Acosta v. Chimes Dist. of Columbia, Inc.

• Decision Date: 26 February 2019
• Docket Number: Civil Action No.: RDB-15-3315
• Parties: R. ALEXANDER ACOSTA, Secretary of Labor, Plaintiff, v. CHIMES DISTRICT OF COLUMBIA, INC., et al., Defendants.
• Court: U.S. District Court — District of Maryland

R. ALEXANDER ACOSTA, Secretary of Labor, Plaintiff, v. CHIMES DISTRICT OF COLUMBIA, INC., et al., Defendants.

Civil Action No.: RDB-15-3315

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

February 26, 2019

MEMORANDUM OPINION

The United States Secretary of Labor ("the Secretary")¹ brought a ten-count Amended Complaint against eleven Defendants—Chimes D.C., Inc. Health & Welfare Plan (the "Plan") and its alleged fiduciaries and service providers, including Chimes District of Columbia, Inc. ("Chimes DC"); Chimes International, Ltd. ("Chimes International"); FCE Benefit Administrators, Inc. ("FCE"); Gary Beckman ("Beckman"); Stephen Porter ("Porter"); Martin Lampner ("Lampner"); Albert Bussone ("Bussone"); Benefits Consulting Group ("BCG"); Jeffrey Ramsey ("Ramsey"); and Marilyn Ward ("Ward")—alleging violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. §§ 1001, et seq. (First Am. Compl., p. 1-2, ECF No. 102.) The Secretary contends that the Defendants chargedthe Plan excessive fees for services and engaged in prohibited transactions by receiving commissions, kickbacks, and inappropriate reimbursements.

Defendants BCG, Ramsey, Bussone, and Lampner were granted summary judgment, and Defendants Ward, FCE, Porter, and Beckman settled. The Chimes Defendants² proceeded to an eleven-day bench trial on the remaining five counts.

For the reasons set forth below, this Court concludes as follows:

• The Chimes Defendants took reasonable measures to oversee and monitor the Plan and its service providers, and they made reasoned decisions that were consistent with that of a prudent person acting in a like capacity in similar circumstances.

• Chimes DC's agreements with FCE and BCG were for the provision of necessary services to the Plan, for which they were paid reasonable compensation.

• The Chimes Defendants did not engage in prohibited transactions when the Chimes Foundation, which is not a party to this litigation, received charitable contributions from FCE, BCG, and their principals.

• The Plan's fees in the aggregate were reasonable, so there is no evidence of loss to the Plan.

• Regardless whether FCE committed a fiduciary breach by its collection of commissions and fees, Chimes DC was not aware that such monies were not paid into the Plan and did not knowingly participate in any misconduct.

• There was no evidence of denied benefit claims that were not afforded a proper review.

• Judgment shall be entered in favor of the Chimes Defendants under Rule 58 of the Federal Rules of Civil Procedure.

The Court now issues this Memorandum Opinion as its findings of fact and conclusions of law in compliance with Rule 52(a) of the Federal Rules of Civil Procedure.³ The Court finds the facts stated herein based upon its evaluation of the evidence, including the credibility of witnesses, and the inferences that the Court has found reasonable to draw from the evidence.

BACKGROUND

I. Chimes History

The Chimes companies ("Chimes") began as the School of the Chimes in 1947 in Baltimore, offering a special education day school for children with intellectual developmental disabilities. See Chimes History, https://chimes.org/about/history/ (last visited: February 14, 2019.) It expanded to provide adult programs, and by 1971, provided a 36-bed Hill-Burton⁴ funded residential program, the first community alternative to institutional care for the disabled in the state of Maryland. (Perl Dep., GX⁵ 201, at 8-9.)⁶ In 1974, the name was changed to The Chimes, Inc. (Id. at 9.) The company grew in response to the changing needs of the people it was serving, developing a network of group homes, apartments, independentliving, a full range of day habilitation, vocational, and employment programs, and a network of clinical services. (Id.)

In 1986, Chimes embarked on a strategic plan to diversify its revenue source as well as geographically. (Id. at 10). As a result, Chimes developed a vocational and office center in Baltimore County, Maryland in 1989, expanding and growing its services. (Id. at 10-11.) Chimes Israel was created as a not-for-profit organization in Tel Aviv, Israel, and Chimes Metro, Inc. d/b/a Chimes Delaware became a community-based services provider in Delaware. (Id. at 11-12.) In 1991, Chimes International was established as an umbrella organization to provide services to the other companies. (Id. at 17.) Around that same time, Chimes Foundation was also established as the fund-raising arm of the Chimes companies. (Id. at 17-18.) Chimes Foundation became the mechanism for charitable support and for advocacy for not only the Chimes companies but also for people with disabilities. (Id. at 18.)

Chimes also moved into a new business line, becoming certified as a vocational center under National Industries for the Severely Handicapped ("NISH")⁷. (Id. at 11-12.) NISH is the central nonprofit agency coordinating the participation of other nonprofit organizations participating in a government contracting program established by the Javits-Wagner-O'Day Act ("JWOD"), 41 U.S.C. §§ 8501 et seq., "to promote 'employment and training opportunities for persons who are blind or have other severe disabilities.'" United States ex rel. Ahumada v. NISH, 756 F.3d 268, 271 (4th Cir. 2014) (quoting 41 C.F.R. § 51-1.1(a)). "To qualify for participation in the program, a nonprofit must certify, on an annual basis, that it 'employsblind or other severely disabled individuals for at least 75 percent of the hours of direct labor required for the production or provision of the products and services.'" Id. (quoting 41 U.S.C. § 8501(6)(C)). The JWOD program was renamed AbilityOne in 2006. See AbilityOne Program - History Timeline, https://www.abilityone.gov/abilityone_program/ history.html (last visited February 6, 2019).

In 1993, the first contract was obtained in the District of Columbia (D.C.), and Chimes DC was created as the employment entity for that contract and to serve as the employment arm for government contracting. (Perl Dep., GX 201, at 12, 18.) The contract was successful, more contracts were obtained, and the business grew. (Id. at 12-13.) Chimes became the largest contractor employing people to provide janitorial and maintenance services under JWOD/AbilityOne to government facilities⁸ in D.C. (Id. at 13). Perl testified that at the height of Chimes work during his term, there were nearly 1,500 people with disabilities and approximately 1,900 employees at Chimes DC. (Id.) By the time Perl retired in December 2010, the Chimes Family of Services comprised Chimes DSNJ in New Jersey; Holcomb Behavioral Health Systems in Pennsylvania and Delaware; The Chimes, Inc., d/b/a/ Chimes Maryland; Chimes DC; Chimes Virginia; Chimes International; Chimes Foundation; and Chimes Israel. (Id. at 16.)

Currently, Chimes DC is a certified federal contractor, managing federal, state, and local government contracts to provide primarily janitorial and custodial services at variousgovernment sites pursuant to the McNamara-O'Hara Service Contract Act of 1965, 41 U.S.C. § 6701, et seq., and the Javits-Wagner-O'Day Act, 41 U.S.C. § 46, et seq.

II. The Chimes Plan

In 1993, when Chimes DC was created as the employment entity for the first contract, Chimes also established the first Chimes D.C. Health and Welfare Plan. (Perl Dep., GX 201, at 21.) Since Chimes DC was providing services by contract to the government, it was subject to the rules and regulations of the McNamara-O'Hara Service Contract Act of 1965, codified at 41 U.S.C. §§ 6701-6707 ("Service Contract Act" or "SCA"). (Perl Dep., GX 201, at 21-22; see also Trial Tr.,⁹ ECF No. 546 at 83-84.) Under the Service Contract Act, the Secretary of Labor makes determinations of the minimum monetary wages and fringe benefits for the various classes of service employees working under the contracts that the Act covers. 41 U.S.C. § 6707. Chimes DC had the option of paying the fringe benefits portion of the wages as cash or by providing meaningful health and welfare benefits to the employees. (Perl Dep., GX 201, at 22; 29 C.F.R. §§ 4.170(b), 4.171.) Chimes DC elected to pay the fringe benefit amounts into a trust pursuant to a health and welfare benefit plan, rather than provide cash payouts, because of the severe disabilities many of its employees faced, which would have made it difficult, if not impossible, for them to purchase benefits in the marketplace by themselves. (Perl Dep., GX 201, at 22.) It also provided a tax benefit to the Chimes organization. (Id.)

Chimes DC executives felt that the company could not administer the plan by itself and chose the Boon Group ("Boon") as the Third Party Administrator ("TPA"). (Id. at 22-24; ECF No. 547 at 9.) The number of employees continued to grow as Chimes DC took on new contracts, in some cases assuming contracts that were under collective bargaining agreements, which required Chimes DC to work collaboratively with the unions. (Perl Dep., GX 201, at 23.) As the size and complexity of the plan increased, Chimes DC executives decided to look for a new TPA, specifically one with Service Contract Act experience that would be capable of providing a self-funded plan with coordinated stop-loss insurance¹⁰ to reduce the exposure to catastrophic medical expenses. (Id. at 24-29; ECF No. 547 at 9-11.) Chimes DC was concerned that Boon was moving towards implementing a defined contribution plan, under which a monthly per-employee premiums would be paid to the insurance provider, precluding an employer from saving any money left over from the premium amount following payment of claims and benefits.¹¹ (Perl Dep., GX 201, at 26-27.)

In 1995, while attending a National Industries for the Severely Handicapped (NISH) conference, Perl and other executives met Jeffrey Ramsey,¹² who was promoting insurancecoverage. (Id. at 24-25.) Ramsey introduced them to Steven Porter and Gary Beckman from FCE, who were also exhibiting at the NISH conference. (Id. at 25.) A...