Chao v. Crouse
| Decision Date | 22 November 2004 |
| Docket Number | No. 1:03-CV-01585-TAB-DFH.,1:03-CV-01585-TAB-DFH. |
| Citation | 346 F.Supp.2d 975 |
| Parties | Elaine L. CHAO, Secretary of Labor, United States Department of Labor, Plaintiff, v. William Paul CROUSE, et al., Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
Howard Radzely, Peter D. Broitman, Richard J. Fiore, Ruben R. Chapa, Office of Solicitor, U.S. Dept of Labor, Chicago, IL, for Plaintiff.
Edward R. Hannon, Hannon Roop & Hutton, Indianapolis, IN, for Defendants.
ENTRY ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Secretary of Labor Elaine L. Chao (the "Secretary") seeks to hold Defendants William Paul Crouse and Carmelo Zanfei, as well as their wholly-owned companies TRG Marketing, LLC and TRG Administration, LLC (collectively, "TRG"), responsible for various alleged breaches of fiduciary duty under Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") arising from their management of the TRG Health Plan ("the plan"). Although Crouse and Zanfei dispute their fiduciary status under ERISA, they "accept full responsibilities [sic] for their actions and fully agree to a court order directing the defendant's [sic] to resolve all outstanding claims." [Docket No. 44, pp. 1-2]. Moreover, "[r]ecognizing that their financial difficulties arose from their exercise of control and discretion over Plan assets when they lacked the requisite knowledge to do so, Crouse and Zanfei also agree to being permanently enjoined from being fiduciaries either directly or indirectly of any ERISA plan." [Docket No. 44, p. 2]. These concessions are significant, in that at least part of the relief requested from the Court is to "restrain [ ] the defendants from serving as fiduciaries ... to the TRG Health Plan or to any other ERISA-covered employee benefit plan" and to order "the defendants to pay all health claims filed by plan participants and beneficiaries under the TRG Health Plan." [Compl., p. 6]. For the reasons set forth below, the Secretary's motion for summary judgment is granted in part and denied in part.
Summary judgment is proper where the "pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Williams v. Waste Management of Illinois, 361 F.3d 1021, 1028 (7th Cir.2004). The Court construes all facts and draws all reasonable inferences in the light most favorable to the nonmoving party. Butera v. Cottey, 285 F.3d 601, 605 (7th Cir.2002).
TRG Marketing first organized in Indiana as a limited liability company ("LLC") in April 2000. [Pl.'s Ex. E, pp. 9-11; Pl.'s Ex. H (TRG Ex. No. 1), p. 448]. On December 29, 2000, Crouse and Zanfei re-organized TRG Marketing as a Nevada LLC, filing articles of dissolution with Indiana on January 2, 2001. [Pl.'s Ex. H (TRG Ex. No. 1), pp. 445-46, 448; Pl.'s Ex. E, pp. 10-13]. In addition, also on December 29, 2000, Crouse and Zanfei organized TRG Administration as a Nevada LLC. [Pl.'s Ex. H (TRG Ex. No. 2), p. 442; Pl.'s Ex. E, pp. 15-16]. Thereafter, on February 26, 2001, TRG Marketing and TRG Administration applied for Certificates of Authority to do business in Indiana as foreign LLCs. The Indiana Secretary of State granted both applications on April 5, 2001. [Pl.'s Ex. H (TRG Ex. No. 2), pp. 443-44, 449-50]. Crouse held the position of Chief Executive Officer at both TRG Marking and TRG Administration and also owned fifty percent of both companies. [Pl.'s Ex. E, pp. 8-9, 14-15]. Likewise, Zanfei owned fifty percent of both TRG companies and held the position of Chairman of the Board for each. [Id.].
TRG Marketing first started the plan in August 2000. [Pl.'s Ex. K, p. 29; Defs.' Ex. 2, p. 121]. To this end, TRG Marketing contacted with SAI Plus, LLC ("SAI") to structure the plan and to provide third-party administration services. [Defs.' Ex. 2, p. 42-43]. According to the agreement, SAI was to provide actuarial and claims processing services for the plan. [Defs.' Ex. 2, p. 121]. Under the agreement with SAI, TRG Marketing received premiums directly from plan participants. TRG Marketing then forwarded the premiums, less 25 percent for operating costs and commissions, to SAI for payment of claims. [Defs.' Ex. 2, pp. 121-23]. In late 2000, TRG Marketing learned that, despite repeated assurances, SAI had failed to pay a single claim. [Pl.'s Ex. K, pp. 29-32]. Therefore, TRG Marketing terminated its relationship with SAI and searched for a replacement third party administrator. [Pl.'s Ex. K, pp. 31-32].
On February 1, 2001, TRG Marketing contracted with USA Service Group ("USA") to provide claims processing and administrative services for the plan. [Pl.'s Ex. H (TRG Ex. No. 5), pp. 239, 244; Pl.'s Ex. E, pp. 34-35, 38-39]. The plan was "designed to protect Plan Participants and their Dependants against certain catastrophic health expenses." [Pl.'s Ex. H (TRG Ex. No. 7), p. 189]. In addition, the plan was self-funded with funding "derived from the funds of the Employer and any contribution made by covered Employees." [Pl.'s Ex. H (TRG Ex. No. 6), p. 83].
According to the agreement with USA, TRG Marketing, as plan sponsor, would provide "administrative and fiduciary functions for the Plan." [Pl.'s Ex. H (TRG Ex. No. 5), p. 239]. TRG Marketing formed TRG Administration to handle the administrative functions for the plan, with the exception of claims processing. [Pl.'s Ex. E, p. 91; Defs.' Ex. II, pp. 199-200]. Despite USA's claims services responsibilities, TRG Marketing retained "final authority and responsibility for the implementation of the Plan, and its operation." [Pl.'s Ex. H (TRG Ex. No. 5), p. 239]. In addition, TRG Marketing performed specific duties for the plan, including "procuring necessary PPO Network Contracts and prescription providers." [Pl.'s Ex. H (TRG Ex. No. 5), p. 241]. Crouse's specific responsibilities with respect to the plan included finding and selecting third party service providers, negotiating contracts, and ensuring that the plan was implemented correctly. [Pl.'s Ex. E, pp. 32-33]. Zanfei, on the other hand, did not have day-to-day responsibilities over the plan. However, Zanfei did participate in the selection of the plan's third party administrator. [Pl.'s Ex. E, pp. 33-34; Pl.'s Ex. F, p. 32].
TRG invoiced employers that subscribed to the plan on behalf of their employees on a monthly basis for plan premiums. [Pl's Ex. G, pp. 32-37; 57-58; Pl.'s Ex. E, pp. 65-66]. Once received, TRG deposited the employers' premiums directly into its corporate bank accounts, rather than a separate plan trust account. [Pl.'s Ex. B, ¶¶ 4, 5; Pl.'s Ex. G, pp. 60-61; Pl.'s Ex. E, pp. 83, 86, 89-90; Answer, ¶ 5]. From February 1, 2001 through July 1, 2001, TRG deposited premiums into, and transferred among, corporate bank accounts at Fifth Third Bank. The corporate accounts included a TRG Administration account, a TRG Marketing account, and a TRG claims account. [Pl.'s Ex. B, ¶ 5; Pl.'s Ex. G, pp. 60-61, 63, 69, 70, 73, 76; Pl.'s Ex. E, pp. 83, 86, 89]. Likewise, during September 2001 through November 30, 2001, TRG deposited premiums in similar corporate bank accounts at First Indiana Bank. [Pl.'s Ex. B, ¶ 5]. Crouse and Zanfei had authority and control over these TRG accounts. [Pl.'s Ex. B, ¶ 5; Pl.'s Ex. G, pp. 62, 77-79; Plaintiff's Ex. F, p. 40].
From February 1, 2001 through November 30, 2001, TRG deposited $25,808,307.82 into its corporate accounts. [Pl.'s Ex. C, ¶ 6]. Of this amount, all but an amount not exceeding $1,000 was derived from payment of plan premiums from participating employers. [Pl.'s Ex. B, ¶ 6; Pl.'s Ex. G, p. 63]. Additionally, during this same period, TRG expended $11,134,766.06 for the payment of participants' health claims from its corporate accounts. [Pl.'s Ex. C, ¶ 6]. Finally, also between February 1, 2001 and November 30, 2001, Defendants expended more than $3.4 million from its corporate accounts in the following manner:
• Zanfei spent $4,147.60 for a three-night stay at the Danielli Royal Hotel in Venice, Italy in August 2001 with his wife and his two children [Pl.'s Ex. C, ¶ 5 (); Pl.'s Ex. F, pp. 64-67];
• Zanfei spent $1,230 for the purchase of a blown glass plate to display in his home office [Pl.'s Ex. C, ¶ 5 (); Pl.'s Ex. F, pp. 64-65];
• $60,000 to Zanfei's personal trust account as a member distribution [Pl.'s Ex. F, pp. 50-54; Pl.'s Ex. H (TRG Ex. No. 21), p. 473];
• $10,000 to Zanfei's wife, Kathryn Zanfei, as a member distribution [Pl.'s Ex. F., pp. 59-62; Pl.'s Ex. H (TRG Ex. No. 22), p. 474];
• $2,708,293.02 paid as commissions to TRG's enrollment brokers for sales of the plan [Pl.'s Ex. C, ¶ 5 (); Pl.'s Ex. E, pp. 91-92, 170-71];
• Zanfei spent $883.48 for a two-night stay in Milan, Italy in August 2001 [Pl.'s Ex. C, ¶ 5 (); Pl.'s Ex. F, p. 64];
• Zanfei spent $8,303.64 for airfare and car expenses for a trip to Italy in August 2001 [Pl.'s Ex. C, ¶ 5 ()];
• Zanfei and TRG employee Frank Hulsey spent approximately $7,616.35 for five-day trip to Switzerland in April 2001 to obtain a line of credit to fund a business venture in payroll software development and sales [Pl.'s Ex. C, ¶ 5 (); Pl.'s Ex. F, pp. 71-73];
• $500,000 to pay a 10% funding requirement for a $5 million corporate line of credit to TRG Marketing on July 10 and 13, 2001 [Pl.'s Ex. B (and documents attached thereto); Pl.'s Ex. E, pp. 164-68; Pl.'s Ex. H (TRG Ex. No. 27), pp. 476-77];
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