Free Brief in Support of Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-CV-1124-JLK-OES LINDA FORGACS, et al., Plaintiffs, vs. EYE CARE CENTER OF NORTHERN COLORADO, P.C. et al., Defendants.

DEFENDANTS' BRIEF IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AS TO PLAINTIFFS' REMAINING ERISA CLAIMS

Defendants, Eye Care Center of Northern Colorado, P.C. ("Eye Care Center") and Joel Meyers, M.D. ("Meyers;" collectively, the "Moving Defendants"), through their counsel, under Rule 56, F.R.C.P., file the following Brief in Support of their Motion for Summary Judgment as to Plaintiffs' Remaining ERISA Claims. Introduction For their First Claim for Relief, Plaintiffs brought two types of claims under ERISA. Regarding their accounts with Eye Care Center's 401k Plan, claiming breach of fiduciary duty, Plaintiffs seek an accounting, damages and penalties based on late deposits into their 401k Plan accounts in 2003, and damages and penalties based on failing to provide them rollover forms and failing to respond to requests to rollover their 401k accounts. The Moving Defendants have provided Plaintiffs with an accounting of their 401k accounts; so summary judgment should enter as to the accounting relief stated in Plaintiffs'

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Complaint. Summary judgment should enter against Plaintiffs' claim for damages and penalties based on when they received rollover forms or when their accounts were rolled-over because individual beneficiaries may only seek equitable relief under ERISA. Finally, summary judgment should enter against the part of Plaintiffs' ERISA claim seeking damages and penalties based on late deposits into their 401k accounts in 2003 because the Moving Defendants complied with 29 CFR § 2510.3-102, the governing ERISA regulation that states the exclusive remedy when an employer makes late contribution deposits into employees' 401k accounts. Plaintiffs also sought penalties based on not receiving COBRA notices about their alleged right to continue participating in Eye Care Center's Section 125, Flex-spend Plan after they were terminated. The Court's November 8, 2005 Order entered summary judgment motion and dismissed the § 125 penalty claim for all the Plaintiffs other than Plaintiff Rogge ("Rogge") because their ERISA claim was barred by the applicable statute of limitation. The current motion seeks summary judgment on Rogge's ERISA claim based on § 125 because her termination for gross misconduct meant she was not eligible to continue participating in the Section 125, Flex-spend Plan because there was no "qualifying event" under 29 U.S.C. § 1163 requiring a COBRA notice or triggering COBRA rights. I. STANDARD OF REVIEW Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper: if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

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Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Summary judgment is not a "disfavored procedural shortcut;" rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett , 477 U.S. at 327 (quoting Fed.R.Civ.P. 1). The burden of establishing the absence of a triable issue of material fact is on the moving party. Celotex Corp. v. Catrett, 477 U.S. at 323. A material fact is a fact the resolution of which will affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "An issue of material fact is genuine where a reasonable jury could return a verdict for the party opposing summary judgment." Seymore v. Shawver & Sons, Inc., 111 F.3d 794, 797 (10th Cir.1997). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Sanchez v. Denver Pub. Sch., 164 F.3d 527, 531 (10th Cir.1998) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 224 (1986)). If the moving party demonstrates the absence of a genuine issue of material fact, the burden then shifts to the non-moving party to "make a showing sufficient to establish the existence of an essential element to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. at 322. II. Undisputed Material Facts The facts material to the Moving Defendants' summary judgment motion are established as undisputed by: the Complaint and Jury Demand ("Complaint"); the Affidavit of Jay R.

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Holms, ("Holms Affidavit"), Exhibit A to this brief; and the Deposition of Plaintiff Pamela Rogge, Exhibit B to this brief. 1. As the relief claimed under the First Claim for Relief alleging breach of fiduciary

duty under ERISA, Plaintiffs seek "appropriate equitable relief, including injunctive relief directing the Plan Administrator(s) to provide a complete accounting of the [401k] accounts to Plaintiffs and all other participants." 2. The Moving Defendants are the Plan Administrators for the Eye Care Center of

Northern Colorado, P.C. 401k Profit Sharing Plan (the "401k Plan"). Holms' Aff. ¶ 2. 3. The Moving Defendants have provided an accounting of Plaintiffs' 401k accounts

and have produced all records related to each Plaintiff's 401k account relevant to the issues in this action. Specifically, Defendants produced copies of account records for Plaintiffs' 401k accounts through the Eye Care Center 401k Plan for 2003 and as long after 2003 as any Plaintiff had funds in their 401k accounts through that Plan. Defendants also produced copies of Plaintiffs' payroll records for 2003. The payroll records show the amount and date of withholdings for employee contributions into Plaintiffs' 401k accounts. The account records show the date and amount of each deposit into or withdrawal from Plaintiff' 401k accounts. Attached as Exhibit A-1 to Holms' Affidavit are copies of spread sheets Eye Care Center has created for each Plaintiff summarizing the payroll and account record data by showing the date and amount of each employee contribution and each employer contribution in the accounts in 2003. The spread sheets also show the additional payments Eye Care Center made into Plaintiffs' 401k accounts in 2003 under the formula stated in 29 CFR § 2510.3-102 for the late -4-

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deposits of the second quarter contributions. Defendants have also produced a copy of the 2003 federal tax returns for the Plan showing the total amount of deposits into the Plan that year and the total additional amount Eye Care Center paid due to the late deposits of some of the 2003 contributions. Holms' Aff. ¶¶ 3, 4, 5, and Aff. Exh. A-1. 4. Plaintiffs seek "penalty for failure to turn over demanded documents" and

"damages for losses attributed to the breach of this duty." Complaint ¶ 26. Plaintiffs also claim the Moving Defendants' alleged failure to rollover their 401k accounts: "has caused economic harm to Plaintiffs." Complaint ¶ 24. See also Stipulated Scheduling and Discovery Order, § 2.a.1. Plaintiffs' statement of claims. 5. In Section C of their Rule 26(a)(i) Initial Disclosures, Plaintiffs describe the

damages they are seeking based on their 401k accounts as follows: (a) $13,700 for each Plaintiff for not getting rollover "paperwork" they requested. Plaintiffs' Initial Disclosures do not describe any compensatory damages the late deposits into their 401k accounts allegedly caused them. See also Stipulated Scheduling and Discovery Order, § 4.a. Computation of Damages. 6. Regarding the late 401k deposits, Plaintiffs alleged and Defendants admitted there

were late deposits into Plaintiffs 401k accounts. Complaint ¶ 16, Answer ¶ 12. Specifically, the Moving Defendants did not deposit the employee and employer contributions into the 401k accounts for the second quarter of 2003 until September 2003. Holms' Aff. ¶ 6, 7, Aff. Exh. A1. 7. When the Moving Defendants made those contributions, Denver Pension

Consultants, the company that assists them with 401k issues, calculated how much to add to each -5-

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late deposit based on the formulas in 29 CFR § 2510.3-102, and the Moving Defendants caused Eye Care Center to add the additional amounts that regulation specifies to each late deposit. Holms' Aff. ¶ 6, 7, Aff. Exh. A-1. 8. Plaintiffs have rolled-over or withdrawn all of the funds in their 401k accounts

with the Eye Care Center 401k Plan. Holms' Aff. ¶ 9. 9. The accounting disclosed two minimal errors that Eye Care Center is taking steps

to correct. Holms explains in his Affidavit that he discovered small errors in March 2003 while Plaintiff Jones managed payroll and calculated employee contributions. Specifically, for Rogge's March 21, 2003 paycheck, Jones did not cause Rogge's contribution of $5.85 to be withheld (so Eye Care Center also did not do its $5.85 employer match). For Plaintiff Forgacs, for the pay period ending March 15, 2003 (her first severance check), Jones withheld the correct amount for Forgacs' employee contribution, $69.25, but forgot to include that contribution and the employer match of $51.96 in the deposit of contributions for March 2003. Eye Care Center is paying the principal amounts of $11.70 to Rogge and $121.21 to Forgacs, plus the amount of interest or investment income specified by 29 CFR § 2510.3-102. Holms' Aff. ¶ 8. 10. Eye Care Center terminated Rogge for gross misconduct based on its

determination she had falsified her time records for July 7-11, 2003. Rogge claimed she worked 15 hours of overtime that week at home submitting insurance reimbursement claims; however, Eye Care Center's investigation found that she could have performed the subject work in less than two hours. The insurance company billing records showed that only ten claims were submitted that week, only one of which would have been done by Rogge. Even if Rogge -6-

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submitted all ten claims, however, she should have been able to do that work in 80 minutes or less. Holms' Aff. ¶ 10. 11. Rogge testified that admits that it typically took 1½ minutes to 8 minutes to

submit a reimbursement claim to VSP, the carrier she was billing from home. Exh. B. Rogge Dep. at 14: 1 ­ 16: 9, Holms' Aff. ¶ 11. III. Argument A. Plaintiffs have Received an Accounting In their First Claim for Relief alleging ERISA breach of fiduciary duty, Plaintiffs seek: "appropriate equitable relief, including injunctive relief directing the Plan Administrator(s) to provide a complete accounting of the [401k] accounts." Plaintiffs have received a full accounting of their 401k accounts, and Plaintiffs long ago withdrew or rolled-over all of their funds from Eye Care Center's 401k Plan. Therefore, there is no equitable remedy left for Plaintiffs to pursue under ERISA. B. Plaintiffs may Not Seek Damages based on the Plan Administrators' Alleged Breaches of Fiduciary Duty In their First Claim for Relief alleging ERISA breach of fiduciary duty, Plaintiffs seek: "penalty for failure to turn over demanded documents" and "damages for losses attributed to the breach of this duty." Complaint ¶ 26. Plaintiffs also claim the Moving Defendants' alleged failure to rollover their 401k accounts: "has caused economic harm to Plaintiffs." Complaint ¶ 24. The only damages Plaintiffs have disclosed that they claim arose from any breach of duty

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related to their 401k accounts is an identical $13,500 each Plaintiff allegedly suffered because he or she did not get requested rollover paperwork. The Moving Defendants deny they failed to promptly respond to any proper request for forms or to rollover any Plaintiff's 401k account. Even assuming for purposes of summary judgment that the Plaintiffs properly requested forms and to roll-over their accounts and that the Moving Defendants failed to provide forms and failed to promptly rollover the funds in Plaintiffs' 401k accounts, Plaintiffs may seek only equitable relief. As a matter of law, where a plan administrator breaches its fiduciary duties, beneficiaries are limited to equitable relief and may not seek compensatory damages or restitution. Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 212, 122 S.Ct. 708, 714, 151 L.Ed.2d 635 (2002) (restitution, although an equitable remedy, is not available to individual ERISA plan beneficiaries); Mertens v. Hewitt Associates, 508 U.S. 248, 255, 113 S.Ct. 2063, 2068, 124 L.Ed.2d 161 (1993) (money damages are a classic form of legal relief that is not available under 29 U.S.C. § 1132(a)(3) to beneficiaries under ERISA's provision for equitable relief where a plan administrative breaches its fiduciary duty); Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148, 105 S.Ct. 3085, 3093, 87 L.Ed.2d 96 (1985) (by specifying only equitable remedies for beneficiaries, Congress did not intend to permit individual beneficiaries to seek extra-contractual damages caused by improper or untimely processing of benefit claims). Plaintiffs are pursuing their ERISA claims as individual beneficiaries. In Mertens, the Court held that, where a plaintiff:

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brings [an] action as an individual claimant, the potential remedies available to him are necessarily limited to the equitable relief contemplated by 29 U.S.C. § 1132(a)(3). Specifically, such relief does not extend to compensatory or punitive damages. Mertens v. Hewitt Associates, 508 U.S. at 255, 113 S.Ct. 2063; see also Russell, 473 U.S. at 148, 105 S.Ct. 3085. Therefore, Plaintiffs may not seek the $13,500 in damages they claim they each suffered because they did not get requested rollover forms. Plaintiffs also may not pursue any damages based on the claim the Moving Defendants' failed to comply promptly with any rollover request. Thus, summary judgment should enter against Plaintiffs' claim for damages and penalties based on the Moving Defendants' alleged breaches of fiduciary duty related providing forms or rollingover Plaintiffs' 401k accounts. C. 29 CFR § 2510.3-102 Provides Plaintiffs' Exclusive Remedy based on the Late Deposits into their 401k Accounts, and Defendants' Compliance with that Regulation defeats Plaintiffs' Late Deposit Claim 29 CFR § 2510.3-102 requires employers who are late in making contribution deposits into employees' 401k accounts to deposit the full employee and employer contributions plus the greater of : (A) The amount that otherwise would have been earned on the participant contributions from the date on which such contributions were paid to, or withheld by, the employer until such money is transmitted to the plan had such contributions been invested during such period in the investment alternative available under plan which had the highest rate of return; or (B) Interest at a rate equal to the underpayment rate defined in section 6621(a)(2) of the Internal Revenue Code from the date on which such contributions were paid to, or withheld by, the employer until such money is fully restored to the plan.

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In September and October 2003, the Moving Defendants realized they had not made contribution deposits for Eye Care Center's employees, including Plaintiffs, for the second quarter of 2003. Consequently, with the assistance of Denver Pension Consultants, the Moving Defendants, as Plan Administrators of Eye Care Center's 401k Plan, made the contribution deposits. They caused Eye Care Center to deposit the additional amounts required by 29 CFR § 2510.3-102 into each Plaintiff's 401k account. The reports Plaintiffs received for their 401k accounts in 2003 showed these deposits, and the accounting Defendants have provided confirm the dates, amounts and reasons for the deposits into Plaintiffs' 401k accounts, including the dates and amounts of the extra deposits required by ERISA regulation. 29 CFR § 2510.3-102 provides Plaintiffs' exclusive remedy based on the late deposits into their 401k accounts, and Plaintiffs may not seek damages based on the delay in making the deposits. Livers v. Wu, 6 F.Supp.2d 921, 930 (N.D.Ill. 1998) (individual beneficiaries are not entitled to recover compensatory or punitive damages under 29 U.S.C. § 1132(a)(3) or any other subsection of ERISA based on late deposits of their contributions). Therefore, as a matter of law, Plaintiffs may not recover damages or any other relief due to the delay in making deposits into their 401k accounts. Plaintiffs' ERISA claim based on the late deposits should be dismissed on summary judgment. D. Rogge's § 125 Claim should be Dismissed on Summary Judgment because she did not Experience a Qualifying Event that Triggered COBRA Rights

Under 29 U.S.C. § 1163, Qualifying event, termination of employment is a "qualifying event" that triggers the right to receive COBRA notice and to continue participating in a health

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insurance plan or § 125 plan, where the termination is "other than by reason of such employee's gross misconduct." Eye Care Center terminated Rogge for gross misconduct for falsifying her time records. Insurance company records and Rogge's admissions confirm she probably worked no more than eight minutes overtime during a week she claimed she worked 15 hours overtime. Even if she submitted all ten claims, it would not have taken her longer than 80 minutes to do that work. While Eye Care Center paid all of the overtime she claimed, it reasonably concluded she had falsified her time records by at least 13 hours and terminated her. Eye Care Center considered falsifying time records to obtain at least 13 hours of unearned overtime pay to be "gross misconduct." Consequently, it did not provide her with a COBRA notice for the Section 125 Flex-Spend account because there was no "qualifying event" that would trigger COBRA rights or obligations. Collins v. Aggreko, Inc., 884 F.Supp. 450, 453 (D.Utah 1995) (violating employer's alcohol policy by driving while intoxicated and causing an accident was gross misconduct that relieved employer of COBRA obligations); Burke v. American Stores Employee Ben. Plan, 818 F.Supp. 1131, 1136 (N.D.Ill. 1993) (stealing coupons and redeeming them to buy turkeys from employer was gross misconduct); Conery v. Bath Associates, 803 F.Supp. 1388 (N.D.Ind.1992) (misappropriating company funds was gross misconduct). As the court explained in Collins: The beneficiaries are not qualified if the employee has been discharged for gross misconduct. They are not entitled to notice as they are no longer eligible for coverage because there is no qualifying event.

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Collins v. Aggreko, Inc., 884 F.Supp. at 453 (citing Mlsna v. Unitel Communications Inc., 41 F.3d 1124, 1129 (7th Cir.1994)). Since Eye Care Center had no obligation to give Rogge COBRA notice and Rogge was not eligible to continue participating in the Section 125 Flex Spend Plan, her ERISA claim seeking penalties based on § 125 should be dismissed on summary judgment. Conclusion Summary judgment should enter for the Moving Defendants and against Plaintiffs' First Claim for Relief based on their 401k accounts and the Moving Defendants' alleged breaches of fiduciary duty. The undisputed facts and applicable law establish that Plaintiffs have already received their full remedies under ERISA. As a matter of law, Plaintiffs may not seek damages based on their claims regarding rollover forms, the rollover of their accounts or late deposits into their 401k accounts. The Moving Defendants have provided Plaintiffs with an accounting. In 2003, the Moving Defendants complied with 29 CFR § 2510.3-102 by making the required contribution deposits and additional deposits into Plaintiffs' 401k accounts. Rogge's claim based on not receiving COBRA notice about the Section 125 Flex Spend Plan also should be dismissed because her termination for gross misconduct meant Eye Care Center had no obligation to give her COBRA notice and she was not eligible to continue participating in the Section 125 Flex Spend Plan. Therefore, the Court should grant summary judgment on findings that the undisputed facts material to Plaintiffs' remaining ERISA claims and applicable law establish that no remedy

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is available to Plaintiffs for those parts of Plaintiffs' ERISA claim that were not dismissed by the Court's earlier summary judgment order. Dated: December 13, 2005. Respectfully submitted,

By:

s/ John R. Paddock, Jr. John R. Paddock, Jr.

Attorney for Moving Defendants, Eye Care Center of Northern Colorado and Joel S. Meyers, M.D. CERTIFICATE OF SERVICE I certify that on this 13th day of December, 2005, a copy of the foregoing Defendants' Brief in Support of their Motion for Summary Judgment as to Plaintiffs' Remaining ERISA Claims was served by ECF filing on the following: George Price, Esq. 1115 Grant Street, Suite 106 Denver, CO 80203 Fax: 303-484-2421

s/ Mary E. McNichols __________________________________

00272991.WPD; December 13, 2005 (5:30pm)

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