The opinion of the court was delivered by: McLaughlin, J.
I. Summary Judgment Standard. . . . . . . . . . . . . . . . . 3
II. Factual Background.. . . . . . . . . . . . . . . . . . . . 5
A. The REAL VEBA Employee Benefit Arrangement. . . . . . 5
B. The Parties.. . . . . . . . . . . . . . . . . . . . . 8
C. The Decor Plan, the Cetylite Plan, and the Castellano Plan. . . . . . . . . . . . . . . . . . . . . . . . . 9
D. The Alleged Fiduciary Violations. . . . . . . . . . 12
III. Threshold Questions. . . . . . . . . . . . . . . . . . . 19
A. ERISA Coverage. . . . . . . . . . . . . . . . . . . 21
B. Coverage of Fiduciary Responsibility Provisions: The "Top Hat" Exception.. . . . . . . . . . . . . . . . 37
C. Fiduciary Status. . . . . . . . . . . . . . . . . . 43
IV. ERISA Fiduciary Duties.. . . . . . . . . . . . . . . . . 61
A. ERISA Section 403, 29 U.S.C. § 1103.. . . . . . . . 63
B. ERISA Section 404, 29 U.S.C. § 1104.. . . . . . . . 66
C. ERISA Section 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D).. . . . . . . . . . . . . . . . . . 70
D. ERISA Section 406(b)(1), 29 U.S.C. § 1106(b)(1).. . 73
V. Relief.. . . . . . . . . . . . . . . . . . . . . . . . . 75
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
HILDA L. SOLIS, SECRETARY CIVIL ACTION OF LABOR, UNITED STATES DEPARTMENT OF LABOR v. : JOHN J. KORESKO, V, et al.
This action arises out of alleged violations of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., in connection with a multiple-employer employee death benefit arrangement. The Secretary of Labor (the "Secretary" or "DOL") moves for partial summary judgment as to three purported ERISA plans (collectively, the "Plans"): the Cetylite Industries Inc. Health and Welfare Benefit Plan (the "Cetylite Plan"), the Decor Coordinates Health and Welfare Benefit Plan (the "Decor Plan"), and the Domenic Castellano D.D.S., P.A. Health and Welfare Benefit Plan (the "Castellano Plan"). The Secretary brings her motion against only some of the defendants, namely: John J. Koresko, V ("Koresko"), Jeanne Bonney, PennMont Benefit Services, Inc. ("PennMont"), Koresko & Associates, P.C. ("KAPC"), and Koresko Law Firm, P.C. ("KLF"). The Court will refer to these defendants collectively as the "Koresko Defendants." The Secretary did not move for summary judgment against defendant Farmers & Merchants Trust Company of Chambersburg ("F&M Trust"), successor by merger to Community Trust Company ("CTC").*fn1
The Secretary argues that the Plans are employee welfare benefit plans as defined by ERISA; that the Plans have plan assets in the form of employer contributions, insurance policy proceeds, and earnings therefrom; that the Koresko Defendants are ERISA fiduciaries with respect to those plan assets; and that the Koresko Defendants breached several of their fiduciary duties by failing to maintain plan assets in trust and transferring assets into non-trust accounts that they themselves controlled. The Court will grant the Secretary's motion as to defendants Koresko, Bonney, and PennMont for violations of ERISA Sections 403, 29 U.S.C. § 1103; 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A); and 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B) for all three Plans. The Court will grant the motion as to defendants Koresko, Bonney, and PennMont for violations of ERISA Section 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D) as to the Cetylite Plan, and deny without prejudice as to the Decor and Castellano Plans. The Court will deny the motion without prejudice as to KAPC and KLF, and as to violations of ERISA Section 406(b)(1), 29 U.S.C. § 1106(b)(1).
I. Summary Judgment Standard
Summary judgment is appropriate if there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the initial burden of informing the court of the basis for its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once a properly supported motion is made, the burden shifts to the nonmoving party to set forth specific facts showing that there is a genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
A fact is "material" if it might affect the outcome of the suit under the governing law. Id. at 248. A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. The court must view the facts in the light most favorable to the nonmoving party. See Sheridan v. NGK Metals Corp., 609 F.3d 239, 251 n.12 (3d Cir. 2010).
The Koresko Defendants' response to the Secretary's statement of undisputed facts purports to "dispute" the majority of the Secretary's factual recitations. However, their response is replete with legal arguments, lacks citations to the record, and generally does not comply with Federal Rule of Civil Procedure 56(c)(1) or this Court's procedures. See generally Koresko Stmt. Resp. (ECF No. 284). The Court considered properly supported facts genuinely disputed only where the Koresko Defendants provided citations to the record.
Defendant F&M Trust denied many of the Secretary's facts under Federal Rule of Civil Procedure 56(d), which states:
If a non-movant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: (1) defer considering the motion or deny it; (2) allow time to obtain affidavits or declarations or to take discovery; or (3) issue any other appropriate order.
The Court of Appeals for the Third Circuit has interpreted this provision to require a party seeking further discovery in response to a summary judgment motion to submit an affidavit specifying what particular information is sought; how, if uncovered, it would preclude summary judgment; and why it has not previously been obtained. Pa. Dep't of Public Welfare v. Sebelius, 674 F.3d 139, 157 (3d Cir. 2012) (citing Dowling v. City of Phila., 855 F.2d 136, 139 (3d Cir. 1988)). The Secretary has not moved for summary judgment against F&M Trust. The affidavit submitted by attorney Timothy J. Nieman on behalf of F&M Trust referred to documents in the DOL's possession, but does not explain how the documents would preclude summary judgment on the legal issues relevant to F&M Trust, or why the documents were not previously obtained.*fn2 Decl. of Timothy J. Nieman (ECF No.283).
Thus, except where the defendants countered the Secretary's factual recitation with citations to the record, the Court considered any properly supported facts undisputed for the purposes of the motion pursuant to its discretion under Federal Rule of Civil Procedure 56(e)(2). The Court now sets forth those facts.
II. Factual Background*fn3
A. The REAL VEBA Employee Benefit Arrangement Defendant John J. Koresko ("Koresko") and his brother, Lawrence Koresko, run a loose, unincorporated association of unrelated employers called the Regional Employers Assurance Leagues ("REAL"). The REAL offers a program of employee welfare benefits, including death benefits, to employers through the Regional Employers Assurance Leagues Voluntary Employees' Beneficiary Association ("REAL VEBA") Trust, a multiple employer trust. Koresko and his brother sign documents and take actions on behalf of the REAL, which is neither an actual business entity nor a corporation. Koresko also wrote the plan and trust documents for the death benefit arrangement and the REAL VEBA Trust. Koresko Dep. 85-86 (Aug. 25, 2009) (GX 10); Koresko Aff. ¶¶ 3, 4, 5 (May 4, 2004) (GX 4); Master Trust Agreement, Whereas Cl. (GX 11).
Employers execute an adoption agreement in order to join the REAL. In doing so, they indicate their agreement to adopt the REAL VEBA "Plan" and subscribe to the REAL VEBA Trust. The adoption agreement allows employers to select the type and amount of benefits offered, and to set eligibility requirements. Eligible employees of adopting employers may then sign participation agreements to participate in the benefit arrangement. See, e.g., Castellano Adoption Agreement (GX 44); Castellano Participation Agreements (GX 46).
The REAL VEBA Plan Document ("Plan Document"), which governs the benefit arrangement, states that each adopting employer "shall in a timely manner contribute to the Trustee all amounts . . . necessary to provide all Benefits." Plan Document § 4.01(a)(1) (GX 14). Employer contributions are received into the REAL VEBA Trust to be held for the benefit of all employees covered in the arrangement. The Plan Document also permits the trustee to use employer contributions to purchase insurance policies on the lives of participating employees to fund the benefits. Master Trust Agreement Whereas Cl., § 4.2 (GX 11); Plan Document § 7.05(a) (GX 14). The benefits are paid according to the terms of each employer's Adoption Agreement and the Plan Document, and out of proceeds from these insurance contracts as well as other funds held by the trustee for the payment of benefits. Bonney Aff. ¶¶ 11, 24 (July 16, 2009) (GX 17); Plan Document §§ 5.04, 7.05(a) (GX 14).
The REAL VEBA Master Trust Agreement ("Master Trust Agreement") provides that the plan administrator shall perform separate accounting of the balances in the entire REAL VEBA Trust allocable to employees of each adopting employer. But the agreement also states that separate accounting "shall not operate to prevent any portion of the Trust Fund from being available for the payment of any claim arising under the Plan." Master Trust Agreement § 4.4 (GX 11). See also Cetylite Summary Plan Description 5 (GX 35) ("Under the terms of the Plan, all assets of the Trust are available to pay all claims that are presented to the Trustee. This means that money contributed to the Plan by the Employer could be used to pay benefits of employees other than those of the Employer."). At the same time, under the Plan Document, benefits shall not be payable to any participant or beneficiary until the amount payable under the insurance policy that funds the benefit is received by the REAL VEBA Trust. Plan Document § 7.05(g) (GX 14).
The Plan Document provides that each adopting employer shall appoint a "Committee," which determines the beneficiaries to whom benefit payments are made, computes the amount of the benefits, and directs the trustee to pay benefits from the trust fund, among other responsibilities. However, the Plan Document also specifies that if an employer names a plan administrator in its adoption agreement, the administrator "shall assume and perform all and each and every  duty and responsibility to the Committee," and that the term "Committee" in the Plan Document shall include the administrator. Plan Document §§ 5.05, 5.06, 6.01, 6.03 (GX 14).
PennMont is a Pennsylvania corporation that performs plan administrative services for the REAL VEBA Trust, but has no employees or physical assets of its own. Its work was and is performed by employees of the Koresko law firms, Koresko & Associates, P.C. ("KAPC"), and Koresko Law Firm, P.C. ("KLF"). PennMont maintains corporate offices at the same address as KAPC and KLF, functions like a division thereof, and operates on the premises thereof. 9/9/09 Tr. of Prelim. Injunction Hr'g 39-42 (GX 7); Bonney Dep. 95-96 (Aug. 19, 2009) (GX 8); Koresko Aff. ¶¶ 13-16 (May 4, 2004) (GX 4); DOL Stmt. ¶ 5; Koresko Stmt. Resp. ¶ 5.
John Koresko, a lawyer and certified public accountant, is the
president of PennMont. He is also the sole shareholder of his law
firms, KAPC and KLF. Jeanne Bonney was an employee of
both KAPC and KLF and served as counsel to PennMont.*fn4
See Pa. Dep't of State Filing (GX 1); Koresko Aff. ¶¶ 1, 13
(May 4, 2004) (GX 4); 9/9/09 Tr. of Prelim. Injunction Hr'g 39-40 (GX
7); Bonney Aff. ¶ 1 (July 16, 2009) (GX 17).
In March 2002, Community Trust Company ("CTC") became trustee of the REAL VEBA Trust. Subsequently, Farmers & Merchants Trust Co. of Chambersburg ("F&M Trust") became the trustee after merging with CTC on November 30, 2008. F&M Trust remained the trustee until January 15, 2011, when Judge Jones signed an order in this case discharging F&M Trust, and permitting Penn Public Trust ("PPT") to become the trustee. Master Trust Agreement § 1.6 (GX 11); 7/17/09 TRO Hr'g Tr. 12-13 (GX 12); ECF No. 195 ¶¶ 3-4.
John Koresko is the director, secretary treasurer, president, and counsel of the current REAL VEBA trustee, PPT. He manages PPT and directs all of its operations. PPT has no employees of its own; employees of the Koresko law firms perform PPT's operations. See Koresko Dep. 40-42, 45-48 (Aug. 25, 2009) (GX 10).
C. The Decor Plan, the Cetylite Plan, and the Castellano Plan Decor Coordinates, Inc. ("Decor"), Cetylite Industries, Inc. ("Cetylite"), and Domenic M. Castellano, D.D.S., P.A. (the "Castellano Dental Practice") are among the many employers that adopted the benefit arrangement offered by the REAL VEBA Trust, or its predecessors.*fn5 Representatives from Decor, Cetylite, and the Castellano Dental Practice executed REAL VEBA adoption agreements in November 1994, December 1994, and July 1998, respectively. Decor Adoption Agreement (GX 9); Cetylite Adoption Agreement (GX 33); Castellano Adoption Agreement (GX 44).
The Adoption Agreements stated that the plan names would be the Decor Coordinates Inc. Health and Welfare Benefit Plan, the Cetylite Industries Inc. Health and Welfare Benefit Plan, and the Domenic M. Castellano, D.D.S. P.A. Health and Welfare Benefit Plan. Each agreement named PennMont as the plan administrator, provided death benefits to eligible employees, and did not require participant contributions. Each Adoption Agreement also defined the death benefit as calculated based on a set multiple of the participating employee's salary. Decor Adoption Agreement §§ 2(a), 2(c), 4(a), 5(c) (GX 9); Cetylite Adoption Agreement §§ 2(a), 2(c), 4(a), 5(c) (GX 33); Castellano Adoption Agreement §§ 2(a), 2(c), 4, 5(c) (GX 44).
Each employer then subsequently made contributions into the REAL VEBA Trust on behalf of its participating employees. In 1995, 2000, and 2001, Decor wrote checks in the amounts of $100,000, $80,000, and $50,000 to the then REAL VEBA Trustee "f/b/o Decor Coordinates Inc. W.B.P." At least two Decor employees that did not own any portion of the company were listed in an inventory of insurance coverage sent from PennMont to Decor's president, Angelo Ferraro. See Decor Checks (GX 16); Ltr. from Jeanne Bonney to Angelo Ferraro (Nov. 15, 2001) (GX 18).
Cetylite sent multiple checks from 2000 through 2003 for payment into the master trust. Approximately 30 employees participated in Cetylite's arrangement with the REAL VEBA Trust. Cetylite Checks (GX 37); 9/3/09 Tr. of Prelim. Injunction Hr'g 5-6 (GX 36).
PennMont acknowledged receipt of at least one contribution check from the Castellano Dental Practice and indicated that future remittances should remain payable to the then trustee of the REAL VEBA Trust, "f/b/o Domenic M. Castellano, D.D.S., P.A. Welfare Benefit Plan." Castellano Dental Practice employees Mary Lee Harper and Alison Acco each signed employee agreements to participate in the REAL VEBA Trust. Records obtained from PennMont reflect insurance policies from CNA Life for these two employees. Ltr. from Jeanne Bonney to Dr. Castellano (July 16, 1998) (GX 45); GX 46 at 1, 2, 10.
D. The Alleged Fiduciary Violations
The alleged fiduciary violations by the Koresko
Defendants follow the same general pattern for each of the Plans. Life insurance policies were taken out on the lives of participating employees from Decor, Cetylite, and the Castellano Dental Practice. Following the deaths of these employees, proceeds from the insurance policies were paid to the REAL VEBA trustee, who transferred them into a business high performance money market account held by John Koresko and Jeanne Bonney.
CTC, the then-trustee of the REAL VEBA Trust, was not the account holder on these accounts. PennMont paid a certain amount of benefits to the intended beneficiary in its discretion as plan administrator. Most of the remaining policy proceeds were then transferred to the "Koresko Law Firm Death Benefit Escrow Account." The Court outlines these actions in more detail below.
1. Insurance Proceeds Paid on the Life of Decor Employee Angelo T. Ferraro
In 1995, the United of Omaha Life Insurance Company issued a $2,500,000 life insurance policy on the life of Decor employee Angelo T. Ferraro. The insurance policy named "Commerce Bank, N.A., Trustee for Decor Coordinates, Inc. W.B.P." as the beneficiary and "Commerce Bank, N.A., Trustee" as the owner, with a listed address of "c/o Penn-Mont Benefit Svc." In 1997, policy ownership was assigned to "Corestates Bank, N.A., Trustee f/b/o Decor Coordinates W.B.P.," which also became the new beneficiary.*fn6
United of Omaha Pol'y (GX 20).
In 2001, Mr. Ferraro signed a beneficiary nomination form naming "The Trustee of the Ferraro Family Trust Dated April 26, 2001" as the beneficiary of any death benefits payable as a result of his participation in the Decor Plan. In January 2002, Mr. Ferraro died. After Mr. Ferraro's death, the Ferraro Family Trust submitted a REAL VEBA death benefit claim form to PennMont. Ferraro Beneficiary Nomination Form (GX 19); Ferraro Death Benefit Claim Form (GX 21).
On or about May 8, 2002, United of Omaha issued a check payable to "Community Trust Comp., Trustee" in the amount of $2,515,890.41, representing the proceeds from the policy that insured Mr. Ferraro. Later that month, PennMont deposited this check into a Commerce Bank account named the "Commerce Bank FBO REAL VEBA Trust, Community Trust Company Trustee," with Account No. Xxxxxx1638 ("CTC Trust Account"). DOL Stmt. ¶¶ 20, 21; Koresko Stmt. Resp. ¶¶ 20, 21; United of Omaha Check (GX 22); PennMont Record and Deposit Ticket (GX 23).
In November 2002, Koresko and Bonney opened a new business high performing money market account, No. Xxxxxxxxx5890, with First Union National Bank ("Ferraro FUNB Account").*fn7 The account application listed Koresko and Bonney as trustees and authorized signatories. The account holders for the Ferraro FUNB Account were "Ferraro Death Benefit Trust," "John J. Koresko Trustee" and "Jeanne D. Bonney Trustee." Account Application (GX 24); FUNB Account Statement (GX 25).
The Ferraro FUNB Account bank statement reflects that on or about November 14, 2002, CTC transferred $2,513,194.58 from Commerce Bank to the Ferraro FUNB Account. The bank statement recording this transfer referenced "EMPL DECOR COOR." FUNB Account Statement (GX 25). On or about November 18, 2002, shortly after opening the Ferraro FUNB Account, Jeanne Bonney issued a check in the amount of $2,027,723.94 from the Ferraro FUNB Account to the "Ferraro Family Trust dated 4/26/01." Bonney mailed the check to counsel for Mr. Ferraro's family. Ferraro Death Benefit Claim Form (GX 21); Ltr. and Check from Jeanne Bonney to Phillip Forbes (GX 26). On December 31, 2004, Koresko signed a check from the Ferraro FUNB Account for $494,166.53, payable to "Koresko Law Firm - Death Benefit Escrow Account." The cancelled check bears the endorsement "For Deposit Only xxxxx6507 Koresko Law Firm." GX 28.
Two more checks issued from the Ferraro FUNB Account:
(1) a check for $1,213.35 to the U.S. Treasury dated April 14, 2004, and (2) a check for $3,041.48 to "Commerce Bank" dated March 10, 2006, which endorsement stated "xxxxx8992." At the time, Koresko and Bonney held a bank account in the name of "Angermeier Death Benefit Trust" with the account number xxxxx8992 (hereinafter the "Angermeier Account"). A Ferraro FUNB Account statement covering the period April 29, 2006 through May 31, 2006 showed a balance of zero dollars. GX 29; GX 30; GX 31; Account Statement (GX 32).
2. Insurance Proceeds Paid on the Life of Cetylite Employee Dale A. Kelling
In 1995, the First Colony Life Insurance Company issued a $1,020,000 life insurance policy on the life of Cetylite employee Dale A. Kelling. The policy named "Trustee of the DE Valley League of Manufacturers Trust Under Trust Agreement dated 9/1/92" as the owner and beneficiary of the policy. In 1997, policy ownership was changed to "Corestates Bank, N.A., Trustee c/o Penn-Mont Benefit Services," which also became the new beneficiary. First Colony Pol'y (GX 38).
In 1995, Mr. Kelling executed a beneficiary nomination form naming his wife, Linda Kelling, as the beneficiary of any death benefits payable from his participation in the Cetylite Plan. Mr. Kelling died in June 2003. After Mr. Kelling's death, his wife submitted a REAL VEBA death benefit claim form to PennMont. Kelling Beneficiary Nomination Form (GX 39); Kelling Death Benefit Claim Form (GX 40).
In August 2003, First Colony Life Insurance Company wrote a check for $1,027,374.00, payable to the "Regional Employers Assurnce League Trst [sic] DTD 3/20/95 RESTATED 3/18/02." Shortly afterwards, PennMont employee Maggie Carroll submitted a premium payment request to the then REAL VEBA trustee: "Please cause the REAL VEBA Trustee to prepare payment as follows: . . . Kelling Family Death Benefit Trust $1,027,374.00." The payment request directed payment to be sent to PennMont's offices. GX 41; REAL VEBA Premium Payment Request (GX 42 at 6); GX 43.
A business high performance money market account with account number xxxxxxxx1675 was opened at Wachovia Bank, N.A., in the name of the "Kellig Gamily [sic] Death Benefit Trust" (hereinafter the "Wachovia Kelling Account"). Koresko and Bonney were listed as account holders and trustees. GX 42 at 8. On September 8, 2003, CTC, the REAL VEBA Trust trustee, issued a check in the amount of $1,027,374.00 payable to "Kelling Family Death Benefit Trust." The check was deposited into the Wachovia Kelling Account held by Koresko and Bonney. See GX 42 at 4, 8.
On October 24, 2003, Jeanne Bonney sent a letter to Linda Kelling, attaching a check from the Wachovia Kelling Account for $812,681.70, payable to Linda Kelling. GX 42 at 9-10. On December 31, 2004, Koresko signed a check drawn on the Wachovia Kelling Account for $216,115.61 payable to "Koresko Law Firm - Death Benefit Escrow Account." The cancelled check bears the endorsement: "For Deposit Only xxxxxx6507 Koresko Law Firm." GX 42 at 13.
Two more checks issued from the Wachovia Kelling Account: (1) a check for $236.18 to the U.S. Treasury, and (2) a check for $2,786.87 to "Commerce Bank," which endorsement indicated deposit to account number "xxxxx8992." The -8992 account number corresponded to that of the aforementioned Angermeier Account held by Koresko and Bonney. A Wachovia Kelling Account bank statement covering the period March 1, 2006 ...