Riskus v. United Emp. Benefit Fund

688 F.Supp.3d 751

George RISKUS, Plaintiff, v. UNITED EMPLOYEE BENEFIT FUND, Herbert O. McDowell III,and John Does 1-10, Defendant.

No. 1:23-cv-60

United States District Court, N.D. Illinois, Eastern Division

Signed August 21, 2023

Mark D. DeBofsky, DeBofsky, Sherman & Casciari, P.C., Chicago, IL, for Plaintiff.

Memorandum Opinion and Order

Elaine E. Bucklo, United States District Judge

In this action, plaintiff George Riskus alleges that the United Employee Benefit Fund ("UEBF," the "Plan," or the "Fund"), along with Herbert 0. McDowell, III, who is alleged to be a Plan fiduciary and/or party in interest, and ten unnamed individuals also alleged to be Plan fiduciaries and/or parties in interest violated ERISA by failing to provide Riskus with reports or documentation informing him how payments he made to the Fund were administered; by terminating a death benefit to which he was entitled without offering him the opportunity to maintain the benefit by purchasing the insurance policy that provided it; and by engaging in self-dealing and other transactions the statute prohibits. Riskus seeks equitable relief in the form of an accounting, the restoration of his death benefit, the replacement of the Fund's trustees, and other relief. UEBF moves to dismiss all claims against it. The motion is granted for the reasons explained below.

I.

Read together with its attachments, the complaint alleges the following facts, which I presume to be true for present purposes. Riskus is the former president and owner of a company called RJPG Construction. As an RJPG employee, Riskus became a participant in the Plan. Contributions to the Plan are held in trust and are administered for the benefit of Plan participants and beneficiaries. To provide the death benefits specified under the Plan, the trustees purchased life insurance policies covering Plan participants. These policies are owned by the Fund and held under the trust.

In 2004, UEBF purchased a universal life insurance policy on Riskus's life with a death benefit in the amount of $5,250,000. Defendant McDowell acted as the broker in this transaction. Riskus was informed and believed that as long as he made all required contributions to the Fund, his death benefit was vested. Compl. at ¶ 14. From 2004 through August 2022, Riskus made all payments that UEBF informed him were due, and he was insured under one or more universal life insurance policies in effect during that period. All told, Riskus paid the Fund approximately $600,000 between 2004 and 2021 to maintain his death benefit.

Section 8.1 of the Trust Agreement provides that Plan participants can apply for loans from the Fund in amounts up to the present value of their death benefit. Between 2001 and 2014, Riskus received various such loans totaling a principal amount of approximately $125,000. Riskus alleges that at no time did UEBF seek repayment of these loans or inform him of any interest accruing on them. Riskus believed that in the event any portion of his loans from UEBF remained outstanding at the time of his death, the death benefit payment would be reduced by the amount of his indebtedness. Compl. at ¶ 16. That is, Riskus believed that the loans remained in good standing regardless of whether he repaid them during his lifetime, so long as the cash value of his death benefit exceeded the amount he owed.

But in 2012, following a lawsuit challenging loans such as the ones Riskus received from UEBF, UEBF entered into a consent decree with the United States Department of Labor. See Solis v. Fensler, et al., No. 11-cv-6031 (N.D. Ill.). The terms of the consent decree required that these loans either be repaid by the participants or treated as taxable distributions. UEBF did not seek to collect on Riskus's outstanding loans, so in 2013, the Internal Revenue Service brought a proceeding against Riskus alleging that the loans constituted income. Riskus conceded liability and paid taxes, interest, and penalties with respect to the loans he received from UEBF.

RJPG ceased operations in 2014. But Riskus claims that he was never informed that he was no longer eligible to participate in the Plan. At some point in 2018 and 2019, McDowell floated "a proposal to cancel existing life insurance coverage funding Riskus's death benefit and reinstate the coverage with a different insurer," but Riskus does not believe this was done. Compl. at ¶ 24. In any event, UEBF solicited payments from Riskus until 2021, purportedly to maintain his death benefit. Specifically, Riskus alleges that in 2019 and 2021, UEBF requested that Riskus issue checks in the amount of $20,000 and $54,223.80, respectively, "to maintain the life insurance policy funding his death benefit in force." Compl. at ¶ 25. Riskus complied with both requests. Riskus allegedly heard nothing further from UEBF concerning his death benefit or his participation in the Plan until August 10, 2022, when he received a letter stating that his participation in UEBF and his benefits had been terminated.

Section 7G of the Summary Plan Description provides:

[I]f you cease to be a Participant in the Plan because your Member Employer stops participating in the Plan as a Member Employer, you may purchase the life insurance policy that was used to provide your death benefit for its current net value (as actuarially determined by the insurance company). If the policy's current cash value is less than the policy's full reserve, you may be required to pay the difference. For more information, contact the Plan Administrator.

Riskus claims that UEBF never offered him the opportunity to purchase the universal life insurance policy that provided his death benefit, which would have allowed him to maintain the benefit even after his participation in the Plan ceased. As a result, the policy funding his death benefit lapsed and his death benefit was forfeited.

Riskus additionally complains that because that he was not furnished with annual in-force ledgers or any other documentation setting forth the premium payments made on his behalf, loans taken against the policy value, or the cash surrender value of the insurance policy that funded his death benefit, he was unable to ascertain how his payments to the Fund were applied or to verify that any loans taken against the policy were loans that were made to him or were otherwise appropriate uses of Fund assets. In this connection, Riskus notes that two other lawsuits currently pending in this district, Walsh v. Fensler, No. 22-cv-1030 (N.D. Ill.), and Futterman v. United Employee Benefit Plan, No. 20-cv-6722 (N.D. Ill.), allege that Plan assets were used to make improper loans to trustees and to pay personal expenses and unreasonable compensation to defendant McDowell in violation of 29 U.S.C. §§ 1106(a) and (b).

Count I of the complaint asserts violation of the reporting and disclosure obligations of 29 U.S.C. § 1023(e). Count II claims that defendants breached the fiduciary duties they owed Riskus pursuant to 29 U.S.C. § 1104. And Count III asserts that defendants engaged in self-dealing and other prohibited transaction in violation of 29 U.S.C. §§ 1106(a) and (b).

II.

To bring a civil action for benefits under ERISA, a plaintiff must be a participant or beneficiary in an ERISA-covered plan. 29 U.S.C. § 1132(a)(1). A "participant" under the statute includes a "former employee . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. § 1002(7). In addition, persons who have a "colorable claim to vested benefits" are entitled to seek relief under the statute. Kamler v. H/N Telecomm. Servs., Inc., 305 F.3d 672, 678 (7th Cir. 2002) (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). The Fund first seeks to dismiss the complaint in its entirety under Fed. R. Civ. P. 12(b)(1), arguing that Riskus lacks standing to sue because his participation in the Plan terminated before he filed suit and because the benefits he seeks were not vested. This argument is unpersuasive.

To begin, as the Seventh Circuit has explained, "standing" is a "misnomer" in this context, where the issue is not whether Riskus alleges "the combination of injury in fact, causation, and redressability," i.e., the focus of the standing inquiry, but rather whether his claims "come within the zone of interests regulated by" ERISA. Pennsylvania Chiropractic Ass'n v. Indep. Hosp. Indem. Plan, Inc., 802 F.3d 926, 928 (7th Cir. 2015). Accordingly, courts examining ERISA claims such as plaintiff's should "avoid the language of standing" and focus instead on whether the plaintiff is a participant or beneficiary as ERISA defines those terms or has a colorable claim to vested benefits. Id. (citing Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 126-28, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014)). See also Panaras v. Liquid Carbonic Indus. Corp., 74 F.3d 786, 790 (7th Cir. 1996) ("Given the fact that a claimant need only have a 'colorable claim' that he might prevail, we believe that the most useful weapon in weeding out frivolous claims is not Rule 12(b)(1) [lack of subject matter jurisdiction] but Rule 12(b)(6)") (quoting Sladek v. Bell System Management Pension Plan, 880 F.2d 972, 976-79 (7th Cir. 1989)) (alteration in Panaras). Regardless of how the issue is framed, however, "the requirements for a colorable claim are not stringent; a plaintiff need have only a nonfrivolous claim for the benefit in question." Kamler, 305 F.3d at 678.

UEBF argues that Riskus has no colorable claim to "vested" rights because ERISA does not require the vesting of welfare rights, and because Riskus does not allege any factual basis for his purported "belief" that his death benefit was in fact vested.¹ While it is true that welfare benefits do not necessarily vest, "[e]mployers nonetheless may create vested welfare benefits by contract." Sullivan v. CUNA Mut. Ins. Soc'y, 649 F.3d 553, 555 (7th...