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Chao v. Doyle

June 8, 2006

ELAINE L. CHAO, SECRETARY OF LABOR, U.S. DEPARTMENT OF LABOR, PLAINTIFF,
v.
JAMES DOYLE ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Jerome B. Simandle

OPINION

This matter comes before the Court upon Defendant Michael Garnett's ("Garnett") motion to dismiss the complaint (the "Complaint") filed by Elaine L. Chao, Secretary of Labor for the U.S. Department of Labor (the "Secretary"). The Complaint alleges that Defendant was a fiduciary to an employee welfare benefits fund governed by the Employee Retirement Income Security Act. The Complaint continues, alleging that, in the course of serving as a fiduciary and party-in-interest to the fund, Garnett (1) failed to administer the fund's assets for the exclusive purpose of providing benefits to the fund's participants and beneficiaries and (2) failed to administer the employee welfare benefits plan assets with the care, skill, and diligence that a prudent fiduciary would have used in violation of ERISA, 29 U.S.C. § 1104(a)(1)(A) and (B). For the reasons expressed below, Garnett's motion to dismiss will be denied.

I. BACKGROUND

On April 28, 2005, the Secretary filed a Complaint against the Professional Industrial & Trade Workers Union Health and Welfare Fund (the "Fund")*fn1 and four individuals - James Doyle, Cynthia Holloway, Garnett, and Mark Maccariella.*fn2 (Complaint ¶¶ 5-9). In her Complaint, the Secretary alleges that these four individuals had various roles with respect to the Fund from 2002 through 2003. (Id.) For example, the Complaint alleges that all four were fiduciaries (as that term is defined under ERISA, 29 U.S.C. 1002(21)(A))*fn3 of the Fund and thereby either:

[E]xercised discretionary authority or discretionary control respecting the management of the Fund or exercised any authority or control respecting management or disposition of the plan assets of the Fund or had discretionary authority or discretionary responsibility in the administration of the Fund.

(Id.) The Secretary also alleges that Holloway, Garnett and Maccariella are "parties-in-interest" with respect to the Fund (as that term is defined under ERISA, 29 U.S.C. § 1002(14)(A)).*fn4

In addition to their roles in connection with the Fund, three of the individual defendants (Garnett, Maccariella, and Doyle) served as owners or officers with various companies connected to the Fund. For example, both Garnett and Maccariella served as owners of companies called Privilege Care, Inc. ("PCI") and North Point PEO Solutions, Inc. ("NP").*fn5 (Id. ¶ 7-9.) According to the Complaint, PCI and NP entered into "so-called collective bargaining agreements" with PITWU and that PITWU was the sponsor of the Fund. (Id. ¶ 10.) Doyle was the owner of Privilege Care Marketing Group, Inc., an entity that the Secretary alleges provided marketing and billing services to PCI and NP. (Id.)

Although the Complaint is not entirely clear on the relationship between the Fund, PITWU and these three companies (PCI, NP and PCMG) it appears that certain PITWU members could obtain medical benefits from the Fund. (Id. ¶ 11.) To do so, the member's employer would need to pay certain monthly fees to PCMG, PCI and NP. (Id.) According to the Complaint, payment of fees flowed from the employer to PCMG (who retained a certain amount for administrative fees) and then to PCI/NP. (Id.) Upon receipt of the funds from PCMG, PCI/NP would transfer a portion of the funds to a third-party administrator who was charged with processing and paying health claims made by PITWU members. (Id. ¶ 12.) The other portion of the funds received by PCI/NP would be paid to PITWU (in the form of "dues"), who in turn sponsored the Fund. (Id.)

The Complaint alleges that, from November of 2001 through September of 2002, Holloway "failed to monitor and correct the diversion of employer contributions to the Fund by PCI and NP." (Id. ¶ 14.) Specifically, with respect to Garnett, the Complaint alleges that Garnett:

[F]ailed to administer the Fund's assets for the exclusive purpose of providing benefits to the Fund's participants and beneficiaries and defraying reasonable expenses of administering the plans under...29 U.S.C. § 1104(a)(1)(A) and (2) failed to administer the Fund's plan assets with the care, skill and diligence that a prudent fiduciary would have used in like circumstances in violation of ERISA...§ 1104(a)(1)(B). (Id. ¶ 16.) In addition, the Complaint alleges that Garnett, by

(i) knowingly participating in the alleged acts of his cofiduciaries, (ii) by enabling his co-fiduciaries to commit certain fiduciary breaches and (iii) by failing to make reasonable efforts to remedy the breaches of fiduciary duty by his co-fiduciaries, Garnett is liable for the breaches of fiduciary responsibility committed by his co-fiduciaries. (Id. §§ 19-21 citing 29 U.S.C. § 1105(a)(1)-(3)).*fn6

B. Procedural History

On September 12, 2005, Garnett filed a motion to dismiss the Secretary's Complaint. [Docket Item No. 16.] The Secretary filed timely opposition to Garnett's motion on October 5, 2005, [Docket Item No. 23.], to which Garnett failed to reply. The Court ...


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