United States District Court, E.D. Washington
R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor, Plaintiff,
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
O. RICE Chief United States District Judge.
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.
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”).
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.
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.
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.
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.
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,
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,
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.
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 ...