial report with the Connecticut Probate Court on February 17, 2023.  According to the report, after the trustee's expenses are deducted, restitution in the amount of $422,610 will be made to the two participants. Boston Office

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Secretary v. Regional Care Association (N.D. Ill.)

On April 15, 2021, the Secretary filed a complaint against Regional Care Association, Regional Care Association SIMPLE Plan, and Kathy Chronister for their failure to remit $24,306 in employee salary deferral contributions as well as their failure to remit employee salary deferral contributions in a timely manner.  On September 15, 2021, the court entered a consent judgment and order requiring Regional Care Association to pay to the plan $1,821 plus any restitution that Regional Care Association receives from Chronister, and enjoined Defendants from serving or acting as fiduciaries or service providers to any ERISA-covered plan.

The court stayed the matter as to Chronister until a pending criminal matter against her is resolved. On March 22, 2023, Chronister represented that she is paying $30,000 in restitution to Regional Care Association as part of her plea agreement in the criminal matter. According to Regional Care Association’s consent judgment, it has 30 days upon receipt to remit those funds to the plan. Chronister has been permanently barred from serving as a fiduciary or service provider to any ERISA-covered plan in the future. The court has given the parties until May 22, 2023 to seek approval of any proposed consent judgment as to Chronister. Chicago Office

Scalia v. Solis (W.D. Tex.)

On June 20, 2019, the Secretary filed a complaint against Nick and Emily Solis, owners of the plan’s sponsoring employer and fiduciaries of the West Texas Bulldog Oilfield Services LLC Health Plan, for failing to remit to the plan’s insurer $19,586 deducted from employees’ wages for health insurance premiums during January 13, 2017, through March 15, 2017. The fiduciaries’ failures resulted in the retroactive cancellation of the plan’s health insurance coverage, leaving 28 employees without insurance, 10 of whom incurred unpaid claims totaling $17,000. The complaint seeks restoration of all plan losses, a surcharge against the fiduciaries for the unpaid medical benefits, injunctive relief requiring the fiduciaries’ compliance with ERISA, and a fiduciary bar against the Defendants. On October 21, 2019, the Secretary filed a motion for entry of default and, on November 13, 2019, a motion for default judgment. 

On July 20, 2020, the court granted a default judgment for the Secretary. The judgment ordered the Defendants to restore to the 28 plan participants the $11,731 withheld from their wages but never remitted to the plan’s insurer and to pay $16,783 to the 10 plan participants who had incurred unpaid medical bills.  Additionally, the default judgment orders the Solises to pay the costs of an independent fiduciary to administer the remittance of these funds and permanently bars the Solises from serving as fiduciaries to any ERISA‑covered plan. 

Because Defendants failed to comply with the default judgment, the Secretary filed a motion to adjudge Defendants in contempt on September 3, 2020. On March 31, 2021, the court issued a show cause order to Defendants, requiring them to respond by April 8, 2021. After concerns arose that the Defendants may not have received the show cause order, the court on April 23, 2021, issued an order requiring the United States Marshal to serve Defendants.  Following several unsuccessful efforts by the Marshals service to serve the show cause order, the Secretary provided new contact information for Defendants and on October 8, 2021, the court issued a new order, directing the United States Marshal to effect service. On October 18, 2021, the United States Marshals served the Defendants with the show cause order. After service, the Secretary and the Defendants engaged in settlement discussions.  It was ultimately determined that Defendants lacked the resources to fulfill the judgement and restore the plan losses or pay the surcharge for the unpaid medical benefits. Defendants also had not attempted to serve as a fiduciary to an employee benefit plan.  Thus, on May 6, 2022, the Secretary filed an unopposed motion to dismiss the case with prejudice, reserving the right to reopen the case if the Solises attempt to serve as fiduciaries to an employee benefit plan or they can fulfill the judgment.  On May 10, 2022, the court entered an order dismissing this matter without prejudice.  See also Scalia v. Solis, Section L. Contempt and Subpoena Enforcement. Dallas Office 

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Walsh v. Sonic Excellence (C.D. Cal.)

On May 23, 2022, the Secretary filed a complaint against Sonic Excellence and Albert Espinoza, fiduciaries of the Sonic Excellence 401k Plan, alleging that from June 26, 2015 through April 1, 2022, Defendants failed to remit and to timely remit employee contributions to the plan, retained and commingled the unremitted 401(k) contributions with the company’s accounts, and used the withholdings for Sonic Excellence’s own purposes.  Because Defendants failed to respond on August 11, 2022, the Secretary filed a request for entry of default, which was entered on August 12, 2022. That same day, the Secretary was ordered to file a motion for default judgment by August 19, 2022, which the Secretary did. On September 20, 2022, the court granted the motion and ordered Defendants to restore $9,814 in unremitted employee contributions and $4,717 in lost opportunity costs to the 401(k) Plan. The court’s judgment ordered that Espinoza’s individual account be offset to pay the judgment and that the independent fiduciary distribute assets of the plan to participants and beneficiaries. Los Angeles Office

Walsh v. Trucks and Parts of Ohio, Inc. (S.D. Ohio)

On March 16, 2022, the Secretary filed a complaint against Trucks and Parts of Ohio, Inc., Scott Hughes, and William Dale Carr, fiduciaries of the Trucks and Parts of Ohio, Inc. P/S 401(k) Plan, alleging that they failed to timely remit employee contributions to the plan from at least July 15, 2015 through at least March 29, 2019. The complaint seeks more than $100,000 in losses, an order to remove the fiduciaries from any fiduciary position for the plan, and an injunction to enjoin them from serving as a fiduciary or service provider to any ERISA-covered plan. Chicago Office

Secretary v. Vargason (N.D. Ill.)

On April 8, 2022, the Secretary filed a complaint against the now-closed Nissan of St. Charles, (NSC), owner Fred Vargason, and the Nissan of St. Charles SIMPLE IRA Plan, alleging NSC and Vargason violated their fiduciary duties by failing to remit employees’ voluntary salary contributions to the plan. On December 29, 2022, the Secretary transmitted a proposed consent order and judgment to Defendants’ counsels based on the parties’ agreement in principle. Chicago Office

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Walsh v. Velo Corporation of America (S.D.N.Y.)

On January 1, 2022, the Secretary filed a complaint alleging that multiple Defendants had failed to remit contributions to the Velo Corporation of America 401(k) Plan. Defendants repaid the debt, so, on June 2, 2022, the Secretary voluntarily dismissed the complaint.  New York Office

Walsh v. White Stone Construction, Inc. (D. Minn.)

On September 30, 2021, the Secretary filed a complaint against Defendants Andrew Basara, John Peterson, and The White Stone Construction, Inc. 401(k) Plan, alleging that the fiduciaries violated ERISA by failing to remit employee contributions to the plan from at least April 7, 2017 through at least May 31, 2019. The complaint seeks to have employee contributions remitted to the plan and to enjoin these fiduciaries from serving as an ERISA fiduciary or service provider in the future. 

On March 22, 2022, the court granted the Secretary’s uncontested motion to enter a consent order and judgment. The consent order and judgment required the fiduciaries to restore more than $12,000 in employee salary withholdings contributions to the plan plus lost opportunity costs and enjoins them from serving as a fiduciary or service provider to any ERISA-covered plan in the future.  The consent order and judgment also required the fiduciaries to pay a $2,695 section 502(l) penalty. Chicago Office

Acosta v. Williams-Russell & Johnson Inc. (N.D. Ga.)

EBSA determined that repeat ERISA violators, Williams-Russell & Johnson, Inc., and company president Charles E. Johnson, Sr., were once again failing to remit employee contributions to the Williams-Russell & Johnson 401(k) Retirement Plan, leading to more than $300,000 in damages to the plan. Additionally, Johnson had not ensured that the plan made some distributions required by the plan documents. The company and Johnson were already subject to an earlier consent judgment that barred them from fiduciary service and from future ERISA breaches. Therefore, the Secretary filed a contempt action.

In April 2019, the court scheduled a hearing on the contempt motion but ultimately ordered the parties to continue work on settlement. In August 2019, at another contempt hearing, the court held Johnson and the company in contempt and threatened them with daily fines for continued non-compliance. In September 2019, the parties agreed on a consent judgment whereby the Defendants agreed to repay the plan $315,000 (through a payment plan), to honor the fiduciary bar, and to turn over management of the plan to a third party. The court entered the consent judgment on September 24, 2019.

In August 2020, in light of Defendants’ demonstrable financial hardship, the parties filed an amendment to the amended consent judgment, adjusting the payment plan.

In 2023, the Department learned that Defendants had ceased to make payment plan payments and that the third-party fiduciary had stopped managing the plan. The Department requested documents regarding Johnson and the entity’s financial status from Johnson’s attorney. The attorney provided some documents, including bank records and settlement agreements in other matters, but has not provided all the requested information. Given the limited and unsatisfactory information provided by Johnson’s attorney, the Department is proceeding with preparing another motion for contempt. See also Acosta v. Williams-Russell & Johnson Inc., Section L. Contempt and Subpoena Enforcement. Atlanta Office

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Secretary v. WW Contractors, Inc. (D. Md.)

On December 17, 2020, the Secretary filed a complaint against WW Contractors, Inc., and Nea Wiggins for failing to remit employee contributions and participant loan repayments to the WW Contractors, Inc. 401(k) Plan. The company (which is in bankruptcy) as the plan administrator and Wiggins as the plan trustee carried out the plan administrator functions. The Secretary alleges that the fiduciary breaches by the Defendants occurred October 2017 to February 2018. The Secretary seeks restoration of $39,000 to the plan, which includes interest. The Secretary also seeks the removal of the Defendants as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the Defendants.

Defendants’ counsel did not appear at the October 12, 2021 virtual settlement conference. On December 8, 2021, the court issued a revised scheduling order setting April 25, 2022 as the discovery deadline and May 23, 2022 as the deadline for dispositive motions. 

On May 18, 2022, the Secretary filed a motion to approve a consent judgment which the court entered the next day. The consent judgment orders Nea Wiggins to restore to the WW Contractors, Inc. 401(k) Plan a total of $45,656, comprising restitution of unremitted employee contributions and loan repayments of $35,244, interest of $7,171, and $3,240 for the cost of an independent fiduciary. The consent judgment also removes Wiggins as a plan fiduciary and permanently bars Wiggins from serving as a fiduciary to any ERISA-covered plan in the future.  Philadelphia Office

Secretary v. Yost (D. Md.)

On February 20, 2020, the Secretary filed a complaint against Saturn Corp. and Fielding Yost for failing to remit employee contributions and participant loan repayments to the Saturn Corp. Profit Sharing Plan & Trust. The company is the plan administrator and Yost is the company president and majority owner. The Secretary alleges that the fiduciary breaches by the Defendants occurred from 2014 to 2018. The Secretary seeks restoration of $78,683 to the plan, which includes interest, removal of the Defendants as plan fiduciaries, appointment of an independent fiduciary, and a permanent fiduciary bar against the Defendants.  On September 28, 2021, the court clerk entered default against all Defendants. On December 17, 2021, the Secretary filed a status update with the court stating that the parties had not resolved the case and that the Secretary planned to file a motion for default after January 1, 2022. On October 14, 2022, the court granted the Secretary’s May 31, 2022 motion for default judgment but requested supplemental briefing as to relief.  The Secretary filed its supplemental briefing on November 4, 2022. Philadelphia Office

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2. Insurance Rebates

None

3. Miscellaneous

Secretary v. Allen (W.D. Ky.)

On December 27, 2017, the Secretary filed a complaint against Anthony C. Allen, Mark N. Cain, Brian A. Lutes, James M. Staron, Linda A. Wilson, and Norman E. Zelesky. Defendants are members of the Retirement Savings Plan Advisory Committee, the named fiduciary for four plans sponsored by Sypris Solutions, Inc. The complaint alleges that Defendants failed to follow the plans’ governing documents regarding use of forfeiture funds. The governing documents required the employer to use forfeiture funds to pay plan expenses prior to using such funds to reduce employer contributions. From 2012 until 2016, Defendants caused the four plans to pay plan expenses from plan assets and used the forfeiture funds to reduce employer contributions. As a result of this practice, the employer benefited by reducing its contributions to the funds, at the expense of plan participants whose plan account balances were reduced by Defendants’ payment of plan expenses from plan assets instead of from forfeitures. The complaint seeks recovery of the losses, including lost opportunity costs, suffered by the plans as a result of this practice.

After written discovery and depositions, the Secretary amended the complaint to include the company, Sypris Solutions, Inc., as a fiduciary Defendant. At a settlement conference with the district court’s magistrate judge on April 10, 2019, the parties were unable to settle the case. The parties completed discovery on May 10, 2019. The parties each filed dispositive motions on July 10, 2019, with the Secretary moving for partial summary judgment and Defendants moving for full summary judgment. The dispositive motions were fully briefed on August 21, 2019.

On May 14, 2020, the magistrate judge issued a Report and Recommendation, denying the Secretary’s motion for partial summary judgment and granting in full Defendants’ motion for summary judgment. The Secretary filed the Department’s objections to the magistrate’s report and recommendation on May 28, 2020. Defendants filed their response to the Secretary’s objections on June 11, 2020.

On January 26, 2022, the district court sustained the Secretary’s primary objection to the magistrate’s report and recommendation, which mooted the remainder of the magistrate’s report and recommendation.

The court held a hearing on March 22, 2022 to discuss the remaining issues in the case. On March 28, 2022, the court issued a decision denying the respective motions for summary judgment. The court found that issues on reliance on advice of counsel precluded a finding of liability and issues related to loss calculations precluded a finding on damages. On April 27, 2022, the parties submitted a joint status report on the next steps to resolve the questions of liability and damages.

On May 24, 2022, Defendants filed a motion for leave to file amended answers and counterclaims. In their motion, Defendants sought leave of court to add two additional affirmative defenses related to reliance on counsel and scrivener's error, as well as leave to file a counterclaim against the Secretary for equitable reformation of the plan. On June 21, 2022, the Department filed a response opposing Defendants’ motion for leave to file amended answers and counterclaims, arguing that the amendments were untimely under Federal Rules of Civil Procedure 15 and 16. In addition to the procedural defects, the Secretary argued that each of the proposed affirmative defenses and the counterclaims fail as a matter of law and the amendment would be futile.

At a September 13, 2022, the court denied Defendants’ request to add the affirmative defense of scrivener’s error and the counterclaim against the Secretary. The court also denied as moot Defendants’ request to add the affirmative defense of reliance on counsel, finding that issues related to reliance on counsel are already issues in the case. The court gave the Secretary the opportunity to conduct limited discovery into issues related to reliance on counsel. The court directed the parties to confer and propose a plan on potential mediation, additional limited discovery, further briefing, and trial dates. On March 14, 2023, the parties submitted a proposed consent order and judgment providing that Defendant Sypris Solutions restore $575,000 to the plan participants who were harmed by the plan’s misuse of the forfeiture funds and that Sypris would attempt to locate harmed participants who are owed $250 or more and no longer in the plan. The consent order and judgment also provided that Defendants shall pay $57,500 in ERISA section 502(l) penalties, unless they are successful in obtaining a good faith waiver. Chicago Office

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Acosta v. Macy’s, Inc. (S.D. Ohio)

On August 16, 2017, the Secretary filed a complaint alleging that Macy’s Inc., Anthem, and Cigna failed to properly pay out-of-network claims for the Macy’s, Inc. Welfare Benefits Plan and alleging that Macy’s administered a discriminatory wellness program. The first violations concern Macy’s, Anthem’s, and Cigna’s failure to provide benefits in accordance with the health plan documents, which stated that from the beginning of July 2009, through the end of June 2012, the plan would pay for out-of-network benefits based on the Usual and Customary Rate (“UCR”) while the plan fiduciaries actually paid for these benefits on a formula tied to the Medicare Allowable Rate. These two methods, UCR and the Medicare Allowable Rate, use significantly different methodologies to determine rates. Based on the evidence, the Secretary alleges that plan participants paid more for out-of-network benefits received because the fiduciaries used the Medicare Allowable Rate instead of UCR. The Secretary alleges that Macy’s, Anthem, and Cigna failed to follow the plan documents regarding out-of-network claims reimbursement. The second set of violations stems from Macy’s tobacco surcharge wellness program, in which it charged tobacco users a monthly surcharge. The Secretary alleges that Macy’s violated ERISA’s Part 7 non-discrimination provisions when it failed to provide a lawful reasonable alternative to the surcharge and required invalid affidavits from those who attempted to utilize alternative means of compliance from July 1, 2011, through June 30, 2013. The Secretary alleges further violations of Part 7 non-discrimination provisions from July 1, 2013 through the present, based on deficiencies in the documents used by Macy’s to administer its tobacco surcharge wellness program. The Secretary’s complaint seeks the appointment of an independent fiduciary to readjudicate all out-of-network claims that were processed by Cigna from July 1, 2009 through June 30, 2012, and processed by Anthem from July 1, 2011 through June 30, 2012, in order to restore losses to the affected participants, as well as restoration of all tobacco surcharges collected from July 1, 2011 through the present.

The parties mediated the case before the district court’s magistrate judge in December 2017, February 2018, and April 2018, but were unable to reach a resolution. Each of the Defendants moved to dismiss the Secretary’s complaint on October 1, 2018, and the Secretary opposed the motions on October 31, 2018. Each of the Defendants filed a reply brief on November 21, 2018. The case was transferred to a new judge on December 11, 2019. The district court issued no orders in 2020.

The district court did not rule on the motions to dismiss until November 17, 2021 when the court granted, with prejudice, Cigna and Anthem’s motion to dismiss them from the action. The court also dismissed with prejudice the claims against Macy’s relating to: (1) the out of network benefit claims and (2) the fiduciary breach and prohibited transaction violations regarding the tobacco surcharge in wellness program relating to the 2011-2013 plan years. The court declined to find no violations of Part 7 of ERISA during the 2011-2013 plan years and granted the Secretary’s request for leave to amend the complaint relating to allegations from plan year 2014 forward.

On December 15, 2021, the Secretary filed a motion for reconsideration of the court’s opinion, arguing that the court made substantive mistakes of law regarding the legal requirements for determining: ERISA fiduciary status; the difference between fiduciary status and fiduciary breach, which resulted in the court’s failure to determine Macy’s’ status as the tobacco surcharge wellness program’s fiduciary from plan years 2011 through 2013; and ERISA’s strict prohibition on following plan documents that conflict with ERISA.

On February 10, 2022, the district court denied the Secretary’s motion for reconsideration of its November 17, 2021 decision because it found the motion was “rehashing arguments already pressed” and citing case law that should have been included in the original motion to dismiss. The court also rejected the plan document argument that Macy’s, as the Health Plan’s fiduciary, had a duty to ignore plan documents that violated ERISA by failing to provide a lawful reasonable alternative to the tobacco surcharge.

On March 14, 2022, the Secretary filed a second amended complaint. Macy’s moved to dismiss on May 13, 2022, primarily arguing that any violations identified in the tobacco surcharge wellness program were ministerial that do not amount to fiduciary misconduct. On June 3, 2022, the Secretary responded to the motion to dismiss, primarily arguing that Macy’s misread the district court’s decisions and the new factual allegations in the second amended complaint demonstrate why the reasonable alternative for Plan Years 2014 forward was still discriminatory – participants in all of Macy’s’ tobacco cessation programs were generally required to meet the original standard of being tobacco-free. On July 1, 2022, Macy’s filed a reply, primarily arguing that participants should bring their own individual ERISA section 502(a)(1)(B) claims for any ministerial errors in the tobacco surcharge wellness program. Chicago Office

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Secretary v. Olszewski (N.D. Ill.)

On January 29, 2020, the Secretary filed a complaint against Michael Olszewski and Area Wide Realty Corporation, fiduciaries of the Area Wide Realty Corporation Cash Balance Pension Plan and Trust and the Area Wide Realty Corporation Profit Sharing Plan and Trust. The complaint alleged that Defendants breached their fiduciary duties by transferring plan assets to the fiduciaries and parties in interest in 2011 and 2017 and by failing to maintain a fidelity bond. To remedy these fiduciary breaches, the Secretary sought an order removing the Defendants as fiduciaries to the plans, appointing an independent fiduciary to administer the plans’ assets, and restoring all losses, including lost opportunity costs, to the plans. The parties were unable the settle the case at the January 27, 2022 hearing with the magistrate judge. The court entered an order providing Defendants additional time to subpoena and produce documents related to the 2017 transaction. On March 14, 2022, the parties filed an updated joint status report regarding this process.

On September 7, 2022, the court granted the Secretary’s unopposed motion for entry of consent order and judgment. The order entered by the court requires Olszewski to restore amounts due to both plans with interest. Olszewski will deposit $12,500 into the Profit Sharing Plan, waive the restoration of losses to his own plan accounts, and reallocate his account balance in the plans to restore participants’ accounts to their December 31, 2018, balances. Olszewski also agreed to terminate the plans and distribute more than $400,000 to participants and beneficiaries within six months of the entry of the order. Chicago Office

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Perez v. Sherrod (N.D. Ill.)

On April 29, 2016, the Secretary filed a complaint against Shirley Sherrod and Leroy Johnson, fiduciaries of the Shirley T. Sherrod, M.D., P.C. Target Pension Plan, alleging that, from September 2012 to the present, the fiduciaries failed to administer the plan, allocate distributions properly, and make distributions to the participants consistent with plan documents. On August 1, 2016, Defendants filed their answer. On October 11, 2016, Defendants filed a motion for a protective order, which they withdrew on November 7, 2016. On December 1, 2016, Defendants filed a motion to amend their answer. On December 19, 2016, the Secretary opposed their motion to amend. On December 30, 2016, Defendants filed their reply. On March 27, 2017, the court denied Defendants’ motion to amend their answer. On April 26, 2017, Defendants’ attorneys filed a motion to withdraw, which the court granted on May 2, 2017.

On December 13, 2017, the court denied Defendants’ motion seeking to limit the Secretary’s rights to seek discovery for certain years. On December 21, 2017, Defendants’ second attorney filed a motion to withdraw. On September 10, 2018, the Secretary filed a memorandum opposing Defendants’ July 18, 2018 motion to compel. On September 17, 2018, the Defendants filed their reply brief in support of their motion to compel. On December 27 and 28, 2018, the Defendants’ third set of attorneys filed motions to withdraw.

On February 1, 2019, the Defendants’ fourth attorney entered a notice of appearance. On February 7, 2019, Defendants filed a motion to reconsider the order denying Defendants’ earlier motion to amend their answer. On March 15, 2019, the Secretary filed a brief in opposition to Defendants’ motion to reconsider. On March 25, 2019, Defendants filed their reply brief for their motion to reconsider. On April 5, 2019, the Secretary filed a sur-reply to the motion to reconsider.

On April 30, 2019, the court granted part of Defendants’ motion to compel, ordered the production of one document, and denied the motion as to all other documents. The court also granted Defendants’ motion to extend discovery to take the deposition of the second Department investigator. The court denied Defendants’ motion to reconsider its order denying their motion to amend their answer.

On May 9, 2019, the Defendants requested that discovery be reopened to permit them to obtain an expert. The court granted the request. On May 29, 2019, the Secretary defended the deposition of the second Department investigator. On May 31, 2019, Defendants disclosed the name of their expert, who was an accountant.

On June 10, 2019, the Defendants filed a second motion to reconsider the order denying the motion to amend. On July 8, 2019, the Secretary filed a brief in opposition. On July 22, 2019, Defendants filed their reply brief.

On August 19, 2019, Defendants filed a motion for miscellaneous relief, essentially arguing that plaintiff’s damages should be limited. After oral arguments on the motion, the court indicated it would deny the motion, and Defendants withdrew it on August 21, 2019. In August and September 2019, Defendants filed several motions to extend their deadline to provide their expert report and the Secretary objected to each extension. The court gave a final deadline of October 11, 2019. The Defendants notified the court on November 7, 2019, they did not intend to use an expert. On November 11, 2019, the court set a summary judgment deadline of February 27, 2020, response by March 27, 2020, and reply by April 10, 2020.

On February 27, 2020, the Department filed a motion for summary judgment. On June 11, 2020, Defendant Sherrod filed a motion for appointment of pro bono counsel. On June 17, 2020, the Department filed a motion to oppose the appointment of pro bono counsel. On July 21, 2020, the court appointed pro bono counsel to represent Sherrod, but noted that Johnson reported he would proceed pro se. On November 9, 2020, Defendants filed their response to the Department’s motion for summary judgment and on December 9, 2020, the Department filed the reply brief.

On January 7, 2021, Sherrod filed a motion for leave to file a sur-reply. On February 4, 2021, the Secretary filed a motion for sanctions against Defendants for failing to disclose previously exhibits to their response to the Secretary’s motion for summary judgment. On February 4, 2021, the Secretary filed a response in opposition to Sherrod’s motion for leave to file a sur-reply. On March 1, 2021, Defendants filed separate briefs opposing the Secretary’s motion for sanctions against them. On March 15, 2021, the Secretary filed a reply brief in support of the Department’s motion for sanctions. On March 26, 2021, Johnson filed a motion to join Truist Bank and its affiliate SunTrust Investment Services. On April 12, 2021, Defendant Johnson filed a motion for leave to file a sur-reply to the Secretary’s motion for sanctions. On April 15, 2021, the Secretary filed a brief in opposition to Johnson’s motion to join Truist Bank and SunTrust.

On April 12, 2021, the court ordered that it would not accept briefing on Johnson’s motion for leave to file a sur-reply. Defendant Johnson filed a reply brief on April 21, 2021. On April 28, 2021, the court denied Defendant Johnson’s motion to join Truist Bank and SunTrust. On September 29, 2021, the court granted Sherrod’s motion to file a sur-reply.

On March 31, 2022, the court granted the Secretary’s summary judgment motion. Even though Defendants failed to respond to the Secretary’s briefing on the sought relief, the court permitted them to further brief the issues of injunctive relief. Defendants filed their responsive briefs on April 28, 2022. On May 4, 2022, the Secretary's reply brief supporting the request for injunctive relief was filed. On May 11, 2022, the Defendants filed sur-replies. On June 2, 2022, the court granted all the injunctive relief sought by the Secretary, removed Defendants from their fiduciary positions, and appointed an independent fiduciary. On July 5, 2022, Defendants filed a notice of appeal to the Seventh Circuit Court of Appeals.

On July 18, 2022, Johnson filed a motion to stay the court’s judgment pending the appeal. On July 20, 2023, Johnson filed a supplemental brief in support of the motion to stay, styled as a second motion. On July 25, 2022, Johnson filed a second supplemental brief, again styled as a new motion, supporting the stay. Sherrod then joined in these motions. On July 28, 2022, the independent fiduciary filed a response brief opposing the motions to stay and on August 9, 2022, the Secretary filed a response brief opposing the motion to stay. On August 15, 2022, Sherrod filed a reply supporting Johnson’s motions. On September 6, 2022, Johnson filed another supplemental brief in support of the motion, and again styled it as a motion. On September 14, 2022, the independent fiduciary filed a response brief responding to new arguments raised in Johnson’s new briefing. On September 19, 2022, the Secretary filed another response brief opposing the motion to stay. On September 23, 2022, the court granted the motion in part and denied it in part. The court permitted the independent fiduciary to take over the plan, calculate and prepare to make distributions, and terminate the plan. However, the independent fiduciary was not permitted to pay itself or make distributions until the court ruled on those contested issues.

On October 19, 2022, the independent fiduciary filed a status report and a request for additional fees for the work of responding to motions and additional non-legal inquiries by the Defendants. On October 27, 2022, the independent fiduciary filed a motion for additional fees and a motion for contempt against the Defendants for filing a false Form 5500 report regarding the plan.

In response to the motion for contempt, Sherrod’s court-appointed pro bono attorneys filed motion to withdraw.

On November 8, 2022, Defendants’ new attorney entered an appearance. On December 7, 2022, the new attorneys filed a response opposing the independent fiduciary’s motions for fees and contempt. On December 19, 2022, the Secretary filed a reply brief in support of the independent fiduciary's motion for contempt.

The court has not ruled on the motion to stay the judgment, but has granted it by allowing the stay to be entered pending a final ruling on the motion. Chicago Office

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C. Financing the Union 

Walsh v. Kavalec (N.D. Ohio)

On April 30, 2019, the Secretary filed a complaint against Robert Kavalec, Charles Alferio, and Victor Collova as trustees of the Fleet Owners Insurance Fund. The complaint alleges that the trustees committed prohibited transactions by paying themselves over $1,500,000 in compensation during November 2014 to at least December 2018. The complaint also alleges that the trustees violated ERISA by approving unreasonable and excessive travel expenses, allowing a former union officer to participate in the plan at no cost, and failing to administer the plan in accordance with the ACA and HIPAA. On November 1, 2019, over the Secretary’s objection, the court entered an order staying the case until March 1, 2020.

On March 23, 2020, Collova filed an emergency motion asking the court to compel the plan to pay his attorney’s fees incurred to date and to advance his attorney’s fees for the remainder of the litigation. In addition to opposing that motion, on April 16, 2020, the Secretary filed a motion for a preliminary injunction to enjoin the plan from paying or advancing attorneys’ fees to any of the Defendants. On July 14, 2020, the court denied Collova’s motion and granted the Secretary’s motion for a preliminary injunction. On November 25, 2020, the Secretary filed a second motion for a preliminary injunction, seeking an order barring Kavalec, the sole remaining trustee, from continuing to pay his salary from plan assets. On January 25, 2021, the court granted the Secretary’s motion and entered a preliminary injunction enjoining Kavalec from paying himself any additional direct or indirect compensation from plan assets.

On September 3, 2021, the Secretary filed a third motion for preliminary injunction to remove the current trustee and appoint an independent fiduciary. Defendants opposed this motion, and the Secretary filed a reply brief on September 24, 2021. On October 26, 2021, the court granted the motion and entered a preliminary injunction order removing the Fund’s trustee and appointing an independent fiduciary. On December 7, 2021, the court referred the matter to a magistrate judge to conduct a settlement conference in February 2022. The case was resolved with a consent judgment in November 2022. Cleveland Office

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D. Prudence of Investments

Note: For other cases involving imprudent investments, please see J. Financial Institution and Service Provider Cases.

Walsh v. FCCG (M.D. Fla.)

On January 28, 2021, the Secretary filed a complaint against Florida Council on Compulsive Gambling, Inc. (FCCG), Paul Ashe, and Patricia Fowler. The complaint alleged that two of FCCG’s former executives, who also served as trustees for the FCCG 401(k) Profit Sharing Plan, committed fiduciary breaches and prohibited transactions related to plan investments in two promissory notes given by a company owned by one of the former executives. In a separate case in the Middle District of Florida, FCCG has sued the former executives, Ashe and Fowler. After extensive negotiations and mediation, the Department negotiated a consent judgment which provides for full recovery of $62,959 from Ashe and Fowler and a permanent bar and injunction. On July 25, 2022, the court entered its order granting the parties’ joint motion for entry of the consent judgment and order. Atlanta Office

Hughes v. Northwestern University (S. Ct.)

This case concerns the pleading standards for challenging under ERISA the reasonableness of fees charged by service providers to defined-contribution retirement plans. On October 5, 2020, the Supreme Court sought the Government’s views on the question of whether “allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA, 29 U.S.C. § 1104(a)(1)(B).”

On May 21, 2021, the Government filed a brief recommending that the Court grant certiorari. The Government contended that the Seventh Circuit erroneously affirmed dismissal of the plaintiffs’ claims that (1) the fiduciaries of the Northwestern’s 403(b) retirement plans breached their fiduciary duties by including on the plans’ investment menu retail-class mutual funds when identical but cheaper institutional class funds were available, and (2) paid too much for recordkeeping services by paying two recordkeepers based on a percentage of plan assets, rather than consolidate to one recordkeeper and pay on a per-participant basis. The Government argued that the Seventh Circuit’s decision conflicts with decisions from the Third and Eighth Circuits holding that complaints on similar facts stated claims for relief.

After the Court granted certiorari on July 2, 2021, the Government filed a brief on the merits on September 10, 2021. The Government again contended that petitioners plausibly allege that respondents selected for the plans’ more than 100 retail-class mutual funds with higher expense ratios instead of available institutional-class alternatives of the same funds that differed only in their lower costs. The Government explained that the court of appeals erred in holding that petitioners' claims concerning retail-class shares did not state a claim because the plans included some funds of the type that petitioners favor—index funds with low fees. That reasoning, the Government said, conflicts with the duty to monitor investments and to remove any imprudent ones. The Government also again argued that the Seventh Circuit erroneously dismissed petitioners’ claims regarding excessive recordkeeping fees. The Government explained that the Seventh Circuit’s observations that ERISA does not necessarily prohibit using multiple recordkeepers or paying for recordkeeping through revenue sharing, while true, do not refute petitioners’ claim, which contends that respondents imprudently failed to monitor and limit recordkeeping.

On January 24, 2022, the Court issued a decision vacating the Seventh Circuit’s decision. Agreeing with the Government, the Court held that the Seventh Circuit erred in holding that the inclusion on a plan menu of prudently selected investments insulated the plan’s fiduciaries from liability for selecting imprudent ones. Plan Benefits Security Division

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Scalia v. Ruane, Cunniff & Goldfarb, Inc. (S.D.N.Y.)

This case concerns the mismanagement of plan assets, including significant failure to diversify those assets, by fiduciaries of the DST Systems, Inc. 401(k) Profit Sharing Plan (“Plan”). On October 8, 2019, the Secretary filed a complaint against Ruane, Cunniff & Goldfarb, Inc. (“Ruane”), its former chairman and CEO Robert Goldfarb, DST Systems, Inc. (“DST”), two internal DST committees, and 16 individual members of those committees for alleged violations of the duties of loyalty, prudence, diversification, and the duty to follow the Plan document under ERISA sections 404(a)(1)(A), (B), (C), and (D) in relation to the Plan, as well as – on the part of DST and its committees – for fiduciary failure to monitor an investment manager and for co-fiduciary liability. The Secretary also named the plan as a Rule 19 defendant.

The Secretary’s complaint alleged as follows. Until 2016, for the entire profit-sharing portion of the Plan’s assets, the investment manager followed a deliberate strategy of non-diversification, contrary to ERISA’s fiduciary duty to diversify a plan’s investments to minimize the risk of large losses. As a result, the plan’s investment portfolio was highly concentrated in the stocks of certain companies. One in particular, Valeant Pharmaceuticals International, Inc., constituted 45.4% of the portfolio before falling drastically in value. The plan lost tens of millions of dollars because of the fiduciaries’ failure to appropriately diversify the Plan assets.

On December 4, 2020, Defendants filed four separate motions to dismiss. In the first, DST, the two DST committees, and 13 individual DST Defendants (joined by two additional individual DST Defendants who are separately represented) argued that the Secretary’s claims are time‑barred by ERISA’s six-year statute of limitations because Ruane and Ruane’s investment strategy had been in place since the 1970s, and by ERISA’s three-year statute of limitations because the Secretary had actual knowledge of Ruane’s investment strategy more than three years before filing the complaint through the Plan’s annual Forms 5500 filed with the Department. In the alternative, DST asked the court to order targeted discovery and supplemental briefing on their actual knowledge defense. Ruane and Goldfarb each filed separate motions raising the same arguments as DST. Both also asserted that the Secretary may have had actual knowledge through a private complaint that the Department received under ERISA section 502(h), and both also requested targeted discovery on actual knowledge. Ruane additionally argued that the Secretary failed to state a claim for breach of fiduciary duty because Ruane had no duty to determine the percentage of Plan assets it managed and because Ruane’s investment strategy did not violate ERISA. Finally, one individual DST Defendant moved to dismiss claims against him on the grounds that the Secretary failed to plausibly allege that his conduct while on a DST committee caused the alleged losses. He also joined DST’s statute of limitations arguments.

On January 8, 2021, the Secretary filed a combined opposition to the four motions to dismiss. The Secretary argued that the claims were not barred by the six-year statute of limitations because the violations actually alleged in the complaint – breaches of ongoing fiduciary duties to ensure the prudent management and diversification of plan assets and, for the DST Defendants, to monitor the Ruane Defendants – occurred within the limitations period. For purposes of the three-year statute, the Secretary argued that the Defendants’ assertions regarding the Forms 5500 and the private complaint amounted to charging the Secretary with constructive knowledge, while “actual knowledge” requires more than mere disclosure, as clarified by Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020). The Secretary argued that Ruane’s assertion that the Secretary failed to state a claim against them is based upon a mischaracterization of the Secretary’s allegations regarding breaches of their ongoing fiduciary obligations in their management of the Plan assets, which apply regardless of the percentage of Plan assets that Ruane managed. Finally, the Secretary explained how the complaint adequately alleged that the individual DST Defendants breached their duties to the Plan and that those breaches directly caused the Plan’s losses. Briefing was completed as of February 5, 2021.

On December 10, 2019, Ruane filed a separate declaratory judgment action (the “Ruane action”) against hundreds of participants in the Plan who are pursuing relief from Ruane in individual arbitration proceedings (the “Arbitration Claimants”). Ruane also named DST, plaintiffs in various ongoing private suits, and the Secretary as “nominal Defendants.” Ruane filed an amended complaint on December 18, 2019, in which it sought declaratory judgments and injunctive relief. >On that same date, Ruane filed a motion for a preliminary injunction and appointment of a special master. Ruane sought to stay the arbitrations and sought a declaratory judgment ruling: (1) “that multiple participants here cannot at the same time seek recovery under ERISA in multiple forums for the same harm to the same Plan assets caused by the same alleged breaches of fiduciary duty” and (2) “that either Ferguson [a Plan participants’ private lawsuit] or Scalia [the Secretary’s lawsuit] represents all 10,000 Plan participants or only the approximately 500 who opted out of the Arbitration Agreement.”

On January 24, 2020, the Secretary filed an opposition to Ruane’s motion for a preliminary injunction and special master. The Secretary argued that Ruane had not met its burden for obtaining a preliminary injunction. Most notably, Ruane was unlikely to succeed on the merits because ERISA authorizes the Secretary and private litigants, including the Arbitration Claimants, to bring parallel actions to recover Plan losses. >In particular, the Secretary has independent enforcement authority to further the public interest, distinct from the interests of individual Plan participants, such that the Secretary does not “represent” any participants as Ruane claimed. Additionally, Ruane would not suffer irreparable harm if the arbitrations were allowed to proceed, and neither the balance of hardships nor the public interest weigh in Ruane’s favor. On July 10, 2020, Ruane moved for voluntary dismissal of its claims after reaching a settlement with the Arbitration Claimants and certain individual plaintiffs. The Ruane action was dismissed with prejudice on September 28, 2020.

On January 8, 2021, the Ferguson class filed proposed settlements totaling $79 million, which were contingent upon the court issuing an injunction to bar the Secretary from continuing his own action. The Secretary objected, and on August 17, 2021, the court denied preliminary approval of the proposed settlements while certifying a mandatory class. On November 18, 2021, the court granted DST’s motion for a preliminary injunction in Ferguson and enjoined the 500 arbitration claimants from pursuing their arbitration claims.

On March 28, 2022, the court denied all four motions to dismiss the Secretary’s complaint. This case and the Ferguson class action proceeded into discovery on separate tracks. In late fall 2022, the parties reached a tentative global settlement and the cases were paused to allow the parties to put the settlement into writing.

Meanwhile, the arbitration claimants were pursuing confirmation of hundreds of their arbitration awards against DST in federal district court in Missouri and the 8th Circuit. While that issue was pending, on March 31, 2023, the district court in Missouri enjoined DST from entering any global settlement that would settle the arbitration awards without the arbitration claimants’ consent. Also pending was the arbitration claimants’ appeal to the 2nd Circuit of the court’s 2021 certification of the Ferguson preliminary injunction against the arbitration claimants, which the 2nd Circuit heard argument on April 20, 2023.

The parties finally arrived at a final global settlement to resolve all pending litigation and arbitrations on July 14, 2023. The total settlement amount was $124,625,000. Of that, $90,454,545 would go to plan participants, including arbitration claimants. Class counsel and counsel for the arbitration claimants would be allowed to seek a combined total of $25,125,000 in attorney’s fees. The Defendants would together pay $9,045,455 in section 502(l) penalties.

The court preliminarily approved the settlement on August 3, 2023, and set a fairness hearing for October 23, 2023 to consider final approval of the settlement. New York Office and Plan Benefits Security Division

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E. Preemption

ERISA Industry Committee v. Seattle (S. Ct.)

On May 31, 2022, the Supreme Court invited the Solicitor General to file a brief on whether it should grant certiorari in this ERISA preemption case. In 2019, the Seattle City Council adopted an ordinance requiring hotel-industry employers to make monthly healthcare expenditures on behalf of their employees in certain fixed amounts. The ordinance gives employers discretion to make the required payment either directly to employees, to certain third parties (such as a health savings account), or through a self-funded health benefits program. The ERISA Industry Committee, a trade group representing ERISA plan sponsors, sued the city of Seattle contending that ERISA preempts the ordinance because it requires that employers provide benefits through an ERISA plan and subjects employers’ benefits decisions to local regulation, and thereby “relates to” ERISA plans within the meaning of ERISA’s express preemption provision, 29 U.S.C. § 1144(a). The district court held that ERISA did not preempt the ordinance, and the Ninth Circuit affirmed.

The Solicitor General, with the Department’s assistance, filed an amicus brief on October 19, 2022. The Government argued that ERISA does not preempt the ordinance because it neither requires employers to establish ERISA plans nor singles out ERISA plans for differential treatment. As the Government explained, employers can fully comply with the ordinance by making direct payments to employees, without affecting their ERISA plans at all. In addition, the Government explained that the Ninth Circuit’s decision did not conflict with decisions from any other court of appeals. On November 21, 2022, the Supreme Court denied certiorari. Plan Benefits Security Division

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F. Participants’ Rights and Remedies

Cedeno v. Argent Trust Company (2d Cir.)

On June 10, 2023, the Department filed an amicus brief concerning the enforceability of an arbitration provision in an ERISA plan precluding participants from obtaining plan-wide relief on the plan’s behalf and restricting them to obtaining individualized relief. The Plaintiff, a participant in his employer’s employee stock ownership plan, sued the plan’s fiduciaries for causing the plan to overpay for employer stock. The Defendants moved to compel arbitration under the plans’ governing document, which required all plan-related disputes to be arbitrated. The Plaintiff opposed the motion, arguing that the arbitration provision’s limitation on plan-wide relief deprived him of remedies under ERISA, namely the ability to bring an action on behalf of the plan to seek relief for the plan as a whole, see 29 U.S.C. § 1132(a)(2), and was thus unenforceable under the so-called “effective vindication doctrine.” Because the arbitration agreement made clear that the remedies limitations was non-severable, plaintiff argued that the motion to compel arbitration should be denied. The district court agreed and denied the motion to compel.

The Department's amicus brief argued that agreements to arbitrate section 502(a)(2) claims may not prospectively waive ERISA’s statutory remedies. Although the Federal Arbitration Act generally requires courts to enforce valid arbitration agreements, the Supreme Court has made clear that such agreements are unenforceable when they prospectively waive a party’s right to pursue statutory remedies. Because the arbitration agreement here precludes participants from seeking the very plan-wide relief that ERISA explicitly authorizes in sections 502(a)(2) and 409(a), the district court correctly determined that this provision was invalid and denied the motion to compel arbitration. Plan Benefits Security Division

D.K. v. United Behavioral Health (10th Cir.)

On February 23, 2022, the Department filed an amicus brief concerning the obligation of the fiduciary of an ERISA health plan to grapple with a participant’s medical evidence in evaluating a claim for benefits. Plaintiffs’ minor daughter suffered from major depressive disorder. After numerous emergency room trips, visits to 24-hour care facilities, and stays at short-term residential facilities, her treating physicians recommended that she be admitted to a long-term residential care facility for 12 months of treatment. United, however, approved only a three-month stay, and then proceeded to deny Plaintiffs’ request for continued treatment when the three-month period concluded. When Plaintiffs appealed the denial, United did not even acknowledge the opinions of their daughter’s physicians, even when Plaintiffs specifically asked that United explain the basis for its disagreement. The district court held that United acted arbitrarily and capriciously.

The Department’s amicus brief explained that the requirement in its claims regulation (and ERISA itself) that fiduciaries grapple with contrary medical evidence in deciding benefit appeals is not limited to the disability context (as United argued), but extends to the health-plan context as well. On May 15, 2023, the Tenth Circuit issued an opinion agreeing with the Secretary. The Tenth Circuit ultimately concluded that, “[b]y not providing an explanation for rejecting or not following these opinions [of A.K.’s doctors] . . . United effectively ‘shut its eyes’ to readily available medical information,” and in so doing “acted arbitrarily and capriciously.” Plan Benefits Security Division

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Gimeno v. NCHMD, Inc. (11th Cir.)

The case concerns a participant in an employer-sponsored group life insurance policy (a subsidiary of NCH Healthcare System, Inc.) who sought enrollment in supplemental coverage. The employer failed to ensure that the participant submitted a required “evidence of insurability” (EOI) form for the supplemental coverage, but nevertheless misrepresented to the participant that he was enrolled and deducted premiums from his paycheck. When the participant died three years later, the insurer denied the beneficiary’s claim for the $350,000 in supplemental proceeds because it had never received an EOI form. The beneficiary sued the employer for fiduciary breaches and requested equitable relief under ERISA section 502(a)(3) in the form of surcharge against the employer for the supplemental proceeds. At the pleading stage, the district court granted the employer’s motion to dismiss, holding that the beneficiary’s requested monetary relief was legal rather than equitable in nature and thus unavailable under section 502(a)(3).

On September 14, 2021, the Secretary filed an amicus brief supporting the plaintiff-appellant and urging reversal of the district court’s holding, primarily because the court relied on outdated precedent that is no longer good law in light of the Supreme Court’s decision in CIGNA Corp. v. Amara, 563 U.S. 421 (2011).

On June 28, 2022, the circuit court reversed the district court decision. Consistent with the Secretary’s position, the Supreme Court’s decision in Amara, and decisions in several other circuit courts, the circuit court held that the monetary relief the beneficiary sought was well-grounded in equity and the common law of trusts, and thus was available under section 502(a)(3). Beyond the issue of relief, the circuit court held that the employer could be held liable as a fiduciary and that the beneficiary did not improperly plead alternative claims under ERISA sections 502(a)(1)(B) and 502(a)(3). Thus, the circuit court reversed and remanded to the district court to allow the beneficiary to proceed with his fiduciary breach claims for the supplemental life insurance proceeds under section 502(a)(3). Plan Benefits Security Division

Secretary v. Great Atlantic Graphics, Inc. (E.D. Pa.)

On July 22, 2021, the Secretary filed a complaint against Great Atlantic Graphics, Inc, Frederick Duffy, Jr., and Vincent Giarrocco, alleging that they improperly failed to terminate the company’s 401(k) plan and distribute its assets to 19 participants when the company was sold in bankruptcy in 2018, and that, from January 2016 to December 2017, they failed to forward insurance premiums and employee contributions for payment of health insurance premiums to the company’s health plan, resulting in termination of employees’ health insurance and $464,000 in unpaid health claims. The Secretary alleges that the health plan’s participants and beneficiaries are entitled to a surcharge remedy against Defendants to compensate them for the loss in healthcare coverage and related expenses, including the unpaid health claims. Defendants did not answer the complaint, and the Secretary requested that the clerk enter default against them on December 17, 2021.

On September 19, 2022, the court entered a default judgment against Defendants. The court found that Defendants violated ERISA by failing to distribute the 401(k) Plan’s $3,062,276 in assets to the 19 participants following cessation of Great Atlantic’s business operations.

The court further found that Defendants failed to fund and properly administer the company’s self-funded health plan, resulting in $463,494 in unpaid health claims for which it imposed on Defendants an equitable surcharge.

In addition to the equitable surcharge, the court removed Defendants as fiduciaries of both plans, granted the Secretary leave to appoint an independent fiduciary over each plan, and permanently enjoined Defendants from violating ERISA and serving as fiduciaries for any ERISA-covered plan in the future. See also Secretary v. Great Atlantic Graphics, Inc., Section B.1 Collection of Plan Contributions and Loan Repayments. Philadelphia Office

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Harrison v. Envision Management Holding, Inc. (10th Cir.)

On September 7, 2022, the Department filed an amicus brief concerning the enforceability of an arbitration provision in an ERISA plan precluding participants from obtaining plan-wide relief on the plan’s behalf and restricting them to obtaining individualized relief. Plaintiff, a participant in the ESOP sponsored by Envision Management Holding, Inc., sued the plan’s fiduciaries for violation of ERISA’s fiduciary standards and prohibited transaction rules by causing the plan to overpay for Envision stock and burdening the ESOP with excessive debt. In the complaint, Plaintiff sought, among other things, the removal of the current plan fiduciary and an order directing defendants to restore all losses they caused the plan and to disgorge the profits they obtained from their fiduciary breaches. In response, Defendants moved to compel arbitration pursuant to the plan’s arbitration provision, which prohibits participants from seeking or obtaining any remedy that “has the purpose or effect of providing additional benefits or monetary or other relief” to any participant or beneficiary other than the claimant. The arbitration provision makes clear that, in an action under ERISA section 502(a)(2) for relief under section 409(a), the participant is limited to recovering only those losses that affected their individual account. The district court denied the motion to compel arbitration on the ground that the arbitration’s provision limitation on ERISA remedies rendered it invalid.

In its amicus brief, the Department argued that agreements to arbitrate section 502(a)(2) claims may not prospectively waive ERISA’s statutory remedies. Although the Federal Arbitration Act generally requires courts to enforce valid arbitration agreements, the Supreme Court has made clear that such agreements are unenforceable when they prospectively waive a party’s right to pursue statutory remedies. Because the arbitration agreement here precludes participants from seeking the very plan-wide relief that ERISA explicitly authorizes in sections 502(a)(2) and 409(a), the district court correctly determined that this provision was invalid and denied the motion to compel arbitration.

On February 9, 2023, The Tenth Circuit issued a decision holding that the arbitration agreement was unenforceable. The Court explained that that the agreement “is not problematic because it requires [Plaintiff] to arbitrate his claims, but rather because it purports to foreclose a number of remedies that were specifically authorized by Congress in the ERISA provisions cited by [Plaintiff].” Included within these remedies was not just plan-wide injunctive relief (such as removal of the fiduciaries), but also full monetary redress, on behalf of the plan, for injuries caused to a defined contribution plan, not just to the participant’s individual account. The Court specifically rejected Defendant’s argument that DOL’s ability to bring an action on behalf of a plan was an adequate replacement for a participant’s right to do so. The Court noted that DOL does not have the resources to police every ERISA plan in the country, but that in any event, “the suit is on behalf of the plan itself, and the precise same statutory remedies are available regardless of the named plaintiff.” Plan Benefits Security Division

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Walsh v. Hatfield (S.D.W. Va.)

On September 1, 2022, the Secretary filed a complaint in the against Charles Hatfield, former President of Williamson Memorial Hospital and fiduciary to the Williamson Memorial Hospital, LLC Employee Benefit Plan (“Health Plan”). This rural hospital is in Chapter 7 bankruptcy proceedings. The Secretary alleges that Hatfield failed to forward employee contributions to the Health Plan to pay for insurance premiums and, as a result, Hatfield is liable for at least $703,398in unpaid health claims. The complaint requests that that the court order Hatfield to restore all losses to the plan and its participants, remove Hatfield from his position as fiduciary, and permanently enjoin him from serving as fiduciary to any ERISA-covered plan in the future. See also Walsh v. Hatfield, Section B.1. Collection of Plan Contributions and Loan Repayments; In re Williamson Memorial, Section M. Bankruptcy. Philadelphia Office

Walsh v. Kendi (W.D. Pa.)

On November 30, 2022, the Secretary filed a complaint against Ken-Co Fabricating Company, Inc. and Robert Kendi, the company’s owner and president. The complaint alleges that during the period from April 2019 through October 2019, Defendants failed to forward or untimely forwarded employee contributions to the Ken-Co Fabricating Co., Inc. Health Care Plan to pay insurance premiums, but never advised plan participants and beneficiaries that health coverage had been cancelled. As a result, participants and beneficiaries incurred up to approximately $40,000 in uninsured medical claims. The Secretary seeks a surcharge remedy for plan participants and beneficiaries who incurred unpaid health claims and a permanent fiduciary bar. See also Walsh v. Kendi, Section B.1 Collection of Plan Contributions and Loan Repayments. Philadelphia Office

McQuillan v. Hartford Life & Accident Ins. Co. (2d Cir.)

On October 5, 2021, the Secretary filed an amicus brief concerning the claims procedure regulation governing disability benefit claims. Under the claims procedure regulation, when a participant in a disability benefits plan appeals administratively a denial of benefits, the plan has 45 days to “notify a claimant . . . of the plan’s benefit determination on review.” 29 C.F.R. § 2560.503-1(i)(1)(i), (3)(i). In this case, after the participant timely appealed the plan’s denial of benefits, the plan issued a notice to the participant within the 45-day period, but it neither approved benefits nor upheld the denial in that notice. Instead, the plan told the participant that while it was overturning the denial, it would be sending the claim back to its claim department for further consideration and issuance of a new decision, which the plan made clear could result in a denial of benefits. The participant then brought a claim for benefits under section 502(a)(1)(B) without awaiting a further decision by the plan (the plan eventually denied benefits again). The district court dismissed the claim for failure to exhaust administrative remedies, holding that the plan’s vacate-and-remand decision qualified as a “benefit determination on review.” McQuillin v. Hartford Life & Accident Ins. Co., No. 20-CV-2353(JS)(ARL), 2021 WL 2323214, at *2 (E.D.N.Y. Feb. 12, 2021), report and recommendation adopted, No. 20-CV-2353(JS)(ARL), 2021 WL 2102480 (E.D.N.Y. May 25, 2021).

The Secretary argued in the amicus brief that the plan’s notice vacating the initial decision but returning it to the claim department for reconsideration was not a “benefit determination on review” because the plan did not “determine” benefits (by either approving benefits or upholding the denial). As a result, the plan failed to issue a “benefit determination on review” within the 45-day period required by the claims procedure regulation. And because the plan violated the claims procedure regulation, the participant’s administrative remedies should be “deemed exhausted.” 29 CFR § 2560.503–1(l).

On June 7, 2022, the circuit court reversed the district court’s judgment and remanded for further proceedings. The circuit court agreed with the Secretary that the plain language of “benefit determination on review” requires a final decision as to whether benefits are due to the participant, and that plans cannot “remand” the claim back to itself to re-start the claims process. Such a result would allow plan administrators to circumvent the time limits in the claims regulation. Plan Benefits Security Division

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N.R. v. Raytheon (1st Cir.)

This case involves a suit by a beneficiary of an ERISA plan under ERISA section 502(a)(1)(B) (among other causes of action) alleging that ERISA’s MHPAEA provision (ERISA section 712, 29 U.S.C. § 1185), is a term of the plan, and that, by denying speech therapy benefits pursuant to an exclusion that violated MHPAEA, Defendants failed to pay benefits due under the plan. The district court dismissed the claim, holding that MHPAEA is not incorporated into the terms of ERISA plans but is instead a substantive provision of ERISA, the violation of which is redressable only through section 502(a)(3). Additionally, the court dismissed the plaintiff’s allegation under section 502(a)(3) that the plan’s application of the speech therapy exclusion violated ERISA’s parity requirements for a failure to allege sufficient factual details, despite the fact that the plan denied the plaintiff access to information that he requested, that he was entitled to under the Department’s claims procedure regulation and that would have allowed him to plead his parity allegation with more specificity.

On October 7, 2020, the Secretary filed an amicus brief in the case arguing that where beneficiaries have been denied plan benefits pursuant to limitations or exclusions that allegedly violate ERISA’s parity requirements, they may bring a cause of action for those benefits under ERISA section 502(a)(1)(B), and in construing their rights under the plan, a court should disregard terms contrary to ERISA’s requirements. The Secretary also argued that the court erred in failing to consider the plan’s violations of its disclosure obligations in assessing the plausibility of the plaintiff’s parity allegations.

On January 31, 2022, the First Circuit issued a favorable decision affirming in part and reversing in part the district court’s dismissal of claims asserted under ERISA, including its parity protections as amended by the Mental Health Parity and Addiction Equity Act. The Court’s decision essentially adopted the Department’s long-standing position that ERISA’s requirements (including its parity requirements) override any inconsistent plan terms. Plan Benefits Security Division

Walsh v. The Aliera Companies (N.D. Ga.)

On May 27, 2022, the Secretary filed a complaint against The Aliera Companies and its CEO Shelley Steele for engaging in self-dealing prohibited transactions in violation of ERISA. By taking payments from an account holding assets of its employer clients, Aliera also breached its fiduciary duty of loyalty and benefitted themselves at the plans’ expense. The Secretary sought a full refund of approximately $3 million that Aliera, Steele, and their affiliates were paid from ERISA-covered employer groups and to have Aliera, its subsidiaries, and Steele permanently barred from acting as a fiduciary or service provider with respect to any ERISA-covered plan.

On July 12, 2023, the Secretary reached a settlement permanently enjoining Aliera and Steele from engaging as fiduciaries or acting as a service provider to any ERISA-covered employee benefit plan.

Aliera also filed for Chapter 11 bankruptcy in the U.S. District Court for the District of Delaware. On August 17, 2023, the Delaware bankruptcy court confirmed the Aliera Chapter 11 plan, but sustained the Department’s objection to the subordination of its claims under the Chapter 11 plan and placed its claims in a class of Aliera claimants with the potential for the largest payout under the plan. The Department’s claims remain subject to objection on the amount of its claims. The amount of the payouts under the Chapter 11 plan are dependent upon recoveries in future litigation by a trust established under the plan. Plan Benefits Security Division

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Winsor v. Sequoia Benefits and Insurance Services, LLC (9th Cir.)

On March 16, 2022, the Department filed an amicus brief addressing whether participants in an ERISA-governed health benefits plan had standing to challenge self-dealing engaged in by the plan’s fiduciaries. Plaintiffs were participants in a welfare benefits plan sponsored by RingCentral, a technology company. The RingCentraI Plan participated in the Tech Benefits Program, which is a MEWA as defined by ERISA. The MEWA pools assets from 180 employers (including, at the time, RingCentral) to obtain insurance for the participating plans. Plaintiffs alleged in their complaint that the MEWA's administrator, Sequoia Benefits and Insurance Services, and the MEWA's trustee, Gregory Golub, were fiduciaries to their Plan, and that they authorized commissions to themselves from the Plan's assets and took excessive administrative fees in violation of ERISA sections 404 and 406. Defendants moved to dismiss the complaint on the grounds that Plaintiffs lacked Article III standing to challenge the alleged prohibited transactions and excessive fees, and the district court granted that motion.

The Department argued in its amicus brief that Plaintiffs suffered an injury in fact because Defendants illegally retained the portion of Plaintiffs’ contributions that funded Defendants’ commissions, and because Plaintiffs paid higher contributions due to Defendants’ excessive administrative fees. The Secretary further argued that Defendants’ actions were the cause of these injuries, and their injuries can be redressed through a refund to the Plan of the money that funded Defendants’ commissions and fees, and that RingCentral (as Plan administrator) will in turn refund Plaintiffs their proportionate share.

On March 8, 2023, the circuit court affirmed the district court’s holding that Plaintiffs lacked Article III standing. First, the circuit court held that Plaintiffs failed to demonstrate a concrete injury in the form of higher contribution amounts because “[i]t is RingCentral, and not Sequoia, that sets plaintiffs’ contribution amounts” and determines employees’ share of contributions. According to the circuit court, RingCentral’s discretion prevented Plaintiffs from establishing both injury in fact and that Defendants’ actions were the cause of their injuries. With respect to whether the Plaintiffs established redressability, the circuit court held that Plaintiffs’ theory of redressability—that an award of damages to RingCentral would ultimately be passed on to Plaintiffs—was foreclosed by its earlier opinion in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123, 1125 (9th Cir. 2006), which it said stood for the proposition that a plan receiving an award of overpaid contributions could apply the refunded contributions to reduce the employer’s own contributions (instead of the employees’) or cease funding the plans until the award was exhausted. Plan Benefits Security Division

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G. Section 510

None

H. Participant Loans

Note: This section covers loans made in violation of ERISA. For cases involving failure to forward participant loan repayments to plans, see section B.1.Collection of Plan Contributions and Loan Repayments.

None

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I. MEWAs

Scalia v. ABMS (N.D. Ga.)>

On March 1, 2020, the Secretary filed a complaint against Advance Benefits Management Systems USA, Inc. (“ABMS”), its founder and CEO, C. Kenneth Johnson, and its former president, Randy Wright.  ABMS was a third-party administrator that, ostensibly, administered 118 level-funded employer health benefits plans.  The complaint alleges that ABMS, Johnson, and Wright diverted for their own use employer funds and employee claim funds that were owed to the plans.  Due to their misuse of these funds, as well as to their failure to obtain insurance reimbursements for the plans, ABMS became insolvent and incapable of paying benefit claims that it owed and should have been able to pay. That insolvency left thousands of participants and beneficiaries, who had paid premiums believing they had health benefits coverage under the plans, personally liable for over $7,000,000 in medical charges.  Thus, along with filing the complaint, the Secretary moved for judicial appointment of a successor fiduciary for the plans and for an All Writs Act order to temporarily stay any collection actions as well as other lawsuits regarding unpaid charges.  On May 21, 2020, the court appointed an independent fiduciary, Larry Magarik, to administer the plans and their assets.  The independent fiduciary has hired a third-party administrator to administer the payment of claims.  The All Writs Act order was approved on June 2, 2020. 

A consent judgment and order was entered on February 14, 2022 which ordered the Defendants to pay $735,000 in plan losses to a trust administered by the independent fiduciary.  The Defendants also must pay a section 502(l) penalty.  The consent order also sets forth deadlines for the independent fiduciary to complete a distribution plan and enjoins ABMS and Johnson from acting in any capacity to any ERISA-covered plan and from marketing or selling products or services to any ERISA-covered plan.  It also enjoins Wright from, among other things, acting as a fiduciary to; providing administrative services to; or selling or marketing services to any ERISA‑covered plan.  As well, the consent order bars Wright from selling to or attempting to sell to any ERISA‑covered plan:  stop-loss insurance, captive insurance, reinsurance, and level‑funded healthcare benefits arrangements.  The consent order similarly bars Wright from advising any ERISA‑covered plan concerning these latter four products.  Wright will provide semi‑annual reports through 2024 regarding products he markets or sells.  Atlanta Office

Walsh v. Accent Benefit Administrators, Inc.(N.D. Ga.)

On September 12, 2022, the Secretary filed a complaint against Accent Insurance Agency, Inc., David Dennett-Smith, Bruce Holley, Stanley A. Coburn, Accent Medical Benefits Program, and Accent Health Plans.  The complaint alleges that Defendants violated ERISA by: (1) failing to keep plan assets in trust within the United States; (2) failing to disclose the multi-employer welfare arrangement (MEWA) failure to pay claims and inadequate funding to existing and new participating plans; and (3) transferring plan assets to individual defendants for personal use.  The complaint sought injunctive relief, appointment of an independent fiduciary, restoration of losses caused to participating plans, disgorgement, and costs. Defendants failed to timely answer and the Secretary moved for entry of a clerk’s default on December 19, 2022.  The clerk entered default against all Defendants on December 22, 2022.  Atlanta Office

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Acosta v. AEU Benefits, LLC (N.D. Ill.)

On November 2, 2017, the Secretary filed a complaint and motion for temporary restraining order (“TRO”) against AEU Benefits, LLC, AEU Holdings, LLC (together “AEU”), and Black Wolf Consulting, Inc.  The ex parte motion and complaint alleged that participants in a multiple employer welfare arrangement (“MEWA”) are experiencing irreparable harm as a result of over $26 million in unpaid medical claims dating back to 2016, AEU and Black Wolf caused these losses as a result of the MEWA’s excessive fees, and plan assets are being unlawfully held in offshore Bermuda accounts.  The court issued the TRO on November 3, 2017, temporarily removing AEU and Black Wolf from their positions as fiduciaries and service providers to the ERISA-covered plans participating in the MEWA, freezing bank accounts holding plan assets, and appointing an independent fiduciary to manage the MEWA and participating plans.  On November 15, 2017, the court issued an order under the All Writs Act, staying and enjoining all state and federal court actions against the MEWA and participating plans, all actions against participants and beneficiaries for unpaid benefit claims incurred while participating in the MEWA, and prohibiting adverse credit reports against participants and beneficiaries for nonpayment of monies from health claims incurred while participating in the MEWA.  

On December 13, 2017, the court entered a preliminary injunction.  In addition to the relief set forth in the TRO, the preliminary injunction permits the appointed independent fiduciary to use the monies in all but one of the frozen bank accounts to pay claims and reasonable and necessary plan expenses, and requires AEU and Black Wolf to pay the independent fiduciary’s fees. On December 21, 2017, the court granted the independent fiduciary’s motion to terminate the MEWA and participating plans effective January 31, 2018, except as to plans associated with aggregator Focus Health Solutions, which will be the subject of further briefing.  In addition, on November 6, 2017, the Secretary issued a cease and desist order to stop all sub-brokers and aggregators to the MEWA from marketing the MEWA and accepting new applications for enrollment, in order to limit additional harm to prospective employers and participants.  Of the 53 subjects of the cease and desist order, five requested hearings before the Office of Administrative Law Judges. 

Between January and May 2018, all objections to the cease and desist order were resolved by individual agreements before the Administrative Law Judge.  On March 2 and 10, 2018, the AEU Defendants and Black Wolf filed answers to the complaint.  On September 12, 2018, AEU Defendants filed an amended answer and third-party claims against Black Wolf and new third-parties to the action.  On October 9, 2018, the Secretary filed an amended complaint and added new Defendants:  James D’Iorio, Steven Goldberg, Charles LaMantia, Rod Maynor, Stephen Satler, Veritas Benefits, LLC, Veritas PEO, LLC, Wilson Benefit Services, LLC, WBS, LLC, and Donald R. Wilson. On November 14, 2018, a third-party Defendant, Tall Tree, LLC, filed a motion to dismiss AEU’s allegations against it. On December 20, 2018, Satler, Goldberg, AEU Defendants filed an answer to the Secretary’s amended complaint.  On December 20, 2018, LaMantia filed an answer to the Secretary’s amended complaint.  

On January 11, 2019, the court entered a consent order and judgment against Defendants SD Trust Advisors, LLC, and Thomas Stoughton, requiring restoration of $175,000 to the MEWA.  On January 17, 2019, Defendant Wilson filed an answer to the Secretary’s first amended complaint.  D’Iorio and the Veritas entities filed their answer on February 7, 2019, and filed an amended answer on February 28, 2019. 

On February 25, 2019, Black Wolf and Maynor filed a Motion for Leave to File a Cross-Claim against the court-appointed independent fiduciary.  This motion was denied on April 24, 2019.  Black Wolf and Maynor filed their answer to the Secretary’s first amended complaint on May 1, 2019.  On August 20, 2019, the Secretary filed a motion to hold the AEU Defendants and Black Wolf in contempt for failing to repay the independent fiduciary’s fees and expenses as required by the preliminary injunction. 

On September 25, 2019, the case was referred to a magistrate judge for a settlement conference.  On October 11, 2019, the court granted the AEU Defendants’ Motion to File Their Profit and Loss Statement (an attachment to their response to the Secretary’s contempt motion) under seal.  The Secretary filed a motion for reconsideration, which the court granted on December 5, 2019, unsealing the AEU Defendants’ profit and loss statement.  

On December 19, 2019, the Secretary filed a second amended complaint, alleging successor liability and/or alter ego liability against new Defendants Halo P & C North America, LLC, and Halo Advisors, LLC.  The second amended complaint also made new allegations of co-fiduciary liability against Defendants LaMantia, D’Iorio, and the Veritas Defendants. 

On January 9, 2020, the Secretary attended settlement conferences with the following Defendants: AEU, Satler, Goldberg, Black Wolf, Maynor, LaMantia, Wilson Benefit Services LLC, WBS, LLC, and Donald Wilson. 

On June 26, 2020, the court entered two consent orders and judgments.  The first requires LaMantia to restore $82,140 to the MEWA.  The second requires Wilson Benefit Services LLC, WBS, LLC, and Donald Wilson to restore $18,000 to the MEWA.  On July 13, 2020, Veritas Benefits, LLC, Veritas PEO, LLC, and D’Iorio attempted to file a pro se answer to the Second Amended Complaint. The Secretary objected to D’Iorio filing a pro se answer on behalf of corporate Defendants, and subsequently, D’Iorio filed an amended answer on only his behalf. 

On September 21, 2020, the court entered a consent order and judgment against Defendants AEU Benefits, LLC, AEU Holdings, LLC, Halo P&C North America, LLC, Halo Advisors, LLC, Satler, and Goldberg, requiring them to restore $1,133,000 to the MEWA.

As of October 2020, the remaining Defendants in this matter are:  Black Wolf/Maynor, Veritas Benefits, LLC, Veritas PEO, LLC, and D’Iorio.  All Defendants are unrepresented by counsel.  On October 19, 2020, the court granted the parties’ motion for revised scheduling order.  Under the revised scheduling order, the parties have until May 28, 2021, to complete fact discovery; until June 30, 2021, for Plaintiff to disclose his expert report(s); and until November 30, 2021, to file dispositive motions.  

On January 11, 2021, the Secretary filed a motion for default judgment against Veritas Benefits, LLC and Veritas PEO, LLC.  On April 6, 2021, the Secretary filed a motion for default judgment against Black Wolf Consulting, Inc. and Rod Maynor.

On July 12, 2021, the court granted the Secretary’s motions for default judgment against Veritas Benefits, LLC, Veritas PEO, LLC, Black Wolf Consulting, Inc., and Rod Maynor.  The final judgment order requires Veritas Benefits, LLC and Veritas PEO, LLC to restore $15.9 million to the MEWA and requires Black Wolf Consulting, Inc. and Rod Maynor to restore $55,032 to the MEWA.

When the court entered a consent order and judgment on September 7, 2021 requiring D’Iorio to restore $150,000 to the MEWA, the Secretary’s litigation against all Defendants had been resolved.

However, the independent fiduciary has ongoing litigation over his motion to approve a plan of distribution and to approve an interim distribution, which was opposed by third-party brokers.  On December 17, 2021, the Secretary filed a motion in opposition to the third-party brokers’ motion to intervene in the litigation.  Subsequently, the third-party brokers settled with the independent fiduciary and the court dismissed the third-party brokers’ motion to intervene without prejudice but also granted additional time for other third-party brokers to file motions to intervene.  As no other third-party brokers objected to the independent fiduciary’s amended plan of distribution, the court granted the independent fiduciary’s motion.  Interested entities who object to the amended plan of distribution have until March 17, 2023 to file a motion for reconsideration.  Chicago Office

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Secretary v. Medova Healthcare Financial Group, LLC (D. Kan.)

On December 10, 2020, the Secretary filed a complaint and an ex parte motion for a temporary restraining order and preliminary injunction against the Medova Healthcare Financial Group, LLC; Daniel Whitney; Michelle Willson; Midlands Casualty Insurance Company, Inc.; Just Diabetic Supplies, LLC; Advent Health Services, LLC; Capital Advisors, Inc.; Patrick Enterprises, Inc.; Lifestyle Health Plans Group Benefit Program; Lifestyle Health Plans – Level Funded Group Benefits; Level Funded Lifestyle Self-Insured Health Plan; and Lifestyle Health Plans (collectively, the “Medova arrangement”).  The ex parte motion and complaint alleged that the Defendants’ misuse of the Medova arrangement’s funds created a critical funding deficiency of over $18 million.  As of November 6, 2020, the Medova arrangement provided benefits and held assets for at least 2,600 participating health plans serving more than 35,000 employees in 38 different states.  On December 11, 2020, the court denied the motion, stating that the Secretary failed to show “immediate and irreparable injury” and that Defendants’ counsel “should be given an opportunity to be heard.”  The complaint alleged that the Medova Defendants breached their fiduciary duties of loyalty and prudence and engaged in prohibited transactions in violation of ERISA by commingling plan assets, diverting plan assets to corporate accounts and other companies they controlled, and using plan assets belonging to one plan to pay the claims of another going back as far as 2016.  The Secretary alleged the Defendants made material omissions to current and prospective participating employers regarding the Medova arrangement’s failure and its ability to pay claims, as well as the overall financially hazardous condition of the Medova arrangement.  The complaint also alleged that the Medova Defendants failed to file the Form M-1 on an annual basis for the Medova arrangement as required under ERISA.  The complaint sought to have the Medova Defendants removed and barred from serving as fiduciaries or service providers to the individual employer plans that participate in the Medova arrangement and the appointment of an independent fiduciary to oversee the Medova arrangement’s operations, marshal and control the assets of the plans as it relates to the underlying participant plans, perform an accounting of the Medova arrangement’s financial position, determine the Medova arrangement’s ability to pay outstanding participant health claims, work to negotiate and pay outstanding health claims, and provide sufficient notice of the Medova arrangement’s termination, if such termination is deemed appropriate.  The complaint also sought to have Defendants disgorge to the Medova arrangement all profits and fees and other monies earned in connection with their violations. 

On March 18, 2021, the court entered a consent order appointing an independent fiduciary on an interim basis with exclusive authority and control over the administration of the self-funded health plans participating in the Medova arrangement; the independent fiduciary is vested with exclusive authority and control over the bank accounts established for these plans and certain other Medova accounts.  In addition, the consent order prohibits any distributions, draws, withdrawals, management fees or other transfers by the Medova Defendants to Defendants Whitney, Willson or Medova (including its affiliates) without the authorization of the independent fiduciary.  The consent order also provides the independent fiduciary authority with oversight of all Medova’s stop-loss operations, and directs Medova and its affiliate, Midlands Casualty Insurance Company, to cease issuing stop-loss policies to Medova clients directly or through quota-share reinsurance agreements with other carriers through which Midlands ultimately carries the risk.   

On June 3, 2021, the court entered an order under the All Writs Act to stay and enjoin all pending and future state court, federal court, administrative, or arbitration actions against Defendants, Medova’s Lifestyle Health Plans, the independent fiduciary, the participating plans, any participating plan assets, or any of the participating plans’ participants or beneficiaries relating to unpaid benefit claims incurred by the participating plans and their participants and beneficiaries.  The order also protects the above-listed entities from collection actions and prohibits all known creditors of the plans, collection or credit reporting agencies, and their agents from making any adverse credit reports regarding participants or beneficiaries of the plans for unpaid health claims.

On October 4, 2021, following the September 15, 2021 court-ordered mediation, the court granted the parties’ joint motion for a stay of the proceedings pending resolution of the related Department of Justice investigation of Defendants.  The court also adopted the parties’ agreement that Defendants will not serve or act as a fiduciary with respect to any ERISA-covered plan during the pendency of the stay order.  In addition, the court ordered Defendants to provide a $350,000 reimbursement for independent fiduciary fees and costs with the Secretary reserving the right to pursue additional reimbursement following the stay.  This case remains stayed.  Kansas City Office

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Acosta v. Riverstone Capital LLC (C.D. Cal.)

On February 1, 2019, the Secretary filed a complaint alleging that Defendants Riverstone Capital LLC (“Riverstone”), Nexgen Insurance Services, Inc., NGI Brokerage Services, Inc., James C. Kelly, Travis Bugli, and Robert Clarke, as the operators of an unlicensed MEWA, violated ERISA by failing to prudently set adequate premium rates to properly fund the 100 participating ERISA-covered plans, failing to hold the assets of the MEWA in trust, and charging excessive fees. As unpaid claims mounted, the operators of the MEWA delayed the payment of approved claims and “cherry-picked” which claims to pay.  The complaint also alleged that the Defendants made misrepresentations to the participating employers and agents marketing the MEWA related to the funding of reserves. 

On the same day the lawsuit was filed, the Secretary moved for an ex parte temporary restraining order.  The court issued emergency relief that included freezing bank accounts containing plan assets and restraining the operators from their fiduciary functions over the MEWA. On February 7, 2019, the Secretary secured and filed, and the court approved, a stipulated amended temporary restraining order.  This order temporarily appointed an independent fiduciary, Receivership Management, to take control over operation of the MEWA.  The order charged Receivership Management with taking all reasonable steps necessary to marshal the existing plan assets and place them in trust, perform an accounting, pay urgent claims, communicate with impacted entities and persons, and design and implement a fair process for paying out covered claims to the extent feasible.  In addition, the order temporarily protected participants and beneficiaries who are unable to pay covered medical expenses from collections actions until further order by the court. This relief was granted under the All Writs Act, 28 U.S.C. §1651.

On March 7, 2019, the Secretary filed a consent judgment against Defendants James C. Kelly, Travis Bugli, and Robert Clarke, the three individuals who owned Riverstone.  The judge requested a hearing, which took place on March 13, 2019.  The judge entered the consent judgment after the hearing.  Under the consent judgment, all of the Riverstone owners were debarred from serving as fiduciaries or service providers to ERISA-covered plans.  They admitted to their ERISA violations and relinquished all claims on all assets seized under the Department’s February 7, 2019 order as well as all money traceable to those accounts. The Defendants were ordered to repatriate approximately $400,000 that they had sent to an account in the Cayman Islands. The Defendants surrendered all assets and administration to the independent fiduciary and consented to termination of the MEWA.  The consent judgment also provides All Writs Act protection for participants and beneficiaries and allows the Department to seek a money judgment in the future should Defendants become solvent.

The Secretary filed a motion for default judgment on March 22, 2019.  After a hearing on April 28, 2019, the district court on May 1, 2019, entered default judgment against the remaining corporate Defendants. 

Also on May 1, 2019, the court issued an order that deferred ruling on the independent fiduciary’s motion to liquidate the MEWA, pending revision of proposed deadlines for participating employers and providers to submit claims and pending revisions to proposed notice procedures.  In response to the independent fiduciary’s proposed liquidation plan, several participating employers objected on the grounds that they allegedly signed contracts with Riverstone whereby Riverstone would fund employee claims.  The Secretary filed a position statement explaining that any purported contract was with Riverstone, the corporate entity, and not with the plan; that the operative plan terms were laid out in the plan documents which, among other things, expressly stated that these were self-funded plans; that participating employers were responsible for funding employee health claims; and that participating employers were identified as plan administrators and named fiduciaries.  The court agreed with the Secretary, finding that, per the plan documents, participating employers are “clearly” responsible for paying employee benefits claims.

On May 9, 2019, the court approved a revised proposed liquidation plan submitted by the independent fiduciary.  Among other things, the liquidation plan provides All Writs Act protection against any collection actions outside the procedures set forth in the liquidation plan, as other actions would frustrate the purpose of allocating limited plan assets to pay health claims to the greatest extent feasible. 

In April 2020, in Bugli’s personal bankruptcy case, the Secretary obtained an order holding that Bugli’s debts to the plan identified in the consent judgment were not dischargeable in bankruptcy.  The Secretary continued to monitor this case and communicated regularly with the independent fiduciary. 

In June 2021, the Secretary consulted with independent fiduciary’s counsel and provided comments to a motion filed against employers who continued to refuse to pay amounts owed pursuant to their employee benefit plans.  On December 29, 2021, the court ordered Broad Band Integrators, Inc. to remit $133,366 to the independent fiduciary.  The independent fiduciary reported that as of November 24, 2021, over $5 million in stop-loss claims had been resolved, and that of the $47,779,925 in unpaid claims that were not covered by stop-loss insurance and had been submitted by providers for the June 28, 2019 claims runs, over $41 million in claims had been resolved.  On December 17, 2021, the independent fiduciary reported that 80 employers had fully funded their obligations.  The Secretary continues to monitor the case and consult with the independent fiduciary. 

The independent fiduciary filed reports with the court in 2022, describing its continued efforts to get employers to fund their obligations, obtain funding from insurance carriers, and get providers to cease and desist collection efforts pending the plan's liquidation.  The independent fiduciary received 804 proofs of claims.  It is also in the process of issuing explanation of benefits on claims that were resolved with no funds due to the provider. The Secretary continues to monitor the case and consult with the independent fiduciary.  Los Angeles Office

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Walsh v. Tru Blue (N.D. Ga.)

On September 22, 2022, the Secretary filed a complaint against Tru Blue Third Party Administrators, LLC, and multiple functional fiduciaries to the plans it administered.  Together, the fiduciaries caused the plans to engage in prohibited transactions, mismanaged the plans, and used some portion of the plans’ claims funds to pay claims incurred under a prior administrator.  Tru Blue’s disloyal and imprudent management caused the plans to accrue unpaid processed medical claims and unpaid, unprocessed medical claims to date.  The complaint seeks the appointment of an independent fiduciary to oversee and administer the plans, restitution to the plans, including funds to pay for unpaid claims, and an order permanently enjoining the fiduciaries from acting in a fiduciary capacity and from violating ERISA in the future.  Defendants have requested and been granted an extension of time on their obligation to answer until April 7, 2023.  Atlanta Office

Secretary v. United Employee Benefit Fund (N.D. Ill.)

On February 28, 2022, the Secretary filed a complaint against David Fensler, John Fernandez, Gary Meyers, L. Steven Platt, Herbert O. McDowell III, David Schwalb, United Preferred Companies, Ltd., the United Employee Benefit Fund Trust, and Robbins DiMonte, Ltd. and Robbins, Salomon & Patt, Ltd., law firms for the Defendants.

The complaint alleges the Fund’s trustees, administrator, service provider, and fund counsel committed various ERISA violations, including prohibited transactions and fiduciary breaches, over a three-year period.  The largest alleged violation involves a prohibited transaction transferring $1,125,000 of assets from the United Employee Benefit Fund Trust Fund to a third party to purchase service provider McDowell’s home out of foreclosure and allowing McDowell to continue living in the home.  The Secretary alleges this transaction was orchestrated by Platt, former fund counsel, and Schwalb, who knowingly participated in the transaction. The complaint also alleges the fund fiduciaries transferred $400,000 directly to McDowell’s foreclosure attorney, paid McDowell and his company $895,000 in unreasonable compensation, transferred $84,000 directly to McDowell, paid $77,000 to McDowell for research to start a health plan, paid $46,000 to McDowell’s son as part of a life insurance commissions dispute, loaned $260,000 to an entity partially owned by a trustee, and loaned $5,000 to a trustee.  The complaint alleges Robbins, Salomon, & Patt, Ltd. (now known as Robbins DiMonte, Ltd.), is liable for losses by Platt's violations.  The complaint seeks reversal of all prohibited transactions, the restitution of more than $2.8 million in principal losses plus lost opportunity costs to the fund, a permanent fiduciary bar against the fiduciaries, and the appointment of an independent fiduciary, which would determine if the MEWA should be terminated.

On June 8, 2022, the Secretary responded to three different motions to dismiss. The fund and trustees moved to dismiss for lack of subject matter jurisdiction because the fund was established pursuant to a collective bargaining agreement and is only regulated by state law. Platt moved to dismiss primarily on the basis that ERISA service providers do not become functional fiduciaries through giving negligent advice.  Schwalb, who the Secretary alleges helped Platt design the $1.125 million transaction, moved to dismiss on the basis that he was unaware he was knowingly participating in ERISA fiduciary violations.  On June 21, 2022, the Secretary filed a motion to strike affirmative defenses pleaded by Robbins, Salomon & Patt, Ltd., and Robbins DiMonte Ltd. related to defenses including statute of repose, statute of limitations, and superseding or intervening cause. 

On August 8, 2022, the court issued a fully favorable ruling denying all three motions to dismiss. The court rejected the fund trustees’ argument asserting the Secretary lacks subject matter jurisdiction and found the complaint sufficiently alleges the Secretary has enforcement authority over the operations of the fund because it offers benefits in connection with various ERISA-covered participating plans, even though the fund itself operates as a non-ERISA covered MEWA.  Platt argued in his motion to dismiss that he was not a fiduciary because he was merely an attorney providing advice.  The court rejected this argument, noting the Secretary’s allegations state Platt recommended and designed the structure of prohibited transactions and channeled plan assets through an Interest on Lawyers’ Trust Accounts (IOLTA) he controlled. The court also rejected his argument that knowing participation requires personal receipt of ill-gotten gains. The court denied Schwalb’s motion to dismiss, finding the complaint’s allegations that Schwalb’s received assets channeled through the IOLTA and received “rent” payments from the fund on another defendant’s behalf raised a reasonable inference that Schwalb knew the circumstances that rendered the transactions unlawful.  The court also granted the Department’s motion to strike three affirmative defenses, two of which were related to state statutes of limitations, asserted by law firms Robbins, Salomon & Patt, Ltd., and Robbins DiMonte Ltd., noting in dicta that the law firms likely explicitly waived all affirmative defenses related to limitations periods. 

On September 15, 2022, the parties filed a joint motion to stay motion and discovery deadlines pending mediation. On September 21, 2022, the joint motion to stay was granted.  Chicago Office

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J. Financial Institution and Service Provider Cases

Doe v. Express Scripts. Inc. (S. Ct.)

On December 13, 2021, the Supreme Court invited the Solicitor General to file an amicus brief on whether it should grant certiorari in this case concerning the fiduciary status of a pharmacy benefit manager (PBM) and an insurer who agreed between themselves to the prices that ERISA plans (among others) would pay for drugs.  The case stems from a 2009 agreement between Express Scripts, a large PBM, and Anthem’s predecessor, providing that Express Scripts would provide PBM services to Anthem, and establishing the prices at which Anthem would pay Express Scripts for prescriptions drugs dispensed to its insureds or to participants in ERISA plans that it administers.  Plaintiffs, among whom were two sponsors of self-funded ERISA plans, alleged that ESI and Anthem did not negotiate their agreement in the plans’ interests, resulting in higher drug prices than was necessary being passed onto the laws, and in so doing breached their fiduciary duties under ERISA.  The district court dismissed the ERISA claims on the ground that Plaintiffs did not adequately allege that Anthem and Express Scripts acted as fiduciaries in negotiating their agreement, and the Second Circuit affirmed.

On May 24, 2022, the Solicitor General, with the Department’s assistance, filed an amicus brief urging the Court to deny certiorari.  The Government’s brief contended that the Second Circuit’s decision was unclear.  On the one hand, it could be read as suggesting that Anthem was not a fiduciary simply because the negotiation of a PBM agreement might have implicated corporate decisions on its part.  The Government made clear that simply because a decision involves a non-fiduciary business decision it cannot also involve fiduciary conduct.  Additionally, that the decision could also be read as finding that Anthem was acting solely in its corporate capacity, in which case it would not be a fiduciary. Similarly, with respect to ESI, the Second Circuit’s decision could be read as holding that ESI was not a fiduciary simply because it operated pursuant to a contractual term (which would be an incorrect statement of law), but could also be read as holding that the contractual term under which ESI operated constrained its discretion and thereby precluded fiduciary status (which would be a correct statement of law).  In either case, though, the Government argued that certiorari was inappropriate because no circuit split existed.

On June 27, 2022, the Supreme Court denied certiorari.  Plan Benefits Security Division

Walsh v. KG Administrative Services, The Keiser Group, Tracey Keiser, and Robert Frazier (C.D. Cal.)

On October 27, 2022, the Secretary filed a complaint alleging that third-party administrators of the multiple single-employer self-funded health plans failed to maintain plan assets in a trust, permitting the assets to be seized by creditors, failed to appoint a named trustee, and failed to use the assets of each plan for the exclusive benefit of the participants of each plan.  On October 31, 2022, the court entered a consent judgment barring the Defendants from serving as fiduciaries or offering services to ERISA-covered plans.  Los Angeles Office

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Massachusetts Laborers Health and Welfare Fund v. Blue Cross Blue Shield of Mass. (1st Cir.)

On September 14, 2022, the Department filed an amicus brief concerning the fiduciary status of a third-party administrator to a self-funded health benefits plan. Plaintiff Massachusetts Laborers’ Health and Welfare Fund—a self-funded health benefits plan—sued Blue Cross Blue Shield of Massachusetts, the plan’s third-party administrator, for breaching its fiduciary duties by overpaying providers (among other allegations).  The Fund contended that Blue Cross exercised authority or control over plan assets, and discretionary authority or control over plan management—and thereby acted as a fiduciary—by pricing claims payable by the plan and then paying them out with plan assets.  The district court dismissed the Funds’ claims, finding that the complaint did not plausibly allege that Blue Cross acted as a fiduciary.  The district court found that “working capital” amounts the Fund deposited into a Blue Cross account for the payment of benefits were not plan assets because they were not segregated or held in trust, explicitly rejecting the Sixth Circuit’s plan-asset analysis in Hi-Lex Controls Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d 740 (6th Cir. 2014) (a case in which the Secretary participated as amicus curiae).  The district court also concluded that, even if the working capital payments were plan assets, Blue Cross did not exercise sufficient authority or control over them.  Finally, the district court concluded that Blue Cross’s pricing determinations did not qualify as discretionary plan management because those determinations were governed by Blue Cross’s contract with the Fund. 

The Department’s amicus brief refuted the district court’s rejection of Hi-Lex and showed that when funds are transferred to a third-party administrator and designated for the payment of plan benefits, such funds remain plan assets.  We argued that the First Circuit should reject Blue Cross’s argument that funds designated for the payment of benefits must be deposited into a separate account in order to remain plan assets.  We also argued that the Fund plausibly alleged that Blue Cross exercised discretionary control over plan management by making unilateral pricing decisions that were not constrained by any contract terms. 

On April 25, 2023, the First Circuit issued a narrow decision affirming the district court. The court first found that that Blue Cross did not engage in discretionary plan management by repricing claims, a conclusion that rested heavily on its assessment that the Fund’s complaint was “fundamentally premised on the notion that there were ‘correct’ rates to be applied to each submitted claim, but that BCBSMA failed to apply them.”  The First Circuit determined that the factual allegations in the complaint amounted to claims that Blue Cross committed “clerical errors” in the processing of claims and that the complaint failed to plausibly allege that Blue Cross had the discretion to “reach different conclusions” when pricing claims. Its plan asset analysis was even more limited.  Acknowledging that the plan-asset question was “vigorously dispute[d]” by both the parties and their amici, the court avoided ruling on the issue altogether. But the court held that, in any event, Blue Cross did not exercise any control over the “disposition” of plan assets because it found that the pricing process was “separate from and antecedent to the act of payment,” and that Blue Cross only made payments upon approval from the Fund.  The First Circuit noted explicitly that “[this] holding is a limited one” that is “fact-specific” and based on the Fund’s failure to develop its arguments and show that Blue Cross actually controlled the pricing and payment of claims.  Plan Benefits Security Division

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Wit v. United Behavioral Health (N.D. Cal.)

On May 19, 2021, the Secretary filed an amicus brief in this class-action ERISA health benefits case on the issue of Article III standing.  The suit was brought by participants in health plans administered by United Behavioral Health (UBH).  The plaintiff class alleged that UBH failed to follow plan terms and breached its duties of prudence and loyalty when it used its own internal guidelines to determine eligibility for mental health benefits.  The court concluded that all the plans required “as one (though not the only) condition of coverage that the mental health or substance use disorder treatment at issue must be consistent with generally accepted standards of care.”  After a 10-day bench trial, the court found that UBH’s guidelines were inconsistent with generally accepted standards of care in several ways, including that the guidelines required a showing of acute crisis, failed to sufficiently consider co-occurring conditions, failed to apply criteria specific to children and adolescents, and required measurable progress.

UBH appealed, asserting that plaintiffs lacked standing to bring these claims and should not be certified as a class because their allegations were based on procedural injury—UBH’s use of flawed guidelines not traceable to a particular benefit denial—rather than on the denial of benefits.  UBH also argued that the district court failed to defer to UBH’s authority to interpret plan terms and erred by rewriting the plans to require coverage consistent with generally accepted standards.  Finally, UBH argued that the district court erred by excusing absent class members from the requirement to exhaust administrative remedies.

On appeal, the Secretary filed an amicus curiae brief urging affirmance of the district court’s ruling on standing, without opining on class certification, merits, or exhaustion of administrative remedies.  On standing, the Secretary asserted that plaintiffs demonstrated an injury-in-fact and traceability on their challenge to the denial of benefits based on the improper guidelines.  The Secretary also disputed UBH’s argument that plaintiffs first had to demonstrate they would be entitled to benefits under an appropriate set of guidelines in order for the district court to remand their claims to UBH for reprocessing; the fact that UBH used the wrong standard was enough. 

On January 26, 2023, the Ninth Circuit issued an opinion reversing in part.  The court held that the participants had standing, but it also held that the remedy sought by plaintiffs—a remand to their plans to re-adjudicate their claims in a manner that complies with the plan terms—was not authorized as a “standalone remedy” by ERISA section 502(a)(1)(B).  Rather, according to the court, that provision required Plaintiffs to affirmatively seek benefits, which the Plaintiffs here did not seek.  Plaintiffs filed a petition for panel and en banc rehearing.  On March 20, 2023, the Secretary filed an amicus brief in support of rehearing solely on the issue of whether a remand for reprocessing is an available “standalone” remedy under section 502(a)(1)(B).  The Secretary argued that where, as here, Plaintiffs complain that their benefits were processed contrary to plan terms, they can seek a remand for reprocessing under section 502(a)(1)(B) as a means to “enforce rights” under the terms of their plans, even without affirmatively contending that they were in fact due benefits.  Plan Benefits Security Division

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K. Orphan Plans

Walsh v. Executive Relocation 401(K) Plan (S.D. Iowa)

On November 2, 2022, The Secretary filed a complaint against the Executive Relocation 401(k) Plan alleging that the plan’s sole trustee, Joseph R. Karge, Jr., had died in November 2019, leaving the plan abandoned, and unable to distribute $5,361 in assets to its two remaining participants. On March 1, 2023, the Department obtained an Affidavit of Publication from the Des Moines Register, thereby effecting service upon the abandoned plan.  Because Defendants had not filed an answer by March 22, 2023, the Department requested that the clerk of the court enter default against Executive Relocation 401(k) Plan on April 13, 2023.  Kansas City Office

Walsh v. Genterro, LLC 401(k) Profit Sharing Plan (D. Colo.)

On December 1, 2022, the Secretary filed a complaint against Genterro, LLC 401(k) Profit Sharing Plan in this abandoned plan case.  The plan sponsor ceased operations around May 2021, and no former, eligible fiduciaries could be found to assume termination responsibilities.  Currently, the plan has $30,030 in assets and five participants.  The current custodian of plan assets, TD Ameritrade, will take direction only from a court-appointed fiduciary.  The complaint seeks the appointment of an independent fiduciary capable of terminating the plan and effecting account distribution and rollovers.  Because the plan has been abandoned, the Secretary is attempting service via publication. On February 7, 2023, the Secretary filed an Ex Parte Motion for Service by Mail or Publication and for an Extension of the Time for Service.   Denver Office 

Walsh v. Gerstner (W.D.N.Y.)

On April 12, 2022, the Secretary filed a complaint alleging that Defendants had failed to administer the Anderson Water Systems, Inc. Retirement Plan for Employees.  On August 17, 2022, the Secretary moved for default judgment which was entered on August 18, 2022.  New York Office

Walsh v. Girton Oakes & Burger, Inc. (N.D. Ohio)

On March 1, 2021, the Secretary filed a complaint against Girton Oakes & Burger, Inc. and Girton Oakes & Burger, Inc. 401(k) Profit Sharing Plan & Trust regarding this abandoned plan. Girton Oakes & Burger, Inc. was the sponsor, administrator, and a fiduciary of the Plan. The company was petitioned into an involuntary Chapter 7 bankruptcy in 2003.  As a result, the former sole trustee of the Plan resigned as Plan trustee, and no successor trustee was appointed.  Currently there is approximately $30,000 in the Plan and seven participants are unable to obtain distributions. 

On November 19, 2021, the court granted the Secretary’s June 1, 2021 motion for default judgment, removing Girton Oakes & Burger, Inc. from serving as the fiduciary to the Plan and appointing Pension Administration & Consulting Services, Inc. as the independent fiduciary of the Plan.

On April 26, 2022, the Secretary moved to replace Pension Administration & Consulting Services, Inc. from serving as the independent fiduciary to the Plan.  On July 25, 2022, the court granted the motion and appointed PKF O’Connor Davies, LLP as the new independent fiduciary. Cleveland Office

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Walsh v. Gutters Perfect, Inc. (W.D. Wash.)

On June 15, 2021, the Secretary filed a complaint seeking appointment of an independent fiduciary to distribute retirement savings to participants who could not otherwise access them.  The Gutters Perfect, Inc. d/b/a Leaf Filter 401(K) Plan was created by Gutters Perfect, Inc., which ceased operations in 2013.  The sole trustee, officer, and owner of Gutters Perfect died in 2019.  After his death, no successor trustee was ever appointed and there was no fiduciary to act on behalf of the plan.  Accordingly, participants who were eligible for distributions of their account balances had been unable to access their funds.  After serving the complaint on July 12, 2021, the Secretary filed a request for entry of default on September 3, 2021.  On December 17, 2021, the Secretary filed a motion for default judgment, seeking to appoint an independent fiduciary to distribute approximately $38,000 in plan assets to the plan participants, and thereafter terminate the plan.  

On January 13, 2022, the court granted default judgment, appointing an independent fiduciary to distribute approximately $38,000 in retirement accounts to the participants and beneficiaries of the accounts.  San Francisco Office

Secretary v. International Teleproduction Society 401(k) Savings and Discretionary Contribution Plan (E.D. Va.)

On September 16, 2021, the Secretary filed a complaint seeking to have approximately $8,000 in assets of the International Teleproduction Society 401(k) Savings and Discretionary Contribution Plan – held by custodian American Funds Service Company – distributed to the plan’s participants by a court-appointed independent fiduciary.  The plan sponsor ceased operations in 2001 and no trustee or plan administrator has been located. The court granted the Secretary’s September 23, 2022 motion for default judgment on November 7, 2022.  The court appointed an independent fiduciary to administer the plan and distribute the plan’s assets to participants and beneficiaries.  Up until the court’s appointment of an independent fiduciary, the plan lacked fiduciary management since 2001, and participants had been unable to receive distributions of their distributions since that time.  Philadelphia Office

Secretary v. MNAP Medical Solutions 401(k) P/S Plan (E.D. Pa.)

On May 24, 2022, the Secretary filed a complaint regarding the failure of MNAP Medical Solutions, Inc. 401(k) P/S Plan to distribute approximately $228,030 plan assets to participants and terminate the plan after the entity sponsoring the plan ceased operations in 2018. The Secretary filed a motion for default judgment on November 9, 2022.  Philadelphia Office

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Secretary v. Perwaiz (E.D. Va.)

On July 15, 2021, the Secretary filed a complaint against Javaid A. Perwaiz and his eponymous medical professional corporation alleging that, because of Perwaiz’s felony convictions on multiple counts of health care fraud, false statements, and aggravated identity fraud resulting in a 59-year prison sentence, he is barred from serving as a fiduciary to his company’s profit sharing plan, and requesting that the court appoint an independent fiduciary to terminate the plan and distribute its assets.  As of September 2021, the Defendants’ criminal counsel had waived service of the complaint on behalf of Perwaiz and the company.  On March 2, 2022, the court entered a consent judgment and order directing that Perwaiz and his medical practice LLC be removed as fiduciaries to the company’s profit sharing plan and appointing an independent fiduciary to conduct an accounting and distribute the plan assets and terminate the plan.  Philadelphia Office

Walsh v. Resolvenet USA, Inc. (C.D. Cal.)

On October 20, 2021, the Secretary filed a complaint seeking appointment of an independent fiduciary to distribute plan assets to plan participants who could not otherwise access their retirement savings.  Resolvenet USA, Inc. (“Resolvenet”), which sponsored the Resolvenet USA, Inc. 401(k) Profit Sharing and Trust Plan (“Plan”), ceased operations in 2004.  The complaint alleged that since 2015, the sole plan trustee failed to fulfill her duties and could not be located.   On December 28, 2021, the Secretary filed a motion to extend the date to serve process, and a motion for an order permitting the Secretary to serve Resolvenet through the California Secretary of State, since the registered agent for service of process was deceased and the Secretary had been unable to serve former officers of Resolvenet. 

On January 3, 2022, the court granted both motions. The Secretary served the California Secretary of State on January 7, 2022.  On February 7, 2022, the Secretary filed a request for entry of default, which the clerk entered on February 14, 2022.  On March 22, 2022, the Secretary filed a motion for default judgment.  The Department argued the motion at a hearing on April 1, 2022.  On April 4, 2022, the court granted default judgment, appointing an independent fiduciary to distribute the plan assets and terminate the plan.  Los Angeles Office

Walsh v. Strange, Haskopolous, Vella, Architects, P.C. Pension Plan (E.D.N.Y.)

On August 2, 2022, the Secretary filed a complaint alleging that the plan had been abandoned.  On September 30, 2022, the Secretary file a motion to approve a consent judgment appointing an independent fiduciary, which was entered on October 27, 2022.  New York Office

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L. Contempt and Subpoena Enforcement

Adminicor Services, Inc. Employee Stock Ownership and Profit Sharing Plan (M.D. Fla.)

On April 22, 2022, the Secretary petitioned the court for enforcement of the Department's subpoenas issued to Adminicor Services, Inc., Platinum Tax Group, LLC, Benjamin K. Moricz, and Paul H. Jaworski (Respondents).   On August 4, 2022, the court issued a Show Cause Order, requiring Respondents to file any defenses or opposition to the petition in writing by September 23, 2022, and ordering both parties to appear at a hearing on October 6, 2022.

On October 4, 2022, Respondents provided responsive documents to the Secretary.  The parties jointly requested an extension of the hearing date to allow the Secretary time to review the documents for responsiveness and completeness.  Respondents provided additional documents on October 18, 2022.  On December 2, 2022, the Secretary and Respondents reported to the court that Respondents have adequately responded to the subpoenas.  The court therefore closed the case. Atlanta Office 

Secretary v. Alight Solutions, LLC (N.D. Ill.)

On April 6, 2020, the Secretary filed a Petition to Enforce an Administrative Subpoena Duces Tecum to compel Alight Solutions, LLC, to produce all responsive documents.  Alight provides recordkeeping, administrative, and consulting services to its ERISA plan clients to assist in managing their employee benefit plans.  Alight provides an internet‑based portal to plan participants to manage their plan accounts.  Over the years, Alight experienced numerous cybersecurity incidents relating to several of its ERISA plan clients’ accounts.  The Department issued a subpoena on November 5, 2019, and, despite the Department’s numerous meetings, emails, and formal letters with Alight, Alight has refused to provide all responsive documents to the Department’s subpoena.  On November 17, 2020, Alight filed its response brief to the petition. 

On January 4, 2021, the Secretary filed a reply brief in support of the Department’s petition.  On January 28, 2021, Alight filed a sur-response brief.  On February 9, 2021, the Secretary filed a sur-reply in support of the petition.  On October 28, 2021, the court granted the Secretary’s petition in full and ordered Alight to comply with the subpoena; the court also denied Alight’s “motion” or argument for a protective order.  On November 17, 2021, Alight filed a motion for a protective order.  On December 9, 2021, the Secretary filed a brief in opposition to Alight’s motion for a protective order.  On December 9, 2021, Alight filed a notice of appeal to the Seventh Circuit from the October 28, 2021 Order.  On December 23, 2021, Alight filed a motion to stay the enforcement of the October 28, 2021 order while Alight’s appeal is pending. 

On January 3, 2022, the magistrate judge denied Alight’s motion for a protective order.  On January 11, 2022, the Secretary filed a brief in opposition to Alight’s motion to stay the judgment pending the appeal.  Alight filed a reply supporting its motion to stay on January 18, 2022, but the Judge, denied Alight’s motion to stay on January 24, 2022.  On February 10, 2022, the Department filed a brief in the Seventh Circuit opposing Alight’s motion to stay filed in the Seventh Circuit.  On February 15, 2022, the Seventh Circuit denied Alight’s motion to stay. 

On March 30, 3022, the parties submitted competing production schedules for compliance with the Secretary’s subpoena (as ordered by the District Court). The Secretary made an oral motion at the status hearing requesting Alight produce a production log of the documents production, and Alight opposed the motion.  Alight filed a formal response on April 8, 2022.  The Secretary filed a reply brief supporting the oral motion on April 15, 2022. On April 25, 2022, the court granted the Secretary’s motion.  

On May 27, 2022, Alight filed a motion for a confidentiality order.  On June 13, 2022, the Secretary filed a response brief opposing the confidentiality order in part.  On June 27, 2022, Alight filed a reply brief in support of its motion.  On July 6, 2022, the court granted Alight’s motion and entered a protective order (overruling the part the Secretary objected to). 

From August to December 2022, the Secretary worked with the court and Alight to finalize Alight’s production of documents responsive to the subpoena with monthly status reports and hearings. 

On October 4, 2022, the Seventh Circuit affirmed the District Court’s decision, affirming the full relief the Secretary sought.

On November 4, 2022, Alight sought to revise the protective order to address the production of certain highly sensitive documents.  The Secretary worked with Alight to resolve the issues related to the motion and the parties field a joint proposed order to address it. The court signed the order on December 16, 2022.   Chicago Office

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Walsh v. Arsenal Health, LLC (M.D. Ala.)

The Secretary filed a subpoena enforcement action on September 30, 2022 after Respondent, Arsenal Health (d/b/a Iron ReHealth), produced some but not all documents requested in the Department’s administrative subpoena and after multiple representations from Respondent that it was on the brink of producing the remaining documents.  Shortly after filing, Respondent waived formal service.  In November 2022, Respondent changed counsel.  New counsel expressed that they wanted to comply with the subpoena without litigation.  Shortly thereafter, Respondent began meeting with the Department to clarify the requested documents.  By the end of December 2022, Respondent had produced all documents that had been identified as outstanding in the subpoena enforcement action.  On January 9, 2023, the Department confirmed that all newly produced documents had been reviewed and were satisfied the production fully responded to all document requests in the subpoena.  The Secretary and Respondent filed a joint motion to dismiss the subpoena enforcement action on January 9, 2023.  On the same day, the judge dismissed the enforcement action.  Atlanta Office

Secretary v. Bicallis, LLC (D. Md.)

On July 13, 2021, the Secretary filed a complaint against Bicallis, LLC and Bryan Hill, alleging they failed to remit to the Bicallis, LLC 401(k) Plan at least $51,217 in employee contributions and failed to collect for that same plan at least $25,329 in employer matching contributions and $46,251 in safe harbor contributions from October 20, 2017, through December 30, 2019.  After the clerk entered default against them, Defendants filed an answer on November 4, 2021, in which they primarily contested liability for the employer contributions. 

In a consent judgment executed on May 5, 2022, the Defendants agreed to all the relief that the complaint demanded.  Defendants were ordered to make installment payments to pay off $152,591 by December 2022 This monetary recovery reflected all the equitable restitution plus the increased costs attributable to the independent fiduciary.  The consent judgment also ordered that a section 502(l) penalty be assessed, and outlined the Defendants’ ability to petition EBSA for relief from that penalty. On May 23, 2022, the court entered a jointly requested modification of the consent judgment to increase the amount of the independent fiduciary’s fees. 

After an initial period of untimely compliance, Defendants refused to make any further payments due.  On September 27, 2022, the Secretary sought civil contempt, and on October 26, 2022, the court convened a hearing during which Defendants testified as to an inability to pay.  Following the hearing, the parties negotiated a new payment schedule for the consent judgment, including a large installment payment within 30 days and payment of the full balance by April 2023.  On November 10, 2022, the parties obtained these changes to the payment schedule through their joint motion to amend the consent judgment granted.

Defendants made no payments scheduled under the amended consent judgment.  Therefore, on December 9, 2022, the Secretary renewed the motion for Defendants to be held in civil contempt.  The motion requests the court promptly convene a hearing at which Defendants must appear personally and show cause why they should not be found in civil contempt.  The Secretary’s motion also requests that the court enter remedies intended to coerce Defendants’ compliance, including daily fines, an award of attorneys’ fees and costs, and potential civil confinement.  On December 29, 2022, the court referred the matter to the Magistrate Judge for settlement or other ADR conference.  See also Secretary v. Bicallis, LLC, Section B.1. Collection of Plan Contributions and Loan Repayments.  Philadelphia Office

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Secretary v. DuPenn, Inc. d/b/a IGM Carbon (W.D. Pa.)

On May 4, 2021, the Secretary filed a subpoena enforcement petition against DuPenn, Inc. d/b/a IGM Carbon.  Respondent failed to appear at a July 13, 2021 hearing.  The court granted the petition and ordered respondent to produce documents by July 21, 2021.  Respondent failed to produce any documents.  The Secretary filed a contempt motion on September 27, 2021.  The court set a hearing for November 10, 2021, then continued the hearing to December 8, 2021.  The Secretary obtained a tolling agreement from DuPenn and agreed to continue the contempt hearing until January 22, 2022 to allow respondent to produce the documents by January 17, 2022.  The contempt hearing was rescheduled to January 27, 2022.  Because the respondent failed to appear at the contempt hearing, the court found respondent in contempt on February 3, 2022, ordering $250 daily fines if respondent fails to produce documents by February 10, 2022. Respondent thereafter produced all documents. See also Secretary v. DuPenn, Inc. d/b/a IGM Carbon, Section B.1. Collection of Plan Contributions and Loan Repayments. Philadelphia Office

Solis v. Griffith (N.D.N.Y.)

On July 2, 2021, the Secretary filed a motion for contempt alleging that Defendant Herbert L. Griffith, III had failed to comply with the “lottery” provision of a 2011 consent judgment, by failing to make payments to the ITS Communications Corporation SIMPLE IRA Plan after earning more than the targets from 2013 through at least 2018.  The court gave Griffith through November 2, 2021 to respond to the motion for contempt, but he failed to do so.  On January 18, 2022, the Secretary filed a new proposed consent judgment clarifying the terms, which the court entered on the same day.  New York Office

Walsh v. Haskett (N.D.N.Y.)

On March 30, 2021, the Secretary filed a complaint alleging that, in 2018, Defendants Walter Haskett and Harden Furniture LLC withheld contributions from employee paychecks and failed to forward them to the Employee’s Savings & Profit-Sharing Retirement Income Plan of Harden Furniture, LLC.  On September 15, 2021, the Secretary filed a consent judgment ordering that Defendants repay $2,394 to the plan.

On July 15, 2022, the Secretary filed a motion for contempt of the 2021 consent judgment.  The motion alleged that Defendants had failed to repay their debt.  The court entered contempt on May 6, 2022.  New York Office

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Walsh v. Jam Lighting Distributors, Inc. (S.D. Fla.)

On January 10, 2022, the Secretary issued a subpoena to Jam Lighting Distributors, Inc., sponsor of the Jam Lighting Distributors, Inc. 401k Plan, as part of an investigation of potential ERISA violations.  The company failed to produce documents by the deadline despite the Department’s repeated follow-ups. The Department referred the case for subpoena enforcement in September 2022.  On January 10, 2023, the Secretary filed a petition to enforce the subpoena. Atlanta Office

Walsh v. KC Consulting Solutions, Inc. (N.D.N.Y.)

On July 22, 202, the Secretary filed an action to enforce a subpoena for documents relating to MetLife’s role in pension de-risking transactions.  On July 29, 2022, the court granted the application, and equitably tolled the statute of limitation until respondent complied.  New York Office

Walsh v. Metlife, Inc. (S.D.N.Y.)

On March 31, 2021, the Secretary filed an action to enforce a subpoena for documents relating to MetLife’s role in pension de-risking transactions.  On May 4, 2021, MetLife filed its opposition, arguing that the Secretary was seeking documents that were not relevant to the Department’s purposes.  On May 18, 2021, the Secretary filed a reply, explaining the relevance and noting the wide latitude given to the Secretary. After the August 15, 2023 telephonic status hearing between the parties, the court decided to grant the Secretary's petition to enforce the subpoena, ordering Respondent to begin producing responsive documents by August 22, 2023.  New York Office

Walsh v. On the Road Marketing LLC (D.N.J.)

On August 3, 2021, the Secretary filed a complaint alleging that, beginning in 2017, Defendants On the Road Marketing LLC and Mark Meding withheld contributions from employee paychecks and failed to forward them to the On the Road SIMPLE IRA Plan and also failed to make the employer match.  On September 15, 2021, the Secretary filed a consent judgment providing that Defendants would repay $4,397 to the plan, plus a $879 penalty. The court entered the judgment on November 10, 2021. 

On April 15, 2022, the Secretary filed a motion for contempt of the 2021 consent judgment.  The motion alleged that Defendants had failed to repay their debt.  The court entered contempt on November 23, 2022.  New York Office

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Secretary v. Prototype Productions, Inc. (E.D. Va.)

On May 20, 2020, the Secretary filed a complaint against Prototype Productions, Inc., Italo Travez, and Jose Travez, who were the owners and officers of the company.  The Secretary alleges that the Defendants violated their fiduciary duties to the Prototype Productions, Inc. 401(k) Plan and the Prototype Productions, Inc. Welfare Plan by engaging in several related prohibited transactions.  On October 9, 2020, the court approved a consent judgment providing that Defendants restore $628,547 to the 401(k) Plan and $111,299 to the Welfare Plan and pay for the cost, up to $23,250, for an independent fiduciary to distribute the 401(k) assets to participants and to terminate both plans. 

On February 5, 2021, the Secretary filed a motion for contempt, alleging that Defendants had failed to pay the amounts owed under the consent judgment.  The court held hearings on the motion on March 10, 2021 and April 8, 2021, ultimately declining to hold Defendants in contempt because the consent judgment did not state a specific deadline for the payments.  The court ordered the parties to try to resolve the matter and ordered Defendants to make substantial efforts towards payment.  On November 10, 2021, the court granted the Secretary’s motion to dismiss, without prejudice, the Secretary’s contempt motion. 

On January 7, 2022, the Secretary reached an agreement with Defendants. Under the agreement, Defendants will make four payments over twelve months and there will be a writs of execution issued on stock they hold in an outside company, which the Secretary can levy if they miss any payments.  The Secretary agreed to the dismissal of the contempt motion without prejudice with the right to refile or renew should Defendants default on the payments. Philadelphia Office  

Walsh v. Rodgers Aluminum & Glass, LLC (W.D. Ky.)

On March 3, 2022, the Secretary filed a petition to enforce the Department’s administrative subpoena issued to Rodgers Aluminum & Glass, LLC during an ERISA investigation.  Rodgers Aluminum & Glass, LLC failed to comply with the subpoena and did not respond to the Department’s numerous contact attempts.

On June 7, 2022, Rodgers Aluminum & Glass, LLC appeared before the court and agreed to provide tdocuments demanded in the subpoena.  Following that date, Rodgers Aluminum & Glass, LLC provided several of the documents demanded in the subpoena or averred that it was unable to produce certain demanded documents. In November 2022, the Secretary voluntarily dismissed the petition to compel Rodgers Aluminum & Glass, LLC to comply with the subpoena. Cleveland Office

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Scalia v. Solis (W.D. Tex.)

On June 20, 2019, the Secretary filed a complaint against Nick and Emily Solis, owners of the plan’s sponsoring employer and fiduciaries of the West Texas Bulldog Oilfield Services LLC Health Plan, for failing to remit to the plan’s insurer $19,586 deducted from employees’ wages for health insurance premiums during January 13, 2017, through March 15, 2017.  The fiduciaries’ failures resulted in the retroactive cancellation of the plan’s health insurance coverage, leaving 28 employees without insurance, 10 of whom incurred unpaid claims totaling $17,000.  The complaint seeks restoration of all plan losses, a surcharge against the fiduciaries for the unpaid medical benefits, injunctive relief requiring the fiduciaries’ compliance with ERISA, and a fiduciary bar against the Defendants.  On October 21, 2019, the Secretary filed a motion for entry of default and, on November 13, 2019, a motion for default judgment. 

On July 20, 2020, the court granted a default judgment for the Secretary.  The judgment ordered the Defendants to restore to the 28 plan participants the $11,731 withheld from their wages but never remitted to the plan’s insurer and to pay $16,783 to the 10 plan participants who had incurred unpaid medical bills.  Additionally, the default judgment orders the Solises to pay the costs of an independent fiduciary to administer the remittance of these funds and permanently bars the Solises from serving as fiduciaries to any ERISA‑covered plan. 

Because Defendants failed to comply with the default judgment, the Secretary filed a motion to adjudge Defendants in contempt on September 3, 2020.  On March 31, 2021, the court issued a show cause order to Defendants, requiring them to respond by April 8, 2021.  After concerns arose that the Defendants may not have received the show cause order, the court on April 23, 2021, issued an order requiring the United States Marshal to serve Defendants.  Following several unsuccessful efforts by the Marshals service to serve the show cause order, the Secretary provided new contact information for Defendants and on October 8, 2021, the court issued a new order, directing the United States Marshal to effect service.  On October 18, 2021, the United States Marshals served the Defendants with the show cause order.  After service, the Secretary and the Defendants engaged in settlement discussions.  It was ultimately determined that Defendants lacked the resources to fulfill the judgement and restore the plan losses or pay the surcharge for the unpaid medical benefits.  Defendants also had not attempted to serve as a fiduciary to an employee benefit plan.  Thus, on May 6, 2022, the Secretary filed an unopposed motion to dismiss the case with prejudice, reserving the right to reopen the case if the Solises attempt to serve as fiduciaries to an employee benefit plan or they can fulfill the judgment.  On May 10, 2022, the court entered an order dismissing this matter without prejudice.  See also Scalia v. Solis, Section B.1. Collection of Plan Contributions and Loan Repayments. Dallas Office

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Secretary v. Stout Risius Ross, LLC (E.D. Pa.)

On July 29, 2021, the Secretary filed a subpoena enforcement petition against Stout Risius Ross, LLC, alleging that the company failed to produce all documents requested in two numbered items of a subpoena issued by the Department in April 2021.  Respondent filed an opposition to the petition and a motion to modify the subpoena on August 11, 2021, alleging that it was able to produce a majority of the requested documents, but that producing the remainder imposed an undue burden because of respondent’s document storage and retrieval systems.  After hearings on August 18, 2021 and on August 20, 2021, the court ordered respondent to produce certain documents, ordered the parties attempt to reach a resolution on the remainder, and ordered the parties to file either a joint status report or separate status reports by October 15, 2021.  The Secretary and respondent were unable to agree on the remaining documents and filed separate status reports on October 15, 2021, each advancing their respective positions why the production of the documents is or is not unduly burdensome.  The court conducted a status conference on February 15, 2022.  On March 3, 2022, the parties stipulated that the action be dismissed with prejudice. Philadelphia Office

Walsh v. Szeles Restoration & Mitigation Co. (M.D. Pa.)

On April 7, 2022, the Secretary filed a petition to enforce an administrative subpoena against Szeles Restoration & Mitigation Company alleging the company failed to produce any documents in response to a July 22, 2021 subpoena issued in connection with an investigation of the Szeles Restoration & Mitigation Company SIMPLE IRA Plan.  On April 20, 2022, the court issued an order requiring respondents to comply with the subpoena on or before June 6, 2022, tolling any statute of limitations for any action brought by the Secretary from the date of issuance of the subpoena to June 6, 2022 and closing the case without prejudice if respondents failed to produce the documents by June 6, 2022.  Respondent then produced documents.  Philadelphia Office  

Walsh v. The Hartford Financial Services Group, Inc. (D. Conn.)

On July 1, 2021, the Secretary filed a petition to enforce an administrative subpoena against The Hartford Financial Services Group, Inc. (“The Hartford”) for failure to comply with the Department’s subpoena.  The Hartford is an insurance carrier providing life insurance, life coverage, and death benefit policies to participants and beneficiaries of ERISA-covered plans. The Hartford failed to respond to inquiries from the Department and to a demand letter sent by the Secretary on March 31, 2021.  As of July 1, 2021, The Hartford produced no more than 15% to 20% of the total documents requested.  On September 22, 2021, The Hartford filed a response to the Secretary’s petition.  In light of the fact that The Hartford complied with the subpoena by producing the outstanding documents, on April 18, 2022, the Department filed a Withdrawal of the Petition to Enforce an Administrative Subpoena, which was granted by the court.   Boston Office   

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Acosta v. Williams-Russell & Johnson Inc. (N.D. Ga.)

EBSA determined that repeat ERISA violators, Williams-Russell & Johnson, Inc., and company president Charles E. Johnson, Sr., were once again failing to remit employee contributions to the Williams-Russell & Johnson 401(k) Retirement Plan, leading to more than $300,000 in damages to the plan.  Additionally, Johnson had not ensured that the plan made some distributions required by the plan documents.  The company and Johnson were already subject to an earlier consent judgment that barred them from fiduciary service and from future ERISA breaches.  Therefore, the Secretary filed a contempt action. 

In April 2019, the court scheduled a hearing on the contempt motion but ultimately ordered the parties to continue work on settlement.  In August 2019, at another contempt hearing, the court held Johnson and the company in contempt and threatened them with daily fines for continued non-compliance.  In September 2019, the parties agreed on a consent judgment whereby the Defendants agreed to repay the plan $315,000 (through a payment plan), to honor the fiduciary bar, and to turn over management of the plan to a third party.  The court entered the consent judgment on September 24, 2019.  

In August 2020, in light of the Defendants’ demonstrable financial hardship, the parties filed an amendment to the amended consent judgment, adjusting the payment plan. 

In 2023, the Department learned that Defendants had ceased to make payment plan payments and that the third-party fiduciary had stopped managing the plan. The Department requested documents regarding Johnson and the entity’s financial status from Johnson’s attorney. The attorney provided some documents, including bank records and settlement agreements in other matters, but has not provided all the requested information.  Given the limited and unsatisfactory information provided by Johnson’s attorney, the Department is proceeding with preparing another motion for contempt.  See also Acosta v. Williams-Russell & Johnson Inc., Section B.1. Collection of Plan Contributions and Loan Repayments.  Atlanta Office

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M. Bankruptcy

This section includes cases focusing on bankruptcy issues; where an adversarial complaint to determine the non-dischargeability of debt is incidental to a district court complaint, please see the appropriate case discussion.

In re Bridgeport Health Care Center, Inc. (Bankr. D. Conn.)

On April 18, 2018, Bridgeport Health Care Center, Inc., a Defendant in both Perez v. Bridgeport Health Care Center, Inc. and Chaim Stern and Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern filed for Chapter 11 bankruptcy. Shortly thereafter, various creditors including the Secretary moved to appoint a Chapter 11 trustee. After several days of hearing, the bankruptcy court granted the motion to appoint a Chapter 11 trustee. Chaim Stern was removed from being trustee of the Retirement Plan. The Chapter 11 trustee secured fully-insured health coverage for employees.

In August 2018, Stern paid approximately $4.1 million to the Retirement Plan. The district court also appointed an independent fiduciary for the Retirement Plan on June 24, 2019. As a result of several mediation sessions with the district court, the parties reached a resolution, and a consent order and judgment were entered on July 13, 2020. Under the consent order and judgment, the fiduciaries paid an additional $840,565 to the Retirement Plan, as well as $2,526,392 towards resolving unpaid health claims and appointing a claims administrator.

On March 22, 2021, the district court entered an order under the All Writs Act prohibiting health care providers (or their collection agents) from direct billing and/or commencing or continuing any actions against participants and beneficiaries of the Health Plan while the claims administrator works to resolve unpaid health claims. On September 8, 2022, the district court extended its injunction under the All Writs Act until June 22, 2023. The parties continue to implement the provisions of the consent judgment and order. See also Acosta v. Bridgeport Health Care Center, Inc. and Chaim Stern, Section B.1. Collection of Plan Contributions and Loan Repayments; Walsh v. Chaim Stern, Section B.1. Collection of Plan Contributions and Loan Repayments. Boston Office

ITT Educational Services, Inc. (Bankr. S.D. Ind.)

The Department's proof of claim was filed on January 27, 2017.proof of claim. On September 9, 2016, the debtor terminated the medical and dental coverage and failed to fund the account to cover claim expenses that participants incurred before the plan coverage was terminated. The participant contributions withheld from their payroll checks after September 2, 2016, were not deposited with Cigna to pay benefits. On September 15, 2016, Cigna stopped processing claims once all funds in the imprest account used to pay plan benefits were exhausted. Due to the debtor’s failure to adequately fund the imprest account, health claims and dental claims for expenses incurred by participants went unpaid.

In May 2022, the Secretary coordinated with the bankruptcy trustee regarding two claim groups for medical and dental plan benefits under the Group Benefit Plan. The Secretary was able to coordinate with the bankruptcy trustee to account for a low claim and dental claim group and a large claim group. The large claim groups included claims over $10,000. On November 22, 2022, the Secretary filed a notice of appearance related to the January 27, 2017, proof of claim. Participants were given the opportunity to provide documentation to the trustee to support the large group claim group allocations or objections by February 20, 2023. Participants and providers who did not file an objection on or before February 20, 2023, were deemed to have consented to the trustee’s proposed treatment of the large unpaid claims. As of March 15, 2023, the court ordered that the total final allowed amount for large unpaid claims is $472,828, the total allowed final amounts of low unpaid claims is $312,212, and the total allowed final amounts of dental plan claims is $22,725. Chicago Office

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In re LA Express Assembly & Distribution, Inc. dba Cal State Xpress LA Express (Bankr. C.D. Cal.)

On March 24, 2022, the Secretary filed a Limited Objection to Trustees Application for an Order to Employ Mathew J. Borror as Special Counsel to assist him in terminating the debtor’s ERISA-covered pension plan. The Secretary objected to the extent that the trustee sought an order that would contravene the principle that assets of an ERISA plan are separate from assets of the bankruptcy estate, and that a bankruptcy court lacks the power to order payments from the assets of an ERISA-covered plan. On April 6, 2022, the Chapter 7 trustee withdrew his motion. The Chapter 7 trustee resigned and a new trustee was appointed on April 12, 2022. Los Angeles Office

In re Primaris Holdings, Inc. (Bankr. W.D. Mo.)

As a creditor of Primaris Holdings, Inc., the Department of Labor filed an entry of appearance in this matter on December 31, 2020 and again on November 9, 2021. The Secretary sought $4,481for a 401(k) plan and $18,987 for unpaid health claims. Kansas City Office

In re Sky Skan Incorporated (Bankr. D.N.H.); In re Steven T. Savage and Virginia A. Savage (Bankr. D.N.H.); Acosta v. Steven T. Savage and Virginia A. Savage (Bankr. D.N.H.)

On March 26, 2018, the Secretary filed an adversary proceeding for a determination of non-dischargeability of debt against Steven and Virginia Savage, the trustees and fiduciaries of the Sky-Skan 401(k) Plan in the bankruptcy court.  The Savages failed to remit employee contributions and loan repayments, and failed to collect and remit employer matching safe harbor contributions to the plan. The Secretary previously filed proofs of claim in the Savages’ Chapter 11 bankruptcy and company/plan sponsor Sky-Skan, Inc.’s Chapter 11 bankruptcy.  Both are pending in the bankruptcy court.  Prior to filing their bankruptcy petition, the Savages transferred $704,075 from the company to themselves as reimbursement for use of credit cards, travel expenses, rent and repayment of personal loans.  The Secretary alleged that this misappropriation of employee contributions and failure to collect employer contributions while taking money for themselves was reckless and constituted defalcation. 

The Secretary and the Savages entered into a stipulation that the $152,685 of outstanding employee and employer contributions and loan repayments owed to the 401(k) plan is a nondischargeable debt pursuant to 11 U.S.C. section 523(a)(4).  On August 27, 2018, the court approved the Assented-to Motion for an Order Approving the Stipulation for Determination of Dischargeability of Debt between the Secretary and Debtors, and a Final Judgment was entered.

The Department continues to protect the interests of the 401(k) Plan in the two bankruptcies.  The court held a plan confirmation hearing on February 13-14, 2020.  Debtor Sky-Skan presented testimony from its valuation expert and interim distress CEO Brandi Bonds.  The Secretary requested that payment to the plan be in cash and not equity in the reorganized company.  There were no objections and Debtor agreed to put it into the Proposed Confirmation Order. The court took the matter under advisement.  Some of the issues in the Confirmation hearing overlapped with an Adversary Proceeding filed by a Creditor.  The hearing in the Adversary Proceeding was delayed to March 2023 because of the pandemic.  Sky-Skan and creditor Coastal Capital mediated Coastal Capital’s Adversary Proceeding, but the matter did not resolve.  On September 25, 2020, Debtor Sky-Skan filed a Notice of Amendment to Petition to Designate Case as a Subchapter V Proceeding, pursuant to Bankruptcy Rule 1009(a).  Debtor’s counsel advised that the Debtor hoped this approach, seeking to amend the original Voluntary Chapter 11 Petition filed November 1, 2017, would help to move the matter forward, as the Department continued to await the outcome of the February 13-14, 2020 plan confirmation hearing.  On October 20, 2020, Debtor Sky-Skan filed a motion to convert its Chapter 11 case to a Chapter 7 case.  The company was reported to have approximately $75,000 in cash ($58,000 of which was restricted and owed to a supplier to install a dome internationally) and receivables of less than $100,000.  The company reported having recently lost two jobs in excess of $1 million, which was “catastrophic.” 

On November 11, 2020, the Savages filed an ex parte motion to convert their Chapter 11 case to a Chapter 7 case, which was granted on November 12, 2020. On December 1, 2020, the Creditors’ Committee filed a Committee Joinder in Debtor Sky-Skan’s motion to convert their case to Chapter 7 and an objection to Coastal Capital’s Motion to dismiss the same.  On December 2, 2020, the judge denied Coastal’s motion to dismiss and granted debtor’s motion to convert in the Sky-Skan matter. 

The Secretary filed an Amended Proof of Claim in the Sky-Skan Chapter 7 case on February 4, 2021.  On February 8, 2021, the Secretary filed a Notice of Prior Stipulation as to NonDischargeability of Debt, in lieu of an Objection to Nondischargeability in the Savages’ Chapter 7 case.  On June 2, 2021, the bankruptcy court granted the Sky-Skan Chapter 7 trustee’s motion to terminate the 401(k) Plan.  On September 22 and 23, 2021, the fiduciaries’ individual retirement accounts were liquidated pursuant to a settlement agreement with the Secretary.  The proceeds were subsequently reallocated pro rata to non-fiduciary participants. The amount realized from the liquidations was $13,764. 

On March 28, 2022, Third Party Administrator, Tyler Associates, notified the Secretary that the 401(k) Plan termination was completed by John Hancock, and that all participants who had responded with completed contract termination forms were paid out, and remaining participants’ assets were being transferred to IRAs with Millenium Trust.  Tyler submitted final summary annual reports for 2021 and 2022 to the Secretary on July 6, 2022, indicating that copies would be mailed the same day to all participants. 

The Secretary is monitoring the bankruptcy proceedings as the Chapter 7 Trustee seeks to obtain additional funds and protect the assets of the bankruptcy estate.  The outcome of the Chapter 7 Trustee’s work will determine whether additional funds can be restored to the participants.  Boston Office

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In re Williamson Memorial (Bankr. S.D. W.Va.)

On October 5, 2022, the Secretary filed an objection to a proposed order filed by a Chapter 7 Trustee in In Re Williamson Memorial Hospital appointing the Chapter 7 Trustee as Trustee of the 401(k) Plan and authorizing the Chapter 7 Trustee to distribute plan assets.  In the original proposed order, the Trustee attempted to insulate itself from liability for fiduciary breaches under ERISA.  The Secretary filed an objection to the proposed order on October 5, 2022 and presented oral argument before the bankruptcy court on November 1.  On December 6, 2022, the bankruptcy court granted the Secretary’s objection that the order will not absolve the Chapter 7 Trustee of liability for fiduciary breaches or other violations of ERISA, and that the Trustee must monitor the plan’s service providers in accordance with ERISA Section 404(a)(1)(B).  See also Walsh v. Hatfield, Section B.1. Collection of Plan Contributions and Loan Repayments; Walsh v. Hatfield, Section F. Participants’ Rights and Remedies.  Philadelphia Office

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N. Miscellaneous

Walsh v. Board of Trustees of Local 272 Welfare Fund (S.D.N.Y.)

On June 23, 2022, the Secretary filed a complaint alleging that the trustees’ imposition of “tiered cost sharing” relating to the Local 272 Welfare Fund violated the Affordable Care Act prohibition against annual limits and had caused the fund to lose its grandfathered status. On August 1, 2022, the Secretary filed a motion to approve a consent judgment providing that that “tiered cost sharing” would be eliminated and that any participants injured by it would be made whole. New York Office

Walsh v. InterArch, Inc. (D.N.J.)

On August 30, 2022, the Secretary filed a complaint alleging that Shirley S. Hill and Vernon W. Will, II had failed to diversify the InterArch, Inc. Profit Sharing Plan and caused it to engage in prohibited transactions by investing heavily into a company affiliated with Vernon, before the company fell in value. On September 1, 2022, the Secretary filed a motion, entered on September 23, 2022, to approve a consent judgment providing that the Hills would repay more than $2 million and be debarred. New York Office