JAMES KNOLL GARDNER, District Judge.
I presided over a three-day non-jury trial in this matter on February 29, 2016 and March 1 and 2, 2016. On May 6, 2016, the parties filed their post-trial proposed findings of fact and conclusions of law.
Following my decisions on the parties' motions for summary judgment, the issues raised at trial which remain for adjudication include, with respect to plaintiff's Class Action Complaint:
Count One: (1) whether defendant R.L. Reppert, Inc. ("Reppert, Inc.") is liable under 29 U.S.C. §§ 1024(b)(4) and 1132(c)(1) for any failure to produce other custodial agreements for the R.L. Reppert, Inc. Employees Profit Sharing 401(k) Plan ("401(k) Plan") (apart from the custodial agreement with Nationwide Trust Company, FSB) and (2) what penalties, if any, should be imposed for defendant Reppert, Inc.'s failure to timely produce plan documents for the periods December 6, 2008 to October 2, 2009 and May 17, 2012 to January 1, 2015.
Count Four: whether defendant Reppert, Inc. was required by 29 U.S.C. § 1023(a)(3)(A) and failed to engage an independent qualified public accountant to conduct an audit of the 401(k) Plan for plan years 2008 through 2011.
The issues raised at trial which remain for adjudication also include, with respect to defendants and third-party plaintiffs' Amended Third Party Complaint:
Count One: whether third-party defendant California Pension Administrators & Consultants, Inc. ("CalPac") breached its contract with defendant and third-party plaintiff Reppert, Inc. to provide plan administration and recordkeeping services for the 401(k) Plan.
Count Two: whether CalPac, either knowingly or recklessly, misrepresented the nature of its plan administration and recordkeeping services to third-party plaintiff Reppert, Inc.
Regarding Count One of plaintiff's Class Action Complaint, I find that defendant Reppert, Inc. is not liable under 29 U.S.C. § 1132(c)(1) for any failure to produce any other custodial agreements for the 401(k) Plan (apart from the custodial agreement with Nationwide Trust Company, FSB).
However, I impose on defendant Reppert, Inc. a document penalty of $15,959.00 for its failure to timely produce plan documents for the period December 6, 2008 to October 2, 2009 and for its failure to timely produce its custodial agreement with the Nationwide Trust Company, FSB for the period May 17, 2012 to January 1, 2015.
Regarding Count Four of plaintiff's Class Action Complaint, I conclude that defendant Reppert, Inc. failed to engage an independent qualified public accountant to conduct an audit of the 401(k) Plan for plan years 2008 through 2011 as required by 29 U.S.C. § 1023(a)(3)(A). In particular, I find that the 401(k) Plan did not qualify for an audit exemption for those years, because it had more than 120 participants at the beginning of the 2008 plan year and was thus not permitted to file a simplified annual report.
Regarding Count One of defendants' and third-party plaintiffs' Amended Third Party Complaint, I conclude that defendants and third-party plaintiffs have failed to prove by a preponderance of the evidence that third-party defendant CalPac breached its contract with defendant and third-party plaintiff Reppert, Inc. to provide plan administration and recordkeeping services for the 401(k) Plan.
Regarding Count Two of defendants' and third-party plaintiffs' Amended Third Party Complaint, I conclude that defendants and third-party plaintiffs have failed to prove by a preponderance of the evidence that third-party defendant CalPac, either knowingly or recklessly, misrepresented the nature of its plan administration and recordkeeping services to third-party plaintiff Reppert, Inc.
This court has original jurisdiction over the subject matter of plaintiff's claims under 29 U.S.C. §§ 1024, 1132 and various other provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
Venue is proper pursuant to 28 U.S.C. § 1391(b) because defendants reside in, and a substantial part of the events giving rise to this action occurred in, Emmaus, Lehigh County, Pennsylvania, which is located within this judicial district.
On June 17, 2011 plaintiff filed a six-count Class Action Complaint (Document 1).
Count Two averred the same violations as Count One and sought injunctive relief to compel defendants Reppert, Inc. and Richard L. Reppert to satisfy their statutory document production obligations under ERISA.
Count Three asserted that defendants Reppert, Inc. and Richard L. Reppert failed to establish a trust in violation of 29 U.S.C. § 1103.
Count Four alleged that defendants Reppert, Inc. and Mr. Reppert breached their fiduciary duties in violation of 29 U.S.C. § 1104, by among other things, failing to document, disclose and report on the 401(k) Plan in accordance with ERISA.
Count Five averred that defendants Reppert, Inc. and Mr. Reppert conducted prohibited transactions in violation of 29 U.S.C. § 1106.
Finally, Count Six alleged that defendants denied benefits owed to plaintiff and seeks a declaration of benefits.
On September 15, 2011 defendants filed a Third Party Complaint against CalPac (Document 18), seeking to hold it liable for contribution and indemnity to the extent that the defendants themselves were found liable to plaintiff.
On November 14, 2011 CalPac filed a motion to dismiss the Third Party Complaint (Document 34). On September 28, 2012 I granted that motion (Documents 40 and 41). Subsequently, on October 31, 2012 defendants filed a three-count Amended Third Party Complaint against CalPac (Document 42).
Count One of the Amended Third Party Complaint alleged that CalPac breached its contract with defendants to administer the Reppert plans.
Count Two averred that CalPac knowingly or recklessly misrepresented the administration and recordkeeping services it would provide.
Count Three asserted that CalPac was a co-fiduciary with defendants and sought contribution and indemnity from CalPac to the extent defendants were liable to plaintiff Askew.
On November 14, 2012 CalPac filed a second motion to dismiss (Document 44), and on September 30, 2013 I granted that motion regarding Count Three only (Document 51).
On April 10, 2015, after extensive discovery had been conducted in this case, plaintiff moved for partial summary judgment (Document 73) on Counts One and Four of his Class Action Complaint. Subsequently, on July 31, 2015 defendants filed their own motion for summary judgment (Document 90) against plaintiff on all counts of plaintiff's Class Action Complaint.
Simultaneously, third-party defendant CalPac moved for summary judgment (Document 89) against defendants and third-party plaintiffs on both counts of their Amended Third Party Complaint.
By Order dated November 13, 2015 and filed November 17, 2015 (Document 118), I denied third-party defendant's motion for summary judgment.
By Order dated February 4, 2016 and filed February 5, 2016 (Document 133), I granted plaintiff's motion for partial summary judgment in part and denied it in part. Specifically, I granted plaintiff summary judgment regarding liability (but not damages) on that part of Count One of his Class Action Complaint alleging that defendant R.L. Reppert, Inc. failed to provide plan documents for the 401(k) Plan in a timely manner and for its failure to produce its custodial agreement with Nationwide Trust Company, FSB. I denied plaintiff summary judgment in all other respects.
In that Order, I also granted defendants' motion for summary judgment in part and denied it in part.
I granted summary judgment in favor of defendants on that part of plaintiff's Class Action Complaint alleging defendant R.L. Reppert, Inc.'s failure to provide plan documents for the R.L. Reppert, Inc. Money Purchase Plan (Davis Bacon Plan) and that part of Count One alleging R.L. Reppert, Inc.'s failure to produce trust agreements, periodic benefits statements, notice of vested deferred benefits, disclosure of financial reports, Section 404(c) disclosures, notice of qualified default investment, notice of availability of investment advice and depository documents for the R.L. Reppert, Inc. Employees Profit Sharing 401(k) Plan.
I also granted summary judgment in favor of defendants on that part of plaintiff's Class Action Complaint alleging R.L. Reppert, Inc.'s failure to conduct audits of the R.L. Reppert, Inc. Money Purchase Plan (Davis Bacon Plan) as well as on Counts Two, Three, Five and Six of plaintiff's Class Action Complaint.
I denied summary judgment for defendants on that part of Count One of plaintiff's Class Action Complaint on which I granted plaintiff's motion for partial summary judgment and that part of Count One regarding the custodial agreements other than the Nationwide Trust Company, FSB agreement. I also denied summary judgment for defendants on Count Four.
On February 19, 2016 plaintiff moved for reconsideration of my February 4, 2016 Order and Opinion (Document 134).
On February 26, 2016 I denied plaintiff's motion for reconsideration (Documents 141 and 142).
Also on February 26, 2016, plaintiff moved for class certification (Document 143). I denied that motion on February 29, 2016 (Document 145), immediately prior to the commencement of the three-day non-jury trial in this matter.
Based upon the testimony and evidence adduced at trial,
As noted above, following this court's decision on the parties' cross-motions for summary judgment, the issues raised at trial and that remain before the court for adjudication are, with respect to plaintiff's Class Action Complaint:
Count One: (1) whether defendant Reppert, Inc. is liable under 29 U.S.C. §§ 1024(b)(4) and 1132(c)(1) for any failure to produce other custodial agreements for the 401(k) Plan (apart from the Nationwide agreement) and (2) what penalties, if any, should be imposed for defendant Reppert, Inc.'s failure to timely produce plan documents for the periods December 6, 2008 to October 2, 2009 and May 17, 2012 to January 1, 2015.
Count Four: whether defendant Reppert, Inc. was required by 29 U.S.C. § 1023(a)(3)(A) and failed to engage an independent qualified public accountant to conduct an audit of the 401(k) Plan for plan years 2008 through 2011.
The issues raised at trial which remain for adjudication also include, with respect to defendants and third-party plaintiffs' Amended Third Party Complaint:
Count One: whether third-party defendant CalPac breached its contract with defendant and third-party plaintiff Reppert, Inc. to provide plan administration and recordkeeping services for the 401(k) Plan.
Count Two: whether CalPac, either knowingly or recklessly, misrepresented the nature of its plan administration and recordkeeping services to third-party plaintiff Reppert, Inc.
After lengthy discussion and analysis in my February 4, 2016 Opinion, I determined that Reppert, Inc.'s agreement with Nationwide Trust Company, FSB was a contract or instrument "under which the plan is established or operated" and was therefore required to be furnished to plaintiff pursuant to 29 U.S.C. § 1024(b)(4). In making that determination, I reviewed the Nationwide agreement and found that, although it primarily governs the relationship between Reppert, Inc. and the Nationwide Trust Company, FSB, it also dictates important aspects of the 401(k) Plan's provision of benefits.
In the February 4, 2016 Opinion, I also noted that plaintiff claimed entitlement to custodial agreements which predate the Nationwide agreement. However, none of these other custodial agreements were identified or presented. In fact, the only evidence in the summary judgment record of their existence was that part of the deposition testimony of Richard L. Reppert where he listed the names of some possible former custodians.
As a result, I denied both parties summary judgment with respect to those un-enumerated and un-identified custodial agreements, because, without being able to review and conduct the same analysis on those other custodial agreements as I did on the Nationwide agreement, I could not determine whether they were the type of document required to be produced by Section 1024(b)(4) or whether plaintiff was entitled to request them.
Little additional evidence emerged at trial.
Although it is now clear that the custodian of assets for the 401(k) Plan in 2007 and 2008 was a company called "Matrix", no contract or agreement between Matrix and Reppert, Inc. was located or produced.
Instead, plaintiff located and presented four documents relating to a company named Gruntal & Co., L.L.C.
Indeed, the only testimony given at trial regarding Gruntal was that of Richard L. Reppert. Specifically, Mr. Reppert first identified Gruntal as "the company that brought us California Pensions and the trust company".
To the extent that plaintiff believes he is entitled to either the four Gruntal documents presented or any other Gruntal document that may exist, he has failed to show that they were operative on or after November 5, 2008, the date of his first document request.
If they were not operative when plaintiff made his document requests, then, regardless of the content or nature of the documents, plaintiff was not entitled to them. As previously explained in my February 4, 2016 Opinion, Section 1024(b)(4) only requires the production of the latest, operative plan documents.
The weight of the evidence presented at trial suggests that they were not.
Starting from the face of the documents themselves, they are all dated between July 29, 2000 and February 15, 2001. In other words, the latest of these documents is dated over six years before plaintiff began employment with Reppert, Inc. and over seven years before his first document request.
Certainly, as plaintiff's counsel suggested at trial, this fact does not preclude the possibility that these documents or any other agreement Reppert, Inc. may have had with Gruntal was still operative seven years later, but plaintiff has not offered any countervailing evidence to suggest that they were.
On the contrary, if as plaintiff contends, Gruntal was, in fact, a former custodian of assets for the 401(k) Plan, then any contract or agreement between Reppert, Inc. and Gruntal would not have been operative during 2007 and 2008. As Richard L. Reppert and Dianna L. Reppert testified in this case, the custodian of assets for the 401(k) Plan during that time period was a company called Matrix, not Gruntal.
Furthermore, contemporaneous notes on the last of the four Gruntal documents, the Gruntal Plan Document, indicate that, at the very least, that specific document was defunct soon after 2000. In particular, a handwritten note signed by Larry Delhagen, a Gruntal executive, on the first page of the document reads: "[t]his is an interim account to ACAT in assets from Legg Mason and liquidate assets so cash can be . . . to Circle Trust to establish . . . 401(k) Plan.
In other words, whatever account or plan was established by or associated with this document was temporary and never directly received any employee contributions. It is highly unlikely that such an account or plan and any related governing documents were still operative seven years later in 2008. Even if somehow they were, it would be highly unlikely that plaintiff Askew contributed to, and was a participant in, that plan or account.
Although Mr. Delhagen's contemporaneous notes only speak directly to the last of the four Gruntal documents, the four Gruntal documents were produced together, identified by the parties as a single exhibit and consequently, must be considered together. In other words, the fact that the last of the four Gruntal documents relates to an inoperative plan and was itself inoperative by 2008 suggests that the other Gruntal documents were similarly inoperative on that date.
The above evidence is hardly definitive, but in the absence of any countervailing evidence, no other conclusion can be drawn. Plaintiff has not demonstrated that any Gruntal documents were operative when he made his document requests, and as a result, plaintiff cannot demonstrate any entitlement to them or any other document relating to a prior agreement between Gruntal and Reppert, Inc.
In light of the paucity of evidence presented at trial regarding any previous custodial agreements for the 401(k) Plan, I cannot find that Reppert, Inc. improperly withheld any other such documents from plaintiff. Accordingly, I grant judgment in favor of defendant Reppert, Inc. against plaintiff Derrick Askew on that part of Count One of plaintiff's Class Action Complaint alleging that defendant Reppert, Inc. improperly withheld any other custodial agreements (apart from the Nationwide agreement) in violation of 29 U.S.C. §§ 1024(b)(4), 1132(c)(1).
Although Reppert, Inc. is not liable for any failure to produce any other documents relating to former custodians, I previously determined in my February 4, 2016 Opinion that it was liable for (1) its delay in producing any requested plan documents from December 6, 2008 (31 days after plaintiff's first document request) to October 2, 2009 and for (2) its failure to produce the Nationwide agreement from May 17, 2012 (31 days after plaintiff's April 16, 2012 Document Inventory) to sometime in January 2015.
However, I did not make a determination then as to what penalties should be imposed on defendant Reppert, Inc. for these delays in document production, because there were outstanding factual issues that could not be resolved at the summary judgment stage. After trial in this matter, in which the parties were able to develop the relevant factual issues, it is now appropriate to make that determination.
Title 29 United States Code Section 1132(c)(1) provides in pertinent part:
The Secretary of Labor, pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, has increased that maximum penalty to $110 per day. 29 C.F.R. § 2575.502c-1.
To determine whether to impose a penalty and how great a penalty, I may consider a number of factors including "bad faith or intentional conduct on the part of the administrator, the length of the delay, the number of requests made and documents withheld, and the existence of any prejudice to the participant or beneficiary."
Because there are two distinct time periods of delay, each involving a separate set of documents and circumstances, I will analyze and then assess an appropriate document penalty for each period individually.
On November 5, 2008, plaintiff Derrick Askew made his first written request for documents. He requested, among other things, a copy of the latest plan document and amendments and restatements thereof, a copy of the latest summary plan description and any subsequent summary of material modifications, and "[a] copy of any trust agreement, custodial agreement or other document governing the trust and custody of assets of the Plan or any successor thereto. . . . Any other instrument under which the Plan has been established or operated."
Not inclusive of the first thirty days following his document request and the final day on which plaintiff received the requested documents, the total delay measures 300 days. This substantial delay subjects defendant Reppert, Inc. to a maximum possible statutory penalty of $33,000.00.
In light of the circumstances, however, the court finds that a document penalty of $50 per day, yielding a penalty for this period of time of $15,000.00, as opposed to the statutory maximum, is appropriate.
First and foremost, although defendant Reppert, Inc. withheld documents intentionally and not inadvertently, it did so with something less than bad faith. There were two principal reasons for the delay in document production between November 5, 2008 and October 2, 2009: (1) defendant Reppert, Inc.'s requiring plaintiff to first pay a $1,800.00 charge before forwarding the documents to him and (2) an unfortunate but faultless breakdown in communications.
On December 5, 2008, the final day to timely respond to plaintiff's first document request, counsel for defendant Reppert, Inc. sent counsel for plaintiff a letter explaining that he was in possession of the requested documents but that the cost of procuring and assembling those documents was $1,800.00. He further stated that he would only forward the requested documents if that sum was paid.
In my February 4, 2016 Opinion, I explained that this $1,800.00 charge for the documents was impermissible.
However, there is no dispute here that the majority of the $1,800.00 charge was to account for the labor costs in assembling the documents, and in any case, the total $1,800.00 charge far exceeds the maximum permitted charge of 25 cents per page. Consequently, the $1,800.00 charge was unreasonable and cannot justify or excuse Reppert, Inc.'s withholding of plan documents.
To the extent that the delay was a result of Reppert, Inc.'s request for an impermissible and excessive charge, Reppert, Inc. was wholly at fault for the delay.
Later the same day, December 5, 2008, plaintiff's counsel responded by e-mail to defendant's counsel requesting an itemization of the documents that produced a total charge of $1,800.00. With respect to what occurred next, I credit both the testimony of plaintiff's counsel, Kent G. Cprek, and defendants' counsel, Walter H. Flamm. Namely, upon receipt of Mr. Cprek's December 5, 2008 e-mail, Mr. Flamm called Mr. Cprek's office, seeking to explain the charge and otherwise amicably resolve the document request. Because Mr. Cprek was not then available to receive that call, Mr. Flamm left a message. However, for unknown reasons that cannot be attributed to any party of this litigation, Mr. Cprek never received that message.
Because Mr. Flamm and Mr. Cprek were only aware of his own last communication with the other, each reasonably expected the other to respond, and in the intervening months prior to plaintiff's filing of his first complaint, there were no further communications between plaintiff and defendants. If there were any fault to be found for the lack of follow-up during this period of time, both plaintiff and defendants would share that fault.
Shortly following the filing of plaintiff's first complaint on April 2, 2009, counsel for plaintiff and defendants resumed their dialogue, working together to determine which documents were requested and needed to be produced. I further credit the testimony of Mr. Flamm that, based on the tenor of that dialogue, plaintiff was not insisting on immediate production of those documents. Eventually, on October 2, 2009, defendant Reppert, Inc. produced the requested plan documents without charge.
Because defendant Reppert, Inc. was not responsible for this second principal reason for the delay in document production — the breakdown and resumption of dialogue regarding the document production — the maximum statutory penalty would not be appropriate.
Rather, a $50 per day penalty, in the middle of the range of possible penalties, best strikes the balance between punishing defendant Reppert, Inc. for its improper conditioning of its document production on an excessive charge and not punishing defendant for a breakdown in communication, for which it was not at fault.
This moderate penalty also gives credit to defendant Reppert, Inc. for those communications, in which it is evident that defendant was working with plaintiff in good faith to determine which documents it needed to produce. In this sense, this case is unlike those cited by plaintiff, where the plan administrator was completely unresponsive to plaintiff's document requests.
I have also considered the other factors prescribed by
Moreover, although defendants withheld a large number of documents, plaintiff was not substantially prejudiced, if at all, by the withholding of those documents or by the delay.
Plaintiff contends that the "frustration, trouble, and expense" of initiating these lawsuits has prejudiced him.
On the contrary, as plaintiff's counsel Mr. Cprek testified, whenever his firm
In other words, the primary impetus for the November 5, 2008 document request was for the local carpenters union to investigate and monitor non-union contractors. Moreover, to facilitate its investigations, the local carpenters union introduced the plaintiff Derrick Askew to Mr. Cprek and has paid all of the legal fees in this case.
There is no evidence in this case that plaintiff has suffered any harm apart from the "frustration, trouble, and expense" of having to bring these actions against defendants, but it is not even clear that plaintiff has experienced much frustration or trouble. Certainly, he has not had to undertake any expenses. The minimal prejudice, if any, plaintiff has suffered further militates against the imposition of the maximum penalty.
Shortly after receiving plan documents from defendant Reppert, Inc. on October 2, 2009, plaintiff voluntarily dismissed his first complaint "without prejudice" on December 21, 2009. However, over a year later, on June 17, 2011, plaintiff filed the present lawsuit, alleging that that document production was deficient.
At the prompting of United States Magistrate Judge Henry S. Perkin, plaintiff produced and sent to defendants a Document Inventory on April 16, 2012, listing the documents he believed he was entitled to but had not received from defendant Reppert, Inc. Among the many documents listed in that Document Inventory, plaintiff included the Nationwide agreement.
As mentioned above, in my February 4, 2016 Opinion regarding plaintiff's and defendants' cross-motions for summary judgment, I determined that the Nationwide agreement was a contract or instrument "under which the plan is established or operated" and was therefore required to be furnished to plaintiff pursuant to 29 U.S.C. § 1024(b)(4).
I remarked in my February 4, 2016 Opinion that the summary judgment record did not make it clear what day that plaintiff actually received the Nationwide agreement.
Because it would be unfair for the court to impose any document penalty based on an unsupported guess as to when plaintiff actually received the document, I find, for the purpose of determining the penalty, that the terminal date of this penalty period is January 1, 2015. Thus, the total delay, from May 17, 2012 to January 1, 2015, measures 959 days. The maximum statutory penalty for that length is $108,790.00.
However, I find that a nominal penalty of $1 per day for those 959 days, yielding a penalty of $959.00 is most appropriate.
Defendants did not produce the Nationwide agreement, because they believed that they were not required to produce it pursuant to 29 U.S.C. § 1024(b)(4).
That belief was neither frivolous nor unreasonable. Section 1024(b)(4) does not explicitly require its production, and as I noted in my February 4, 2016 Opinion, I am not aware of any legal precedent that has specifically addressed this issue.
Consequently, imposing a substantial document penalty in these circumstances would not serve its purpose in "provid[ing] plan administrators with an incentive to comply with the requirements of ERISA and to punish noncompliance."
Moreover, although the length of the delay was substantial, for the same reasons outlined earlier, plaintiff has not been prejudiced by defendant Reppert, Inc.'s failure to timely produce the Nationwide agreement, which further supports the nominal penalty imposed in this case.
For the foregoing reasons, I grant judgment in favor of plaintiff Derrick Askew in the amount of $15,959.00 against defendant Reppert, Inc. on that part of Count One of plaintiff's Class Action Complaint requesting penalties under 29 U.S.C. §§ 1024(b)(4), 1132(c)(1) for defendant Reppert, Inc.'s failure to timely produce plan documents for the periods December 6, 2008 to October 2, 2009 and May 17, 2012 to January 1, 2015.
As the result of this court's February 4, 2016 Opinion on plaintiff's and defendants' cross-motions for summary judgment, the issue raised in Count Four of plaintiffs' Class Action Complaint regarding audits for the 401(k) Plan for plan years 2008 through 2011 has been narrowed to a single factual issue — whether there were more than 120 participants in the 401(k) Plan at the beginning of the 2008 plan year.
As explained at length in that opinion, 29 U.S.C. § 1023(a)(3)(A) generally requires a plan administrator to "engage an independent qualified public accountant" to audit the plan each year and attach that audit to the plan's annual report (Form 5500). However, Section 1023(a)(3)(A) also provides that the Secretary of Labor can waive the audit requirement for those plans required only to file a simplified annual report (Form 5500-SF).
A plan may generally only file a simplified annual report if it has fewer than 100 participants at the beginning of the plan year.
There is no dispute that prior to 2008 the 401(k) Plan had fewer than 100 participants, and defendant Reppert, Inc. was permitted to file simplified annual reports for those plan years. Nor is there any dispute that the 401(k) Plan became ineligible for simplified annual reporting for the 2012 plan year onwards, and that defendant Reppert, Inc. filed the standard annual report and complied with the audit requirement for those plan years.
The dispute in this case concerns the plan years 2008 through 2011. Defendant Reppert, Inc. filed simplified annual reports and did not engage and attach an audit of the plan for those plan years, because as it claimed on those annual reports, the 401(k) Plan had between 110 and 118 participants at the beginning of each of those plan years and thus fell within the ambit of the 80-120 participant rule.
However, plaintiff contends that defendant was mistaken, at minimum, with respect to the number of participants in the 401(k) Plan at the beginning of the 2008 plan year. Specifically, plaintiff claims that, contrary to what was certified on the annual report, there were more than 120 participants in the 401(k) Plan at the start of the 2008 plan year. If plaintiff is correct, this one fact triggers a cascade of necessary consequences: (1) the 401(k) Plan fell outside the ambit of the 80-120 participant rule; (2) the 401(k) Plan was not entitled to file a simplified annual report for plan year 2008 by dint of the fact that it had the previous year; (3) the 401(k) Plan was also not entitled to file simplified annual reports for plan years 2009, 2010 or 2011 for the same reason; (4) the 401(k) Plan was ineligible for the audit exemption for the plan years from 2008 to 2011; and therefore, (5) defendant Reppert, Inc.'s failure to engage an audit of the 401(k) Plan for those plan years violated ERISA.
Following trial in this matter, the ineluctable conclusion is that there were more than 120 participants in the 401(k) Plan at the beginning of 2008.
Unsurprisingly, none of the witnesses could recall or testify to the number of participants in the 401(k) Plan at the end of 2007 or at the beginning of 2008. Thus, the only evidence in the record that speaks directly to this factual issue were the 2007 and 2008 annual reports themselves,
Of this evidence, the sole piece that supports defendants' contention that the 2008 annual report reflects the correct number of participants (113) is the report itself, contemporaneously certified as "true, correct and complete" by Richard L. Reppert.
However, testimony given at trial substantially undermines the reliability of that certification. Specifically, Mr. Reppert testified that he did not actually understand how plan participants are determined or calculated but instead relied entirely upon CalPac's recommendation.
Moreover, as the Client Service Agreement between Reppert, Inc. and CalPac makes clear, CalPac "is not a provider of legal advice", and Reppert, Inc. "agrees to seek the advice of an attorney . . . for advice and counseling on legal issues [and] . . . . agrees to verify any legal or investment advice which it may incidentally receive from CALPAC in the course of servicing the Plan."
No evidence in the record suggests that Reppert, Inc. ever engaged an auditor to "count bodies" for the 401(k) Plan. Nor is there any indication that Reppert, Inc. took any other steps to independently verify the information, including the number of participants, in the annual reports for the 401(k) Plan.
On the other hand, the rest of the documentary evidence suggests that the number on the 2008 annual report was, in fact, erroneous.
First, when the 2007 and 2008 annual reports are juxtaposed, a discrepancy appears — namely, the 2007 annual report lists 129 participants with account balances as of the end of the 2007 plan year. However, as noted above, the 2008 annual report lists 113 participants at the beginning of the 2007 plan year. In other words, these two annual reports, if they were both correct, indicate that on December 31, 2007, there were at least 129 participants in the 401(k) Plan, but on January 1, 2008, there were only 113 participants.
A similar discrepancy exists between the 2008 annual report and the number of annual statements of benefits for the 2007 plan year. As noted above, each year, CalPac would prepare an annual statement of benefits for each current or former participant in the 401(k) Plan.
For the 2007 plan year, CalPac generated 142 annual statements of benefits. By the court's count, six of those annual statements reflect no ending balances for those individuals. Two others include no vested balances for those participants, although they acknowledge non-vested balances. Finally, five others indicate minimal ending balances. Even if the court excluded all 13 of these statements,
Finally, CalPac's computerized records, retrieved on February 22, 2016, also reflect a number of participant accounts on December 31, 2007 that exceeds substantially the 113 figure on the 2008 annual report. Specifically, those computerized records reflect a total of 145 accounts, with 13 of those accounts coded as "TERMINATED/PAID OUT". A logical interpretation of these numbers would be that there were 132 participant accounts which had not yet been paid out as of December 31, 2007.
However, I do not give great weight to these computerized records, because I credit the testimony of Ms. Ellner, who claimed that once an individual is coded a certain way, that individual's coded status cannot be changed for that year. As she suggested, "[f]or all I know, a hundred of them could be terminated with term[ination] dates that came in on the [employee] census after the end of the year."
Nonetheless, the computerized records must be evaluated in the context of the other documentary evidence, and the remarkable consistency of that evidence regarding the number of participants with positive account balances in the 401(k) Plan on the last day of 2007 compels the conclusion that there were at least 129 participants with positive account balances in the plan on December 31, 2007.
Defendants have provided no satisfactory explanation for this critical discrepancy between the number of participants in the 401(k) Plan on December 31, 2007 (over 129, as discussed above) and the number of participants in the 401(k) Plan on January 1, 2008 (113, according to the 2008 annual report). Indeed, I note that no such discrepancy appears again for any year after 2008.
In her testimony, Ms. Ellner speculated that it was possible that some participants may have already terminated their employment and withdrew their money from the 401(k) Plan prior to December 31, 2007, but that their benefits distribution checks had not cleared as of December 31, 2007.
Moreover, when one compares the 2007 annual statements with the 2008 annual statements for the 401(k) Plan, of the 134 participants with positive account balances at the end of 2007,
Ms. Ellner also explained that some of the annual statements of benefits, which reflect minimal account balances, may have belonged to individuals who had terminated their employment and withdrew their benefits but subsequently received residual dividends. As she testified, regarding the annual statements of benefits:
However, even if residual dividends entered the accounts of a large number of terminated and paid-out employees of the 401(k) Plan prior to December 31, 2007,
As just explained, defendants were unable to satisfactorily explain the discrepancy. However, based on the testimony of Ms. Ellner, the court believes that the discrepancy was most likely the result of defendants' and CalPac's misunderstanding of who constitutes a "participant" for purposes of ERISA.
Specifically, defendants and CalPac appear to have believed that once they sent a benefits distribution check out to a terminated employee who requested to withdraw his or her benefits, that former employee no longer constituted a participant. Thus, even if residual dividends were later credited to that former employee, defendants and CalPac would still not consider that employee a participant in the 401(k) Plan.
However, this belief fails to comport with ERISA's broad definition of participant. As 29 U.S.C. § 1002(7) states, "[t]he term `participant' means any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . . or whose beneficiaries may be eligible to receive any such benefit."
This definition of "participant" is so expansive that "the Supreme Court has held that the term covers a former employee with a colorable claim for `vested benefits.'"
Certainly, this broad definition of "participant" includes terminated employees with positive account balances — balances, which represent undistributed benefits due to, but not yet received by, those terminated employees.
In light of the above, I find that there were more than 120 participants in the 401(k) Plan at the beginning of 2008. Consequently, the 401(k) Plan was not permitted to file a simplified annual report and was not exempt from the audit requirement under 29 U.S.C. § 1023(a)(3)(A) for plan years 2008 through 2011.
I grant judgment in favor of plaintiff Derrick Askew against defendant R.L. Reppert, Inc. on that part of Count Four of plaintiff's Class Action Complaint alleging that defendant Reppert, Inc. failed to comply with the audit requirement set forth in 29 U.S.C. § 1023(a)(3)(A) with respect to the 401(k) Plan for the plan years 2008 through 2011.
Count One of defendants' and third-party plaintiffs'
"The elements for a breach of contract action under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach."
Here, defendants' breach of contract claim fails, because they cannot establish by a preponderance of the evidence any breach by third-party defendant CalPac.
Defendants' claim is premised on the idea that CalPac was solely responsible, factually and contractually, for determining who was a participant in the 401(k) Plan. Thus, as they reason, any error regarding the number of participants in the 401(k) Plan or whether an audit was required must therefore be attributed to CalPac and constitute a breach of the Client Service Agreement.
However, that premise is unsupported by the facts or by the terms of the contract.
First, I credit the testimonies of Cynthia Ellner and Dianna L. Reppert that the annual reports for the 401(k) Plan, including the participant counts therein, were a product of a close collaboration between representatives of both Reppert, Inc. and CalPac.
Thus, as a purely factual issue, it is simply not clear that CalPac, as opposed to R.L. Reppert, Inc., was responsible for any error. Paragraph 11 of the Client Service Agreement specifically absolves CalPac of "any liability or obligation to the Client for any errors or omissions in servicing the Plan . . . except those arising
Moreover, I also credit the testimony of Cynthia Ellner that contractually, CalPac did not make a final determination of how many participants are in the plan or whether a plan should be audited, but rather worked with the client to make a recommendation.
In practice, Richard L. Reppert and Dianna L. Reppert may have relied entirely upon CalPac's recommendations and treated them as final determinations, but in doing so, they abdicated their own duties under the Client Service Agreement. Specifically, Paragraph 2 of that agreement provides, in relevant part, that
Thus, to the extent that CalPac incidentally provided legal advice to Reppert, Inc. in its preparation of the 401(k) Plan's annual reports — unavoidably with respect to its determining the number of participants in the 401(k) Plan or whether an audit should be conducted, both complicated questions of law in this case — defendant Reppert, Inc. was required to consult its attorney and independently verify that legal advice.
For the foregoing reasons, I conclude that defendants have not proven that third-party defendant CalPac breached its Client Service Agreement with defendant Reppert, Inc. Accordingly, I grant judgment for third-party defendant CalPac against defendants and third-party plaintiffs on Count One of their Amended Third Party Complaint.
Count Two of defendants' and third-party plaintiffs' Amended Third Party Complaint alleges a cause of action for fraud against third-party defendant CalPac. Specifically, defendants allege that CalPac knowingly or recklessly misrepresented the plan administration and recordkeeping services they would provide to defendant Reppert, Inc.
The elements of a fraud claim under either Pennsylvania or California law include "(1) misrepresentation . . . (b) knowledge of falsity (or `scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage."
There is nothing in the record to suggest that third-party defendant CalPac made any misrepresentation to defendants as to the nature of its plan administration or recordkeeping services or what that misrepresentation was. In fact, defendants do not even appear to argue their fraud claim in the proposed findings of fact and conclusions of law and post-trial memorandum which they submitted.
Accordingly, I grant judgment for third-party defendant CalPac against defendants and third-party plaintiffs on Count Two of their Amended Third Party Complaint.
For the reasons expressed above, I find in favor of defendants, R.L. Reppert, Inc.; Richard L. Reppert; the R.L. Reppert, Inc. Employees Profit Sharing 401(k) Plan; and the R.L. Reppert, Inc. Money Purchase Plan (Davis Bacon Plan), against plaintiff Derrick Askew on that part of Count One of plaintiff's Class Action Complaint alleging that defendant R.L. Reppert, Inc. improperly withheld any other custodial agreements (apart from its agreement with the Nationwide Trust Company, FSB) in violation of 29 U.S.C. §§ 1024(b)(4), 1132(c)(1).
I find in favor of plaintiff Derrick Askew against defendant R.L. Reppert, Inc. in the amount of $15,959.00 on that part of Count One of plaintiff's Class Action Complaint requesting penalties under 29 U.S.C. §§ 1024(b)(4), 1132(c)(1) for defendant R.L. Reppert, Inc.'s failure to timely produce plan documents for the periods December 6, 2008 to October 2, 2009 and May 17, 2012 to January 1, 2015.
I find in favor of plaintiff Derrick Askew against defendant R.L. Reppert, Inc. on that part of Count Four of plaintiff's Class Action Complaint alleging that defendant R.L. Reppert, Inc. failed to comply with the audit requirement set forth in 29 U.S.C. § 1023(a)(3)(A) with respect to the 401(k) Plan for the plan years 2008 through 2011.
I find in favor of third-party defendant California Pension Administrators & Consultants, Inc. against defendants and third-party plaintiffs on Count One of their Amended Third Party Complaint, alleging that CalPac breached its Client Service Agreement with defendant R.L. Reppert, Inc.
Finally, I find in favor of third-party defendant CalPac against defendants and third-party plaintiffs on Count Two of their Amended Third Party Complaint, alleging that CalPac knowingly or recklessly misrepresented the plan administration and recordkeeping services they would provide to defendant R.L. Reppert, Inc.
At trial, the parties jointly submitted all potential trial exhibits (Exhibits 1 through 88). No party submitted any other, individual exhibits. Thus, in this Adjudication, all references to trial exhibits will utilize that joint numbering system.
I also note that some, but not all, of the 88 potential trial exhibits were offered and admitted into evidence. Many were not, and others were objected to. I rely only upon those trial exhibits admitted into evidence.
Where I cite or refer to "Jxxx", I refer to the Bates stamp pagination. Bates stamping or Bates numbering refers to a system of placing numbers or other marks on legal documents to label and identify them.
Plaintiff also makes reference in his proposed findings of fact and conclusions of law to "a Sterling document that shows an agreement that is now lost (Ex. J56)", but that document was never admitted into evidence. Plaintiff's Proposed Findings of Facts and Conclusions of Law (Document 156) at ¶ 100;
In Plaintiff's Proposed Findings of Facts and Conclusions of Law, plaintiff read that part of my February 4, 2016 Opinion as "question[ing] the ability to impose a penalty for failure to produce the current agreement in 2008, once a new agreement replaced it." Plaintiff's Proposed Findings of Facts and Conclusions of Law at ¶ 98.
Plaintiff is mistaken. I did not claim that the court could not or would not impose an appropriate penalty under 29 U.S.C. § 1132(c)(1) for any failure to produce documents if those documents became outdated. Rather, I found that, consistent with its plain language and purpose, Section 1024(b)(4) does not permit the court to compel the production of the outdated or inoperative documents.
In other words, if, for example, a plan participant requested a copy of the trust agreement in 2010 and that trust agreement was subsequently superseded by an updated 2016 version, then Section 1024(b)(4) and 1132(c)(1) permits a penalty for the delay in the receipt of the trust agreement, running from 31 days after participant's request to when he receives the current, operative trust agreement, but does not compel the production of the defunct trust agreement.
Adopting the new trust agreement does not extinguish any penalties that might have accrued. It merely affects which document is the "latest", operative agreement that is required to be produced to plaintiff at that point in time.
The contrary interpretation of Sections 1024(b)(4) and 1132(c)(1) — namely, that they require the production of the plan document operative at the time of the request, in perpetuity and regardless of whether it is later superseded — is not only inconsistent with the plain language and purpose of those sections, as has already been explained, but could potentially result in circumstances where plan administrators cannot find and produce long-defunct plan documents and face an unlimited document production penalty.
As explained in that February 4, 2016 Opinion, plaintiff received the Nationwide agreement pursuant to his subpoena dated January 8, 2015. However, plaintiff did not make clear then, nor has he made clear now, exactly which day he received the document.
In Plaintiff's Proposed Findings of Facts and Conclusions of Law, plaintiff suggests that he received the Nationwide agreement on January 15, 2015, but there is nothing in the trial record to support that claim.
"[M]aking out such a claim does not require bad faith; it merely requires a violation of ERISA."
Defendants argue that, to make out his claim, plaintiff is required to show, among other things, detrimental reliance on a material misrepresentation. Defendants are mistaken. The cases that defendants cite to support their proposition specifically involve breach of fiduciary duty claims based on misrepresentations made by a fiduciary.
However, 29 U.S.C. § 1132(a)(3) is not limited to enforcing 29 U.S.C. § 1104. Indeed, plaintiff here seeks to enforce 29 U.S.C. § 1023(a)(3)(A), a completely different section of ERISA which imposes a technical, audit requirement upon the plan administrator. It makes no sense to impose upon the plaintiff the requirements of demonstrating a violation of § 1104 as a prerequisite to demonstrating a violation of § 1023(a)(3)(A).
Thus, for example, I take judicial notice of the fact that the 2009 annual report lists 118 participants with positive account balances at the end of the 2009 plan year and that the 2010 annual report lists 118 participants at the beginning of the 2010 plan year. I am not taking judicial notice that the 2009 and 2010 annual reports are accurate as to the number of participants at those respective times.
