The opinion of the court was delivered by: Hon. Joseph H. Rodriguez
On April 28, 2005, the Secretary of Labor filed a Complaint pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1132(a)(2) and (5) to obtain relief for alleged violations of the statute by Defendants the Professional Industrial & Trade Workers Union ("PITWU") Health and Welfare Fund (the "Fund")*fn2 and four individuals - James Doyle, Cynthia Holloway, Michael Garnett, and Mark Maccariella. (Complaint ¶¶ 5-9.)
In her Complaint, the Secretary alleged that the four individuals had various roles with respect to the Fund from 2001 through 2003. (Compl. ¶¶ 6-9.) All four allegedly were fiduciaries (as that term is defined under ERISA, 29 U.S.C. § 1002(21)(A)) 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 alleged that Holloway, Garnett, and Maccariella were "parties-in-interest" with respect to the Fund (as that term is defined under ERISA, 29 U.S.C. § 1002(14)(A)).*fn3 Each Defendant is alleged to have violated the statute in failing to administer the assets of the Fund for the exclusive purpose of providing benefits to the Fund's participants and beneficiaries.
Defendant Holloway was a named trustee to the Fund from approximately May 1, 2001 to September 22, 2002, (Compl. ¶ 7), and Garnett was a trustee to the Fund from May 30, 2002 to August 19, 2002, (Compl. ¶ 8). 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. Both Garnett and Maccariella served as owners of companies called Privilege Care, Inc. ("PCI") and North Point PEO Solutions, Inc. ("NP"). (Compl. ¶¶ 8-9.) According to the Complaint, PCI and NP were professional employer organizations ("PEOs") which entered into "so-called service contract agreements with employers" to provide human resource type services and access to health insurance provided by the Fund through "so-called collective bargaining agreements" with PITWU, the sponsor of the Fund. (Id. ¶ 10.) Garnett was the owner from May 21, 2002 to August 19, 2002, and Maccariella was the owner from about August 19, 2002 to June 1, 2003. (Compl. ¶¶ 8-9.)
From January 1, 2002 to June 1, 2003, Defendant Doyle was the owner of Privilege Care Marketing Group, Inc. ("PCMG"), an entity which provided marketing and billing services to PCI and NP, signing up employers to purchase health insurance coverage under the Fund. (Compl. ¶ 6.)
According to the Complaint, 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.) Payment of fees at issue flowed from the employer to PCMG, which retained a certain amount for administrative fees, sales commission, and billing 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 which was charged with processing and paying health claims made by PITWU members. (Id. ¶ 12.) A portion of the funds received by PCI/NP would be paid to PITWU as "dues." (Id.) The Secretary has alleged that PCI/NP retained the remainder of employer contributions. (Id.)
The Secretary also alleged that Doyle, Garnett, and Maccariella:
failed 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 . . . 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).
(Compl. ¶¶ 15-17.) As to Holloway, the Complaint asserts 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," (Compl. ¶ 14), and from January 1, 2002 to September 22, 2002, she "failed to monitor and correct the diversion of employer contributions to the Fund by PCMG," (Compl. ¶ 13). Thus, she is alleged to have:
failed to administer the Fund for the exclusive purpose of providing benefits to the Fund's participants and beneficiaries and defraying reasonable expenses of administering the Fund under . . . 29 U.S.C. § 1104(a)(1)(A); and . . . failed to administer the Fund with the care, skill, prudence and diligence that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims under ERISA . . . § 1104(a)(1)(B).
In addition, the Complaint has alleged that by (I) knowingly participating in the alleged acts and omissions of their co-fiduciaries, (ii) by enabling co-fiduciaries to commit certain fiduciary breaches, and (iii) by failing to make reasonable efforts to remedy the breaches of fiduciary duty by co-fiduciaries, the Defendant fiduciaries are liable for the breaches of fiduciary responsibility committed by their co-fiduciaries. (Compl. ¶¶ 19-21, citing 29 U.S.C. § 1105(a)(1)-(3).)
The Secretary of Labor seeks restoration of losses to the Fund as a result of Defendants' alleged ERISA violations. The Court also has been asked to enjoin the Defendants from serving as fiduciaries or service providers to an ERISA-covered plan.
Essentially, Doyle, Garnett, and Maccariella are accused of misuse and misappropriation of assets entrusted to them for payment of health benefits, while Holloway allegedly did not discharge her fiduciary obligation to ascertain the financial condition of the Fund despite warning signs that "something was amiss." The Secretary has asserted that PITWU, PCMG, PCI, and NP were sham entities set up to sell insurance while invoking ERISA preemption to evade state insurance laws. While over $7.4 million was collected, allegedly constituting assets belonging to the Fund, it has been argued that more than $4.7 million was retained in breach of the Defendants' fiduciary duties, and less than $2.7 million was used to pay benefits. As of September 2003, Plaintiff originally argued, nearly $10 million in claims remained unpaid. There were allegedly 408 formal complaints filed with the Department of Labor regarding PITWU Fund participants' unpaid medical bills, and seven states entered cease and desist orders banning Defendants from selling health insurance in their jurisdictions.
Finally, the Secretary asserts that under the "governing documents" approach, all employer contributions were plan assets, regardless of the form in which they were remitted. Because all money paid to PCMG and/or PCI/NP were plan assets of the Fund, the argument continues, the Defendants diverted plan assets to entities that served no discernable purpose.
A bench trial was held in this matter October 19 through 26, 2009. At the outset of the bench trial, Defendant Mark Maccariella voluntarily accepted a default judgment against him. Accordingly, the Court entered a consent judgment and order on December 7, 2009, enjoining Maccariella from future activity in this area, and requiring him to pay $195,317.
Despite numerous continuances granted at his request, Michael Garnett failed to appear for trial even though he was ordered to do so by this Court. Therefore, default judgment will be entered in favor of the Secretary of Labor and against Michael Garnett, as discussed on the record during the trial.
As to Defendants Doyle and Holloway, the Court has adduced the following facts from the evidence introduced at trial.
It is undisputed that in 2000, an individual named David ...