Meyer v. Berkshire Life Ins. Co.

• Decision Date: 31 March 2003
• Docket Number: No. CIV.A. CCB-99-1432.,CIV.A. CCB-99-1432.
• Parties: Alan MEYER, Trustee for Paul D. Meyer, M.D., P.A. Money Purchase Pension Plan and Trust, et al. v. BERKSHIRE LIFE INSURANCE COMPANY
• Court: U.S. District Court — District of Maryland

Page 544

250 F.Supp.2d 544

Alan MEYER, Trustee for Paul D. Meyer, M.D., P.A. Money Purchase Pension Plan and Trust, et al. v. BERKSHIRE LIFE INSURANCE COMPANY

No. CIV.A. CCB-99-1432.

United States District Court, D. Maryland.

March 31, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Barrett W. Freedlander, Saul Ewing, LLP, Baltimore, MD, Nicholas T. Christakos, David A. Last, Steuart H. Thomsen, Sutherland Asbill and Brennan, LLP, Washington, DC, for Berkshire Life Ins. Co.

Mark Menton Dumler, Brian C. Parker, Parker, Dumler and Kiely, LLP, Baltimore, MD, for Jorge R. Ordonez and Alan Meyer.

MEMORANDUM

BLAKE, District Judge.

Plaintiffs Alan Meyer¹ and Jorge R. Ordonez ("Plaintiffs" or "Doctors" or "Trustees") allege that defendant Berkshire Life Insurance Company ("Defendant" or "Berkshire") mismanaged their pension fund.² Following the court's summary judgment order, only Count V of the plaintiffs' amended complaint, which asserts damages for breach of fiduciary duties pursuant to the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001, et seq. ("ERISA"), remained against the defendant.

A six-day bench trial on the ERISA claims was held before this court. After hearing the evidence and considering the post-trial briefs, the court concludes that the plaintiffs have proven their ERISA claims. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the following memorandum constitutes the court's findings of fact and conclusions of law.

In 1980, Dr. Paul Meyer and Dr. Jorge Ordonez left the neurosurgery practice in which they were employed and opened separate but affiliated practices. At that time, the doctors placed the money they received from their pension plans on deposit at a local bank. They hired Alan N. Kanter to complete all the reporting pertaining to the funds because he did the pension plan reporting at the former neurosurgery practice. (Ordonez Tr. 3/21/02 at 310-11; Def.'s Ex. 9, 39.) The doctors asked Kanter to invest the pension plan funds for them, but Kanter advised them that he was not qualified to invest or manage funds; he could only do the reporting function. (Ordonez Tr. 3/21/02 at 311.) The doctors, therefore, were interested in retaining someone who could invest and manage the funds for them. (Ordonez Tr. 3/21/02 at 311-12.)

The doctors had become acquainted with Michael Meszaros, an officer at the local bank where the pension plan funds were deposited. (Ordonez Tr. 3/21/02 at 311-12.) In 1983, Meszaros left the bank to work for Berkshire as an agent. (Meszaros Tr. 3/20/02 at 89.) While he worked for many years as a bank branch manager, he had no financial planning experience or training prior to his employment at Berkshire. (Meszaros Tr. 3/20/02 at 94-95.) Meszaros does not have a college degree or any certifications. (Meszaros Tr. 3/20/02 at 94-98.)

In 1983, Meszaros set up a meeting between himself, the doctors, and Robert Walsh, the general agent for Berkshire in the Baltimore area. The purpose of that meeting was to acquaint the doctors with the insurance and retirement services offered by Berkshire. At the meeting, Meszaros held himself out as a representative of Berkshire and stated that he could manage and invest the doctors' pension plan funds. (Ordonez Tr. 3/21/02 at 312; Meszaros Tr. 3/20/02 at 90-92, 107-08.) Meszaros understood that Kanter was unable to give investment advice and that the doctors wanted to retain someone who could invest and manage the funds for them. (Meszaros Tr. 3/20/02 at 110-11, 205.) Meszaros assured the doctors that Berkshire would handle everything pertaining to the pension plans. (Meszaros Tr. 3/20/02 at 108) ("... we do all this for you. You don't have to do it. We do it"); see also Pis.' Ex. 28 ("for as long as you allow us the priviledge [sic] of acting as your plan administrator, all of these services will be performed at our local agency here in Baltimore"). In addition, Meszaros predicted at the initial meeting that each of the pension plans would be worth approximately $2 million by the end of the doctors' careers.³ (Meszaros Tr. 3/20/02 at 126-29; Ordonez Tr. 3/21/02 at 312-13, 322, 345^6; Pls.' Ex. 20-21; Def.'s Ex. 6.)

The doctors decided to retain Berkshire to manage their pension plans. (Ordonez Tr. 3/21/02 at 320.) Two plans were established, one for each doctor and his staff. (Pls.' Ex. 63, 66.) The doctors were named the trustees of their respective plans. (Ordonez Tr. 3/21/02 at 322-23, 344; Pls.' Ex. 63, 66.) They rolled over their pension funds from the former neurosurgery practice into their new Berkshire pension plans. (Ordonez Tr. 3/21/02 at 320; Jones Tr. 3/21/02 at 277.) The doctors made annual contributions to Berkshire ranging from approximately $20,000 to $40,000. (Dodge Tr. 3/21/02 at 401; see also Pls.' Ex. 20, 63, 66.) At some point, however, Dr. Ordonez was unable to contribute the maximum amount to the pension plan. (Ordonez Tr. 3/21/02 at 349-50; Meszaros Tr. 3/20/02 at 219.) The doctors' relationship with Berkshire extended from 1983 to sometime in 1997. (Jones Tr. 3/21/02 at 290-93; O'Malley Tr. 3/22/02 at 522, 553, 559; Pls.' Ex. 52, 63, 66.)

Throughout this time period, Meszaros represented himself as a financial advisor and representative of Berkshire. (Stepanek Tr. 3/21/02 at 257; Jones Tr. 3/21/02 at 294, Ordonez Tr. 3/21/02 at 337; Meszaros Tr. 3/20/02 at 90, 92-93, 104-05, 205.) Meszaros alone generated the investment strategies; the doctors never approached Meszaros or any other Berkshire agent with investment suggestions or directives. (Meszaros Tr. 3/20/02 at 92, 157-58; Ordonez Tr. 3/21/02 at 323-24.) The doctors trusted Meszaros and deferred entirely to his decisions. (Ordonez Tr. 3/21/02 at 325-26; Shanahan Tr. 3/20/02 at 62, 86; Meyer Dep. 3/28/00 at 101-04, 107-08, 117-18, 120,137-38, 144, 167-68, 199-200.)

Transactions typically were executed in the following manner. After Meszaros made an investment decision, he delivered papers to the doctors' offices for their signatures. (Ordonez Tr. 3/21/02 at 326, 330-31; Meszaros Tr. 3/20/02 at 157-58.) Meszaros typically did not discuss with the doctors the nature of the investments being made or any ensuing transaction costs or penalties. (Ordonez Tr. 3/21/02 at 326-27, 331-36.) The doctors signed the papers, usually without questioning what they were executing. (Ordonez Tr. 3/21/02 at 326-27, 330-31, 338, 353, 359-60.) Many times, Meszaros delivered blank forms to the doctors' offices and inserted the pertinent information only after the doctors' signatures were obtained.⁴ (Ordonez Tr. 3/21/02 at 327; Stepanek Tr. 3/21/02 at 249, 255, 266; Jones Tr. 3/21/02 at 287.) In addition, Meszaros often telephoned the doctors' offices and asked their secretaries to prepare checks payable to Berkshire in various amounts. (Jones Tr. 3/21/02 at 280-81.) The doctors did not question Meszaros, but rather instructed their secretaries to draft checks per Meszaros's requests. (Jones Tr. 3/21/02 at 281.) Meszaros and Walsh scheduled some inperson meetings with the doctors, but they routinely lasted approximately 15 to 20 minutes or less.⁵ (Jones Tr. 3/21/02 at 279; Ordonez Tr. 3/21/02 at 320-21; Shanahan Tr. 3/20/02 at 57-58; Meyer Dep. 3/28/00 at 27-28, 45-46, 59.)

As stated, the plaintiffs allege that Berkshire mismanaged their pension plans. Specifically, the plaintiffs assert that Berkshire: (1) overloaded the plans with life insurance policies; (2) failed to diversify the plans' assets and instead placed them almost exclusively in low-yielding investments; and (3) rapidly transferred or "churned" the plans' assets from one investment to the next, incurring substantial surrender fees, charges, and commissions in the process.

Regarding the first issue, Berkshire required that between 25% and 49.99% of Dr. Meyer's contributions to his pension plan, and between 30% and 49.99% of Dr. Ordonez's contributions to his pension plan, be put into life insurance policies. (Meszaros Tr. 3/20/02 at 99-100, 116-17, 222; Shanahan Tr. 3/20/02 at 61; Dodge Tr. 3/21/02 at 387; O'Malley Tr. 3/22/02 at 519; Pls.' Ex. 20, 63, 66.) While insurance is not necessarily considered as an investment (Meszaros Tr. 3/20/02 at 113; cf. MacNab Tr. 4/16/02 at 98-99, 148), Berkshire used its pension plans as a vehicle for selling its life insurance. (Meszaros Tr. 3/20/02 at 99-100, 102-03; see also Pls.' Ex. 17 at 3) ("A Pension Plan is a vehicle for the sale of many insurance policies at one time, which develop significant premiums and commissions. Commissions are high because permanent life insurance is used rather than term. Pensions are daytime activity involving business people. Pension plans have persistency. Finally, there are automatic increases, which can be substantial, and by-product sales such as key employee, split-dollar, buy-sell, salary continuation and individual sales to plan participants") (emphasis in original). The doctors understood that life insurance was a required component of Berkshire's pension plans; in fact, Berkshire did not charge an administrative fee for its services in exchange for the insurance requirement. (Ordonez Tr. 3/21/02 at 314-15, 354; Pls.' Ex. 20, 63, 66.) No Berkshire representative, however, conducted any analysis of the plan participants' need for life insurance.⁶ (Meszaros Tr. 3/20/02 at 116-17; Jones Tr. 3/21/02 at 283-84; Ordonez Tr. 3/21/02 at 316-18.)

The following three experts testified at the trial regarding, inter alia, the advisability of the amount of life insurance purchased by Meszaros and its location inside the pension plans: Donald Dodge and JJ MacNab for the plaintiffs, and Alexander Scott Logan for the defendant.⁷ Unlike the other experts, Logan did not scrutinize the actual rates of return achieved by the pension plans. (Logan Tr. 4716/02 at 16) (In response to the question, "And you have not taken with respect to the insurance policies, you haven't made a determination with respect to the...