Mahoney v. J.J. Weiser & Co., Inc.

Decision Date30 June 2008
Docket NumberNo. 04 Civ. 2592(VM).,04 Civ. 2592(VM).
PartiesJames MAHONEY, as Director of the Transport Workers Union Local 100 Retirees' Association, and Plan Administrator of the Transport Workers Union Local 100 Retirees' Association Benefit Plan, Joseph Allman, Bernard Beaver, Frank Ingram, Laverne Stuckey, Maurice Schierman, and Matthew Tarnowski, Plaintiffs, v. J.J. WEISER & COMPANY, INC., Sanford J. Cohen, Harvey T. Gluck, Michael J. Fitzpatrick and John Meeham, Defendants.
CourtU.S. District Court — Southern District of New York

Susan Marie Jennik, William G. Schimmel, Thomas Martin Kennedy, Kennedy, Jennik & Murray, P.C., New York, NY, for Plaintiffs.

Daniel Glenn Ecker, Michael L. Hart, Jonathan Robert Harwood, Traub, Lieberman, Straus & Shrewsberry, LLP, Hawthorne, NY, Jack Babchik, Brian Thomas Carr, Babchik & Young, LLP, White Plains, NY, Suzanne Tongring, Tongring Law Offices, New York, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiffs James Mahoney ("Mahoney"), as Director of the Transport Workers Union Local 100 Retirees' Association (the "Retirees Association"), and Plan Administrator of the Transport Workers Union Local 100 Retirees' Association Benefit Plan, Joseph Allman ("Allman"), Bernard Beaver ("Beaver"), Frank Ingram ("Ingram"), Laverne Stuckey ("Stuckey"), Maurice Schierman ("Schierman"), and Matthew Tarnowski ("Tarnowski") (collectively, "Plaintiffs"), brought this action against defendants J.J. Weiser & Company, Inc. ("Weiser"), Sanford J. Cohen ("Cohen"), Harvey T. Gluck ("Gluck"), Michael J. Fitzpatrick ("Fitzpatrick"), and John Meehan ("Meehan"), (collectively, "Defendants"), alleging that Defendants breached their fiduciary duties and committed prohibited transactions in violation of the Employee Retirement Income Security Act ("ERISA"). See 29 U.S.C. §§ 1104, 1105, and 1106. Plaintiffs also asserted various state law claims, and ERISA claims sounding in fraud.

Defendants previously moved to dismiss the complaint on various grounds before Judge Michael B. Mukasey, who then presided over the case. Defendants' motion was granted in part and denied in part. See Toussaint v. J.J. Weiser & Co., No. 04 Civ. 2592, 2005 WL 356834 (S.D.N.Y. Feb. 13, 2005). Judge Mukasey dismissed all of Plaintiffs' state law claims and all claims sounding in fraud, and held that Plaintiffs' claims for breach of fiduciary duty under ERISA could proceed.

Defendants now bring a motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Rule 56"), and Plaintiffs cross-move for partial summary judgment on liability pursuant to Rule 56. For the reasons stated below, Defendants' motion is GRANTED and Plaintiffs' motion is DENIED.

I. BACKGROUND1

Plaintiffs Allman, Beaver, Ingram, Stuckey, Schierman, and Tarnowski (collectively, the "Individual Plaintiffs") are participants in a health benefits plan (the "Plan") open to members of the Retirees Association. Mahoney is the Director of the Retirees Association, a position he has held since October 2002. The Retirees Association is composed of retired employees who were members of Transport Workers Union, Local 100 ("Local 100").

Weiser is a benefits plan administrator and insurance brokerage firm which helped issue the Plan. Fitzpatrick and Meehan are former Directors of the Retirees Association (the "Former Directors"). Meehan was the Director from 1990 until 2000 and Fitzpatrick was the Director from 2000 to October 2002. Gluck is the current Vice President of Weiser and Cohen is the former President of Weiser.

On January 1, 1978, the Transport Workers Union ("TWU") obtained a Limited Medical Expenses and Accidental Death and Dismemberment Policy (the "Policy") from Weiser and Interboro Mutual Insurance Company ("Interboro")2. In or about November 1997, Cohen and Gluck purchased Weiser.

The Policy guaranteed certain benefits to members of the Retirees Association who held certificates under the Policy. All members of the Retirees Association were certificate holders in the Policy. Premium payments to Weiser were due by the first of January each year. The Association generally sent a pre-payment of $140,000 to Weiser in December and paid an additional $100,000 in January. Any additional premiums that were expected to be due in that year were paid in the first three months of the year. Additionally, some participants paid Weiser directly by credit card. These credit card payments included the dues owed to the Retirees Association, which Weiser would credit to the Retirees Association as an advance payment of premiums.

Until 2001, dues for the Retirees Association members were $65 per couple and $35 per individual. During that period, premiums for the Policy were $60 per couple and $30 per individual. In 2001, the yearly dues for the Retirees Association members increased to $75 per couple and $45 per individual, and the Policy premiums increased to $65 per couple and $35 per individual. For the year 2001, Retirees Association members paid a total of $354,083.16 in premiums, and the benefits paid out under the Policy totaled $35,362.64. For 2002, those figures were $327,590 paid in premiums, and $14,895.21 in benefits. For 2003, the figures were $307,854.00 in premiums, and $13,041.00 in benefits. Weiser did not disclose this data on the amount of money collected and the amount paid out in benefits for 2001-2003 until January 8, 2004. Weiser has informed Mahoney that there are no records of the amounts paid in benefits under the Policy prior to 2001.

In 2002, Weiser's commission rate increased from 30 percent to 40 percent. Weiser did not inform Plan participants of the change in its commission rate or the amount of its commission. Weiser contends that the commission rate was increased to compensate Weiser for the loss of office space that had been provided by Interboro to Weiser without cost prior to 2002.

In January 2004, the Retirees Association pre-paid $140,000 for premiums. In February 2004, Mahoney ceased payments of premiums to Weiser, which then cancelled the Policy. The Retirees Association replaced the Policy with a self-funded benefit plan (the "Self-Insured Plan"). Under the Self-Insured Plan, the current annual payments for participants is $75 per family and $45 per individual. The new policy increased the benefits provided by reducing the number of days in the hospital necessary to obtain a benefit. In 2006, $54,664 in benefits were paid out under the Self-Insured Plan.

Plaintiffs claim that the benefits offered under the Policy were not proportional to the premiums charged. Specifically, Plaintiffs state that the claims-loss ratio for the Policy, which is calculated by dividing the benefits paid by the premiums paid, was below 10 percent for 2001-2003, and they allege that this figure is well below the typical claims-loss ratio in the health insurance industry of 70-75 percent, as calculated by Plaintiffs' expert. Plaintiffs' expert opined that when a claims loss ratio is less than 60 percent, an insurance provider would typically redress the imbalance by reducing premiums the following year, improving benefits, switching insurance companies, or self-insuring. Weiser did not take any of these actions or advise the Retirees Association to take them. Defendants' experts counter that there was no comparable insurance policy available in the market, and therefore, no industry standard for claims-loss ratios, and any comparisons to the claims-loss ratios for other types of insurance programs are irrelevant and immaterial.

In October 2002, prior to being replaced as the Director of the Retirees Association, Fitzpatrick reported that a "break-in" had occurred at the offices of the Retirees Association. Records and documents maintained in the Director's desk were reported missing due to the "break-in." Plaintiffs allege that the "break-in" was staged to allow the Defendants to remove evidence related to kickbacks and gifts. Plaintiffs allege that Weiser engaged in kickback and gifts in exchange for excessive premiums paid by the Plan to Weiser. Plaintiffs also allege that on October 8, 1991, Weiser and Interboro contributed $1,000, allegedly a portion of the premiums paid to Weiser, to a reelection campaign for Sonny Hall, the then President of Local 100. Weiser alleges that this check was never cashed, but rather, was returned to Steven Weiser.

Plaintiffs further allege that between 1999 and 2002, Weiser contributed $9,400 to the Retirees Association. Weiser has admitted that it made contributions to the Retirees Association for social functions, but contends that such payments are not prohibited and are standard practice. Finally, Plaintiffs claim that the financial records of the Retirees Association support their allegations of Weiser's misconduct with regard to elections inside Local 100. In particular, Plaintiffs point to two checks written after a contested Local 100 union officer election: (1) a check written by Fitzpatrick on the Retirees Association account in the amount of $8,500 payable to cash, referred to in the disbursement records as "cash for Kathy"; and (2) a personal check written by Retirees Association employee Kathy Schieck in the amount of $8,500 payable to cash. Other than characterizing these checks as highly unusual, Plaintiffs do not make any other statements as to how these checks support their claim.

Plaintiffs claim that Weiser, Cohen, and Gluck exercised discretionary authority over the administration of the Plan and disposition of Plan assets. Plaintiffs allege that these defendants controlled the Plan with regard to the Policy's premiums, enrollment, claim determinations, solicitation of membership, and distribution of dividends. Plaintiffs also claim that Weiser held itself out to be the sole "Plan administrator" for the Plan. Participants sent all claims to Weiser, and determinations regarding coverage were relayed to...

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