646 F. App'x 230
3rd Cir.2016Background
- This appeal arises from the Secretary of Labor’s 2009 enforcement action under ERISA against John J. Koresko, V and related entities for breaches of fiduciary duty involving a multi-employer death-benefit program administered through the REAL VEBA Trust and the SEWBPT.
- REAL was an unincorporated association of employers; participating employers executed adoption agreements adopting a Plan Document and Master Trust Agreement; PennMont (Koresko president/CEO) administered plans.
- The District Court (1) granted partial summary judgment to the Secretary as to three plans (Aug. 3, 2012), (2) removed Koresko and appointed a temporary independent fiduciary (Sept. 16, 2013), (3) after a bench trial found ERISA breaches and at least 419 employer-level plans covered by ERISA (Feb. 6, 2015), and (4) entered judgment removing fiduciaries and ordering restitution/disgorgement (Mar. 13, 2015); denial of new trial (May 13, 2015).
- Core legal disputes on appeal: whether master-trust assets are “plan assets” of employer-level ERISA plans; validity of a 2009 amendment eliminating non-owner employees; whether Koresko could obtain advancement of defense costs from plan assets; and the proper scope of equitable relief/damages (disgorgement/restoration).
- The Third Circuit affirmed the District Court on the contested rulings but dismissed for lack of jurisdiction Koresko’s appeal of a subsequent order appointing a permanent independent fiduciary and requiring Koresko to pay its costs (Aug. 4, 2015).
Issues
| Issue | Plaintiff's Argument (Secretary) | Defendant's Argument (Koresko) | Held |
|---|---|---|---|
| Are the master-trust assets "plan assets" of the employer-level ERISA plans? | Trust corpus is held for exclusive benefit of participating employees; employer-level plans have a beneficial/undivided interest so trust assets are plan assets. | Trustee has legal title; plans have no ownership interest in trust assets so assets are not plan assets. | Held: Trust assets are plan assets because employer-level plans (and participants) have a beneficial interest under ordinary property/trust principles and CFR §2510.3–101(h)(2). |
| Was the 2009 amendment eliminating non-owner employees valid to remove ERISA coverage? | Amendment attempted to remove non-owner employees and thus avoid ERISA; argued properly executed. | The amendment was invalid because it conflicted with plan amendment procedures and anti-discrimination provisions; sponsor lacked authority. | Held: Invalid — not executed by authorized actor(s) and conflicted with Plan Document’s anti‑discrimination/amendment rules. |
| Could Koresko obtain advancement of defense costs from plan assets under indemnification provisions? | Indemnification clause in Master Trust permits advancement of legal fees unless conclusively determined to arise from fiduciary negligence/willful breach. | Advancement from plan assets is permitted by plan documents. | Held: Denied — plan-funded advancement would impermissibly indemnify a fiduciary in violation of 29 U.S.C. §1110 and DOL interpretive guidance; plan assets cannot be used to advance a fiduciary’s defense. |
| Are restoration/disgorgement remedies appropriate for depletion/profits taken from the trusts? | Secretary: fiduciary must make good losses and disgorge profits to plans under 29 U.S.C. §1109; restitution/disgorgement appropriate even if direct plan payments to beneficiaries remain possible. | Koresko: relief should only restore participants to the position they would have been in absent the breach; argues plans suffered no damages requiring full restoration of trust depletion. | Held: Affirmed — §1109 authorizes making good losses and disgorgement; fiduciary cannot retain profits from use of plan assets even if beneficiaries could be paid otherwise. |
Key Cases Cited
- Sec’y of Labor v. Doyle, 675 F.3d 187 (3d Cir. 2012) (adopts property‑rights approach to identify ERISA plan assets)
- Mertens v. Hewitt Associates, 508 U.S. 248 (U.S. 1993) (ERISA’s functional fiduciary definition and duties)
- Curtiss‑Wright Corp. v. Schoonejongen, 514 U.S. 73 (U.S. 1995) (plan amendments must follow written plan procedures)
- Varity Corp. v. Howe, 516 U.S. 489 (U.S. 1996) (scope of fiduciary responsibilities and administrative acts)
- Edmonson v. Lincoln Nat’l Life Ins. Co., 725 F.3d 406 (3d Cir. 2013) (broad construction of ERISA fiduciary duties; fiduciary loyalty bars profit even without plan loss)