Court: District Court, E.D. Pennsylvania; September 27, 2018; Federal District Court
Wendy Beetlestone, District Judge, addresses a legal dispute stemming from a fraudulent scheme involving John Koresko and his associates, who misappropriated welfare benefit funds. The plaintiffs' complaint targets Nationwide Life Insurance Company, alleging several violations related to an insurance policy. Specifically, they claim that Nationwide: 1) breached fiduciary duties and participated in prohibited transactions under Section 1132(a)(2) of ERISA; 2) knowingly engaged in fiduciary breaches and prohibited transactions under Section 1132(a)(3) of ERISA; 3) engaged in racketeering activity in violation of Section 1962(c) of RICO; and 4) conspired to violate Section 1962(c) under Section 1962(d) of RICO.
Nationwide has filed a Motion to Dismiss, arguing that the plaintiffs' ERISA claims are time-barred and their RICO claims lack sufficient factual support. The plaintiffs oppose these points and seek partial summary judgment on their ERISA claims. The court has decided to grant Nationwide's Motion to Dismiss in full and deny the plaintiffs' motion.
The facts reveal that from 2002 to 2013, Koresko operated a multiple employer welfare arrangement, allowing employers to purchase cash value life insurance policies while misusing plan assets. The arrangement was publicly managed by PennMont, which involved Koresko and his brother. Employers participated by signing adoption agreements to establish their welfare benefit plans, paying insurance premiums into a trust, with the trustee designated as the owner and beneficiary of the policies. The Energy Alternative Studies Inc. Health and Welfare Plan (EAS Plan) was part of this arrangement, with James Corman as a participant. The EAS Plan allegedly allowed a Koresko-related entity to change the policy's ownership and beneficiary to the Koreskos' REAL VEBA trust. Over 12 years, the EAS Plan contributed $865,000 for premiums, while Nationwide loaned a Koresko-related entity $578,777.52, secured by the policy's cash value, which has accrued significant interest and remains unpaid.
Plaintiffs sought information from Nationwide and Koresko-related entities regarding a loan three months after it was issued but received no substantial response. They became aware of the loan in 2013 after Koresko lost his fiduciary role and subsequently filed a lawsuit on August 31, 2017. The relationships among the parties were governed by four key documents: the Plan Documents, the insurance policy (the "Policy"), the Verifications, and the Custodial Agreement. The Plan Documents established the EAS Plan and stated that insurance policies purchased under the Plan and their cash values were to be owned by the Trustee, who had broad authority over these policies. The Policy was a contract between the Trustee and Nationwide, affirming that all rights belonged to the Owner (the Trustee), who could assign rights under the Policy.
The Verifications named Jeanne Bonney as the "Appointed Signator" for CTC, granting the Trustee rights to manage the insurance policies without the insured's consent, including surrendering policies, withdrawing values, and changing beneficiaries. The Custodial Agreement appointed the Koresko Law Firm as CTC's agent and reiterated the Trustee's powers.
To withstand a motion to dismiss, a complaint must present sufficient factual matter to support a plausible claim for relief, as established in Ashcroft v. Iqbal. The court assesses the complaint by identifying necessary elements, removing legal conclusions, and determining if the factual allegations support the claims.
Plaintiffs' claims included allegations under ERISA and RICO. The ERISA claims were dismissed due to being time-barred, while the RICO claims were dismissed for insufficient pleading of a "pattern of racketeering activity" by Nationwide.
Plaintiff filed an ERISA lawsuit on August 31, 2017, alleging a violation related to a $578,777.52 loan that occurred around August 26, 2009. The statute of limitations for ERISA claims requires filing within six years of the breach or three years from when the plaintiff had actual knowledge of it, as specified in 29 U.S.C. § 1113. Plaintiffs assert they did not gain actual knowledge until September 2013, but the filing deadline would have been August 26, 2015, making their claims time-barred unless they invoke the fraudulent concealment exception. This exception allows action to be commenced within six years of discovering the breach if the defendant engaged in fraud or concealment.
Plaintiffs argue that PennMont and Nationwide concealed their breach by ignoring requests for information regarding the policy. However, the fraudulent concealment exception, as interpreted by the Third Circuit, applies only when the defendant actively misleads the plaintiff about the breach. Since PennMont is not a defendant, its lack of response does not impact the statute of limitations.
Regarding Nationwide, the argument that it triggered the exception is also unsupported by precedent. For the exception to apply, there must be evidence of affirmative steps taken by the defendant to hide the breach. Plaintiffs claim Nationwide failed to provide accurate information, but this does not constitute active concealment. They further argue that Nationwide's refusal to share information is indicative of concealment; however, it was bound by the contract not to disclose information to anyone other than the policy owner, which undermines their claim of deceitful conduct. Thus, without evidence of actual concealment or misleading actions by Nationwide, the statute of limitations remains unaltered.
Plaintiffs argue that Nationwide had an affirmative obligation to disclose information about their account due to the circumstances known to it, citing *Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Secs. Inc.*, 93 F.3d 1171 (3d Cir. 1996). However, Plaintiffs fail to allege that Nationwide was a fiduciary under ERISA, as it was neither named as such in the plan nor did it exercise discretionary authority over the management of the plan. Consequently, the precedent does not support a duty for Nationwide to respond to the Plaintiffs' request or indicate any affirmative steps to conceal a breach, undermining the fraudulent concealment argument and leading to the dismissal of their ERISA claims.
Regarding RICO claims, Plaintiffs assert that Nationwide is liable both directly and vicariously. Direct liability claims are dismissed due to insufficient pleading of a "pattern of racketeering activity" under 18 U.S.C. § 1962(c). To establish RICO violations, Plaintiffs must demonstrate an enterprise affecting interstate commerce, association with the enterprise, participation in its affairs, and a pattern of racketeering activity. The statutory definition requires at least two acts of racketeering, including embezzlement. Plaintiffs allege Nationwide committed multiple acts of embezzlement by loaning funds secured by insurance policies. Nationwide counters that these loans could not constitute embezzlement as they were explicitly permitted by the Policy’s terms, arguing that embezzlement requires an unauthorized taking of benefit plan funds. This aligns with legal precedents emphasizing that if actions are authorized by the plan, they cannot be deemed as embezzlement.
Plaintiffs argue that the loans were improperly requested by Jeanne Bonney or the Koresko Law Firm rather than by Community Trust Company (CTC), the trustee and owner of the Policy, claiming the authorization for the loans was invalid. However, this assertion lacks support from the Complaint, which does not substantiate an allegation of "unauthorized taking" by Nationwide. The Complaint confirms that CTC was the trustee as of April 15, 2002, and had executed the necessary agreements that designated Bonney and the Koresko Law Firm as its Appointed Signator and agent, respectively. These agreements authorized CTC to exercise all rights associated with the Policy, including borrowing against it.
The key legal questions include whether the Plan Documents grant CTC the powers it claimed and whether it was permissible for CTC to delegate authority to Bonney and the Koresko Law Firm. If the Plan Documents do confer such powers, and the assignments were valid, then Plaintiffs would have no grounds to argue that Nationwide could refuse the loan requests. Nationwide emphasizes that the Plan Documents state the trustee owns the Policy and retains all associated rights, including the right to request loans, as confirmed by the Policy itself. The Policy explicitly grants the owner the authority to request loans, reinforcing that CTC, as trustee, had extensive control over Policy assets and the ability to request loans secured by the Policy.
Plaintiffs have not provided evidence to suggest that the trust documents lacked the authority granted to the trustee as outlined in the Verifications and Custodial Agreement. Regarding CTC's assignment of agency power, the Policy allows either Insured to assign rights, provided the assignment is in an acceptable written form and recorded at the Home Office. There is no language in the Plan or Policy indicating that designating a "Signator" or agent exceeds the trustee's broad powers. The Complaint, Plan Documents, and Policy collectively demonstrate that CTC, as the Policy owner, possessed extensive authority to take loans, designate agents, and assign rights, contradicting Plaintiffs' claims that loans were not made to CTC and that the authorization was invalid. Consequently, Plaintiffs have not sufficiently alleged that Nationwide engaged in unauthorized taking under 18 U.S.C. § 664, which is essential for establishing the "pattern of racketeering activity" under 18 U.S.C. § 1962(c) and (d); thus, Counts III and IV will be dismissed.
On the issue of vicarious liability, Plaintiffs contend that Nationwide did not challenge their claim of vicarious liability under RICO. Nationwide argues that the Complaint only alleged vicarious liability for Koresko's embezzlement acts, which does not establish liability under RICO. A complaint must adequately inform defendants of the claims against them. Although the Complaint is construed favorably toward the plaintiff, it does not reasonably suggest that Plaintiffs asserted Nationwide's vicarious liability for Koresko's RICO violations. Plaintiffs reference Paragraph 109, which alleges Koresko's violations of 18 U.S.C. § 664 and deceptive practices are attributable to Nationwide under agency principles. However, this paragraph does not allege vicarious liability for RICO violations specifically. Therefore, Plaintiffs failed to plead a basis for vicarious liability under RICO in the Complaint.
Nationwide's Motion to Dismiss is granted in full, while the Plaintiffs' Motion for Partial Summary Judgment is denied in full. The Court considered facts from the Complaint and four additional documents, two of which are the "Plan Documents" and the insurance policy relevant to Plaintiffs James and Mary Corman. Although extraneous documents are typically not considered in a motion to dismiss, undisputedly authentic documents attached by a defendant can be reviewed if integral to the plaintiff's claims, which applies here. The Policy and Plan Documents are deemed integral and thus considered.
The other two documents, referred to as Verifications and Custodial Agreement, are not attached to the Complaint or Motion to Dismiss, limiting the Court's assessment to quoted portions within the Complaint. However, referencing these quotes does not elevate the motion to dismiss to a motion for summary judgment. The Court clarifies that while Plaintiffs filed a Partial Motion for Summary Judgment, it cannot consider the Statements of Undisputed Material Facts and the Joint Appendix because it has already granted Nationwide's Motion to Dismiss.
The Complaint lacks specificity regarding which Koresko-related entity altered Plan information or received the loan from Nationwide. Plaintiffs argue that the question of concealment by a specific defendant remains open, citing a footnote from Davis v. Grusemeyer, which suggests that a third party's actions may not be attributed to named defendants without a special connection. However, subsequent case law, specifically Kurz, firmly states that fraudulent concealment must be directly committed by the defendant itself. The footnote in Davis is deemed dictum, reinforcing that the fraudulent concealment claim fails as a matter of law due to the plaintiffs' inability to demonstrate the necessary elements.
Davis clarifies that certain discussions in the case are not essential to the court's ruling and are non-binding for future cases, as established in In re Friedman's Inc. The Policy explicitly states that all rights belong to the Owner and constitutes a legal contract solely between the Owner and Nationwide, excluding any rights of other parties. Plaintiffs argue that Nationwide had fiduciary control over the Plan's cash value and related information, alleging that: 1) Nationwide did not disburse loan funds to CTC, as it was nonexistent at the loan's issuance; 2) the funds went to the "Single Employer Welfare Plan C O Pennmont Benefit SRVC"; and 3) Nationwide failed to notify CTC or its successor, F. M., about the loan. They claim this indicates discretionary control by Nationwide in improperly issuing a loan to an unrelated party. However, the Plaintiffs have not adequately pleaded these facts in their Complaint, failing to reference specific supportive paragraphs or demonstrate that such facts exist. Additionally, the Complaint indicates that CTC was the trustee during the relevant time frame, contradicting their assertion that it did not exist when the loan was made. The Plaintiffs also suggest that CTC may not have been the true owner of the Policy due to Nationwide allegedly allowing Koresko to alter ownership, but this assertion is not clearly articulated in either the Complaint or the briefing. The Complaint alleges Nationwide's liability for Koresko's actions under respondeat superior and agency theories, but these are merely legal conclusions insufficient to support a claim. Furthermore, the referenced Paragraph discusses the elements of a "predicate act" rather than those of a RICO violation.
