Court Opinion

ID: 4026316
Source: CourtListenerOpinion
Date Created: 2016-08-18 17:00:53.48737+00
Date Added: 2024-06-11T13:06:44.777630
License: Public Domain

NOT PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT
                     _____________

                  Nos. 15-1380 and 15-1574
                       _____________

                  SECRETARY OF LABOR

                             v.

 JAMES DOYLE; CYNTHIA HOLLOWAY; MICHAEL GARNETT;
MARK MACCARIELLA; and the PITWU HEALTH & WELFARE FUND

                  CYNTHIA HOLLOWAY,
                        Third-Party Plaintiff

                             v.

MICHAEL GARNETT, MARK MACARIELLA; DAVID WEINSTEIN;
     UNION PRIVILEGE CARE, INC; DANTE GEORENO;
   FRANK MILITELLO; TIM FOSTER; NEAL GOLDSTEIN and
   FREEDMAN & LORRY; and THE MCKEOUGH COMPANY,

                              Cynthia Holloway,
                                    Appellant in No. 15-1380

                              James Doyle,
                                    Appellant in No. 15-1574
                      ______________

    APPEAL FROM THE UNITED STATES DISTRICT COURT
           FOR THE DISTRICT OF NEW JERSEY
                         (1:05-cv-02264)
         District Judge: Honorable Joseph H. Rodriguez
                        ______________

                  Argued: January 21, 2016
                      ______________
       Before: JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges.

                            (Opinion Filed: August 18, 2016)

Thomas E. Perez, Secretary of Labor
M. Patricia Smith, Solicitor of Labor
G. Williams Scott, Associate Solicitor
Thomas Tso, Counsel for Appellate and Special Litigation
Marcia E. Bove [ARGUED]
David Edeli
United States Department of Labor
Office of the Solicitor
Room N-4611
200 Constitution Avenue, N.W.
Washington, DC 20210
       Attorneys for Appellee

Rachel J. Gallagher
Steven K. Ludwig [ARGUED]
Fox Rothschild
2000 Market Street, 20th Floor
Philadelphia, PA 19103
      Attorneys for Appellant Cynthia Holloway

Jill A. Guldin [ARGUED]
Lauletta Birnbaum
591 Mantua Boulevard, #200
Sewell, NJ 08080
        Attorney for Appellant James Doyle

                                     ______________

                                        OPINION*
                                     ______________

GREENAWAY, JR., Circuit Judge.

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

                                             2
      This matter returns to the Third Circuit on a consolidated appeal. The District

Court found, based on evidence adduced at a bench trial, that Appellants James Doyle

and Cynthia Holloway breached their fiduciary duties to the Professional Industrial Trade

Workers Union (“PITWU”) Health & Welfare Fund (“Fund”), a plan governed by the

Employee Retirement Income Security Act (“ERISA”). For the reasons that follow, we

will affirm the District Court’s judgment as to Doyle, and vacate and remand the District

Court’s judgment as to Holloway.

                              I.    BACKGROUND

      A.     Factual Background

      The District Court’s full factual findings are set forth in our prior opinion and the

District Court’s opinion following remand; we need not repeat them in detail here.

However, we provide an overview of the facts for context.

      Holloway first learned of PITWU from an insurance broker in 2000, after David

Weinstein had established PITWU earlier that year. After an attorney provided Holloway

with verification of PITWU’s union status, she and three other individuals established the

Fund on May 1, 2001, as reflected by an Agreement and Declaration of Trust. The Fund

operated until May 2003 as a multiple employer welfare arrangement providing health

benefits to numerous small employers. Holloway’s company, Employers Depot, Inc.

(“EDI”), was a member of the Fund from the Fund’s inception. EDI was a professional

employer organization (“PEO”). Generally, PEOs provide human resources services to

client-employers as well as payroll, workers’ compensation, and health and retirement

                                             3
benefits.

       The Fund had various third-party administrators who reviewed and paid health

claims covered by the Fund, as well as trustees, counsel, and an actuary. The Fund’s

initial claims administrator was Union Privileged Care (“UPC”), which was owned by

Weinstein. Holloway served as one of the original Fund trustees from the Fund’s

creation until she resigned on September 27, 2002.

       Weinstein also owned two PEOs, Privileged Care, Inc. (“PCI”) and NorthPoint

PEO (“NP”),1 which became members of the Fund sometime after January 2002 by

entering into ostensible collective bargaining agreements (“CBAs”) with PITWU.2 In

the CBAs, PCI/NP agreed to contribute to the Fund at specified rates so that their client-

employers could receive health benefits under the Fund.

       Doyle’s company, Privilege Care Marketing Group (“PCMG”), contracted with

PCI/NP to market PEO services and access to the Fund to small businesses. Client-

employers gained access to the Fund by checking a “health benefit” box and a “union”

1
  The District Court concluded that PCI and NP were effectively the same organization in
that they shared consultants, office space, owners, and employees. See Sec’y of Labor v.
Doyle, No. 05-cv-2264, 2014 WL 6747882, at *2 n.2 (D.N.J. Dec. 1, 2014). Therefore,
PCI and NP are referred to as “PCI/NP.”
2
 As we previously described, the collective bargaining relationship between PCI/NP and
PITWU was a “sham” and the CBAs were “bogus” insofar as “they were not the result of
bona fide collective bargaining, and the employees [PITWU] enrolled in the union by
PCI/Northpoint were not genuine union members.” Sec’y of Labor v. Doyle, 675 F.3d
187, 197 n.23, 201 (3d Cir. 2012). For example, client-employers never received copies
of the CBAs, see Doyle, 2014 WL 6747882, at *9 (citing J.A. 726, 744, 796, 967), and
several client-employers testified at trial that their employees were not unionized, id. at
*8.

                                             4
box on enrollment forms, even though their employees did not become members of

PITWU. Although enrollment forms listed a number of additional PEO services, the only

service consistently offered by PCI/NP was health benefits through the Fund.

       When businesses decided to enroll their employees in the Fund (and become

client-employers of PCI/NP), Doyle required them to initially pay a single check to

PCMG. Thereafter, Doyle required PCI/NP’s client-employers to make monthly

payments to PCMG via two checks. PCMG remitted the first check (“Check 1”) to

PCI/NP and retained the second check (“Check 2”) as various fees and marketing

commissions. PCI/NP retained a portion of Check 1, sent a portion back to PCMG as a

“refund,” paid a portion to PITWU as “union dues,” and sent the remainder to claims

administrators.

       In January 2002, less than a month after PCI/NP and PCMG became members of

the Fund, the Oklahoma Insurance Commissioner entered a cease and desist order against

PCI, PCMG, and two of its marketing affiliates. The Commissioner found that they were

engaging in the unauthorized sale of insurance and therefore ordered them to cease and

desist from any further sales or marketing of insurance in the state.

       Weinstein’s company, UPC, was replaced as the claims administrator in March

2002. At an April 23, 2002 meeting with the Fund’s new claims administrator, Holloway

learned of “several boxes” of pending, unpaid claims from member-employees, and of

concern that claims may not have been paid since November 2001. J.A. 161–63, 1005–

06. Holloway requested a date by which all claims be entered into the Fund’s database to

determine the magnitude of unpaid or pending claims.

                                             5
       Despite Holloway’s “general concerns” about Weinstein, Holloway and another

trustee appointed Weinstein as a trustee to the Fund. J.A. 1008, 1013.3 However, at a

subsequent trustee meeting held on May 30, 2002, Weinstein resigned as trustee. At this

meeting, the Fund’s accountant informed the trustees that he could not prepare a financial

statement for the Fund because the financial information he had requested from UPC had

not yet been provided. The Fund’s actuary reported that it had received insufficient

information from Weinstein to offer an opinion on whether the Fund was underfunded.

The trustees developed a plan with Weinstein to provide all necessary data.4

       In June 2002, the Louisiana Insurance Commissioner issued a cease and desist

order based on its finding that that PCI/NP was selling health insurance without

authorization. The Commissioner found that there was no collective bargaining by

PITWU on behalf of its members and that client-employers of PCI/NP received no

representation or benefit from PITWU other than access to the Fund.5

       On September 20, 2002, the Fund’s new claims administrator informed Holloway

3
  Holloway testified that she had “general concerns” regarding the appointment of
Weinstein as a trustee for the PITWU Fund but did not elucidate what motivated those
concerns; she also testified that she did not research Weinstein’s qualifications to be a
trustee. See J.A. 1009–14.
4
 The trustee meeting minutes indicate that the trustees and PITWU Fund counsel gave
Weinstein “specific instructions” regarding the data that he was to provide the new third-
party administrator. See J.A. 1077–78.
5
  By the time the Fund ceased operations in May 2003, five other states had entered
similar cease and desist orders against PCI/NP, the Fund, PCMG, Doyle, and others,
arising from the marketing and providing of health care services in the states without the
necessary authorization. See Doyle, 2014 WL 6747882, at *7.

                                             6
of problems relating to lack of funding because of PCI/NP’s failure to make contributions

to the Fund and other problems arising from inadequate paperwork. In a letter dated

September 20, 2002, Holloway resigned as trustee. In her letter of resignation, she

identified multiple reasons leading to her resignation, including the lack of financial

accountability for contributions to the Fund and the resulting lack of funding to pay

claims. Holloway also noted that several states had issued cease and desist orders “based

on the representation by other membership/trustees that PITWU [was] an insurance

program.” J.A. 196–97.

       PCMG received a total of $2.1 million ($2,107,361) in Check 2 monies, which it

retained as marketing commissions and fees. J.A. 417 (Column 15, Row 33).

       PCMG also received a total of approximately $4.5 million ($4,497,067, J.A. 417 at

Column 13, Row 33) in Check 1 monies. Of this $4.5 million, the District Court

determined that, after approximately $197,000 ($196,998, J.A. 424, sum of Columns 8

and 9, Row 20) in refunds/commissions was returned from PCI/NP to PCMG, only a net

total of approximately $3.1 million was forwarded by PCMG to PCI/NP. Doyle, 2014

WL 6747882, at *15. Of the approximately $1.4 million in Check 1 monies not

forwarded to PCI/NP ($4.5 million minus $3.1 million), approximately $645,000

($645,232, J.A. 425 at Column 1, Row 35) was sent directly from PCMG to third-party

administrators, leaving approximately $755,000 of Check 1 monies retained and

                                              7
unaccounted for by PCMG.6 Thus, a total of $952,000 of Check 1 monies ($755,000 plus

$197,000) was ultimately retained by PCMG. Doyle, 2014 WL 6747882, at *15.

       Of the approximately $3.1 million in Check 1 monies received from PCMG,

PCI/NP sent approximately $2.1 million ($2,076,329, J.A. 425, sum of Column 1, Rows

4, 9, 14, and 19) to third-party claims administrators.7 PCI/NP also sent approximately

$430,000 ($429,310, J.A. 423 at Column 1, Row 16) of Check 1 monies to PITWU as

“union dues.” The District Court concluded that PCI/NP retained several hundred

thousand dollars of Check 1 monies. Doyle, 2014 WL 6747882, at *15.

       B.     Procedural Background

       In April 2005, the Secretary of Labor initiated this action for breach of fiduciary

duties against Doyle, Holloway, the Fund, and two other individuals.8 The case

proceeded to a bench trial in October 2009. As to Holloway and Doyle, the District

Court concluded that the Secretary had failed to show that they had breached their

fiduciary duties to the Fund, and entered judgment in their favor. See Solis v. Doyle, No.

6
 The Secretary does not allege breach of fiduciary duty with respect to the approximately
$645,000 sent by PCMG directly to claims administrators. See Doyle, 2014 WL
6747882, at *15.
7
 The Secretary does not allege breach of fiduciary duty with respect to this
approximately $2.1 million sent by PCI/NP to claims administrators. See Doyle, 2014
WL 6747882, at *15.
8
 The two other defendants were Michael Garnett and Mark Maccariella. At the
beginning of trial, Maccariella accepted a consent judgment enjoining him from serving
as a fiduciary or service provider to an ERISA plan and requiring him to pay $195,317.
See Doyle, 2014 WL 6747882, at *2. Garnett did not appear at trial and the District
Court entered a default judgment against him. Id.

                                             8
05-CV-2264, 2010 WL 2671984 (D.N.J. June 30, 2010). The District Court noted that

“the Secretary is offended by the percentage of employer contributions that were not

forwarded to medical providers to pay claims” but had “introduced no evidence that the

fees charged [by Doyle/PCMG] were excessive, unreasonable, or contrary to plan

documents.” Id. at *8. The District Court noted that Doyle offered undisputed testimony

that PCMG’s fees were customary. Id. The Secretary of Labor appealed.

       On appeal, we vacated the District Court’s judgment and remanded to the District

Court for additional factual findings. See Sec’y of Labor v. Doyle, 675 F.3d 187 (3d Cir.

2012). Specifically, we directed the District Court to: (1) make detailed factual findings

concerning the nature of the funds received and controlled by Doyle and determine

whether some or all of those funds were “plan assets” under ERISA;9 (2) determine

whether Doyle was a functional fiduciary with respect to any plan assets; (3) determine

whether Doyle breached his fiduciary duties; and (4) determine whether Holloway

breached her fiduciary duties with respect to plan assets. Id. at 202–03.

       In our opinion, we observed that “Doyle’s unrefuted testimony that the Check 2

funds he collected for marketing fees were customary or reasonable does not mean that

he did not violate any fiduciary duties under ERISA.” Id. at 201. Finding the state cease

and desist orders significant, we likened PCI/NP’s promotion of the Fund to a “scheme”

9
  As we noted, a determination of what funds were “plan assets” was necessary because
“if . . . the payments collected by PCI/NP and PCMG were not plan assets, and the only
assets of the Fund were those payments received by the Fund’s claims administrators,
then Doyle did not handle any plan assets, and could not be a fiduciary under ERISA.”
675 F.3d at 200.

                                             9
to “masquerad[e]” an “inadequately funded health benefit plan” as an ERISA-exempt

plan “in order to evade the solvency controls imposed by state insurance regulation.” Id.

at 197. We concluded that the CBAs between PITWU and PCI/NP were “bogus” insofar

as they were not the result of bona fide collective bargaining to benefit employer

members and the employees enrolled by PCI/NP in PITWU were not genuine union

members. Id. at 197 n.23. We noted “it is important to keep the nature of the scheme

firmly in mind” and stated that, “[a]t a minimum, expenditures for marketing this illegal

scheme were not reasonable expenses for the benefit of plan participants.” Id. at 197,

201.

       After remand, the parties submitted proposed findings of fact and conclusions of

law to the District Court. The District Court heard no further testimony and held no

further proceedings.

       In its decision following remand, the District Court found that both the Check 1

and Check 2 monies were plan assets of the Fund because of representations made to

employers by PCMG and PCI/NP that the total amount of employers’ contributions—i.e.,

Check 1 and Check 2 monies combined—was the cost of procuring health insurance

when the employers adopting the Fund as a health plan. See Sec’y of Labor v. Doyle, No.

05-CV-2264, 2014 WL 6747882, at *11 (D.N.J. Dec. 1, 2014). The District Court

declined to consider the CBAs between PCI/NP and the Fund—which set the

contribution rates—because the client-employers of PCI/NP did not receive the CBAs

                                            10
and because their employees did not become genuine union members. Id. at *9.10

         The District Court found that Doyle was a functional fiduciary of the Fund’s plan

assets because he had discretion over how much money PCMG would retain from the

employer contributions. Id. at *14. The Court concluded that Doyle had breached his

duty of loyalty with respect to: (1) the approximately $952,000 which PCMG retained

from Check 1; (2) the $374,000 which PCI/NP retained from Check 1; and (3) the

$429,310 in “union dues” forwarded by PCI/NP to PITWU. Id. at *15. In addition, the

Court found that Doyle had breached his duties of loyalty and prudence by permitting the

diversion of plan assets to PCMG and PCI/NP as payments for sales commissions,

service fees, administrative charges, and union dues. Id. at *16.

         The District Court further determined that Holloway had breached her duty of

prudence to the Fund. Id. at *17–18. The Court explained that Holloway knew or should

have known that the CBAs were not the result of bona fide collective bargaining. See id.

The Court concluded that Holloway had breached her duty of prudence by ignoring

evidence that the Fund was being mismanaged and was underfunded, and by failing to do

enough in the face of this evidence. See id. The Court also relied on the fact that

Holloway did not ask for financial records of PCI/NP and PCMG, did not compel an

accounting or invoke the mandatory arbitration clause in the Trust Agreement, and did

not sue her co-trustees. Id. at *17.

         The Court held Doyle and Holloway jointly and severally liable as co-fiduciaries

10
     See supra n.2.

                                             11
and entered judgment against Doyle in the amount of $3,882,867.9811 plus prejudgment

interest, and against Holloway in the amount of $4,698,871.98,12 plus prejudgment

interest. Id. at *20. This timely appeal followed.

            II.   JURISDICTION AND STANDARD OF REVIEW

       The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We have

jurisdiction to hear this appeal pursuant to 28 U.S.C. § 1291.

       On appeal from a bench trial, we review a district court’s findings of fact for clear

error and its conclusions of law de novo. VICI Racing, LLC v. T-Mobile USA, Inc., 763

F.3d 273, 283 (3d Cir. 2014). “A finding of fact is clearly erroneous when it is

‘completely devoid of minimum evidentiary support displaying some hue of credibility or

bears no rational relationship to the supportive evidentiary data.’” Id. (quoting Berg

Chilling Sys., Inc. v. Hull Corp., 369 F.3d 745, 754 (3d Cir. 2004)).

11
  This amount “represents the difference between the money that employers paid in for
benefits and the money that was paid out to claims administrators to administer and pay
benefits—plan assets diverted from the Fund.” 2014 WL 6747882, at *20.
12
  The difference between this amount and Doyle’s liability (i.e., $816,004) “is the
amount of money received by PCI/NP from employers who were not recruited through
PCMG; accordingly, none of this money passed through PCMG.” 2014 WL 6747882, at
*20.

                                             12
                               III.    ANALYSIS13

       A.     Plan Assets

       Appellants first argue that the District Court erred in concluding that all

contributions from PCI/NP’s employer-clients—i.e., both Check 1 and Check 2 monies—

were “plan assets” under ERISA. Specifically, Appellants contend that the District Court

improperly analyzed the Fund’s interest in employer contributions from the employers’

point of view and improperly disregarded the CBAs between PITWU and PCI/NP.

Under Appellants’ approach, the CBAs are the only representations relevant to the “plan

assets” inquiry, and these limited the Fund’s interest to only those contributions sent from

PCI/NP and to only those amounts specified by the rates contained in the CBAs.

Appellants’ arguments are unavailing.

       In Doyle I, we explained that: “assets of a plan generally are to be identified on

the basis of ordinary notions of property rights under non-ERISA law” and may include

“any property . . . in which the plan has a beneficial ownership interest.” See 675 F.3d at

203 (quoting Department of Labor, Advisory Op. No. 93-14A, 1993 WL 188473, at *4

(May 5, 1993)). In an Advisory Opinion cited by Appellants in their papers, the

Department of Labor advised that whether a plan has acquired a beneficial interest in

particular funds depends on “whether the plan sponsor expresses an intent to grant such a

13
   We note that, generally, ERISA is a remedial statute and “should be liberally construed
in favor of protecting the participants in employee benefit plans.” Einhorn v. M.L.
Ruberton Constr. Co., 632 F.3d 89, 98 (3d Cir. 2011) (quoting IUE AFL-CIO Pension
Fund v. Barker & Williamson, Inc., 788 F.2d 118, 127 (3d Cir. 1986)).

                                             13
beneficial interest or has acted or made representations sufficient to lead participants and

beneficiaries of the plan to reasonably believe that such funds separately secure the

promised benefits or are otherwise plan assets.” Department of Labor, Advisory Op. No.

94-31A, 1994 WL 501646, at *3 (Sept. 9, 1994) (emphasis added). Contrary to

Appellants’ assertion, under this latter phrase, a court may consider the reasonable beliefs

of plan participants—here, PCI/NP’s client-employers—based on representations

attributable to PITWU. Therefore, the District Court did not err in examining

participating employers’ reasonable beliefs, based on Doyle’s representations, that their

total contributions to PCMG were required to participate in the Fund.

       The record supports the District Court’s conclusion that employers reasonably

believed the combined Check 1 and Check 2 amount was the cost of insurance for each

employee. By Doyle’s design, employers originally sent in one single check to enroll in

the Fund and get health benefits for their employees, and only after did he divide

payments into two checks, ostensibly one for health insurance contributions (Check 1)

and one for PEO services (Check 2). Several employers testified that they believed that

their payments to PCMG were only for health insurance. Based on the above, we agree

with the District Court that the Fund had a beneficial interest in all employer

contributions, regardless of whether the contributions were made via the initial single

check, Check 1, or Check 2.

       Doyle asserts that he had no contract or agreement with the Fund and that without

such a relationship, the Fund had no interest in the Check 2 monies. Even accepting

Doyle’s assertion that he had no direct authorization to be the Fund’s agent, Doyle acted

                                             14
with apparent authority of the Fund. See In re Mushroom Transp. Co., 382 F.3d 325, 345

(3d Cir. 2004) (apparent authority is “that authority which, although not actually granted,

the principal knowingly permits the agent to exercise”); Taylor v. Peoples Nat. Gas Co.,

49 F.3d 982, 989–90 (3d Cir. 1995) (applying doctrine of apparent authority to determine

whether individual was an agent of ERISA plan). Doyle and PCMG promoted the Fund,

acted as a conduit for the Fund by representing that PCMG would remit the enrollment

forms or change of coverage forms to the Fund, and PCMG was the single contact for

employers’ contributions to the Fund. Moreover, employers never received the CBAs

which specified the contribution rates; employers relied upon PCMG’s representations

regarding the applicable contribution rate.

       These representations referenced PITWU and were permitted by the Fund. In the

client enrollment forms which Doyle provided to employers to gain access to the Fund,

employers checked the “health benefit” box and the “union” box. J.A. 155. Employers

were required to execute a “Disclosure Form” which stated that “[t]his health and welfare

plan is sponsored by [PITWU].” J.A. 158. And the Fund’s third-party administrators

received and reviewed these enrollment forms and did nothing to stop Doyle and

PCMG’s representations, thereby permitting the representations.

       Appellants also argue that only payments from PCI/NP to the Fund constitute plan

assets because only PCI/NP signed on to the Declaration of Trust. The Declaration of

Trust creating the Fund identified the Fund’s assets as “any and all contributions payable

by EMPLOYERS” and required that these contributions “shall be paid” “into” the Fund.

J.A. 92. However, we need not determine whether PCI/NP’s client-employers became

                                              15
“EMPLOYERS” under the Declaration of Trust because, as explained above, monies

may become plan assets not only based on the terms of the plan’s governing documents,

but by the plan sponsor’s representations to participants. And we have determined that

the representations made by PCI/NP and PCMG were sufficient to lead participants to

reasonably believe that their contributions were made to secure benefits.

       Finally, Appellants argue that the CBAs between PCI/NP and the Fund should

limit the amount of client-employer contributions in which the Fund had a beneficial

interest because the CBAs set forth contributory rates that were less than total client-

employer contributions to PCMG. As we noted in Doyle I, the CBAs were “bogus”

insofar as they were not the result of bona fide collective bargaining between PCI/NP and

PITWU and PCI/NP’s client-employers were not genuine PITWU members. 675 F.3d at

197 n.23. Allowing the CBAs to shield liability for diversion of plan assets would be

counter to ERISA’s remedial purpose. Given our previous guidance that “it is important

to keep the nature of the scheme firmly in mind,” id. at 197, we agree with the District

Court that the CBAs’ contribution rates should not limit its “plan assets” analysis.

       In sum, we find no error in the District Court’s conclusion that all contributions

from employers—i.e., both Check 1 and Check 2 monies—were “plan assets” within the

meaning of ERISA.

       B.     Doyle’s Status as Functional Fiduciary and Breach of His Duties

       Doyle next argues that the District Court erred in holding that he was a functional

fiduciary of the Fund and that he breached his duties of loyalty and prudence to the Fund.

Doyle primarily argues that he had no authority or control over the Check 1 and Check 2

                                             16
monies so as to be a functional fiduciary under ERISA, and that the Secretary failed to

prove Doyle’s knowledge that the Check 1 employer contributions forwarded to PCI/NP

were not being used for any legitimate purpose related to the Fund.14

       Under ERISA, a person is a fiduciary if, inter alia, “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).15 Having concluded that all employer contributions were “plan assets,”

we have no trouble agreeing with the District Court that Doyle exercised authority and

control over the disposition of those assets.

       Doyle not only set up the two-check system, invoiced employers, collected Checks

1 and 2, and was responsible for remitting Check 1 to PCI/NP, he determined how much

to charge employers for sales commissions—without consulting PCI/NP or Fund

14
  To the extent that Doyle argues that the marketing fees paid to PCMG via Check 2
were reasonable and cannot support a finding that he breached his fiduciary duties, (Br.
of Appellant Doyle at 24–25), we decline to overrule our prior determination in Doyle I
that “expenditures for marketing th[e] illegal scheme were not reasonable expenses for
the benefit of plan participants.” See 675 F.3d at 201.
15
   Although Doyle argues that he had no “discretionary authority or control” over the
Fund’s assets, (Br. of Appellant Doyle at 13), we need not rely on a finding of discretion
to conclude that Doyle was a functional fiduciary. We recognize a “significant difference
between the two clauses [of subsection (i) in] 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). “The statute treats control over the cash differently from
control over administration,” and imposes “a lower threshold for fiduciary status where
control of assets is at stake.” See Bd. of Trustees of Bricklayers v. Wettlin Assocs., Inc.,
237 F.3d 270, 274 (3d Cir. 2001) (internal quotation and citation omitted).

                                                17
trustees—and therefore it was he who determined how much PCMG would retain of

employer contributions. See Pipefitters Local 636 Ins. Fund v. Blue Cross & Blue Shield

of Mich., 722 F.3d 861, 866–67 (6th Cir. 2013) (rejecting defendant’s claim that it

“merely acted as a ‘pass-through’ and not as a fiduciary” and concluding that insurer that

was an ERISA fiduciary with respect to hidden fees that it unilaterally added to hospital

claims subsequently paid by the fund); Metzler v. Solidarity of Labor Orgs. Health &

Welfare Fund, No. 95-CV-7247, 1998 WL 477964, at *7 (S.D.N.Y. Aug. 14, 1998), aff’d

sub nom. Herman v. Goldstein, 224 F.3d 128 (2d Cir. 2000) (“[B]ecause defendants had

set the total sum of the contribution employers had to pay (over and above the coverage

rates set by the Fund and the union membership fee set by [the union]) to receive benefits

through the Fund, the Court [] concludes that defendants are fiduciaries within the

meaning of ERISA.”).

       As a functional fiduciary, Doyle had a duty of loyalty to act “for the exclusive

purpose of (i) providing benefits to [Fund] participants and beneficiaries; and (ii)

defraying reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A).

Doyle argues that the District Court erred in concluding that Doyle breached his duty of

loyalty with respect to: (1) the approximately $952,000 that PCMG retained from Check

1; (2) the $374,000 that PCI/NP retained from Check 1; and (3) the $429,310 in “union

dues” forwarded by PCI/NP to PITWU.

       As to the $952,000 that PCMG retained from Check 1, the District Court

concluded that this sum consisted of $755,000 of unaccounted for Check 1 monies and

approximately $197,000 in “refunds” from PCI/NP to PCMG. Doyle contends that the

                                             18
these monies “could have [] included payments” for payroll services, gap insurance, and

administrative fees that were combined with Check 1 health claims contributions when

client-employers paid a single check to PCMG. (Br. of Appellant Doyle at 21.)

However, Doyle’s argument on appeal as to what services the $755,000 or $197,000

“could have” paid for does not convince us that the District Court clearly erred in

concluding that the monies did not go to benefit contributing employers.

       As to the other two sums, the District Court relied on Doyle’s own testimony that

he was aware that PCI/NP retained a portion of the Check 1 monies and remitted a

portion for “union dues.” See 2014 WL 6747882 at *16 (citing Trial. Tr. 64:10–15,

71:24–72:5, 85:6–22, 88:3–17, 138:2–12). Given these admissions, we conclude that the

District Court did not clearly err in concluding that Doyle breached his duty of loyalty to

the Fund because he knew that these monies were not used to benefit plan participants.16

       C.     Holloway’s Fiduciary Duties

       Holloway challenges the District Court’s finding that she breached her duty of

prudence to the Fund on the ground that the Secretary did not establish that Holloway

failed to monitor the Fund or deviated from the ERISA standard of care. We conclude

16
   Because we agree with the District Court’s finding that Doyle knew or should have
known about PCI/NP’s scheme to retain plan assets—and therefore breached his duties of
loyalty and prudence—we need not separately address Doyle’s argument that the District
Court erred in concluding that Doyle is liable for PCI/NP’s breaches as a co-fiduciary.
See 29 U.S.C. § 1105(a)(2) (providing for liability for the breach of a co-fiduciary where
fiduciary, “by his failure to comply with [the duty of loyalty or prudence] in the
administration of his specific responsibilities which give rise to his status as a fiduciary,
[that] fiduciary has enabled such other fiduciary to commit a breach”).

                                             19
that, although the District Court may have properly found that Holloway breached her

duty of prudence through inaction during her tenure as trustee, the evidence adduced at

trial is insufficient to support a conclusion that Holloway failed to act as a prudent trustee

prior to May 30, 2002. Therefore, we will not affirm the District Court’s conclusion that

Holloway was liable for all diverted plan assets, regardless of when the diversion

occurred. Rather, we will remand to the District Court to make detailed factual findings

about the extent of Holloway’s liability after May 30, 2002, considering when Holloway

became aware of red flags related to diverted participant contributions.

       The District Court first concluded that, generally, “Holloway knew or should have

known the facts upon which the Circuit based its conclusion that the CBAs ‘were not the

result of bona fide collective bargaining.’” 2014 WL 6747882 at *17 (quoting Doyle I,

675 F.3d at 197). The District Court also relied on the fact that “at least one of the cease

and desist orders contained an express finding that the PITWU Union [sic] was not a

bona fide labor union.” Id. However, when we concluded in Doyle I that the CBAs were

not the result of bona fide collective bargaining, we also rejected the Secretary’s claim

that PITWU was a “bogus” union and noted that “no similar evidence [regarding the lack

of bona fide collective bargaining] was presented concerning the CBAs between PITWU

and its other employer members, ECI and EDI”—the latter of which Holloway owned.

675 F.3d at 197 n.23. Moreover, the cease and desist order cited by the District Court

was issued in June 2002, and therefore cannot support a finding of breach of fiduciary

duty by Holloway prior to that date.

       The District Court also concluded that

                                              20
       [f]rom nearly the inception of her trusteeship, Holloway was aware that:
       there were “boxes” of claims that had not been processed; that there were
       large numbers of unpaid health claims; financial reports could not be
       prepared because of the lack of financial data; [and] the [third-party
       administrator] reported insufficient funding to pay adjudicated and valid
       claims.

2014 WL6747882 at *17. However, the District Court’s factual findings indicate that

Holloway first learned about the “boxes” of pending claims and the administrator’s

concern that claims had not been paid for months at the trustee meeting on April 23,

2002. At that time, the magnitude of unpaid claims, and whether there was sufficient

funding to meet this requirement, was unknown due to lack of data. See id. Because the

District Court’s factual findings do not indicate that evidence of the Fund’s

mismanagement was available to Holloway before April 23, 2002, we cannot agree that

Holloway should have known “[f]rom nearly the inception of her trusteeship” in May

2001 that the Fund was being mismanaged or was underfunded.

       Moreover, we disagree with the District Court’s conclusion that Holloway did not

react as a prudent trustee should to the concerns raised at the April 23, 2002 meeting.

When Holloway first learned of the “boxes” of unprocessed claims, she ordered the

Fund’s new third-party administrator to enter all claims into the Fund’s database to

determine the size and nature of the problem and set a deadline for a report-back. Thus,

although the reports of unprocessed claims raised concerns, Holloway reasonably reacted

to and addressed the potential problem.

       However, more serious red flags were raised at the May 30, 2002 trustee meeting.

Then, both the Fund’s accountant and actuary reported that they still lacked the financial

                                            21
information “required by them to perform their essential functions” such as reporting on

the financial condition of the Fund. J.A. 171. Further, the record reveals a discrepancy

regarding Weinstein’s responsiveness to the trustees’ prior request for information: while

Weinstein claimed to have already provided all information to the new third-party

administrator, the administrator reported that it had not received all the previous

information and documentation about the Fund. See J.A. 171–72. Although Holloway

and the trustees developed a plan for the information and documentation to be conveyed

to the relevant parties, Holloway’s lack of meaningful follow-up after this meeting

supports a finding of a breach of her fiduciary duties after May 30, 2002.

       At oral argument, the Secretary contended that Holloway should be liable for all

diverted assets because she failed, from the creation of the Fund in January 2001, to

create a mechanism for collecting employer contributions and processing benefit claims

that would have prevented PCMG and PCI/NP’s scheme. We disagree.17 As we have

explained, Holloway’s action or inaction as a trustee must be assessed against when

information or red flags became available to her. Accordingly, we will vacate the District

Court’s judgment regarding Holloway’s liability and remand to the District Court to

make detailed factual findings as to when, after May 30, 2002, Holloway knew or should

17
  The Secretary’s stance would impose the impossible standard of omniscience on
Holloway. There is nothing inherently nefarious about a PEO such as PCI/NP becoming
a member of the Fund, should it properly remit its client-employer contributions to the
Fund and provide other legitimate PEO services. Indeed, Holloway’s PEO, EDI, was a
member of the Fund. There is nothing in the record indicating that, ab initio, Holloway
should have suspected that Weinstein, through PCI/NP, would divert plan assets.

                                             22
have known that the Fund was being mismanaged or was underfunded.18

                               IV.    CONCLUSION

       For the foregoing reasons, we will affirm the judgment of the District Court

regarding Doyle and vacate and remand the District Court’s judgment regarding

Holloway.

18
  On remand, the District Court should, based on its findings regarding Holloway,
similarly clarify the extent of Holloway’s liability for the breaches of other fiduciaries.

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