Sec'y U.S. Dep't of Labor v. Koresko

Decision Date05 April 2016
Docket NumberNo. 15-3141,No. 15-2470,15-2470,15-3141
CourtU.S. Court of Appeals — Third Circuit


On Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. Civil No. 2-09-cv-00988)

District Judge: Honorable Mary A. McLaughlin

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

March 18, 2016



VAN ANTWERPEN, Circuit Judge

John J. Koresko, V ("Koresko") appeals several rulings from the U.S. District Court for the Eastern District of Pennsylvania regarding Appellee Secretary of Labor's ("Secretary") enforcement action against Koresko and related entities for breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"). The District Court found that Koresko breached fiduciary duties he owed to employee welfare benefit plans under ERISA. We will affirm the following District Court rulings: (1) the August 3, 2012 order granting partial summary judgment in favor of the Secretary; (2) the September 16, 2013 order appointing a temporary independent fiduciary; (3) the February 6, 2015 opinion imposing liability on Koresko for breach of fiduciary duty; (4) the March 13, 2015 order imposing final judgment on Koresko; and (5) the May 13, 2015 order denying Koresko's motion for a new trial.1 We will also dismiss Koresko's appeal of the Court's August 4, 2015 order appointing a permanent independent fiduciary because we lack jurisdiction to review it.


Since we write only for the benefit of the parties, we set forth only those facts necessary to inform our analysis.2 This appeal arises out of a suit brought in March 2009by the Secretary against Koresko and several entities he controls in connection with a multi-employer employee death benefit program. (App. 1184-88). Koresko and his brother Lawrence Koresko ran an "unincorporated association of unrelated employers called the Regional Employers Assurance Leagues" ("REAL," "League"), which offered employee welfare benefit plans, including death benefit plans, to employers through the REAL Voluntary Employees' Beneficiary Association ("REAL VEBA") Trust. (Id. at 8).3 Participating employers executed an adoption agreement in order to join the League and subscribe to the trusts. (Id. at 9); see, e.g., (id. at 465).4 In joining the League, employers agreed to be bound by the governing documents including the Master Trust Agreement, Plan Document, and their individual adoption agreement. (Id. at 9-10). PennMont Benefit Services, Inc. ("PennMont") was the administrator of the plans; Koresko is the president and CEO of PennMont. (Id. at 11, 138). Employers who joined the League could select the type and amount of benefits to offer and set eligibility requirements for employees. (Id. at 9). Eligible employees of adopting employers couldthen participate in the benefit program. (Id.). The trusts consisted of employer contributions, which the adoption agreements require, and life insurance policies taken out on the lives of participating employees to fund the benefits. (Id.). Benefits were then paid according the adopting employers' individual adoption agreement and the governing documents for the trust. (Id. at 9-10).

The suit brought by the Secretary was against Koresko, several companies he owned, the trusts, an employee of Koresko, and the trustees. (Id. at 1185-88). The Secretary alleged a breach of fiduciary duties with respect to many individual employee welfare benefit plans. (Id. at 1195-202). In August 2012, the U.S. District Court for the Eastern District of Pennsylvania (McLaughlin, J.), granted the Secretary partial summary judgment with respect to three specific plans. (Id. at 81-82). The Court proceeded to remove Koresko from his positions of authority with respect to the trusts, and appointed a temporary independent fiduciary to administer the plans and trusts in September 2013. (Id. at 1448-455). The District Court then conducted a three-day bench trial that concerned additional employee welfare benefit plans. This resulted in a memorandum opinion in February 2015 that detailed Koresko's violations of ERISA. (Id. at 97-322).5 The Court found that at least 419 employee welfare benefit plans were ERISA-covered plans. (Id. at 156, 257).6 The Court entered judgment in accordance with this opinion inMarch 2015, ordering the permanent removal of the fiduciaries. (Id. at 323-28). The Court also ordered Koresko to pay restitution and disgorgement of the remaining diverted assets. (Id. at 323). Koresko's motion for a new trial was denied by the Court in May 2015. (Id. at 329). Koresko timely appealed. (Id. at 1).7

After Koresko appealed the Court's March 2015 order, the Court issued an order on August 4, 2015 appointing a permanent independent fiduciary. (Id. at 1621-22). In addition to appointing a permanent independent fiduciary, the Court required that Koresko bear the costs of the fiduciary's appointment. (Id. at 1631). The Court stated: "[h]ad the Koresko Defendants complied with their fiduciary duties, there would be no need to appoint an Independent Trustee in this case." (Id.). The costs of the appointment would initially be paid from trust assets. (Id.). The Court retained jurisdiction in order to enforce the order and explained that it would "issue a separate order specifying the total amount the Koresko Defendants are liable to the Plans to restore on account of this appointment." (Id.). Appellant also appeals this order. (Id. at 1616).


Appellant argues on appeal that the District Court erred by finding that: (A) trust assets are plan assets for purposes of ERISA application; (B) a 2009 amendment to the Plan Document eliminating non-owner employees was invalid; (C) Koresko was not entitled to an advancement of defense costs; and (D) Koresko must restore the alleged depletion of assets of the trusts. We reject all of these arguments for the following reasons.

A. Trust assets are ERISA plan assets

"ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217, 220 (3d Cir. 2010) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)) (internal quotation marks omitted). ERISA applies to "employee benefit plans," which may be either employee pension benefit plans or employee welfare benefit plans. 29 U.S.C. § 1002(3). This case involves employee welfare benefit plans, which the statute defines as:

[A]ny plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise . . . benefits in the event of . . . death . . . .

Id. § 1002(1). The District Court concluded that the master REAL VEBA plan, a multi-employer program, is not a "plan" under ERISA. (App. 26). However, the Court foundthat individual employer-level plans joining the master REAL VEBA plan are ERISA plans. (Id. at 27).9

We must decide whether the employer-level plans are ERISA plans in order to determine whether or not Koresko owed fiduciary duties to these plans. ERISA "defines 'fiduciary' not in terms of formal trusteeship, but in functional terms of control and authority over the plan." Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993). The statute provides that "a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A)(i). In other words, a person may be a fiduciary with respect to a plan even if the person is not named as a fiduciary in plan documents, "to the extent . . . he . . . exercises any authority or control respecting management or disposition of its assets." Sec'y of Labor v. Doyle, 675 F.3d 187, 200 (3d Cir. 2012) (alterations in original) (quoting 29 U.S.C. § 1002(21)(A)(i)) (internal quotation marks omitted). We recognize the difference between the two clauses set forth above in 29 U.S.C. § 1002(21)(A)(i), "that discretion is specified as a prerequisite to fiduciary status for a person managing an ERISA plan, but the word 'discretionary' is conspicuously absent when the text refers to assets." Srein v. Frankford Trust Co., 323 F.3d 214, 221 (3d Cir. 2003) (quoting Bd. of Trs. of Bricklayers & Allied Craftsmen Local 6 of N.J. Welfare Fund v. Wettlin Assocs., Inc., 237 F.3d 270, 273 (3d Cir. 2001)) (hereinafter Bricklayers). We have emphasizedthis distinction, "[n]oting that the 'statute treats control over the cash differently from control over administration' . . . [and] that 'any control over disposition of plan money makes the person who has the control a fiduciary.'" Bricklayers, 237 F.3d at 273 (quoting IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415, 1421 (9th Cir. 1997)).

The Secretary has primarily relied on the second clause of § 1002(21)(A)(i) to argue that Koresko is a fiduciary, even though he lacked discretionary authority or control over management of the plans and he was not named a fiduciary in the plan documents. The District Court found, and the parties do not dispute, that Koresko exercised control over the disposition of the assets of the individual employer-level plans. (App. 61-67, 269-70). As explained...

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