Opinion
CIVIL ACTION No. 98-2157 SECTION "L"(4).
December 27, 2000.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. PROCEDURAL HISTORY
On June 18, 1998, plaintiff Reliable Home Health Care, Inc. ("Reliable") brought suit in Civil District Court for the Parish of Orleans, Louisiana, against defendants Union Central Insurance Company ("Union Central") and The Glapion Group, Inc. ("Glapion Group"), seeking damages and equitable relief for losses associated with the formation and cancellation of its deferred compensation plan constructed by the Glapion Group for Reliable employees.
Plaintiff supplemented and amended its complaint on May 12, 1999 to include defendants Walter A. Glapion, Jr., Robert "Jody" Sanderson, and on June 17, 1999, The American Automobile Insurance Company. Plaintiff Louis T. Age, Jr. was joined on April 18, 2000.
Defendant Union Central removed the action to this Court, invoking federal question jurisdiction pursuant to Title 28, United States Code, Section 1331, on July 23, 1998. Union Central asserted that this Court has jurisdiction over the suit because plaintiffs state law claims are preempted by Title 29, United States Code, Section 101, et. seq., the Employee Retirement Income Security Act of 1974 ("ERISA"). On August 21, 1998, Reliable moved to remand its suit back to state court, but this Court held that ERISA applied to plaintiffs deferred compensation plan and that removal was proper.
This case came on for trial before the Court without a jury. The trial commenced on May 22, 2000. Defendant Union Central did not participate, having settled its dispute with Reliable prior to trial.
The Court, having carefully considered the deposition testimony of all the witnesses, the exhibits, the record, and pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, hereby enters the following findings of fact and conclusions of law. To the extent that any finding of fact constitutes a conclusion of law, the Court hereby adopts it as such, and to the extent that any conclusion of law constitutes, in whole or in part, a finding of fact, the Court adopts it as such.
II.
FINDINGS OF FACT
(1)
Reliable Home Health Care, Inc. ("Reliable") is a home health care agency that provides home health care services such as nursing and rehabilitation to Medicare beneficiaries in the metropolitan area of New Orleans, Louisiana. Louis T. Age, Jr. is the administrator and chief executive officer of Reliable, and Vema S. Age is its sole shareholder.(2)
Reliable is compensated for its Medicare services through interim payments and annual reimbursement from the Health Care Financing Administration ("HCFA"), an agency of the United States Department of Health and Human Services. HCFA administers its Medicare program through regional "Intermediaries" who oversee Medicare funded organizations. From 1992 to 1996, Blue Cross/Blue Shield of New Mexico served as Intermediary for the regioff including Louisiana and delegated its audit authority over home health care agencies to David M. Fiedler.
(3)
HCFA reimbursed Reliable annually for its costs and services subject to a cost cap. Each year, Reliable prepares a cost report detailing its reasonable costs for which it could be reimbursed. The Intermediary then reviews the cost report and issues a Notice of Program Reimbursement ("NPR"). The NPR finalizes a cost report and indicates whether the Medicare provider owes money to Medicare for exceeding the cost cap or whether Medicare owes money to the provider for accruing costs below the cost cap. From 1992 to 1994, Reliable submitted reimbursable costs below the cost cap, and from 1995 through 1997 submitted costs that exceeded the cost cap. Reliable's cost reports are considered final and cannot be reexamined three years following the issuance of a NPR barring any fraud or misrepresentation.
(4)
In 1992, Louis T. Age, Jr., a former insurance agent for Union Central, contacted his former colleagues Walter A. Glapion, Jr. and Robert "Jody" Sanderson of the Glapion Group, Inc. to create a deferred compensation plan for Reliable's executive employees. Age requested a plan with a combination of term life insurance and a savings component, similar to a Medicare approved plan developed by Maggio Onorato Associates ("MOA plan").
(5)
In November 1992, Age executed a document entitled "Trust Agreement for Reliable Home Health Care, Inc." This plan designated Union Central as the insurance provider and contained only a whole life insurance funding mechanism known as "LFP 100" for which Age received a commission. The plan did not contain a savings component from 1992 to 1993 despite its terms and Age's request.
(6)
In February, 1993, Fiedler, serving as Reliable's Medicare Intermediary, denied approval of the Trust Agreement for its failure to conform to Medicare regulations. The Glapion Group then hired attorney Mary White to draft a new plan prototype to replace the Trust Agreement. The funding mechanism was changed from a whole life plan to a mixed life and savings plan. In March, 1994, Fiedler approved the Glapion prototype, and Charles R. Booth, Director of the Office of Payment Policy of the Bureau of Policy Development of HCFA confirmed approval of the plan in August 1994.
(7)
There is dispute as to whether a Reliable plan was ever created and approved. The credible evidence demonstrates that the Medicare approved plan consisted of the prototype plan, the plan description, and the participation agreements. Moreover, the Fiedler and Booth letters show acceptance of the plan by Medicare pursuant to its regulations. Reliable also presumed that a plan existed because they sought reimbursements from Medicare for its costs and these reimbursements can no longer be subject to review. The Court finds that a plan in fact existed because of the weight of the credible evidence and the actions of the parties.
(8)
The new and approved Reliable plan substituted Selectex limited pay whole life insurance policies for LFP 100 whole life policies. The Selectex policies pay dividends of 28% of paid premiums to match the anticipated tax liability of an employee's deferred compensation and also to generate cash values.
(9)
Reliable paid premiums for the plan to Union Central from 1992 until 1994 totaling nearly $250,000. In 1995, Reliable ceased making payments to Union Central at the direction of Sanderson who discovered accounting errors with Union Central. In September, 1997, Union Central engaged the automatic premium loan ("APL") provision of Reliable's contract. This provision deducted the cost of unpaid premiums from the accrued cash build up in Reliable's policies. Union Central continued to provide life insurance coverage to Reliable participants until it completely terminated the plan in May, 1997. At that time, the cash values were completely consumed. The credible evidence demonstrates that the total amount of cash surrender value accrued by Reliable as of the date Union Central activated the APL provision equaled $58,075.87.
(10)
Prior to trial, Reliable settled its claims against Union Central for $165,000.
III. CONCLUSIONS OF LAW (1)
The Court has jurisdiction over this matter pursuant to Title 28, United States Code, Section 1331.
(2)
The Reliable Plan is a deferred compensation plan governed by ERISA. It "is intended to be a welfare benefit plan that provides a Death Benefit or a Separation Benefit to each participant." Def.'s Ex. 1, Tab 12. ERISA defines an employee welfare benefit plan as any plan that provides "its participants or their beneficiaries, through the purchase of insurance or otherwise . . . benefits in the event of sickness, accident, disability, death or unemployment." 29 U.S.C. § 1002 (1). Moreover, ERISA covers a pension plan that "results in a deferral of income by employees for periods extending to the termination of covered employment or beyond." Id. § 1002(2)(A). Therefore, the Reliable Plan is governed by the provisions of ERISA.
(3)
Glapion is a fiduciary under ERISA responsible for operating and administering Reliable's plan. A party is classified as an ERISA fiduciary to the extent that:
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, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.Id. § 1002 (21)(A). The credible evidence demonstrates that Glapion exercised discretionary authority over managing the plan and rendered investment advice to Reliable concerning its plan. Glapion developed, operated, and modified all aspects of the Reliable plan. Therefore, Glapion owed a duty to Reliable as a fiduciary.
(4)
As a fiduciary, Glapion owed a duty to Reliable to act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims." 29 U.S.C. § 1 104(1)(B).
(5)
Reliable maintains that Glapion purchased whole life insurance instead of a mixed product of savings and insurance in order to provide deferred compensation and in doing so breached its fiduciary duty by providing an invalid mechanism for the plan. The credible evidence demonstrates that Selectex, the product obtained by Reliable, is a vaild funding vehicle for the Reliable plan. Selectex received approval by HCFA as illustrated by the Fiedler and Booth letters. Reliable also received reimbursements for the costs of the funding vehicle. Moreover, even if Selectex was not a valid funding vehicle at the time it was implemented, the parties assumed it to be so. Because no evidence of fraud was presented, Reliable's cost reports cannot be reexamined and therefore the status of Selectex as a proper funding vehicle for the Reliable plan cannot be reconsidered by HCFA. Therefore, Selectex is a valid funding vehicle, and Glapion did not breach its duty to Reliable in providing Selectex in the Reliable plan.
(6)
Selectex had two components: life insurance and savings. Reliable received benefit for the life insurance. It did not receive benefit for the savings component.
Reliable did not receive any money for the savings component when the policy was terminated in 1997 by Union Central because the APL provisions depleted all the cash build up values in the policies. Although Glapion had advised Reliable in 1994 to cease payments to Union Central, Union Central began depleting Reliable's accrued cash surrender values without its knowledge.
(7)
Although there was no break in providing the Selectex policy, there was a breach of duty in administering the program. Glapion breached its fiduciary duty to Reliable either by negligently failing to advise Reliable of the loss of its cash surrender values or by negligently failing to cease the relationship with Union Central prior to the depletion of Reliable's accrued cash surrender values. Prudence dictates that Glapion should have advised Reliable that it was losing the cash surrender value in its policies or Glapion should have acted to recover these amounts. Because of Glapion's negligence, Reliable lost $58,075.87, the total cash surrender value it had accrued as of the date Union Central activated the APL provisions of the policies and commenced deducting unpaid premiums. See Herman Aff. Ex. 9.
(8)
Reliable is entitled to damages "to make good. . . to [the] plan any losses to the plan" resulting from a breach of fiduciary duty. Harold Ives Trucking Co. v. Spradley Coker, Inc., 178 F.3d 523, 527 (8th Cir. 1999) (quoting 29 U.S.C. § 1109 (a)). Reliable may also be entitled to restitution to restore profits to the plan that would otherwise have been realized or to obtain any other equitable relief the Court deems appropriate. See Mertens v. Hewitt Assoc., 508 U.S. 248, 252 (1993). Because Reliable lost $58,075.87 in cash surrender values, it is entitled to recover this amount in damages. There is no evidence to indicate that this amount would have either increased or decreased through additional investment. It is therefore inappropriate for the Court to speculate a higher value of damages simply because Reliable may have realized greater returns from investing its cash surrender values.
(9)
Reliable, however, may not receive damages in excess of the actual losses incurred by the plan. ERISA contemplates equitable recoveries and not monetary gains. See id. When an ERISA plaintiff has been made whole by a settlement with another defendant, the Court must offset any damage award by the settlement amount in order to prevent a double recovery of damages. See Mira v. Nuclear Measurements Corp., 107 F.3d 466, 473 (7th Cir. 1997); Montgomery v. Aetna Plywood, Inc., 39 F. Supp.2d 915, 939 (N.D. 111. 1998) (deducting amount received in settlement from one group of defendants from damages awarded against other group of defendants). To hold otherwise would give the plaintiffs a windfall in the form of double recovery because . . . the plaintiffs (and the plan) have already been made whole. Therefore, the Court must offset the $58,075.87 in damages incurred by Reliable and the plan by the $165,000 settlement amount between Reliable and Union Central. Because the losses suffered by Reliable have been fully compensated by its settlement with Union Central, Reliable is not entitled to recover damages from Glapion.
IV. SUMMARY
On the basis of the foregoing findings of fact and conclusions of law, the Court finds that the defendant, Glapion Group, is liable to the plaintiff, Reliable Home Health Care, Inc., for failing to advise Reliable of the loss of its cash surrender values and/or negligently failing to cease the relationship with Union Central prior to the depletion of Reliable's accrued cash surrender values. As a result of Glapion's breach, Reliable lost its accrued cash surrender values totaling $58,075.87 and is entitled to recover this amount in damages to be made whole. Reliable, however, has already been made whole for losses to the plan by its settlement with Union Central in advance of trial. Therefore, Reliable may not receive further damages from Glapion and obtain a double recovery windfall.
This is the judgment of the Court.