Solis v. Malkani
| Decision Date | 04 February 2011 |
| Docket Number | No. 09-1383(L),09-1383(L) |
| Parties | HILDA L. SOLIS, Secretary of Labor, United States Department of Labor, Plaintiff - Appellee, CLARK CONSULTING, Party-in-Interest - Appellee, v. ROMA P. MALKANI; INFORMATION SYSTEMS AND NETWORKS CORPORATION EMPLOYEES' PENSION PLAN; INFORMATION SYSTEMS AND NETWORKS CORPORATION PROFIT SHARING PLAN; INFORMATION SYSTEMS & NETWORKS CORPORATION, Defendants - Appellants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
IT IS ORDERED that the motion to publish is granted.
The Court amends its opinion filed February 4, 2011, as follows:
On the cover sheet, section 1--the status is changed from "UNPUBLISHED" to "PUBLISHED."
On the cover sheet, section 6--the status line is changed to read "Affirmed by published opinion."
On page 2--the reference to the use of unpublished opinions as precedent is deleted.
On page 11 of the published slip opinion, first full paragraph, line 10 the case number "No. 1:07-CV-1259-JOF" is inserted in the citation to Chao v. Wagner.
Patricia S. Connor ClerkAppeals from the United States District Court for the District of Maryland, at Greenbelt.
Before WILKINSON, GREGORY, and WYNN, Circuit Judges.
Affirmed by published opinion. Judge Gregory wrote the opinion, in which Judge Wilkinson and Judge Wynn joined.
ARGUED: Norman Henry Singer, SINGER & ASSOCIATES, PC, Bethesda, Maryland, for Appellants. Edward D. Sieger, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for Appellee Secretary of Labor; Gregory L. Skidmore, KIRKLAND & ELLIS, LLP, Washington, D.C., for Appellee Clark Consulting. ON BRIEF: M. Patricia Smith, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor for Plan Benefits Security, Nathaniel I. Spiller, Counsel for Appellate and Special Litigation, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for Appellee Secretary of Labor. Christopher Landau, KIRKLAND & ELLIS, LLP, Washington, D.C., for Appellee Clark Consulting.
This appeal arises out of a successful enforcement action brought under the Employee Retirement Income Security Act of 1974 ("ERISA") by the Secretary of Labor (hereinafter the "Secretary") against the defendant-appellants, Information System and Networks and Roma Malkani, its president and sole owner (hereinafter, collectively, "ISN").
On appeal, ISN asks us to reverse several district court orders, wherein the court ruled in favor of the Secretary, the appellee-plaintiff, and Clark Consulting (hereinafter "Clark"), the appellee-party-in-interest. We must decide (1) whether ISN waived its objections to a magistrate judge report by fail-ing to appeal for district court review within the statutorily prescribed ten day period; (2) whether the court abused its discretion by authorizing the independent fiduciary who replaced Clark to terminate the pension plan; and (3) whether ISN's objections to the refusal of the district court to stay its order requiring ISN to pay the replacement fiduciary are now moot. For the forgoing reasons, we affirm the decisions of the district court.
In November 2000, the Secretary initiated an ERISA lawsuit against ISN on behalf of the beneficiaries of ISN's defined contribution pension and profit sharing plan. The lawsuit alleged that ISN had violated its fiduciary duty to properly administer the plan. See generally Chao v. Malkani, 216 F. Supp. 2d 505, 508 (D. Md. 2000), aff'd., 452 F.3d 290 (4th Cir. 2006).
in July 2002, the district court granted partial summary judgment in favor of the Secretary. The court specifically held that ISN, at Malkani's instruction, had violated section 406(a)(1)(D) of ERISA when it had monies totaling $62,888.05 transferred from the plan to it, ostensibly to pay for "plan administration expenses." 216 F. Supp. 2d at 518. The court also noted that, both before and after that illegal transfer, ISN had similarly attempted to have $435,761.52 and $706,264.54 transferred from the plan to it. Id. at 509. The court therefore ordered that ISN be removed as the administrative fiduciary of the plan; and asked the Secretary to name a replacement independent fiduciary, with all of the costs and expenses incurred by that fiduciary to be paid by ISN. Id. at 518-19.
In March 2003, the Secretary filed a motion asking that Clark be appointed as the independent fiduciary for the pen-sion plan. Attached to the motion was a proposal outlining Clark's expertise, the work to be performed, and the conditions under which Clark could terminate the agreement (hereinafter the "Proposal"). In May 2003, over the objections of ISN, the court appointed Clark as the independent fiduciary, and again confirmed that ISN would be liable for all costs incurred by Clark.
In October 2004, the district court held a three-day bench trial to determine whether ISN had violated ERISA. On March 30, 2005, the court issued a decision that found ISN liable for breaching its fiduciary duties under ERISA and ordered ISN to reimburse the pension plan. After ISN appealed that decision to this Court, we wholly affirmed the district court. We held that "defendants' repeated and questionable conduct established their breach of ERISA's standards;" and that ISN had "continually acted in an objectively unreasonable manner that conflicted with their duties of loyalty and care." 452 F.3d at 298.
On July 24, 2006, following this Court's decision upholding the merits of the underlying action, the Secretary filed an unopposed motion asking the district court to refer Clark's pending fee request to a magistrate judge. Three days later, on July 27, the district court granted the referral request. The order did not specify whether the referral called for the magistrate judge to issue recommendations on a dispositive motion or a formal order on a non-dispositive motion.
On July 11, 2007, the magistrate judge found that ISN owed Clark approximately $498,116 in fees and costs. The findings of the magistrate judge were entered on the docket as an "order of the Court." Joint Appendix ("J.A.") 410. Rather than bringing its objections to these findings before the district court, ISN instead immediately appealed the "order" to this Court.
On June 5, 2008, we dismissed ISN's appeal for lack of appellate jurisdiction. We held that the "order" was not directly appealable because it was issued as a recommendation under 28 U.S.C. § 636(b). We further held that, before appealing to this Court, ISN should have first challenged the recommendation in the district court. We declined to rule on whether ISN had waived its right to district court review by not seeking review within ten days, 1 and remanded the case for further proceedings.
On remand, the district court issued a February 25, 2009 opinion, which addressed whether ISN had waived district court review of the findings of the magistrate judge. Consistent with our ruling, the district court found that the issue of fees had been referred to the magistrate judge as a dispositive motion and that, although not styled as such, the "order" was in fact a recommendation under § 636(b). Further, the district court found that, by failing to object to the recommendation within ten days, ISN had waived its right to district court review of these recommendations. For these reasons, the court wholly adopted the recommendations of the magistrate judge without modification.
on April 23, 2009, Clark filed a motion to withdraw as the independent fiduciary. Clark had recently restructured its business, and was no longer able or willing to act as an independent fiduciary. Clark noted that the Proposal permitted it to terminate its engagement at any time with sixty days prior notice and preapproval by the court. In response, the Secretary requested that the court not release Clark until the appointment of a proper replacement. Given Clark's continu-ing struggles to receive payment from ISN, the Secretary requested that ISN pay all of the costs of the replacement fiduciary upfront. The Secretary also asked the court to terminate the now-effectively defunct plan.
on october 16, 2009, the district court issued a memorandum and order allowing Clark to withdraw within thirty days, pending the appointment of its replacement, and denied the Secretary's request that the pension plan be terminated. ISN was also ordered to "advance the successor trustee's annual fee and estimated expenses" within sixty days. J.A. 72.
On November 16, 2009, the Secretary offered Nicholas Saakvitne as the replacement fiduciary. A month later, on December 16, 2009, the court accepted the replacement fiduciary. In its December 16, 2009 order, the court directed ISN to pay Saakvitne within fifteen days an upfront fee, plus the expected costs of the 2009 and 2010 audits of the pension plan. The court conditioned the concurrent appointment of Saakvitne and the withdrawal of Clark on the payment by ISN of the upfront fee. The court also adopted the proposed fiduciary agreement for Saakvitne, which gave him the exclusive power to terminate the pension plan.
ISN failed to pay Saakvitne within fifteen days. Instead, a week after the deadline passed, ISN appealed the December 16, 2009 order of the district court. ISN asked the court to approve a stay of the order upon the posting by ISN of a supersedeas bond pursuant to Federal Rule of Civil Procedure 62(d).
on January 15, 2010, in response to the motion for a stay, Clark filed an emergency motion for contempt against ISN. The same day, the district court ordered that ISN be held in civil contempt and fined $250 a day until it paid Saakvitne's fees and expenses. The court explained that ISN could not suspend its payment of expenses through a supersedeas bond because the December 2009 order was not a final judgment, but an ...
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