Court Opinion

ID: 184289
Source: CourtListenerOpinion
Date Created: 2011-02-04 19:34:46+00
Date Added: 2024-06-11T08:46:47.549957
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 09-1383

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.

                             No. 10-1061

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,

           and

SALOMON SMITH BARNEY, INCORPORATED,

                 Defendant - Appellee.

Appeals from the United States District Court for the District
of Maryland, at Greenbelt.   William D. Quarles, Jr., District
Judge. (8:00-cv-03491-WDQ)

Argued:   October 27, 2010                  Decided:   February 4, 2011

Before WILKINSON, GREGORY, and WYNN, Circuit Judges.

Affirmed by unpublished opinion.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.

Unpublished opinions are not binding precedent in this circuit.

                                  2
GREGORY, Circuit Judge:

        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        defendants-appellants,             Information

Systems 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 failing 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 following reasons, we affirm the decisions of the

district court.

                                              I.

       In November 2000, the Secretary initiated an ERISA lawsuit

against    ISN    on   behalf      of   the      beneficiaries        of   ISN’s   defined

                                              3
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.

                                                A.

       In March 2003, the Secretary filed a motion asking that

Clark be appointed as the independent fiduciary for the pension

plan.     Attached to the motion was a proposal outlining Clark’s

expertise, the work to be performed, and the conditions under

                                                   4
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.

                                           B.

        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.

                                            5
     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

     1
       The current version of 28 U.S.C. § 636(b), which became
effective on December 1, 2009, provides a party with fourteen
days to file written objections to the recommendations issued by
a magistrate judge for review by the district court.

                                          6
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.

                                         C.

     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 continuing 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

                                           7
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 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

                                                  8
December 2009 order was not a final judgment, but an “injunctive

type” of remedy enforceable by contempt.                      Supplemental Appendix

(“S.A.”) 185-86.        The court also noted that the bond posted by

ISN “may protect Saakvitne from non-payment; but, it does not

relieve the current fiduciary, Clark, who [only] may be removed

as trustee following the appointment of its replacement.”                            S.A.

186.

       ISN did not appeal the January 15, 2010 order where the

court found ISN in contempt.                   Instead, ISN paid Saakvitne on

January 29, 2010; thereby, simultaneously confirming both the

withdrawal     of    Clark     as     the     independent       fiduciary      and    the

appointment of Saakvitne as the same.

                                             II.

       Here, we are called upon to address three issues:                              (1)

whether    the      district        court     erred     in    wholly      adopting    the

recommendations       of   the      magistrate        judge   without      review;    (2)

whether the district court erred in issuing its December 2009

order   requiring      ISN     to    pay     Saakvitne;       and   (3)    whether    the

district     court    abused        its     equitable    powers     under     ERISA    by

extending to Saakvitne the power to terminate the plan.

                                             A.

       Whether ISN waived its right to challenge the findings of

the magistrate judge by failing to file its objections with the

                                              9
district court within ten days is a question of law subject to

de novo review.      See United States v. Schronce, 727 F.2d 91, 93-

94 (4th Cir. 1984); see also United States v. General, 278 F.3d

389, 399 (4th Cir. 2002) (“Whether a defendant has effectively

waived his statutory right to appeal . . . is a question of law

subject to de novo review.”).

     ISN waived its right to full district court review of the

recommendations      when   it   failed       to   object     within   ten   days   of

their issuance by the magistrate judge.                    In the last appeal, we

determined    that    the    fees      issue       had    been    referred   to     the

magistrate judge under § 636(b)(1)(B), and, as such, had been

issued by the magistrate judge as a recommendation.                     Although we

declined to decide whether ISN had waived its right to review of

the recommendations by failing to file any objections with the

district     court    within     ten    days        of    the     issuance   of     the

recommendations, the law at the time was clear:                        ISN had only

ten days to request further review.                     See 28 U.S.C. § 636(b)(1)

(West 2008) (“Within ten days after being served with a copy,

any party may serve and file written objections to such proposed

findings and recommendations . . . .”).                    Moreover, we note that

a   party’s     failure     to      object         to     a     magistrate   judge’s

recommendations within ten days in either a nondispositive, Fed.

R. Civ. P. 72(a), or a dispositive matter, Fed. R. Civ. P.

72(b), waives further review.             “In this circuit, as in others,

                                         10
‘a party “may” file objections within ten days or he may not, as

he   chooses,      but    he     “shall”     do    so   if    he   wishes    further

consideration.’”         Wells v. Shriners Hospital, 109 F.3d 198, 199

(4th Cir. 1997) (quoting Park Motor Mart v. Ford Motor Co., 616

F.2d 603, 605 (1st Cir. 1980)).

     ISN also argues that the district court erred by failing to

inform    ISN    that    it    had   ten    days   to   request    further   review.

However, this Court has clearly stated that, although pro se

litigants are entitled to such a warning, the rule is different

for counseled parties:

     A court is under no obligation to advise every lawyer
     of every deadline for every proceeding – much less
     every consequence should the deadline be missed or
     ignored.    The 10 day deadline is hardly obscure
     . . . . [T]he Magistrates Act, the Federal Rules, and
     Fourth   Circuit   precedent  provide[]   more   than
     sufficient notice . . . .

Wells, 109 F.3d at 200.              Counsel for ISN chose not to file any

objections, and, instead, injudiciously appealed to this Court.

Counsel should have known that their failure to act waived the

right     of    their    clients      to    district       court   review    of   the

recommendations, and that, thereafter, the court would be free

to adopt the recommendations wholesale.                  See Camby v. Davis, 718

F.2d 198, 200 (4th Cir. 1983) (“Absent objection, we do not

believe    any    explanation        need    be    given     before   adopting    the

[magistrate judge’s] report.”).

                                            11
     Therefore, there was no error when -- in accordance with

our earlier decision, which declared that the magistrate judge

had issued a recommendation –- the district court found that ISN

had only ten days to raise its objections, and, by failing to do

so, it had waived its right to any further review.

                                         B.

     “We review a district court’s award of equitable relief for

abuse    of    discretion,      accepting     the   court’s    factual    findings

absent    clear    error,    while   examining      issues    of   law   de   novo.”

Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002) (citations

omitted).

     “A       federal   court    enforcing       fiduciary    obligations     under

ERISA is . . . given broad equitable powers to implement its

remedial decrees.”          Delgrosso v. Spang & Co., 769 F.2d 928, 937

(3d Cir. 1985).           These necessarily include the power to order

the termination of a plan.             Indeed, § 1109(a) of ERISA states

that:

     Any person who is a fiduciary with respect to a plan
     who breaches any of the responsibilities, obligations,
     or duties imposed upon fiduciaries by this subchapter
     shall be . . . subject to such other equitable or
     remedial relief as the court may deem appropriate,
     including removal of such fiduciary.

29 U.S.C. § 1109(a).            In cases initiated by the Secretary, a

court     is    further     authorized      to   provide     other   “appropriate

relief” where necessary.             29 U.S.C. §§ 1132(a)(2), 1132(a)(5).

                                         12
Thus, in certain narrow circumstances, it is wholly appropriate

for a court to provide an appointed independent fiduciary with

the power to terminate a plan.           Delgrosso, 769 F.2d at 937-38 &

n.12.

       Here, in light of the deteriorating state of the pension

plan, the district court did not err in using its equitable

powers to extend to the replacement fiduciary, Saakvitne, the

authority to terminate the plan.             Importantly, the pension plan

is now almost completely dormant, as only seven of its original

309 participants remain active.              S.A. 47.   See, e.g., Solis v.

Vigilance, Inc., No. C 08-05083 JW, 2009 WL 2031767, *3 (N.D.

Cal. July 9, 2009) (removing employer-fiduciaries who abandoned

plan    and   authorizing    independent      fiduciary   to   terminate   the

plan); Chao v. Wagner, 2009 WL 102220, *3 (N.D. Ga. Jan. 13,

2009) (similar).        In the event that the pension plan is formally

terminated, the statute requires that participants have their

contributions returned, with any surplus assets allocated by the

independent fiduciary to the appropriate participants.                See 29

U.S.C. § 1344(a); Delgrosso, 769 F.2d at 937-38.

       Notably, nowhere in its briefing and at no time during oral

argument could ISN articulate why it insisted on continuing the

pension plan.      Indeed, given the unfortunate history of ISN’s

mismanagement      of     the    plan        and   repeated    attempts     to

misappropriate its funds, see Malkani, 216 F. Supp. 2d at 509,

                                        13
518,       further      continuation           of    the    plan    would      likely      only

perversely benefit ISN.

        Therefore,         given       these    circumstances,          the    court     acted

within its discretion when it allowed the replacement fiduciary

to formally terminate the plan. 2

                                                C.

        The issue of whether ISN’s request for a stay is moot is a

question      of     law   to     be    reviewed      de    novo.      Green   v.    City    Of

Raleigh, 523 F.3d 293, 298 (4th Cir. 2008).                            Similarly, whether

the district court order requiring ISN to pay Saakvitne was one

for injunctive or monetary relief is also subject to de novo

review.

       Because       ISN    has    already      paid       Saakvitne    and    ISN   did    not

appeal the district court’s denial of its request for a stay

under      Fed.    R.   App.      P.    8(a)(2),      ISN’s    appeal    of    the     earlier

December 2009 order is now moot.                           See, e.g., Koger v. United

States, 755 F.2d 1094, 1096-98 (4th Cir. 1985) (holding that an

appeal      by     taxpayers       in     a     lawsuit       seeking    to     enjoin      the

       2
       Despite arguments by ISN to the contrary, as a defined
contribution plan, Malkani, 452 F.3d at 291, the pension plan is
not covered by § 1341.   See 29 U.S.C. § 1321(b)(1) (individual
account plans are not covered); 29 U.S.C. § 1002(34) (individual
account plan is a defined contribution).    Nonetheless, even if
§ 1341 were applicable here, so long as the proper procedures
are followed, that section also permits a fiduciary to terminate
a plan. 29 U.S.C. § 1341(b).

                                                14
government from collecting income tax deficiencies was mooted

because     the   taxpayers   had   paid     the   deficiencies    pending   the

appeal).

       Furthermore, the posting of a supersedeas bond may only

stay a monetary judgment pending an appeal, Fed. R. Civ. P.

62(d), and does not permit a party to stay injunctive relief,

see Illinois Bell Tel. Co. v. WorldCom. Techs., Inc., 157 F.3d

500, 502 (7th Cir. 1998) (where a court issues “an order to do,

rather than an order to pay, . . . the rationale as well as the

text   of   Rule    62(d)   is    inapplicable”     (citation     and   internal

quotations    omitted)).         And,   as   the   district   court     correctly

recognized:

            The bond posted by [ISN] may protect Saakvitne
       from non-payment; but it does not relieve the current
       fiduciary, Clark, who may be removed as trustee [only]
       following the appointment of its replacement . . . .
       [T]he bond does not serve [Federal Rule of Civil
       Procedure] 62(a)(1) by relieving Clark of its duties
       during the pendency of the appeal.

            The Court’s order for prepayment of Saakvitne is
       . . . an “affirmative injunction” because it is
       directed to [ISN], is enforceable by contempt, and was
       designed to protect the beneficiaries of the Plan for
       the next year. Because the order to prepay Saakvitne
       was injunctive relief, it was not stayed by the filing
       of a supersedeas bond . . . .

                                        15
S.A. 186-187.          The court properly exercised its equitable powers

to force ISN to pay Saakvitne.                 Thus, despite ISN’s payment of a

bond, the court committed no error in denying the stay. 3

                                             III.

       We hold that -- by failing to object to the recommendations

of    the   magistrate        judge   regarding       payment      of    fees      to   Clark

within ten days as then required by 28 U.S.C. § 636(b) -- ISN

waived      its    right      to   further    review      of     the    recommendations.

Similarly,        under    these    circumstances,         the    district      court      was

within      its    equitable        powers     to     authorize         the   replacement

fiduciary, Saakvitne, to terminate the pension plan.                               Finally,

the    motion     by    ISN    seeking   to        stay   the    payment      of    fees   to

Saakvitne is moot.             Accordingly, the decisions of the district

court are

                                                                                   AFFIRMED.

       3
       Notably, Saakvitne is also not a party in this appeal, nor
was the initial enforcement action brought for his monetary
benefit.   Under these circumstances, it is patently absurd of
ISN to argue that the court’s order was anything other than an
exercise of its equitable powers.

                                              16