Aric D. Hausknecht, Complete Med. Care Servs. of Ny, PC v. John Hancock Life Ins. Co. of N.Y.

334 F.Supp.3d 665

Aric D. HAUSKNECHT, Complete Medical Care Services of NY, PC and Complete Medical Care Services of NY, PC Health and Welfare Benefit Plan, Plaintiffs,

v.JOHN HANCOCK LIFE INSURANCE COMPANY OF NEW YORK, Defendant.

CIVIL ACTION NO. 17-3911

United States District Court, E.D. Pennsylvania.

Signed August 13, 2018

Filed August 14, 2018

Ira B. Silverstein, The Silverstein Firm, Philadelphia, PA, for Plaintiffs.

Neil Merkl, Sean R. Flanagan, Kelley Drye & Warren LLP, New York, NY, Thomas P. Stevens, Flamm Walton Heimbach & Lamm PC, Blue Bell, PA, for Defendant.

MEMORANDUM OPINION

Wendy Beetlestone, District Judge

After the Department of Labor sued John Koresko for converting the assets of welfare benefit plans, see Perez v. Koresko , 86 F.Supp.3d 293 (E.D. Pa. 2015), aff'd , 646 F. App'x. 230 (3d Cir. 2016) ("the Department of Labor lawsuit"), some of those plans and individual participants in the plans brought lawsuits against third parties to recover lost money. This is one such lawsuit. Plaintiffs allege that Defendant John Hancock Life Insurance Company of New York ("John Hancock"): (1) breached its fiduciary duties in violation of Section 1132(a)(2) and 1132(a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(2)-(3) ; (2) violated Section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) ; and (3) conspired to violate RICO in violation of Section 1962(d) of RICO, 18 U.S.C. § 1962(d).

Pending now are Defendant's motion to dismiss and Plaintiffs' motion for partial summary judgment. In its motion to dismiss, Defendant argues that Plaintiffs' ERISA claims must be dismissed because it is not an ERISA fiduciary. It further argues that Plaintiffs' RICO claims must be dismissed for lack of standing and, alternatively, because the Complaint contains insufficient facts to support such claims. Plaintiffs, in turn, argue for summary judgment on their ERISA claims (but not their RICO claims). Plaintiffs and Defendant each attach various documents to their motions.

For the reasons that follow, Defendant's Motion shall be granted in part and denied in part, and Plaintiffs' Motion shall be denied.

I. FACTS

Between 2002 and 2013, John Koresko and his affiliates operated a multiple employer welfare arrangement that purportedly allowed employers to purchase cash value life insurance policies and take a tax deduction for the premiums as a business expense. In fact, Koresko systematically converted and misused the assets, which were held in trusts, of the welfare benefit plans that participated in the arrangement. The arrangement is comprehensively explained in the Department of Labor lawsuit opinion referenced supra . Given the familiarity of the parties with that lawsuit, the Court will not describe the full extent of the arrangement here.

To take advantage of the arrangement, a prospective participating employer signed an adoption agreement which established the employer's own welfare benefit plan, adopted a prototype provided to them by Koresko et al. , and agreed to the terms of a pre-existing trust. Life insurance policies were taken on the lives of plan participants although the Trustee was named as the owner and beneficiary. Those policies were owned by the Trusts for the benefit of the welfare benefit plans. The Trust functioned as a pass through vehicle, receiving insurance premiums paid by the employer and paying them to the insurance company for the policies.

Koresko's defalcations were effected by, inter alia , unauthorized and improper loans taken out against the cash value accumulated in life insurance policies.

Plaintiffs here were among those whose policy was stripped, in part, of its cash value by Koresko. Plaintiff Complete Medical Care Services of NY, PC, Health and Welfare Benefit Plan ("the Plan") is one of the employee benefit plans that participated in the arrangement. Plaintiff Complete Medical Care Services of NY, PC ("CMCS") is the sponsoring employer of the Plan. And Plaintiff Aric D. Hausknecht is a participant of the Plan whose life was insured pursuant to a policy issued by Defendant.¹

Plaintiffs became aware of the Koresko arrangement through a financial advisor and decided to participate. Pursuant to the Plan, an application for life insurance was submitted to insure the life of Hausknecht. The owner of the Policy was listed on the Application as the "REAL VEBA Trust/ FBO" the Plan, with the Trust providing a King of Prussia address "c/o/ Penn-Mont Benefit Services, Inc." The Policy explicitly provided that ownership could be changed by written request. Defendant² then issued the Policy with a death benefit of $6 million. Over the next twelve years, CMCS contributed $865,000 to pay premiums on the Policy.

In spring 2002, the insurer received from Penn-Mont, the Plan Administrator, a letter of resignation from the Trustee of the REAL VEBA Trust and a Verification wherein Community Trust Company ("CTC") was appointed Trustee of the REAL VEBA. The Verification stated that:

The trust empowers the trustee to exercise any and all rights associated with owning life insurance policies and the trustee can exercise these rights without the consent of the insured. These rights include but are not limited to ... borrowing against the policy ... and changing the beneficiary.

The Verification also designated Jeanne Bonney as the "Appointed Signator" with authority to sign documents on behalf of the new Trustee, CTC. John Koresko's name was not included anywhere on the document. On November 24, 2005, the Defendant received a letter, on Penn-Mont letterhead, from Bonney as signatory for CTC, directing that the name of the owner and the beneficiary be changed from the REAL VEBA Trust to the "Complete Medical Care Service of NY, P.C. Welfare Plan Trust." Pursuant to this directive and in accordance with the Verification, Defendant did as instructed.

The Complaint alleges that in October 2009, John Hancock loaned "Koresko et al. " $405,892.44, collateralized by the cash value that had accumulated in the Policy. Plaintiff seeks, inter alia, restitution of this amount as well as all profits that the Plan would have earned on the funds had John Hancock not made the loan.

II. LEGAL STANDARD

In analyzing a motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must first, outline the elements of the claim, second, remove legal conclusions from the complaint, and third, look for and assume as true the well-pled factual allegations in the complaint. See Bistrian v. Levi , 696 F.3d 352, 365 (3d Cir. 2012). To survive a motion to dismiss, the complaint must have enough factual matter that "state[s] a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "Context matters in notice pleading," so "some complaints will require at least some factual allegations to make out a ‘showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ " Phillips v. Cnty. of Allegheny , 515 F.3d 224, 232 (3d Cir. 2008) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

III. ANALYSIS

A. Section 1132(a)(2) Claim

i. Defendant's Motion to Dismiss

Whether Defendant is an ERISA fiduciary is dispositive of Plaintiffs' Section 1132(a)(2) ERISA claim as that section allows plaintiffs to obtain equitable relief and to recover damages only from fiduciaries who breach their duties. McLemore v. Regions Bank , 682 F.3d 414, 422 (6th Cir. 2012). ERISA fiduciaries are "personally liable to make good to such plan any losses to the plan resulting from ... breach" of any duties imposed by ERISA. See 29 U.S.C. § 1109 ; 29 U.S.C. § 1132(a)(2). Accordingly, if Plaintiffs have not sufficiently alleged that Defendant is a fiduciary, their Section 1132(a)(2) claim must fail.

As a preliminary matter, the Complaint does not allege that Defendant was named a fiduciary in any of the plan documents. 29 U.S.C. § 1102(a)(2) (defining a "named fiduciary" as a "fiduciary who is named in the plan instrument"); Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co. (U.S.A.) , 768 F.3d 284, 291 (3d Cir. 2014) ("ERISA provides that a person is a fiduciary to a plan if the plan identifies them as such."); Marks v. Independence Blue Cross , 71 F.Supp.2d 432, 434 (E.D. Pa. 1999) ("[Defendant] is not a named fiduciary."). It does, however, allege that Defendant is a fiduciary of the plan "in that it possesses and exercises control over assets of the [Plan] including, but not limited to, the cash value of the insurance policy insuring the life of [Plan] participant Aric Hausknecht."

Section 1002(21)(A) of ERISA, as relevant here, provides that a person is a fiduciary "with respect to a plan to the extent [he] exercises any authority or control respecting management or disposition of its assets." See 29 U.S.C. § 1002(21)(A) ; Santomenno , 768 F.3d at 293 (the issue is whether Defendant exercised "any authority or control over the management or disposition of plan assets .") (emphasis in original). Furthermore, an entity is only a fiduciary to the extent it exercises "undirected authority or control" over plan assets. See Srein v. Frankford Trust Co. , 323 F.3d 214, 221-22 (3d Cir. 2003) (emphasis added).

Plaintiffs contend that the Hausknecht Policy, its cash value and the ability to borrow against the cash value are plan assets. In support of that proposition, they cite to Department of Labor v. Koresko , in which the Third Circuit noted that "the individual employer-level employee benefit plans have a beneficial interest in the trust and therefore the assets of the trusts are ‘plan assets’ within the meaning of ERISA." 646 F. App'x. 230, 236-40 (3d Cir. 2016).

Accepting that the assets of the trusts are "plan assets" still leaves open the question of...