Secretary of Labor v. James Doyle
657 F. App'x 117
| 3rd Cir. | 2016Background
- PITWU Health & Welfare Fund (Fund) was created in 2001 as a multi-employer health plan; Cynthia Holloway was an original trustee and her company EDI was a participating PEO.
- David Weinstein owned Union Privileged Care (initial claims administrator) and two PEOs (PCI and NorthPoint). PCI/NP and Privilege Care Marketing Group (PCMG, run by James Doyle) marketed Fund participation to small employers.
- Employers paid a single check to enroll; Doyle/PCMG converted payments into two checks (Check 1 and Check 2). PCMG retained Check 2 as commissions/fees and remitted Check 1 (partially) to PCI/NP, which forwarded portions to claims administrators and PITWU and retained others. Significant amounts were retained or unaccounted for.
- State insurance commissioners issued cease-and-desist orders finding PCI/NP/PCMG were marketing unauthorized insurance and that CBAs with PITWU were sham collective bargaining.
- The Secretary of Labor sued for breaches of ERISA fiduciary duties. After a bench trial, the district court (on remand from this court) held both Doyle and Holloway liable for diversion of plan assets; this appeal affirms Doyle’s liability and vacates/remands Holloway’s liability scope.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether employer payments (both Check 1 and Check 2) were "plan assets" under ERISA | All employer contributions were plan assets because employers reasonably believed total payments secured Plan benefits. | Only amounts specified in CBAs (payments from PCI/NP to Fund) are plan assets; CBAs control. | Court: Both checks were plan assets — representations to employers and apparent authority made the full contributions plan assets; sham CBAs do not limit analysis. |
| Whether Doyle was a functional fiduciary | Doyle exercised control over employer contributions by setting the two-check system, invoicing, collecting funds, and deciding retention; thus fiduciary duties attached. | Doyle claims no contractual relationship or authority with the Fund and was merely a pass-through/independent marketer. | Court: Doyle was a functional fiduciary (control over disposition of assets) and breached duties of loyalty and prudence by permitting diversion and retaining/allowing retention of funds. |
| Whether Doyle breached fiduciary duties and is liable for diverted funds | Secretary: Doyle knowingly enabled diversion of plan assets and retained/allowed retention of substantial sums. | Doyle: fees were customary/reasonable; insufficient proof he knew Check 1 funds were misused. | Court: Doyle breached; his testimony and role showed knowledge and control; affirm judgment against Doyle. |
| Whether Holloway breached duty of prudence and extent of her liability | Secretary: Holloway ignored red flags and failed to prevent diversion from Fund’s creation; thus liable for all diverted assets. | Holloway: acted prudently given information available; did order claims entry and was not on notice early enough to be liable for all diversions. | Court: Evidence insufficient for liability prior to May 30, 2002; remanded for detailed findings on when she knew or should have known and extent of liability after that date. |
Key Cases Cited
- Sec'y of Labor v. Doyle, 675 F.3d 187 (3d Cir. 2012) (prior opinion vacating judgment and directing further findings on plan assets and fiduciary status)
- Srein v. Frankford Trust Co., 323 F.3d 214 (3d Cir. 2003) (statutory distinction and lower threshold for fiduciary status where control over assets is at stake)
- Pipefitters Local 636 Ins. Fund v. Blue Cross & Blue Shield of Mich., 722 F.3d 861 (6th Cir. 2013) (entity that inserted and retained hidden fees could be a fiduciary)
- VICI Racing, LLC v. T-Mobile USA, Inc., 763 F.3d 273 (3d Cir. 2014) (bench-trial standard of review: factual findings for clear error, legal conclusions de novo)
- Berg Chilling Sys., Inc. v. Hull Corp., 369 F.3d 745 (3d Cir. 2004) (definition of clear error and credibility review)
- Bd. of Trustees of Bricklayers v. Wettlin Assocs., Inc., 237 F.3d 270 (3d Cir. 2001) (treatment of control over cash vs. administration under ERISA)