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Acost v. Dewalt

United States District Court, E.D. Washington

July 31, 2017

R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor, Plaintiff,
v.
JAMES DEWALT; ROBERT G. BAKIE; JACK L. FALLIS, JR.; JEFFREY A. BARTON; ASSOCIATED INDUSTRIES MANAGEMENT SERVICES, INC.; THE ASSOCIATED INDUSTRIES OF THE INLAND NORTHWEST; and THE ASSOCIATED EMPLOYERS HEALTH AND WELFARE TRUST, Defendants.

          ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS

          THOMAS O. RICE Chief United States District Judge.

         BEFORE THE COURT are Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction (ECF No. 12) and Defendants' Motion to Dismiss for Failure to State a Claim (ECF No. 15). These matters were submitted for consideration with oral argument. The Court held a hearing on July 25, 2017. At the hearing, Eirik J. Cheverud appeared on behalf of Plaintiff R. Alexander Acosta, Secretary of Labor, Department of Labor, and Amanda S. Amert, Christopher J. Rillo, and Thomas W. McLane appeared on behalf of Defendants James DeWalt, Robert G. Bakie, Jack L. Fallis, Jr., Jeffrey A. Barton, Associated Industries Management Services, Inc., Associated Industries of the Inland Northwest, and the Associated Employers Health and Welfare Trust (collectively, “Defendants”). The Court has reviewed the record and files herein, and is fully informed. For the reasons discussed below, Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction (ECF No. 12) and Motion to Dismiss for Failure to State a Claim (ECF No. 15) are denied.

         BACKGROUND

         Plaintiff R. Alexander Acosta, United States Secretary of Labor, Department of Labor (“Secretary”) brings this action under the Employment Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001 et seq., against Defendants for alleged breaches of their fiduciary duties committed in the course of managing the Associated Employers Health and Welfare Trust (“Trust”) and ERISA-covered employee benefit plans that participate in the Trust (“Plans”).

         Defendants move to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. See ECF No. 12. Defendants also seek dismissal under Rule 12(b)(6) for Plaintiff's failure to plead sufficient facts to support the ERISA claims. See Fed. R. Civ. P. 12(b)(6); ECF No. 15.

         FACTS

         The following facts are drawn from Plaintiff's complaint, and are accepted as true for purposes of the instant motions. Defendant Associated Industries of the Inland Northwest (the “Association”), a Washington non-profit corporation, established the Trust to receive monetary contributions from more than 300 participating employers (“Participating Employers”) and employees. ECF Nos. 1 at 6, ¶ 14; 15-1 at 7, Art. I ¶ 2. In turn, the Participating Employers and their employees contributed to the Trust to fund various employee health and welfare benefit ERISA plans (the “Plans”) by paying (1) insurance premiums to an insurance company to provide insured medical benefits, and (2) the Plan's administrative expenses. ECF No. 1 at 2, ¶ 1; 11, ¶ 28.

         The Association had the authority to and did appoint trustees (the “Trustees”) to administer the Plans for the participating employees. Id. The Association also had the authority to remove the Trustees. ECF No. 1, 4 at ¶ 5. The Trustees received the Participating Employers' contributions, which were held by the Trust for the exclusive benefit of the participating employees and their beneficiaries. Id. at 2, ¶ 1. The Trustees also had the authority to and did maintain a reserve fund for future contingencies. Id. at 11, ¶ 28.

         Defendant Associated Industries Management Services, Inc. (“AIMS”), a for-profit corporation wholly owned by the Association, provided administrative services for the Plans. Id. at 2, ¶ 2; 4 at ¶ 5. Defendant James DeWalt was the President, CEO, and a director of AIMs, and the President and CEO of the Association; Defendant Robert G. Bakie was the CFO of AIMS. Id. at 5-6, ¶¶ 10-11. Both were Trustees, in addition to Defendants Jack L. Fallis, Jr. and Jeffrey A. Barton. Id.; 6, ¶¶ 12-13; 12, ¶¶ 31-32. The Trust paid AIMS a fee for its administrative services using contributions made by the Participating Employers. ECF No. 1 at 14, ¶ 38. In 2009, AIMS's fee equaled 2% of the total insurance premiums paid through the Trust. Id.

         Generally, from December, 312009, through February 2014, the Trustees purported to approve a series of increases in AIMS's fees from the 2% fee to as high as 7% of paid insurance premiums, and caused the Trust to pay those increased fees. Id. at 15-22, ¶¶ 39-58. The Participating Employers and their employees were never informed about the increases or that the Trustees took money from the Trust's reserve fund to pay the fee increases to AIMS. Id. at 17, 19-20, 23, ¶¶ 44-45, 51-52, 61-62. The Trust paid AIMS over $3 million more in fees than the 2% fee rate would have allowed. Id. at 22, ¶ 59.

         The Secretary asserts that the Trustees and the Association were ERISA fiduciaries who violated their duties of prudence and loyalty to the Plans by engaging in prohibited transactions in violation of ERISA sections 406(a)(1)(C) and (D), 29 U.S.C. § 1106(a)(1)(C), (D), because the Trustees retained and paid AIMS, repeatedly increased those fees, and caused the Trust to pay such fees with the Plans' assets. Id. at 24-27, ¶¶ 63-68. The Secretary also alleges that the Association failed to properly monitor the Trustees' actions, and that the Trustees and the Association are liable as co-fiduciaries for each other's violations. Id. at 25-27, 29, ¶¶ 66, 67, 72-73. The Secretary further contends that the Trustees' conduct constituted prohibited self-dealing with the Plans' assets and violated their ERISA fiduciary duties of loyalty, prudence, and fidelity to the Plans' participants and beneficiaries. Id. at 3, ¶ 2. Similarly, the Secretary contends that AIMS is liable under ERISA section 502(a)(5), 29 U.S.C. § 1132(a)(5), for disgorgement of its unjust enrichment because it knowingly participated in these fiduciary breaches. Id. at 4, ¶ 5.

         DISCUSSION

         In their motions to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6), Defendants factually challenge whether the Trust contains ERISA-covered assets and dispute that Defendants are fiduciaries with respect to the various Plans because-according to Defendants-they did not exercise control or discretionary authority over the Plans' assets. ECF No. 12 at 10-11; 15 at 8-14.

         With respect to its Rule 12(b)(1) motion, Defendants argue that the Court lacks subject matter jurisdiction because the Secretary's Complaint does not “present a federal question on [its] face.” ECF No. 12 at 5. Similarly, Defendants argue in their Rule 12(b)(6) dismissal motion that (1) the Secretary failed to state prohibited-transaction and knowing participation claims because the Trust's assets were not ERISA-covered plan assets; (2) the Secretary failed to allege facts to support ...


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