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Browe v. CTC Corp.

United States District Court, D. Vermont

October 18, 2018




         In this action, Plaintiffs Donna Browe, Tyler Burgess, Bonnie Jamieson, Philip Jordan, Lucille Launderville, and the Estate of Beverly Burgess (collectively, "Plaintiffs") assert Defendants CTC Corporation ("CTC") and Bruce Laumeister (collectively, "Defendants") violated the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1191c ("ERISA").

         After a multi-day bench trial, the court issued Findings of Fact and Conclusions of Law dated June 22, 2018 (the "6/22/18 Decision"). In its 6/22/18 Decision, the court granted Plaintiffs thirty days to specify their requested relief on the counts of their Second Amended Complaint on which they prevailed. The court granted Defendants thirty days thereafter to oppose Plaintiffs' request and to specify the contribution and indemnification they seek from Plaintiff Launderville. The parties' supplemental briefing was completed on August 15, 2018.

         In their Supplemental Post-Trial Memorandum, Plaintiffs respond to the court's 6/22/18 Decision as follows. First, they contend that the court erred in making certain findings of fact and reaching certain conclusions of law, including failing to find that they asserted claims on behalf of CTCs 1997 deferred compensation plan (the "Plan"). Second, they allege that they are entitled to a payment of benefits because their benefits are "nonforfeitable" under ERISA. Third, they assert the court should find Plaintiff Launderville has no responsibility to indemnify Defendant Laumeister or to contribute to any recovery on behalf of the Plan. And fourth, they allege they are entitled to substantial statutory penalties against Defendants for their failure to comply with ERISA's reporting and disclosure requirements.

         Defendants oppose Plaintiffs' requests, arguing that they have failed to comply with the court's request for a specification of the relief they seek on the counts on which they prevailed and instead essentially seek untimely reconsideration of the court's 6/22/18 Decision.

         I. Factual and Procedural Background.

         After adequate time for discovery, the court held a bench trial in both December of 2017 and March of 2018 at which both parties focused their efforts towards establishing or negating whether the Plan was a nonqualified "top hat" plan under ERISA. They further disputed whether Plaintiff Launderville was a Plan Administrator and, if so, whether she was responsible for fiduciary violations of the Plan.

         Prior to the court's bench trial, the parties were permitted to file proposed findings of fact. Both parties submitted proposals. After trial, the parties were permitted to file post-trial memoranda which were filed on or before March 26, 2018. The court thus finds that the parties had ample time to address both factual and legal issues.

         Plaintiffs' Second Amended Complaint describes their claims as follows:

This is an action arising under [ERISA] based on Defendants' wrongful denial of benefits to the Plaintiffs, participants and beneficiaries of one "CTC Deferred Compensation Plan" (the Plan). Rather than paying Plaintiffs the benefits they were and are owed under the Plan, Defendants CTC Corporation and Laumeister have, instead, raided the funds they were charged with holding in trust, and spent the money for their own purposes. These Defendants-fiduciaries under the meaning of ERISA-violated their statutorily prescribed duties by perpetrating this unlawful scheme. Defendants have also violated ERISA by, inter alia, maintaining a Plan with multiple illegal terms, failing to provide accountings to Plaintiffs under the Plan as required by law, and paying benefits to certain other Plan participants, but not to the Plaintiffs (ERISA does not permit cherry picking favored employees to receive benefits, while forcing others to go without).

(Doc. 105 at 1-2.)

         In the description of the "parties," Plaintiffs are not identified as asserting claims on the Plan's behalf. The Second Amended Complaint contains no allegations regarding vesting or "nonforfeitable" benefits.

         In Count I of their Second Amended Complaint, Plaintiffs allege a "Denial of Benefits" claim and assert "[t]he failure and refusal to provide Plaintiffs the CTC Plan benefits is a violation of ERISA, 29 U.S.C. § 1132(a)(1)(B)" and "[a]s a result of this failure and refusal, Plaintiffs . . . have suffered a denial of benefits and seek to be awarded their benefits with interest and reasonable attorneys' fees." Id. at 14-15, ¶¶ 80-81. The court decided Count I in Defendants' favor, concluding that Plaintiffs failed to establish their entitlement to benefits in accordance with the Plan's terms.

         Count II seeks a declaratory judgment based upon Defendant Laumeister's alleged disavowal of any obligations under the Plan "to provide the Plaintiffs with Plan benefits" and requests an order to "enforce their rights under the terms of the Plan and to clarify their rights to future benefits under the Plan, pursuant to ERISA[.]" Id. at 16-17, ¶¶ 87, 94. The court denied this request as part of its 6/22/18 Decision because Plaintiffs did not qualify for benefits under the terms of the Plan, but nonetheless granted Plaintiffs a post-trial opportunity to specify their requested relief in conjunction with the claims on which they prevailed.

         In Count III, Plaintiffs allege "Fiduciary Violations," asserting Defendants must "make good to the Plan all losses caused by breaches of their fiduciary duties, to restore to the Plan all profits made through the use of Plan assets and for all other relief permissible under ERISA[.]" Id. at 18-19, ¶ 107. In Count IV, Plaintiffs allege "Additional Fiduciary Violations" in the form of an "Illegal Plan" which they claim is a "violation of [Defendant Laumeister's] fiduciary obligations owed to Plaintiffs." Id. at 19-20, ¶ 111. They ask that "all profits of Laumeister and CTC made through use of Plan assets must be disgorged, in addition to other relief permissible under ERISA" and further request that Defendants "make good to the Plan all losses caused by breaches of their fiduciary duties, [and] to restore to the Plan all profits made through the use of Plan assets[.]" (Doc. 105 at 20-21, ¶¶ 113-14.)

         In Count V, Plaintiffs allege claims of self-dealing, asserting Defendants "dealt with Plan assets in their own interest and/or exchanged property or extended credit from Plan assets for their own use and benefit in violation of ERISA[]" and favored "certain other employees[] [by] paying them Plan assets instead of the Plaintiffs[.]" Id. at 21, ¶¶ 118-19. They request Defendants "make good to the Plan all losses caused by breaches of their fiduciary duties, which remain unpaid; to restore to the Plan all profits made through the use of Plan assets and for all relief permissible under ERISA[.]" Id. at 22, ¶ 123. In Count VI, Plaintiffs allege Defendants failed to comply with ERISA's reporting and disclosure requirements and ask the court to award "$100 per day to each Plaintiff, from the date of each such violation, together with all other relief permissible under ERISA." Id. at 23, ¶ 127.

         In their Prayer for Relief, Plaintiffs ask the court to order repayment to the Plan of an amount necessary to make good all losses to the Plan caused by Defendants' breaches of their fiduciary duties and to restore all profits made through Defendants' use of Plan assets.

         The court granted judgment in Plaintiffs' favor on Counts III through V, finding that Defendant Laumeister and Plaintiff Launderville, as Plan Administrators, breached their fiduciary duties to Plan Participants and beneficiaries. With regard to Count VI, the court also granted judgment in Plaintiffs' favor, finding that Defendant Laumeister and Plaintiff Launderville violated ERISA's reporting and disclosure requirements. The court granted judgment in Defendants' favor on the remaining counts and on their counterclaim seeking a right of contribution and indemnification from Plaintiff Launderville. The court "declined to award attorney's fees to either party at this time." (Doc. 216 at 62.)

         Because at trial Plaintiffs did not address the issue of vesting, did not testify that they were asserting claims on the Plan's behalf, identified no profits made by the Plan, and identified no prejudice or other harm (other than in proving their claims) which they had allegedly suffered as a result of noncompliance with ERISA's reporting and disclosure requirements, the court could not adequately discern the relief they requested. Their claims appeared targeted solely to ensuring Plaintiffs received benefits under the Plan without regard to the rights of other Plan Participants. Although they admitted they did not qualify for benefits in accordance with the plain language of the Plan, they did not address any alternative basis for their receipt.

         Defendants, in turn, asked that Plaintiff Launderville be held liable for contribution and indemnification, but did not address the amount or apportionment of liability in the event the court concluded the Plan was not a "top hat" plan.

         The parties have now completed their post-trial briefing but certain supporting evidence for their competing requests remains absent from the record. The court treats this as a failure of proof except where it would defeat ERISA's purposes to do so.

         II. Conclusions of Law and Analysis.

         A. Whether the Court Should Alter its Findings of Fact and Conclusions of Law.

         In their Supplemental Post-Trial Memorandum, Plaintiffs effectively ask the court to amend its 6/22/18 Decision to include new factual findings and conclusions of law. Plaintiffs' proposed changes do not alter the court's conclusion that no Plaintiff established his, her, or its entitlement to benefits under the terms of the Plan, [1] even though proof of such compliance, if it existed, was presumably within their possession, custody, or control.[2]

         In terms of a conclusion of law, the court did not err in finding that Plaintiffs failed to establish entitlement to benefits under the Plan. Indeed, Plaintiffs tacitly admitted as much.[3] See Weinreb v. Hosp. for Joint Diseases Orthopaedic Inst., 404 F.3d 167, 170 (2d Cir. 2005) ("A suit for benefits due under the terms of an ERISA-governed plan necessarily fails where the participant does not qualify for those benefits"). The court thus declines to alter or amend the 6/22/18 Decision in the manner requested by Plaintiffs.

         B. Plaintiffs' Claims on Behalf of the Plan.

         Plaintiffs argue that they brought claims on the Plan's behalf and are entitled to relief on that basis. Although not a model of clarity, their Second Amended Complaint requests relief on the Plan's behalf. At trial, however, Plaintiffs did not testify or claim they were acting as representatives of the Plan. The court does not treat this as a failure of proof because to do so would defeat ERISA's purposes.

         Section 409(a) of ERISA, Liability for Breach of Fiduciary Duty, provides:

Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through the use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.

29 U.S.C. § 1109(a) (emphasis supplied). "A fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned with the possible misuse of plan assets, and with remedies that would protect the entire plan, rather than with the rights of an individual beneficiary." Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 (1985). Nonetheless, the Supreme Court has clarified that "ERISA specifically provides a remedy for breaches of fiduciary duty with respect to the interpretation of plan documents and the payment of claims, . . . one that runs directly to the injured beneficiary." Varity Corp. v. Howe, 516 U.S. 489, 512 (1996).

         In its 6/22/18 Decision, the court found that "Mr. Laumeister and Ms. Launderville breached their fiduciary duties to the 1997 Plan and to Plan Participants and beneficiaries[.]" (Doc. 216 at 62.) It invited Plaintiffs to specify their requested relief. In response, Plaintiffs request, among other things, that the court "order repayment of the entire Plan balance, at least $727, 002, under Counts III-V." (Doc. 217 at 2) (internal quotation marks and emphasis omitted). Plaintiffs further request the court to appoint an administrator or receiver to take custody of the repaid fund assets, invest and manage the funds, and to pay out vested benefits in accordance with ERISA.

         As support for their requested relief, Plaintiffs assert that the court found Exhibit 3 "credible" from which they derive their request for $727, 002. This overstates the court's findings of fact in its 6/22/18 Decision.[4] At trial, Plaintiffs' expert witness, Richard Heaps, testified that he was retained by Plaintiffs "to take a sum of money from a document and project or to . . . calculate what that total would be today if it had been invested in a manner that typical private retirement funds are invested." (Doc. 196 at 152:22-25.) Mr. Heaps opined that in September 2017, the balance would have grown to $727, 002 using an initial amount of $261, 368.14, with "no additional contributions or withdrawals by anyone." Id. at 160:12-13. Mr. Heaps conceded that this assumption of "no additional contributions or withdrawals by anyone" was inconsistent with the facts as he understood them. Id. He was aware of additional contributions and withdrawals in subsequent years, but he could not identify the precise amount of either. He also could not determine the manner in which Plan funds were invested and thus could not predict the actual return on investment.[5] His additional calculations in Tables 2 and 3 reflected further contributions and withdrawals to the Plan but were accompanied by the following caveat: "The Plan did not call for any specific amount of future contributions. It is unlikely CTC would have continued to do so given its financial condition. In addition, contributions would have decreased as employment decreased." (Ex. 26 at 5.)

         Mr. Heaps was not asked to opine regarding the profits to be restored to the Plan, the amount of vested benefits in accordance with ERISA's minimum vesting standards, or the damages caused by any fiduciary or nondisclosure violations. To rebut Mr. Heaps's testimony, Defendants introduced the testimony of expert witness Art Woolf, who reviewed the Plan, Mr. Heaps's expert opinion, and Exhibit 3. Mr. Woolf opined that "the plan was very light on specifics in terms of dollars and things like that. So it was very hard for me to make a correlation." (Doc. 210 at 7-8.) Mr. Woolf further pointed out that the Plan reflects none of the assumptions in Exhibit 3. He noted Mr. Heaps's analysis, while reflecting actual withdrawals in Tables 2 and 3, did not project withdrawals paid to Plan participants retiring at age sixty-five.

         The court concluded that Mr. Heaps's Tables 2 and 3 were inconsistent with the terms of the Plan and the known facts and essentially disregarded them. See Doc. 216 at 62-63. This left only Table 1 which includes facts and assumptions inconsistent with the Plan, but which reflects the Plan fund balance as March 18, 1997. Rather than treat Plaintiffs' evidence at trial as a failure of proof, the court uses reliable evidence of record for purposes of fashioning an award consistent with ERISA.

         As of March 18, 1997 the Plan fund was $261, 388.14 (the "Base Amount") which must be restored to the Plan. The court must next determine the extent to which the Plan Administrators must restore to the Plan any investment gains thereon. See Donovan v. Bierwirth,754 F.2d 1049, 1056 (2d Cir. 1985) ("One appropriate remedy in cases of breach of fiduciary duty is the restoration of the trust beneficiaries to the position they would have occupied but for the breach of trust") (citing Restatement (Second) of Trusts § 205(c) (1959) (stating trustee is liable for "any profit which would have accrued to the trust estate if there had been no breach of trust")). The court credits Mr. Heaps's unrebutted expert opinion as to how the Base Amount would increase or decrease in value if prudently invested as a private retirement fund. See Ex. 26 ...

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