Kalan v. The Lincoln Nat'l Life Ins. Co.
| Docket Number | Civil Action 14-5216 |
| Decision Date | 12 August 2022 |
| Parties | HARVEY A. KALAN, M.D., INC., HARVEY KALAN, DEBORAH KALAN, Plaintiffs, v. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY and JEFFERSON-PILOT LIFE INSURANCE COMPANY, Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Plaintiffs Harvey and Deborah Kalan, and Harvey A. Kalan, M.D., Inc. contend that, by taking certain actions as the insurers of life insurance policies which were devalued through a larger complex scheme to swindle funds from welfare benefit plans operated by one John Koresko, Defendants the Lincoln National Life Insurance Company (“Lincoln”) and Jefferson-Pilot Life Insurance Company (“Jefferson”) violated two sections of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1132(a)(2)-(3) and two sections of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §§ 1962(c)-(d). Plaintiffs also assert the following common law claims against Defendants: fraud, breach of fiduciary duty, knowing participation in and aiding and abetting breach of fiduciary duty, breach of an obligation of good faith, and negligence.
Plaintiffs now move for summary judgment pursuant to Federal Rule of Civil Procedure 56 on their ERISA claims, and Defendants cross-move for summary judgment on all of Plaintiffs' claims. For the reasons that follow, Plaintiffs' Motion shall be denied, and Defendants' Motion shall be granted in part and denied in part.
This story arises from a complex scheme run by John Koresko and his affiliates to steal tens of millions of dollars from hundreds of welfare benefit plans. In the decade of litigation following the discovery of this scheme, the focus of these suits has shifted from Koresko to the insurers which provided life insurance policies used in the welfare benefit plans. Plaintiffs are some of Koresko's victims and allege that Defendants were in on Koresko's scheme. Specifically, Plaintiffs contend that Defendants were ERISA fiduciaries because they exercised undirected control by issuing a loan on a life insurance policy issued by Defendant Lincoln on Plaintiffs' Harvey and Deborah Kalan's lives, changing the owners of the Lincoln Policy and a separate policy issued by Defendant Jefferson on Harvey Kalan's life, and approving two requests for partial surrenders/withdrawals on both policies. Plaintiffs also argue that Defendants were part of a RICO enterprise with Koresko and his cohorts and committed various violations of state common law.
To follow the narrative, one must be familiar with the myriad characters involved and the roles they played. Plaintiff Harvey A. Kalan is the president of his medical practice, Plaintiff Harvey A. Kalan, M.D., Inc. (“HAK”). He and his wife, Deborah, are participants in the Harvey A. Kalan, M.D., Inc. Welfare Benefit Plan (“HAK Plan”). In the 1990s, the Kalans were seeking to procure life insurance on a tax-deductible basis. On the advice of their financial and insurance advisor, Barry Boscoe, they joined Koresko's arrangement in December 2004.
Much of the work in running the HAK Plan and other plans was done by John Koresko who established several entities which he used to perpetuate his fraud. These entities included the Regional Employers' Assurance Leagues (“REAL”)-a loose, unincorporated association of unrelated employers through which Koresko offered to employers his program of employee welfare benefit plans and benefits. Koresko also established two trusts, the Regional Employers Assurance League Voluntary Employees' Beneficiary Association Trust (“REAL VEBA Trust”) and the Single Employer Welfare Benefit Plan Trust (“Single Employer Trust”). Three different entities, Community Trust Company (“CTC”), Farmers & Merchants Trust Company (“F&M”) and Penn Public Trust (“PPT”), served as the two Trusts' trustees in that order. The last of these trustees, PPT, was established and owned by Koresko. Koresko also founded, owned and served as the director of PennMont Benefits Services, Inc. (“Penn-Mont”), which served as the administrator for each employer's plan, including the HAK Plan. Finally, Koresko founded and wholly owned two law firms-the Koresko Law Firm and Koresko & Associates, P.C.-which represented and acted on behalf of the other Koresko entities.
To join the arrangement, Harvey Kalan and HAK executed several interrelated documents,[1] which consolidated power into the hands of John Koresko and his affiliates, including Penn-Mont and the trustee of the REAL VEBA and Single Employer Trusts. These documents established and named Plaintiffs' welfare benefits plan-the HAK Plan-and referenced certain entities and persons involved in the management of the plan and the Koresko arrangement. They named Koresko a fiduciary of the HAK Plan, authorized him to complete any documents on behalf of Kalan which Penn-Mont determined to be incident to the HAK Plan, and provided that his signature alone could direct the Trustee to act in matters related to the trusts and the HAK Plan. These documents similarly authorized Penn-Mont to: (1) complete and execute any documents on behalf of Kalan which it determined were related to the HAK Plan; (2) instruct the Trustee to act on behalf of the trusts and the HAK Plan; and, (3) exercise its sole discretion to delegate any and all fiduciary responsibilities under the Trusts. The Trustee, which was CTC at the time of execution, could take all manner of action on behalf of the Trusts at the direction of Penn-Mont, or Koresko. Koresko and Penn-Mont thus held all the authority to act on behalf of the HAK Plan and the Trusts and on behalf of Kalan with respect to matters pertaining to the HAK Plan. Further they could direct the trustee to exercise its powers to do their bidding.
Once the HAK Plan was established, life insurance policies were taken on the lives of plan participants though the trustee-then CTC. 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. In this case, at the Kalans' request, two life insurance policies were obtained. One policy was issued by Defendant Jefferson (the “Jefferson Policy”) and the other was issued by Defendant Lincoln (the “Lincoln Policy”). The Jefferson Policy insured Harvey Kalan's life with a death benefit of $2,000,000, while the Lincoln Policy was a “Flexible Premium Adjustable Life Insurance Policy” on the lives of Harvey and Deborah Kalan with a death benefit of $3,500,751. At the time the Jefferson and Lincoln Policies were issued, the owner listed for both policies was: “Harvey A. Kalan M.D., Inc., Welfare Benefit Plan dated December 23, 2004, Community Trust Company, Trustee.” For both policies, the owner's address was listed as an address in Bridgeport, Pennsylvania left to the care of Penn-Mont. The applications for the two Policies did not specify the role or relationship of Penn-Mont to the HAK Plan, CTC, or either Policy. In 2006, Defendant Lincoln merged with Defendant Jefferson with Lincoln succeeding Jefferson.
Aside from John Koresko and his companies, his brother, Lawrence Koresko,[2] was also key to this arrangement. Lawrence Koresko was the Vice President and part-owner of Penn-Mont and worked inter alia as an independent insurance broker at Koresko Financial, an insurance wholesaler he founded and jointly owned with his brother John.
The final character in this story is the Department of Labor, which as mentioned supra sued the REAL VEBA Trust, the Single Employer Trust, Koresko, CTC, Koresko's law firms and Koresko's employees for violating ERISA by misusing funds from hundreds of welfare benefit plans. Ultimately, in February 2015, the Department of Labor prevailed in its lawsuit against Koresko and the other defendants in the action-who were determined to be ERISA fiduciaries of the employers' plans and found to have violated various provisions of the law by misusing plan funds, including by taking out loans exceeding $35 million on insurance policies.[3]As relevant here, a loan in the amount of $393,563.30 was issued by Defendant Lincoln on the Lincoln Policy, which loan has not been repaid and has continued to accrue interest in the 13 years since it was issued.
These characters, or the “who,” are not the only piece to solving the puzzle of the case; the “what” and the “when” are also determinative. Specifically, who or what entity owned the Jefferson and Lincoln Policy changed over time (at various points, Koresko and his cohorts told Defendants that the Policies were owned by-CTC, PPT, and the Single Employer Trust), as did who or what had the authority to make changes to the Policies (those who claimed authority included CTC, PPT and Koresko) and to what extent of authority they represented themselves to have. Further, when Defendants learned of who or what had what authority with respect to the Policies is unclear from the record.
To prevail at summary judgment, “the movant must show that ‘there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.'” Nat'l State Bank v. Fed. Rsrv. Bank of N.Y., 979 F.2d 1579, 1581 (3d Cir. 1992) (quoting Fed.R.Civ.P. 56(c)). A factual dispute is material where it “might affect the outcome of the suit under the governing law....” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a genuine issue is present “when a reasonable trier of fact, viewing all of the record evidence, could rationally find in favor of the non-moving party in light of his burden of proof.” Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir. 2007).
The movant bears the initial burden of...
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