SECRETARY OF LABOR v. DOYLE et al, No. 1:2005cv02264 - Document 385 (D.N.J. 2020)
Court Description: OPINION. Signed by Judge Joseph H. Rodriguez on 11/13/2020. (rss, )
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SECRETARY OF LABOR v. DOYLE et al Doc. 385 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 1 of 30 PageID: 6108 U N ITED S TATES D ISTRICT COU RT D ISTRICT OF N EW JERSEY SECRETARY OF LABOR, Plaintiff, v. : Hon. J oseph H. Rodriguez : Civil Action No. 0 5-cv-2264 : OPIN ION J AMES DOYLE, CYNTHIA HOLLOWAY, et al., : Defendants. : This case concerns violations of the Em ployee Retirem ent Incom e Security Act (“ERISA”) by Defendants the Professional In dustrial & Trade Workers Union (“PITWU”) Health and Welfare Fund (the “Fund”), and four individuals—J am es Doyle (“Doyle”), Cynthia Holloway (“Holloway”), Michael Garnett, and Mark Maccariella. In 20 14, this Court found, inter alia, that Defendant Holloway breached her fiduciary duties of loyalty and prudence to the PITWU Fund; and that Holloway was, therefore, jointly and severally liable along with the other defendants to restore and m ake restitution to the Fund. The m atter is presently before the Court on its second rem and from the United States Court of Appeals for the Third Circuit pursuant to its Opinion in Sec'y of Labor v. Doyle, 657 F. App'x 117, 122 (3d Cir. 20 16) (hereinafter “Doyle IV”). 1 On appeal, the 1 The Court initially held a bench trial in this m atter, resulting in a judgment for Doyle and Holloway. Solis v. Doyle, No. CIV.A.0 5-2264, 20 10 WL 2671984 (D.N.J . J une 30 , 20 10 ), vacated sub nom . Sec'y of Labor v. Doyle, 675 F.3d 187 (3d Cir. 20 12) (hereinafter “Doyle I”). The Secretary appealed the Court's 20 10 judgment. On appeal, the Circuit vacated this Court's Opinion and rem anded the case for additional factual findings as to nature of certain funds and the duties of Doyle and Holloway. Sec'y of Labor v. Doyle, 675 F.3d 187, 189 (3d Cir. 20 12) (hereinafter “Doyle II”). For reasons stated infra, this Court found both Holloway and Doyle breached their fiduciary duties, and entered judgm ent against Defendant Doyle for $ 3,882,867.98, plus prejudgment interest, and against Defendant Holloway for $ 4,698,871.98, plus prejudgment interest; Doyle and Holloway appealed. Sec'y of Labor v. Doyle, No. 0 5-CV2264, 20 14 WL 6747882, at (D.N.J . Dec. 1, 20 14), aff'd in part, vacated in part, rem anded, 657 1 Dockets.Justia.com Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 2 of 30 PageID: 6109 Third Circuit vacated this Court’s 20 14 judgm ent against Defendant Holloway and rem anded the case for additional factual findings as to Holloway’s knowledge of the m ism an agem ent of the Fund. I. Background This Court, and the Third Circuit, have detailed the factual background of this case in its previous opinions. 2 The Court will not restate herein the robust factual background, but refer to those facts pertinent to this rem and. A. Fa ctu a l Backgro u n d David Weinstein (“Weinstein”) form ed PITWU in 20 0 0 . At that tim e, Holloway owned a Professional Em ployer Organization (PEO), Em ployers Depot, Inc. (“EDI”). A broker at EDI introduced Holloway to the PITWU. In April 20 0 1, Holloway asked counsel, Neil Goldstein (“Goldstein”), about the legitim acy of PITW Union and its plan to create the Fund; he advised her that the union was legal. On May 1, 20 0 1, Holloway and three other trustees form ally established an em ployee welfare and benefit plan for the PITWU (the Fund) by an Agreem ent an d Declaration of Trust. The Fund had a num ber of trustees, including Holloway; an attorney, Goldstein; an actuary, McKeogh; and an accountant, Beckm an. Throughout the life of the Fund, there were also three different third-party claim s adm inistrators, hired to pay health benefit claim s by em ployees covered by the Fund. The first claim s adm inistrator was F. App'x 117 (3d Cir. 20 16) (hereinafter “Doyle III”). The Third Circuit subsequently affirmed this Court’s finding as to “plan assets” and Defendant Doyle’s liability, and vacated the judgement against Holloway. 2 See Doyle IV, 657 F. App'x 117, 122 (3d Cir. 20 16); Doyle II, 675 F.3d 187, 189 (3d Cir. 20 12); Doyle I, No. CIV.A.0 5-2264, 20 10 WL 2671984, at *1 (D.N.J . J une 30 , 20 10 ). 2 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 3 of 30 PageID: 6110 Union Privileged Care (“UPC”), which was owned by Weinstein. In March 20 0 2, Oak Tree Adm inistrators (“Oak Tree”) replaced UPC and served as the third-party adm in istrator until J une of 20 0 2, when Brokerage Con cepts, Inc. took over. See Doyle I, 20 10 WL 2671984, at *3-4; Doyle III, 20 14 WL 6747882, at *2. EDI and Em ployer’s Consortium , Inc. (“ECI”), were the Fund’s initial em ployer m em bers. EDI and ECI em ployees were enrolled as participants in the Fund. 3 The Trust Agreem ent obligated EDI and ECI to m ake regular contributions to the Fund for each of their covered em ployees. [Dkt. No. 374, (“Supp. Trial Transcript”) at 170 -72]; Doyle III, 20 14 WL 6747882, at *2. When ECI term in ated its relationship with the Fund in J anuary 20 0 2, two com panies, Privileged Care, Inc. (“PCI”) and NorthPoint PEO (“NP”), entered into identical collective bargaining agreem ents (“CBA”) with PITWU, in which they agreed to m ake contributions to the Fund to enable their em ployees to receive health ben efits under the Fund. 4 PCI and NP perm itted sm all businesses to obtain health ben efits for their em ployees by enrolling the em ployees in the Fund, even though the em ployees never joined the union. Doyle III, 20 14 WL 6747882 at *1. PCMG provided m arketing and billing services to PCI and NP, signin g up em ployers to purchase health insurance coverage under the Fund. (Com pl.¶ 6.) From J anuary 1, 20 0 2 to J une 1, 20 0 3, Doyle was the owner of PCMG. (Id.) Clients m ade paym ents by two checks, one to PCI/ NP for participation in the Fund (Check 1), and one to PCMG for adm inistrative service fees (Check 2). PCMG received both checks and would forward the first on to PCI/ NP. It retained the second check to cover its expenses, 3 EDI recom mended the Fund as one possibility to its clients seeking group m edical coverage. 4 Both Garnett and Maccariella served as owners of PCI and NP. (Com pl.¶¶ 8– 9.) 3 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 4 of 30 PageID: 6111 which in cluded sales com m issions paid to PCMG's sales consultants and fees for additional services selected by the client, such as gap insurance. PCMG also provided m onthly reports to PCI/ NP regarding funds received and paid certain union dues. Id. On April 28, 20 0 5, the Secretary of Labor filed a Com plaint pursuant to ERISA, 29 U.S.C. §§ 1132(a)(2) and (5), to obtain relief for alleged violations of the statute by Defendants. (Com plaint ¶¶ 5– 9.) The Secretary's Com plaint alleged that PITWU had established a health benefit plan that was a “m ulti-em ployer welfare arrangem ent” (“MEWA”) governed by ERISA. It provided that PCMG retained a portion of paym ents as com pensation an d rem itted the balance to PCI an d NP; and PCI and NP retained a portion of the paym ents as com pen sation and rem itted the rem ainder to claim s adm inistrators established by the Fund. The com plaint alleged that these paym ents were assets of the Fund im properly diverted by PCI, NP, and PCMG, and that PCI, NP and PCMG were required by ERISA to use the assets only for the purpose of defraying reasonable plan expenses for the benefit of plan participants. Doyle III, 20 14 WL 67478 82, at *1. More specifically, over $ 7.4 m illion was collected, allegedly constituting assets belonging to the Fund, while less than $ 2.7 m illion was used to pay benefits. Doyle I, 20 10 WL 2671984, at *2. Most relevant to this Opinion, “the com plaint alleged that Holloway was a nam ed trustee of the Fund, had breached her fiduciary duties to the Fund, and was liable both directly an d as a co-fiduciary for failing to detect an d prevent the diversion of Fund assets by Garnett, Maccariella, an d Doyle.” 5 Doyle III, 20 14 WL 67478 8 2, at *1. 5 The com plaint alleged that Michael Garnett and Mark Maccariella breached their fiduciary duties to the Fund by using assets of the Fund for purposes other than defraying reasonable plan 4 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 5 of 30 PageID: 6112 B. Fa ctu al Fin d in gs as to H o llo w ay Considering the lim ited scope of this case on rem and, the Court’s factual findings below focus on Defendant Holloway’s knowledge, actions, and inaction between April 20 0 2 an d May 20 o3. On April 23, 20 0 2, Holloway attended a trustee m eeting. At that tim e, the thirdparty claim s adm inistrator was transitioning from UPC to Oak Tree. (Supp. Trial Tr. 18 8 :22-18 9:23.) At the m eeting, Holloway learned of “boxes” of unpaid claim s. (Id. at 190 :5-25.) The Adm inistrator, at that tim e, did not have all of the data to enter the claim s into the database, and the status of those claim s was unknown. (Id.); see also Doyle IV, 657 Fed. Appx. 117, 128 (“[T]he m agnitude of unpaid claim s, and whether there was sufficient funding to m eet this requirem ent, was unknown due to lack of data.”). On May 1, 20 0 2, Holloway, despite gen eral concerns, along with another trustee, appointed Weinstein as a trustee of the Fund. (Supp. Trial Tr. 195:5-15). On May 30 , 20 0 2, Holloway attended another trustee m eeting, at which tim e she was unaware of any pen ding Departm ent of Labor (“DOL”) investigation. Doyle I, 20 10 WL 2671984 *5; (Supp. Trial Tr. 35:3-7.) At this m eeting: (1) Weinstein resigned and designated Michael Garnett (“Garnett”) his successor; (2) the Fund “affiliated with the International Association of Machinists and Aerospace Workers”; (3) Holloway inquired about the expenses for the benefit of plan participants. At the start of this Court’s initial Bench Trial, Mark Maccariella accepted a consent judgment requiring him to pay $195,317, and default judgm ent was entered against Michael Garnett at the close of the trial because he failed to appear “[d]espite numerous continuances granted at his request.” See Doyle III, , 20 14 WL 6747882, at *1-2. 5 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 6 of 30 PageID: 6113 m issing inform ation from UPC, and reiterated the need to get it; and (4) the Fund accountant inform ed Holloway that he could not provide a form al report because he had not received all the inform ation from UPC “and was discussing the need to get that inform ation from Mr. Weinstein.” (Supp. Trial Tr. 194-197.) Holloway never saw an audit of the Fund. (Id. at 26:20 -24.) 6 On J une 3, 20 0 2, Holloway faxed Goldstein to inform him that, based on her conversations with Oak Tree and the Fund actuary, she was concerned that Weinstein continued to “drag his feet” regarding the Fund’s request for inform ation and docum ents on claim s, despite agreeing to provide such data. (Supp. Trial Tr. 20 8:1-16; Holloway-8.). Holloway’s Mem o stated that it was “im perative” for Goldstein to “dem an d” Weinstein’s cooperation. (Holloway-8.) According to Holloway, Goldstein advised her to discuss this issue directly with Weinstein and declined further involvem ent. Goldstein later inform ed the trustees that he received necessary docum ents from Weinstein, on J une 6, 20 0 2, and that the m aterials would be forwarded Oak Tree, Beckm an, and McKeogh. (Supp. Trial Tr. 20 9:17-210 :5; Goldstein Dep. 16:1817:3; Holloway-43 at p. 1.) Shortly thereafter, on or about J une 7, 20 0 2, Holloway’s co-trustees m ade a unilateral decision to term inate Goldstein as the Fund’s Attorney. (Supp. Trial Tr. at 33:6-17, 34:18-23.) The letter term inating Goldstein read: “Please do not com m unicate or release any inform ation without our express written consent. This includes but not lim ited to the pending Departm ent of Labor Investigation.” (Id. at 34:24-35:7.) In J une 66 On May 30 th of 20 0 2, the Fund's then-attorney, Goldstein, also advised the trustees that his office had provided the insurance departments of Texas, Colorado, and Florida with the inform ation they requested. (Supp. Trial Tr. 52:2-7.) 6 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 7 of 30 PageID: 6114 20 0 2, Holloway’s co-trustees also decided to term inate Oak Tree as the Adm inistrator without her knowledge or consent. (Id. 37:11-15). Holloway was aware of their unilateral decision to term inate Oak Tree as early as J uly 2, 20 0 2. (Holloway-9.) She was concern ed that Oak tree m ight sue the Fund pursuant to its contracts with the Fund. (Supp. Trial Tr. 37:16-25.) On J uly 8 , 20 0 2, Holloway received a fax from one of her co-trustees, J im Cam pbell, contain ing the term ination letter sent to Goldstein. While it is not entirely clear if Holloway knew of Goldstein’s term ination or the DOL investigation on J uly 2, 20 0 2, Holloway knew as of J uly 8 , 20 0 2. (Id. 35:12-14.) Holloway did not reach out to the DOL following the news, nor did Holloway inform any participating em ployers in the Fund about the investigation. (Id. at 36:2-25.) In addition, Holloway never found out why the trustees fired Goldstein. She disagreed with the decision, but never contacted Goldstein after the term ination. (Id.) To replace Goldstein, the Fund retain ed Bruce Harrison, Esq. and his law firm , Capehart & Scatchard, P.A., as counsel. (Holloway-32.) Harrison “assum ed” the Union was legitim ate. (Harrison Dep. 19:24-20 :2.) He practices labor an d em ploym ent law, had som e experience with ERISA litigation, and previously represen ted em ployers involved in Taft-Hartley funds. (Id. at 9:7-20 , 10 :1-4.) On J une 28, 20 0 2, Harrison advised the Investigator with the United States DOL, Fred Seigert, that he was retained and understood the DOL was conducting som e type of “audit” of the Fund. (Harrison Dep. 65:7-12, 65:17-23; Holloway-33.) Harrison advised Holloway in early August that he had not heard from Frank Seigert of the Pension an d Welfare Ben efits Adm inistration. (Id. at 220 :12-17.) 7 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 8 of 30 PageID: 6115 Holloway m ade efforts to work with Harrison to resolve the dispute regarding Oak Tree’s term in ation. On J uly 23, 20 0 2, Harrison wrote a letter to Oak Tree. Holloway understood the letter, in part, as a request for Oak Tree’s attorney to contact Harrison to resolve “things.” (Holloway-34.) Holloway agreed with the course of action because “Oak Tree . . . had all of the inform ation regarding the clam s for the fund, and that inform ation needed to m ove over to the new TPA.” (Supp. Trial Tr. 214:8-14, 214:19-215:25.) On August 29, 20 0 2, Harrison sent an em ail to Holloway regarding settlem ent with Oak Tree, and requested she and one of the Union Trustees sign the agreem ent. They executed the docum ent, which Holloway thought was positive. (Id. 221:4-19; Holloway-11 at p. 1.) The Fund agreed to pay Oak Tree a m onetary am ount in exchange for the transfer of its inform ation and docum ents to the new Adm inistrator, Brokerage, and Oak Tree agreed it would not take any further legal action. (Supp Trial Tr. 218 :5-220 :8.) Harrison’s August 29, 20 0 2 em ail further notified the trustees that ECI filed a com plaint in the United States District for the Northern District of Illinois against the Union. Harrison inform ed the trustees, including Holloway that the state of North Carolina had reached out to the Union requesting certain inform ation. (Id. 222:9-13; Harrison Dep. 32:4-11; Holloway-11 at p. 1.) 7 Holloway believed that Harrison would be 7 In J une 20 0 2, the Louisiana Insurance Com m issioner issued a cease and desist order based on its finding that PCI and PCMG were selling health insurance without authorization. The Louisiana Comm issioner found that PCI purported to offer PEO services, including health benefits, to its clients. PCI “allegedly assum es the role of ‘co-em ployer’ to the employees of its client employers” and thereby provided these employees access to the Fund, pursuant to a CBA between PCI and the Fund. See Doyle I. 8 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 9 of 30 PageID: 6116 handling all of these m atters on behalf of the Fund. (Supp. Trial Tr. 222:16-22; 222:6-8 ; Holloway-11 at p. 1.) On Septem ber 10 , 20 0 2, Holloway learned from Brokerage Concepts, that Brokerage still had not received files from Oak Tree, as the Fund had failed to pay Oak Tree. (Id. 39:1840 :5.) Holloway worked towards getting Oak Tree the paym ent owed per the Agreem ent. When paym ent was fin ally m ade, the check was returned for insufficient funds. Holloway never notified the DOL about this situation with Oak Tree, but testified that Harrison was taking care of “an y of that correspondence.” (Id. at 40 :15-25.) She did not tell participating em ployers or em ployees that the settlem ent check to Oak Tree bounced. (Id. at 41:16-20 .) Harrison sent a letter to PCI’s em ployer trustee, Mark Maccariella (“Maccariella”), on Septem ber 26, 20 0 2, in which Harrison explains that the trustees have asked him to advise Maccariella that no em ployer with the Fund, including PCI, should m aintain any association with Weinstein or Garnett, or any person with a connection to them . H arrison clarified at his deposition that the trustees were concern ed about having a connection to these individuals, and with Maccariella’s reliability; thus, the letter put Maccariella on notice and docum ented the “good faith and diligence of the trustees.” (Supp. Trial Tr. 231:14-232:9; Harrison Dep. 54:4-55:1, 10 3:16-10 4:14; Holloway-16.) On this sam e date, Septem ber 26, 20 0 2, Holloway contacted Harrison to inform him that the Fund paid Oak Tree with a dishonored check; Oak Tree n ever received settlem ent paym ent. (Supp. Trial Tr. 39:1-5.) On Septem ber 27, 20 0 2, Holloway resigned as trustee. She identified several reasons for her resign ation, including the lack of financial accountability for contributions to the Fund and resulting lack of funding to pay claim s. She described the 9 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 10 of 30 PageID: 6117 “vulnerability of the Fund due to actions taken by m em bership that has created insolvency of the Fund.” (P-38, p. 1.) Holloway also noted that several states had issued cease an d desist orders “based on the representation by other m em bership/ trustees that PITWU [was] an insurance program .” (Id.) Holloway listed fifteen specific reasons for resigning, which she explained were “exam ples and are not representative of all the issues related to m y resignation.” Many of these reasons related to disagreem ents with other trustees about their approach to Fund m anagem ent. For exam ple, she strongly disagreed with the other trustees' dism issal of Oak Tree without consulting her. Her reasons for resigning also included: e. Lack of continuity or com m unication by the Union representatives. f. No financial accountability for contributions to the Health and Welfare Fund by other m em bership. Em ployers Depot [Holloway's com pany] provided m onthly audits and accountability since the inception of the program . g. Lack of proper follow through to ensure that Union Privilege provided required financial records to the accountants an d actuary that determ ined the financial solvency of the fund. h. Establishm ent of two additional plans without the consent of the Trustees. i. Contribution rates established for two additional plans without the expressed consent of the Trustees or approval by actuary. j. Vulnerability of the fund due to actions taken by m em bership that has created insolvency of the fund. k. The consensual approach by the PITWU to allow staff of certain m em bership to m ake decisions, develop program s an d direct the outcom e of contracts and TPA activity. l. Cease and desist orders in m ultiple states based on the representation by other m em bership/ Trustees that PITWU is an insurance program . m . Legal issues with the Departm ent of Insurance in m ultiple states due to the representation by other m em bership that PITWU is an insurance program . 10 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 11 of 30 PageID: 6118 n. Lack of follow through by responsible parties to ensure the structure, insurance program s and related requirem ents are m anaged tim ely and effectively. (Id.) Holloway expressed concern about “the chaotic state of affairs of the Fund,” which had “brought undue dam age in m ultiple states, created credit dam age to the m em bership due to claim s that are in excess of 9 m onths old and generally has ruined the credibility of the Union and its associated fiduciaries.” (Id. at p. 2). Holloway did not seek m ediation of disputes with other trustees regarding the m anagem ent of the Fund or seek to rem ove any trustee. Nor did she dem and an audit of PCI/ NP or PCMG or contact the Departm ent of Labor to com plain about the lack of funding, lack of financial accountability, or “chaotic state of affairs.” Holloway did not find another person to replace her as trustee before resigning, nor was she im m ediately replaced. Doyle III, 20 14 WL 6747882, at *5. Holloway did, however, continue to participate in the adm in istration of the Fund after her resignation. In October 20 0 2, Holloway m et with Brokerage Concepts to discuss the Fund's lack of funding, m et with the DOL to answer questions, and sought the DOL’s assistance. Notably, Holloway's com pany, EDI, used its own funds to satisfy claim s by its clients' em ployees that were not paid by the Fund. Holloway also sought to resolve outstanding claim s with health care providers an d sought paym ent of claim s from Southern Plan Adm inistrators. Id. C. Pro ce d u ral H is to ry A bench trial was held in this m atter, beginning October 19 through October 26, 20 0 9, in which the Court m ade findings of fact as to Doyle and Holloway. Based on the findings of fact from that trial, this Court concluded that the Secretary failed to show that Holloway or Doyle breached their fiduciary duties to the Fund. Doyle II, 675 F.3d 11 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 12 of 30 PageID: 6119 18 7, 193 (3d Cir. 20 12). The Secretary appealed that decision, arguing that the Court failed to adequately address the breach of fiduciary duty argum ents and to consider whether the Defendants were responsible for diversion of plan assets held by the Fund. On appeal, the Third Circuit found that this Court erred when it failed to determ ine whether paym ents collected by PCI/ NP and PCMG were plan assets subject to ERISA. The Circuit vacated this Court’s 20 10 Opinion and directed this Court to m ake detailed factual findings concerning the nature of the funds received and controlled by Doyle to determ ine which, if any of these funds, were plan assets [and specifically address whether Check 1 and Check 2 m onies were ‘plan assets’]. If the District Court determ ines on rem and that som e or all of these m onies are “plan assets,” it should then consider whether Doyle had sufficient control over these assets to support a finding of fiduciary status. Id. at 20 1. If the Court found Doyle was a fiduciary with respect to plan assets, the Court was directed to consider “whether Doyle breached his fiduciary duties to the Fund.” Id. (citations om itted). The Circuit further held, “[i]f on rem and the District Court finds that any of the m onies retained by PCMG or PCI/ NP were plan assets, it should then consider whether Holloway breached her fiduciary duties relating to those assets and is liable for any resulting losses to the plan.” Id. at 20 3. In doing so, the Court m ust “address whether Holloway had a duty to investigate, how extensive an investigation would have been required, or whether an adequate investigation would have revealed the Fund's potential insolvency and/ or the diversion of assets.” Id. at 20 2. On rem and after the first appeal, this Court explained that em ployers “agreed in writing” to participate in the Fund by executing a packet of form s, and by subm itting checks in response to invoices they received. The Court read these docum ents, in conjunction with the Declaration of Trust, to determ ine the assets of the Fund. The 12 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 13 of 30 PageID: 6120 Declaration of Trust created the Fund and identified the Fund's assets as “any an d all contributions payable by EMPLOYERS.” The related docum ents consisted of a packet of form s, signed by the em ployer, which reflected his intent to participate in the Fund and the rate he would pay for benefits. Doyle III, 20 14 WL 67478 82, at *10 -11. As stated by the Third Circuit: By Doyle’s design, em ployers originally sent in one single check to enroll in the Fund and get health benefits for their em ployees, and only after did he divide paym ents into two checks, ostensibly one for health insurance contributions (Check 1) and one for PEO services (Check 2). Several em ployers testified that they believed that their paym ents to PCMG were only for health insurance. This Court found that the relevant docum ents, when read together, sufficiently established the Fund's property interest in all of the m oney which em ployers forwarded to PCMG (“Check 1” and “Check 2”). Therefore, the Court held these m onies were “plan assets.” Id. This Court next addressed whether Doyle m aintained a fiduciary status with respect to the plan assets, and found that Doyle was a fiduciary because all or part of the paym ents that PCMG collected from PCI/ NP's clients were plan assets and Doyle, as head of PCMG, exercised discretionary control over those assets. This Court further ruled that Doyle breached his fiduciary duties of loyalty and prudence to the Fund. Id. at *13-16. Finally, the Court determ ined that Holloway's inaction (both before and after her resignation) constituted a breach of her fiduciary duty under § 40 4(a)(1)(B). Specifically, this Court found that Holloway ignored evidence that the Fund was being m ism anaged, that her lack of prudence enabled others to com m it a breach, and that she failed to m ake reasonable efforts to rem edy that breach. Ultim ately, this Court held Holloway liable for 13 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 14 of 30 PageID: 6121 the diversions which occurred during her trusteeship, as well as for the losses which occurred after her resignation, which were enabled by her in action. Holloway and Doyle appealed the Court’s decision in Doyle III. On that appeal, the Third Circuit found that this Court did not clearly err in: (1) concluding “that all contributions from em ployers—i.e., both Check 1 and Check 2 m onies—were “plan assets” within the m eaning of ERISA; or (2) concluding that “Doyle breached his duty of loyalty to the Fund because he knew that these m onies were not used to benefit plan participants.” 657 F. App'x 117, 125, 127 (3d Cir. 20 16). As to Holloway’s liability, the Circuit vacated this Court’s 20 14 Opinion, noting that it disagreed with the Secretary’s position, “that Holloway should be liable for all diverted assets because she failed, from the creation of the Fund in J anuary 20 0 1, to create a m echanism for collecting em ployer contributions and processing benefit claim s that would have preven ted PCMG and PCI/ NP’s schem e. . . . As we have explained, Holloway’s action or inaction as a trustee m ust be assessed against when inform ation or red flags becam e available to her.” Id. at 128. The Circuit noted that Holloway learned of the adm inistrator’s concern over “boxes” of potentially unpaid claim s in April of 20 0 2 and found that Holloway “reasonably reacted to and addressed the potential problem .” Id. It further concluded that “although [this Court] m ay have properly found that Holloway breached her duty of prudence through in action during her tenure as trustee, the evidence adduced at trial is insufficient to support a conclusion that Holloway failed to act as a prudent trustee prior to May 30 , 20 0 2.” Id. at 127. Accordingly, the case was rem anded to this Court for additional factual findings “as to when, after May 30 , 20 0 2, Holloway knew or should have known that the Fund was being m ism anaged or was underfunded.” Id. at 129. 14 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 15 of 30 PageID: 6122 On March 19 th and 20 th of 20 19, this Court held a supplem ental bench trail to address the narrow issue before the Court: at what point after May 30 , 20 0 2 should Holloway have known, or know, that the Fund was underfunded or being m ism anaged. The Secretary argues that “the evidence adduced at the supplem ental trial shows clearly that Holloway knew or should have known that the Plan was m ism anaged and underfunded as early as May 30 , 20 0 2 and no later than Septem ber 20 , 20 0 2.” [Dkt. No. 38 1, p. 10 of 32]. Defendant Holloway contends that the Secretary has failed to m eet its burden to prove that she breached her fiduciary duties or that she “is liable for any quantifiable am ount of dam ages.” [Dkt. No. 371]. II. Analysis In accordance with ERISA, a fiduciary owes a duty of loyalty, to act “for the exclusive purpose of (i) providing ben efits to their participants and beneficiaries; an d (ii) defraying reasonable expenses of adm in istering the plan.” 29 U.S.C. § 110 4(a)(1)(A). That is, the use of plan assets for any purpose other than (1) to pay benefits; or (2) to pay reasonable expenses that are necessary to the adm in istration of the plan constitutes a per se breach of the duty of loyalty. Srein v. Soft Drink Workers Union, Local 812, 93 F.3d 10 88 , 10 97 (2d Cir. 1996); Martin v. Walton, 773 F. Supp. 1524, 1527 (S.D. Fla. 1991) (ERISA § 40 4(a)(1)(A)) “m andates that the expenditure of plan assets m ust be exclusively for providing benefits and defraying reasonable expenses of adm inistering the plan”). The fundam ental obligation of a fiduciary in discharging his duties is to act with an “eye single” to the interest of a plan's participants and beneficiaries. Fisher v. Philadelphia Electric Co., 994 F.2d 130 , 132 (3d Cir. 1993). This rule of loyalty is design ed to deter fiduciaries “from all tem ptation,” and “m ust be enforced with 15 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 16 of 30 PageID: 6123 ‘uncom prom ising rigidity.’ ” NLRB v. Am ax Coal Co., 453 U.S. 322, 329– 30 , 10 1 S. Ct. 278 9, 69 L. Ed. 2d 672 (1981). A fiduciary also owes a duty of prudence, to act “with the care, skill, prudence, and diligence under the circum stances then prevailing that a prudent m an acting in a like capacity and fam iliar with such m atters would use in the conduct of an enterprise of a like character and with like aim s.” 29 U.S.C. § 110 4(a)(1)(B); Doyle II, 20 14 WL 67478 8 2, at *16. ERISA’s prudence standard incorporates, but m akes “m ore exacting the requirem ents of the com m on law of trusts relating to em ployee benefit trust funds.” Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir. 1983). Finally, fiduciaries cannot turn a blind eye to the activities of their co-fiduciaries; they have a duty to m onitor. This fundam ental principle of the law of trusts is codified in section 40 5(a) of ERISA, which provides in relevant part as follows: In addition to any liability which he m ay have under any other provision of this part, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the sam e plan in the following circum stances: (1) if he participates knowingly in, or knowingly undertakes to conceal, an act or om ission of such other fiduciary, knowing such act or om ission is a breach; (2) if, by his failure to com ply with [the duty of loyalty or prudence] in the adm inistration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to com m it a breach; or (3) if he has knowledge of a breach by such other fiduciary, unless he m akes reasonable efforts under the circum stances to rem edy the breach. 16 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 17 of 30 PageID: 6124 See also Leigh v. Engle, 727 F.2d at 135; Free v. Briody, 732 F.2d 1331, 1334-35 (7th Cir. 198 4); In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511, 553 (S.D. Tex. 20 0 3). By enacting these provisions for co-fiduciary liability, “Congress expressly rejected the defense of the inactive fiduciary.” Zanditon v. Feinstein, 7 Em p. Ben. Cas. (BNA) 18 96 (D. Mass. 1986). See Mazur v. Gaudet, 8 26 F. Supp. 188, 190 -192 (E.D. La. 1992) (when a fiduciary allow other fiduciaries to em bezzle funds, thus breaching his fiduciary duties under § 40 4(a)(1), the fiduciary is liable under § 40 5(a)(2) as well); Briody, 732 F.2d at 1336 (a defendant, “having accepted a position as trustee, could not avoid liability by doing nothing”). A. H o llo w ay’s Liability As previously established, it is undisputed that Holloway was a Fund trustee and m oreover, a fiduciary who owed both a duty loyalty and prudence to the Fund. It is also well-established that Holloway was not the “principal architect” of the schem e following PCI/ NP's prom otion of the Fund. Doyle II, 675 F.3d 187, 197 (3d Cir. 20 12). In fact, the Secretary has failed to produce evidence that Holloway knew, specifically, that plan assets were diverted to PCMG and PCI/ NP as paym ents for sales com m issions, service fees, adm inistrative charges, an d union dues, prior to the com m en cem ent of this lawsuit. The Court finds, however, that by Holloway’s own adm issions, she was aware that the Fund was m ism anaged and underfunded by the tim e she resigned as trustee. As stated by the Circuit, Holloway’s action or inaction as a trustee m ust be assessed against when the inform ation or red flags of such m ism anagem ent and underfunding becam e available to her. Doyle IV, 657 F. App'x 117, 129 (3d Cir. 20 16). 17 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 18 of 30 PageID: 6125 “[T]he evidence adduced at trial [wa]s insufficient to support a conclusion that Holloway failed to act as a prudent trustee prior to May 30 , 20 0 2.” Id. at 127 (em phasis added). Thus, at this juncture, the Court considers the “extent of Holloway’s liability after May 30 , 20 0 2, considering when Holloway becam e aware of red flags related to diverted participant contributions.” Id. The Third Circuit fram ed the relevant tim eline as follows: [R]ed flags were raised at the May 30 , 20 0 2 trustee m eeting. Then both the Fund’s accountant and actuary reported that they still lacked the financial inform ation “required by them to perform their essential functions” such as reporting on the financial condition of the Fund. Further, the record reveals a discrepancy regarding Weinstein’s responsiveness to the trustees’ prior request for inform ation: while Weinstein claim ed to have already provided all inform ation to the new third-party adm inistrator, the adm inistrator reported that it had not received all the previous inform ation and docum entation about the Fund. Although Holloway and the trustees developed a plan for the inform ation and docum entation to be conveyed to the relevant parties, Holloway’s lack of m eaningful follow-up after this m eeting supports a finding of a breach of her fiduciary duties after May 30 , 20 0 2. Id. at 128 (3d Cir. 20 16) (citations om itted). Accordingly, the Secretary first contends that a prudent fiduciary in Holloway’s position would have known, as of May 30 , 20 0 2, that such “chronic delays in claim s adjudication signaled m ore profound problem s in the Plan’s finances.” [Dkt. No. 381, p. 15 of 32.] However, Holloway was unsure of the real status of these unprocessed claim s, which could have been duplicate claim s, paid, or ineligible. She was also under the im pression, after the April 23, 20 0 2 m eeting, that Oak Tree was provided certain funds to pay claim s. (Supp. Trial Tr. 189:21-190 :4.) Moreover, the record reflects that the delay in claim s adjudication, as well as the delay in financial reports, revolved around a data problem , a problem Holloway actively inquired about. In fact, she reiterated the need for m issing inform ation and docum ents, 18 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 19 of 30 PageID: 6126 and even contacted the Fund’s counsel to discuss her con cerns that Weinstein was “dragging his feet” with regard to the claim s data. (Holloway-8 (telling Goldstein: “it is im perative that you dem and he cooperate and provide all claim s inform ation, listing of m em bers of the union, and current financial status of the fund.”). On J une 6, 20 0 2, Goldstein inform ed all of the trustees, including Holloway, that the m aterials requested from Weinstein were finally received and were being sent to Oak Tree, the accounting firm , and the actuary. 8 Under these circum stances, the Court agrees with the defense, in that Holloway’s actions to obtain the inform ation relating to claim s directly after May 30 , 20 0 2, were prudent. The next indication of m ism anagem ent directly followed the receipt of the inform ation needed to process claim s, when Holloway’s co-trustees fired Goldstein. Shortly after, Holloway’s co-trustees also term inated Oak Tree as claim s adm inistrator. It is undisputed that both of these unilateral actions were taken without Holloway’s knowledge or consent. The record in dicates Holloway only learned of these decisions around J uly 2, 20 0 2. On that date, Holloway wrote a letter to her co-trustees regarding her concerns over their decision to term in ate Oak Tree. (Holloway-9). In her letter, Holloway acknowledged that the last transition between third-party adm inistrators was “not sm ooth,” and “m em bers were not being serviced and it severely dam aged the 8 Nonetheless, the Secretary argues that Holloway knew or should have known that the Plan was a fraudulent MEWA, no later than J une 4, 20 0 2, when the Louisiana Insurance Com m issioner issued its Cease and Desist Order against the Plan. Even if Holloway was aware of this order, the extent of her knowledge about the inform ation contained therein is unclear. Moreover, Goldstein assured Holloway that he would respond to these state orders, thus, she reasonably relied on the Fund’s attorney in handling the m atter, in which Goldstein specifically assured “this is a union-sponsored plan, it is not insurance, you state com missioners don't have jurisdiction over this.” Doyle III, 20 14 WL 6747882, at *8 ( citing Doyle II, 675 F.3d at 196– 97). 19 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 20 of 30 PageID: 6127 PITWU program in the process.” (Id.) She suggested that she did not want to im pact the m em bers nor encounter legal issues with Oak Tree. (Id.) Holloway’s J uly 2 nd letter also references a change in counsel and the DOL: “This is a tim e of change; new counsel; new actuary; legal responses to DOL, state inquires; trustee changes, to nam e a few.” (Id. at p. 2.) Holloway claim s, however, that she learned of Goldstein’s term ination on J uly 8 , 20 0 2, at which tim e she first learned of the DOL’s investigation of the Fund. (Holloway10 .) While this record of events, up to J uly 8 , 20 0 2, fail to establish Holloway knew, or could have known, the extent of wrongdoing within the Fund—m ainly, that participant contributions were being diverted—she should have known as of J uly 8 , 20 0 2, that the Fund was being m ism anaged; and furtherm ore, that such m ism an agem ent could lead to m onetary repercussions. Accordingly, Holloway’s actions following J uly 8 , 20 0 2 m ust reflect her awareness of these “red flags.” The Third Circuit has held, “when confronted with suspicious circum stances, a trustee m ay be required to in vestigate potential risks to a plan.” Sec'y of Labor v. Doyle, 675 F.3d 187, 198 (3d Cir. 20 12) (citing Chao v. Merino, 452 F.3d 174 (2d Cir. 20 0 6). Here, Holloway was confronted with such circum stances: (1) her cotrustees were acting without her consent; (2) Fund Counsel and third-party adm in istrator were fired days after receiving at least som e docum ents from UPC; (3) the Departm ent of Labor was conducting an investigation of the Fund; and (4) when Fund counsel was term inated, he was instructed that he should not com m unicate with the DOL without consent. To be sure, Holloway adm ittedly had suspicions as to why counsel and the third-party adm inistrator were term inated. Specifically, Holloway believed Goldstein was fired because “[he] was putting pressure on Mr. Weinstein to give 20 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 21 of 30 PageID: 6128 inform ation to the actuary an d accountant.” (Supp. Trial Tr. 35-36.) She was also concern ed that the Fund was breaching its contract with Oak Tree and risking litigation with the third-party adm inistrator. Holloway knew that a lawsuit, “[f]inacially . . . would be an im pact to the Fund,” an d “Oak Tree . . . had all of the inform ation regarding the claim s for the Fund, and that inform ation needed to m ove over to the new TPA.” (Id. at 214:11-14, 215:22-25.) Accordingly, Holloway had a duty to investigate further. On the record before the Court, however, it is evident that Holloway failed to conduct any m eaningful investigation following J uly 8 , 20 0 2. Furtherm ore, though the Court finds Holloway took certain steps in the interest of the plan's participants and beneficiaries, she did not m eet her legal obligations as fiduciary under ERISA, in light of the Fund’s circum stances in the m onths of J uly, August, and Septem ber. First, despite the distrustful behavior of her co-trustees, Holloway did not seek answers to the fundam ental questions she faced: (1) why her fellow trustees term inated Oak Tree and Goldstein; (2) what the basis for the DOL investigation of the Fund was; and (3) why states continued to inquire about the Fund and seek inform ation regarding its legality. The Court recognizes that whether an adequate investigation would have revealed the Fund's potential insolvency and/ or the diversion of assets, is unclear. 9 There were, however, other actions that Holloway could have taken. For exam ple, the Secretary suggests that Holloway could have contacted the DOL to apprise them of her suspicions, or her co-trustees’ efforts to lim it Goldstein’s cooperation in the pen ding investigation. 9 The record indicates that the person with the m ost pertinent inform ation, Weinstein, was uncooperative and inaccessible; and Weinstein maintained a close relationship to the companies withholding inform ation, as he founded PCI/ NP and was the owner of UPC. 21 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 22 of 30 PageID: 6129 As this Court previously found, Holloway also failed to seek m ediation of disputes with other trustees regarding the m anagem en t of the Fund or seek to rem ove any trustee. Nor did she dem and an audit of PCI/ NP or PCMG or contact the DOL to com plain about the lack of funding, lack of financial accountability, or “chaotic state of affairs.” Doyle III, 20 14 WL 6747882, at *5 (citing 675 F.3d 193, 199). Holloway indicates a lack of knowledge regarding the actions she could have taken. For exam ple, she argues that “[n]o attorney ever advised [her] that she could or should unilaterally sue a fellow trustee or pursue arbitration or m ediation with respect for the Fund. [Dkt. No. 38 3, p. 34.] But Holloway never inquired about how to resolve the underlying issues with the fund. (Goldstein Dep. 98:12-99:11.) Instead, Holloway focused on the issues with Oak Tree. (Supp. Trial Tr. 214:11220 :6.) In trying to reconcile the Fund’s relationship with Oak Tree, Holloway was in essen ce, working to rem edy the Fund’s poor recordkeeping. Although such efforts m ay have been in the Fund’s interest, it cannot excuse Holloway from ignoring the underlying issue of the overall m anagem ent of the Fund. In fact, Holloway’s efforts repeatedly exposed a bigger picture—that her co-trustees, as well as UPC, were intentionally trying to conceal inform ation, that the Fund was not paying out claim s, and that both the federal governm ent and state governm ents were in vestigating the plan. See, e.g., Russo v. Unger, 845 F. Supp. 124, 128 – 129 (S.D.N.Y. 1994) (fiduciary's failure to protect the participants by turning a blind eye to her cofiduciary's action constitutes “gross delinquency,” despite lack of willfulness or actual knowledge on her part). For instance, the Fund ultim ately settled its differences with Oak Tree in late August, when the Fund agreed to pay Oak Tree $ 22,0 0 0 for its services. (Holloway-11.) 22 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 23 of 30 PageID: 6130 On Septem ber 10 , 20 0 2, however, the then-claim s adm inistrator notified Holloway it was still m issing n ecessary files because the Fund failed to pay Oak Tree. (Holloway-30 .) Holloway understood that there was adequate funds from the First Union Bank Account to m ake this paym ent and advised Fund counsel she obtained authorization for releasing the settlem en t m oney. (Holloway-12.) Holloway knew the new third-party adm in istrator was to pay the settlem ent m oney “but ha[d] not received any funds for this purpose from Privilege Care, or so they claim [,]” and that Harrison was going to proceed with paym ent to Oak Tree from First Union Bank, unless he heard otherwise from Maccariella or Privilege Care. (Holloway-13) Ultim ately, Holloway learned that the check authorized to pay Oak Tree was returned for insufficient funds. (Holloway-15.) Holloway did nothing when she learned the reason that funds were insufficient— because Franklin Militello unilaterally withdrew the funds from the account leaving an insufficient balance of $ 1,0 0 0 . (Supp. Trial Tr. 288:22-291:4.) Militello was initially one of the Fund’s Union trustees. (Holloway-4.) During this tim e, Holloway was also aware that a previous em ployer with the Fund, Em ployers Consortium , filed a lawsuit against the Union alleging unpaid claim s, and that there was an inquiry from the State of North Carolina. On Septem ber 20 , 20 0 2, Holloway learned the Fund's claim s adm inistrator was having problem s paying claim s because PCI/ NP had stopped m aking contributions to the Plan an d that necessary inform ation and paperwork from PCI/ NorthPoint was lacking. Doyle II, 675 F.3d 187, 198 (3d Cir. 20 12). While Holloway understood that Harrison would handle som e of these m atters, the Court cannot find that her heavy reliance on the Fund’s counsel following early J uly 20 0 2 was reason able in light of what Holloway describes as a “chaotic state of affairs[.]” (Supp. Trial Tr. 222:2-18; P-38.) 23 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 24 of 30 PageID: 6131 As trustee, Holloway had a duty to m aintain financial records and to preserve and protect the assets of the plan, in cluding from diversion or em bezzlem ent. See Restatem ent (Third) of Trusts §§ 76(2)(b), 83; Ream v. Frey, 10 7 F.3d 147, 156 (3d Cir. 1997). A trustee is also “under a duty to com m unicate to the beneficiary m aterial facts affecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealin g with a third person.” Bixler v. Cent. Pennsylvania Team sters Health & Welfare Fund, 12 F.3d 1292, 130 0 (3d Cir. 1993) (quoting Restatem ent (Second) of Trusts § 173, com m ent d (1959)). When Holloway resigned as trustee of the Fund she indicated, inter alia, that there was “[n]o financial accountability for contributions to the Health and Welfare Fund by other m em bership,” a “[l]ack of proper follow through to ensure that Union Privilege provided required financial records to the accountants and actuary that determ ined the financial solvency of the fund,” “[v]ulnerability of the fund due to actions taken by m em bership that has created insolvency of the fund,” and “[l]egal issues with the Departm ent of Insurance in m ultiple states due to the representation by other m em bership that PITWU is an insurance program .” (P-38 (em phasis added).) Therefore, Holloway was aware of the seriousness of the problem s within the Fund. Yet, there is no eviden ce that Holloway went to the participants of the plan with any of this inform ation. Holloway should have inform ed the beneficiaries of the plan about the concerns she had in order to protect them . Bixler, 12 F.3d at 130 0 . Therefore, Holloway’s inaction after J uly 8 , 20 0 2 until at least her resignation was a breach of her fiduciary duties; an d enabled her co-trustees to com m it further breach. A trustee m ust also take prudent precautions, such as by providing for a “suitable and trustworthy replacem ent,” to ensure that his resignation does not harm the Fund or 24 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 25 of 30 PageID: 6132 its beneficiaries. See Ream v. Frey, 10 7 F.3d at 154. Holloway did not provide a replacem ent trustee before resigning, nor was she im m ediately replaced. Holloway, however, continued to m ake reasonable efforts to assist the Fund, cure any harm , an d participate in its adm inistration. In fact, Holloway stated in her resign ation letter: “Should you be interested in utilizing m y service to assist in the restructuring of the plan, interface with the fiduciaries or other related support, I would be am enable to perform ing business related functions to ensure the current issues with this program are rectified.” (P-38.) Holloway explained she “still was very m otivated to continue trying to fix the problem s that we had with the Fund.” (Supp. Trial Tr. 234:1-4.) Holloway dem onstrated as m uch through the following actions. She wrote to Lynn Tucker of IAMU, which PITWU was a part of, to apprise her of the issues caused by the Fund’s failure to pay Oak Tree, and request the Union provide funding to execute the term ination agreem ent with Oak Tree. (Holloway 18.) Holloway also contacted the IAMU attorney to advise him of the Fund’s issues and her own concerns, noting she believed “m aybe naively that with the proper Team this fund can be fixed!!!!!” (Supp. Trial Tr. 238; Holloway-19.) Indeed, on October 7, 20 0 2, McKeough, the Fund’s form er actuary, advised Ms. H olloway that “[a] fight will be expensive, distracting, and m ake the problem worse – not better.” He opined that the parties should attem pt to reach an agreem ent, “try to m itigate dam ages; i.e. what can be done to get the current and future claim s paid.” (Holloway-17.) Holloway also retained personal counsel, Kevin McMurdy, who she worked with to try to engage Weinstein and assist the DOL in their investigation. (See Supp. Trial Tr. 10 6-145, 244:25-245:6.) Notably, McMurdy accom panied Holloway on October 20 , 20 0 2, when she voluntarily m et with Mr. Seirgert at the DOL. (Id. at 2455-6; Holloway25 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 26 of 30 PageID: 6133 48.) Holloway testified that she requested the assistance of the DOL to resolve issues with the Fund. (Id. at 249:8 -18.) McMurdy testified that he found it “strange . . . that the Departm ent would not assist [them ] in explaining what could be done to possibly im prove the Fund.” (Id. at 141:17-23.) He also testified to inform ing Mr. Seigert about the pending Illinois litigation— you have a fund that's being investigated. You have parties to that litigation who are ostensibly being interviewed. So m y com m unication to the Departm ent was, there are things going on up there that m ay ultim ately end in their solution of claim s. Would you like to be involved in that case because it's getting ready to wrap up? And I was told no, we don't want to be involved, you can tell us about it afterwards. And I said, okay. (Id. at 140 :23-141:5.) Furtherm ore, McMurdy sought Mr. Seigert’s “generally requested assistan ce from the Secretary to provide us with whatever assistance could be provided to try and solve whatever problem s there m ight be.” Mr. Seigert would not give Holloway and her attorney any inform ation or assistance aside from a contact person’s inform ation—this person had no other inform ation for Holloway. (Id. at 10 6-10 7.) Moreover, Holloway was regularly providing claim s status data from the Fund to her attorney to keep him apprised of the situation. (Holloay-56-67; Supp. Trial Tr. 250 :11-260 :11.) Through McMurdy Holloway m ade efforts to secure funds to pay pending claim s, including initiating law suits. (Supp Trial Tr. 261:5-10 .) In fact, Holloway’s own com pany, EDI, negotiated with providers on paym ent term s, and funded the extensive work effort to go through boxes of claim s and records. (Id. at 253:14-22; 257:10 -21.) The record shows Holloway’s desire to take responsibility in helping the fund and protect her own com pany, after all, her com pany rem ained a contributing em ployer of the Fund. Although “a duty to disclose m aterial inform ation m ay extend beyond [a trustee’s] departure[,]” Holloway acted prudently and m et her 26 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 27 of 30 PageID: 6134 obligations prescribed by the law after her resignation. Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 118 3 (3d Cir. 1996) Therefore, Holloway is not liable for the diversion of plan assets after Septem ber 20 0 2. Finally, the Court finds that Holloway is not liable for the actions of her co-trustees following her resignation because she took reasonable action to prevent further harm from their actions. ERISA § 40 9(a) provides that “[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties im posed upon fiduciaries by this title shall be personally liable to m ake good to such plan any losses to the plan resulting from each such breach....” Where several fiduciaries are involved in ERISA-violative conduct, the liability is joint and several. Davidson v. Cook, 567 F. Supp. 225, 240 (E.D. Va. 1983); Freund v. Marshall & Ilsley Bank, 485 F. Supp. 629, 644 (W.D. Wis. 1979). Further, ERISA section 40 9(a) specifies that “[a]ny person who is a fiduciary with respect to a plan who breaches any of [his] duties shall be subject to such other equitable or rem edial relief as the court m ay deem appropriate, including rem oval of such fiduciary.” 29 U.S.C. § 110 9(a). Holloway argues that the Secretary has failed to carry his burden to prove any quantifiable am ount of dam ages that could be attributed to her. [Dkt. No. 383, p. 30 .] The Court disagrees. Bindu George (“Ms. George”), senior investigator with the DOL, Em ployee Benefits Security Adm inistration, testified at the initial trial, and the supplem ental trial before this Court. She calculated the Plan losses that occurred m onthly, using sim ple m ath and the am ounts provided in P-39, P-41, and P-46—the Fund’s Sum m ary of all Deposits in Conn ection with Operation of the Fund, Deposits Received by contract adm inistrators, an d the Total Funds Retained by PCI, NP, and 27 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 28 of 30 PageID: 6135 PCMG after Paym ents m ade to Third-party Adm inistrators and Direct Paym ents to Provide Benefits. At trial, the Secretary presented a chart of these calculated losses, which Ms. George testified to as being accurate. (Supp. Trial Tr. 59:19-61:8.) The Court used these calculations in determ ining Doyle’s liability to the Fund in Doyle III. In relevant part, this Court has already determ ined that Doyle's com pany, PCMG, m arketed the services of a variety of entities, including PCI/ NP. In J anuary of 20 0 2, Doyle signed a Marketing Service Agreem ent with PCI, in which PCMG agreed to m arket PCI's services for a fee. PCMG also collected paym ents from PCI/ NP's clients. Clients m ade paym ents by two checks, one to PCI/ NP for participation in the Fund (Check 1), and one to PCMG for adm inistrative service fees (Check 2). PCMG received both checks and would forward the first on to PCI/ NP. It retained the second check to cover its expenses, which included sales com m issions paid to PCMG's sales consultants an d fees for additional services selected by the client, such as gap insurance. PCMG also provided m onthly reports to PCI/ NP regarding funds received and paid certain union dues. 675 F.3d at 191– 92. At som e point, PCMG stopped m arketing for PCI/ NP, but continued to provide billing and adm inistrative services until May 20 0 3. PCMG received $ 4.5 m illion in Check 1 funds, and $ 2.1 m illion in Check 2 funds. PCMG forwarded $ 3.1 m illion of the Check 1 funds to PCI/ NP, and paid $ 645,0 0 0 directly to claim adm inistrators and m edical providers. In addition to the $ 3.1 m illion received from PCMG, PCI/ NP also directly received $ 8 16,0 0 0 from em ployers enrolled in the Fund through Weinstein's wife. Of this roughly $ 3.9 m illion, PCI/ NP sent $ 2.1 m illion to claim s adm inistrators to pay em ployee health benefit claim s. Thus, in total, PCMG and PCI/ NP collected $ 7.4 m illion in paym ents relating to the Fund, but only $ 2.7 m illion was sent to claim adm inistrators for the paym ent of health benefit claim s. The rem aining $ 4.7 m illion was retain ed by PCMG or PCI/ NP. 675 F.3d at 192. Doyle II, No. 0 5-CV-2264, 20 14 WL 6747882, at *3. The Secretary has stipulated that all m onies PCI/ NP an d PCMG forwarded to the Fund’s claim s adm inistrators were used paym ent of legitim ate claim s and to defray reasonable costs of adm inistering the health plan. Id. at *15. 28 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 29 of 30 PageID: 6136 The Third Circuit has affirm ed this Court’s conclusion that that all of the contributions paid by em ployers, both “Check 1” and “Check 2,” were plan assets and, therefore, contributions paid by em ployers that the Plain did not use to pay claim s or defray reasonable adm inistrative costs constitutes a Plan loss. The Circuit further affirm ed this Court’s judgm ent against Doyle based on the above fin dings. For purposes of this rem and, the Court is now only concerned with the losses occurring between J une 20 0 2 an d May 20 0 3. According to the DOL’s m onthly calculations, the total am ount of diverted funds between J une 20 0 2 and May 20 0 3 am ounts to $ 3,344,678.0 1. Having found that Holloway, as a n am ed trustee, was in breach of her fiduciary duties beginning J uly 8 , 20 0 2, until her resignation on Septem ber 27, 20 0 2, she is liable for dam ages occurring in August 20 0 2 and Septem ber 20 0 2. 10 As established, $ 454,880 was diverted in August of 20 0 2 and $ 321,829 was diverted in Septem ber 20 0 2, totaling $ 776,70 9— this total, therefore, represents the loses of the Plaintiff that Holloway is responsible for. III. Conclusion For the foregoing reasons, Defendant Holloway is jointly and severally liable along with the other defendants to restore and m ake restitution to the Fund in the am ount of $ 776,70 9. This am ount represents the difference between the m oney that em ployers paid in for benefits and the m oney that was paid out to claim s adm inistrators to adm inister and pay benefits—plan assets diverted from the Fund—during August 20 0 2 an d Septem ber 20 0 2. During those two m onths, Holloway ignored the eviden ce of her co-trustee’s wrongdoings, an d failed to take m eaningful action, breaching her 10 The Secretary agrees that a J uly 8, 20 0 2 “trigger date,” implicates liability for dam ages beginning in August. [Dkt. No. 381, p. 28 of 32.] 29 Case 1:05-cv-02264-JHR-JS Document 385 Filed 11/13/20 Page 30 of 30 PageID: 6137 fiduciary duties of loyalty and prudence, an d further enabling others to com m it breach against the Fund and its beneficiaries. Holloway is also to be enjoined from serving as a fiduciary or service provider for any ERISA-covered em ployee ben efit plan. The restored losses to the Plan m ay be subject to com putation of prejudgm ent interest by the Secretary. The Court, however, reserves on the issue at this tim e. See Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 10 0 9 (3d Cir. 1992) (“[W]e have held generally that ‘[i]n the absen ce of an explicit congressional directive, the awarding of prejudgm ent interest under federal law is com m itted to the trial court's broad discretion.”’ (quoting Am brom ovage v. United Mine Workers, 726 F.2d 972, 981– 82 (3d Cir. 198 4))). The Parties should subm it to the Court supplem ental briefing as to whether prejudgm ent interest should be awarded and, if awarded, the appropriate rate of that interest. Dated: Novem ber 13, 20 20 / s/ J oseph H. Rodriguez Hon. J oseph H. Rodriguez, UNITED STATES DISTRICT J UDGE 30
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