United States District Court, N.D. Georgia, Atlanta Division
CAROLINAS ELECTRICAL WORKERS RETIREMENT PLAN, et al., Plaintiffs,
ZENITH AMERICAN SOLUTIONS, INC., Defendant and Third-Party Plaintiff,
CLACK & ASSOCIATES, P.C. and AGH, LLC, Third-Party Defendants.
RICHARD W. STORY, District Judge.
This case comes before the Court on Zenith's Motion to Dismiss , AGH's Motion to Dismiss , and Clack's Motion to Dismiss . After reviewing the record, the Court enters the following Order.
This action arises out of Defendant Zenith American Solutions, Inc.'s ("Zenith") alleged breach of fiduciary duty in managing the Carolina Electrical Workers Retirement Plan ("Plan"). Plaintiffs are the Plan and its Trustees.
On November 10, 2004, the Plan contracted with Zenith's predecessor-in-interest, Administrative Services, Inc.,  to serve as a third-party administrator ("TPA") of the Plan. (Compl., Dkt.  ¶ 13.) Zenith's duties as TPA are defined by the 2004 contract. (Id. ¶ 17.) According to Plaintiffs, Zenith's contractual duties relevant to this case were to: "Develop, establish, control and install proper reporting procedures for the collection, verification, deposit, recording and preparation of reports of all payments made to the Trust under the terms of the Collective Bargaining Agreements by an Employee and/or Employer;" "Notify contributing Employers of arithmetical mistakes or use of incorrect contribution rates;" "Maintain statistical data for the Trustees, Auditor and Fund Consultant;" "maintain a Benefit checking account upon which account all Benefit checks will be issued;" "reconcile the Fund's Benefit checking account each month;" and "Processing all applications in accordance with the Plan of Benefits." (Id.; Agreement, Dkt. [1-1] Part III(f)-(h), (k)(4), (8)-(9).) In addition, Zenith undertook to "[a]dvise and assist in the development of the Pension Plan's Rules and Regulations, " as well as to provide "suggestions regarding changes" to Plan documents. (Agreement, Dkt. [1-1] Part III(t)-(u).)
Furthermore, the Agreement provides that Zenith "shall not undertake to act as a fiduciary" and:
will not (a) exercise any discretionary authority or discretionary control respecting the management or administration of the Plan and Trust, or (b) exercise any authority or control with respect to the management or disposition of the assets of the Plan and Trust, or (c) render investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan and Trust.
(Id. Part I.)
The Trustees also engaged Clack & Associates, P.C. to perform accounting and audit services for the Plan. (Compl., Dkt.  ¶ 18.) At a Board of Trustees meeting on May 20, 2004, Zenith employee Theresa Warren recommended that the Trustees convert from a cash-basis accounting method to an accrual-basis accounting method. (Id. ¶¶ 20-21.) Ms. Warren stated that the change would increase the annual interest rate calculation, giving the Plan the appearance of greater financial strength in its annual statements. (Id. ¶ 21.) The Trustees discussed the proposed change, voted to approve the new accounting method, and instructed Zenith to implement the change. (Id. ¶ 24.)
At a regular Board of Trustees meeting on August 26, 2004, Ms. Warren reported that Zenith had sent the Plan's annual statements to Plan participants, and she "explained that the delay in generating those reports was attributable to issues her office faced in reconciling participant accounts given the conversion to accrual basis accounting." (Id. ¶ 25.) The Plan then operated on an accrual basis of accounting for several years. (Id. ¶ 26.)
On June 15, 2011, at another regular meeting of the Trustees, an employee of Clack & Associates "mentioned that an accounting error had been made in the process of converting the Plan's financials over to the accrual basis, and that Defendants had misallocated funds to participants' accounts." (Id.) Until that meeting, the Trustees never knew or suspected "that any accounting error had been made, " and Zenith never updated the Trustees "on the reconciliation of participant accounts after the conversion, nor did they provide the Trustees with the accounting data necessary for the Trustees to independently discover any error." (Id. ¶¶ 27-28.)
As a result of the accounting error, the participants' accounts were over-allocated in excess of the Plan's assets. (Id. ¶ 31.) The Trustees voted to hire a forensic accountant to determine the exact amount of the over-allocation. (Id.) At a March 14, 2012 Board meeting, the Trustees reviewed the forensic accountant's report, which concluded that participant accounts were over-allocated by approximately $2.4 million, with an underfunded liability of approximately $1.4 million resulting from overage payments already made to retirees. (Id. ¶ 33.) At the April 4, 2012 Board meeting, the Trustees instructed Zenith to reconcile the participants' accounts. (Id. ¶ 34.) When Zenith completed the reconciliation, the Trustees instructed it to send a notice to all affected participants asking them to refund benefits that were overpaid; however, no participant agreed to return any payments. (Id. ¶¶ 35-36.)
Plaintiffs brought this action under the Employee Retirement Income Security Act ("ERISA") for breach of fiduciary duty based on the accounting error and self-dealing by recommending the new accounting method out of self-interest rather than the best interests of the Plan. Zenith then filed a Third-Party Complaint  against Clack & Associates and AGH, ...