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Hilda L. Solis, Secretary of Labor v. Bruce Hartmann

August 31, 2012


The opinion of the court was delivered by: Judge James B. Zagel



Plaintiff Hilda L. Solis, Secretary of Labor, United States Department of Labor ("Secretary") filed a four-count complaint against Defendants Bruce Hartmann and Terry Hartmann, alleging that under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq.,Defendants breached their fiduciary responsibilities to the participants and beneficiaries of the Mid-States Express, Inc. 401(k) Plan ("401(k) Plan"), and that Defendant Bruce Hartmann breached his fiduciary responsibilities to the participants and beneficiaries of the Mid-States Express Employee Benefit Plan ("Benefit Plan"). The four counts are as follows:

(1) Failure to remit employee contributions to the 401(k) Plan in a timely manner.

(2) Failure to remit employee contributions to the Benefit Plan for insured benefit(s).

(3) Failure to use employee contributions to the Benefit Plan to pay health claims during the period that the Benefit Plan's medical coverage was self-insured.

(4) Misrepresentation of and failure to disclose the Benefit Plan's Funding Status.

Plaintiff now moves for partial summary judgment on all four counts. For the following reasons the motion for summary judgment is GRANTED on all four counts.


Summary judgment should be granted when "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." Fed.R.Civ.P. 56(c). The facts presented are to be construed in a light most favorable to the nonmoving party. Smith v. City of Chicago, 242 F.3d 737, 742 (7th Cir. 2001). Once the moving party has set forth the basis for summary judgment, the burden then shifts to the nonmoving party who must go beyond mere allegations and offer specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323--324 (1986).


A. Local Rule 56.1 and the Secretary's Statement of Facts

Pursuant to Local Rule 56.1 of the Northern District of Illinois, a party moving for summary judgment must present a statement of undisputed material facts consisting of "short numbered paragraphs, including within each paragraph specific references to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth in that paragraph." N.D. Ill. L.R. 56.1(a). A party opposing a motion for summary judgment must then present a response to the movant's statement consisting of "a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon." N.D. Ill. L.R. 56.1(b)(3)(B). Furthermore, "[a]ll material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party." N.D. Ill. L.R. 56.1(b)(3)(C); Metro. Life Ins. Co. v. Johnson, 297 F.3d 558, 562 (7th Cir. 2002). It is within my discretion to strictly enforce this rule. See Metro. Life,297 F.3d at 562 ("[W]e have emphasized the importance of local rules and have consistently and repeatedly upheld a district court's discretion to require strict compliance with its local rules governing summary judgment.") (internal citations omitted).

In this case, because Defendants failed to comply with Local Rule 56.1, the Secretary's Statement of Material Facts is deemed admitted. While Defendants attempted to respond to each of the numbered paragraphs of the Secretary's statement of facts, they ultimately made statements for which they did not provide supporting evidence and failed to specifically reference or point to any parts of the record or other supporting materials they relied upon.*fn1 Generally, a simple denial of an opponent's argument is insufficient to defeat a motion for summary judgment. See Butts v. Aurora Health Care, Inc., 387 F.3d 921, 924 (7th Cir. 2004) ("The mere existence of an alleged factual dispute will not defeat a summary judgment motion; instead, the non-movant must present definite, competent evidence in rebuttal."). That Defendants are both proceeding pro se does not excuse their failure to comply because the Secretary, as required by Local Rule 56.2 and Timms v. Frank, 953 F.2d 281 (7th Cir. 1992), served Defendants with a notice to pro se litigants that adopted the language set forth in Local Rule 56.2 and provided Defendants with information about the nature of a summary judgment motion, how to defeat such a motion, and the consequences of not complying with the provisions of Federal Rule of Civil Procedure 56(c) and Local Rule 56.1.

Furthermore, with respect to affidavits or declarations, Federal Rule 56(c) provides: "An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." See Fed. R. Civ. P. 56(c)(4). Such affidavits or declarations are not admissible unless they are subscribed in proper form as true under penalty of perjury. 28 U.S.C. § 1746. A court must not consider parts of an affidavit that fail to comply with Rule 56(c). Cooper-Schut v. Visteon Auto. Sys., 361 F.3d 421, 429 (7th Cir. 2004). See also Collins v. Seeman, 462 F.3d 757, 760 n. 1 (7th Cir. 2006) (concluding that unsworn statements do not satisfy the requirements of Federal Rule 56(c) and that it was proper for the district court to disregard the content of such statements in its summary judgment decision).

Here, in an attempt to dispute their status as fiduciaries, Defendants submitted three declarations by Bradford Hartmann, Steven Hartmann, and David Yarbrough. However, these three individuals failed to provide a basis to conclude that their statements represent personal knowledge, particularly with respect to the relationship between Mid-States Express and Amcore Bank. Furthermore, while Bradford Hartmann's affidavit/declaration was prescribed in proper form, Steven Hartmann and David Yarbrough's statements were not. See 28 U.S.C. § 1746. Thus, because these three statements would not meet the standards of admissibility under Rule 56(c), I am disregarding them in my determination of the Secretary's motion for summary judgment.

Thus, while Defendants attempted to cast doubt on their fiduciary status, they did not present adequate evidence to dispute the Secretary's statement of facts. Because Defendants failed to file the response required by Local Rule 56.1(b), I deem the Secretary's statement of facts, which is properly supported by evidence, admitted in its entirety. See also Ewell v. Dobucki, 224 F.3d. 638, 639 (7th Cir. 2000) (reasoning that since the non-movant chose not to contest the moving party's statement of undisputed facts, the Seventh Circuit would accept the statement as undisputed, as the district court did). Thus, the facts as stated by the Secretary in support of the government's motion for partial summary judgment are hereby expressly incorporated.

B. Fiduciary Status under ERISA

The undisputed facts show that both Terry Hartmann and Bruce Hartmann were fiduciaries to the 401(k) Plan within the meaning of ERISA § 3(21)(A) and that Bruce Hartmann was a fiduciary of the Benefit Plan within the meaning of ERISA § 3(21)(A). As fiduciaries, Defendants were subject to the general fiduciary provisions of § 404 and the prohibited transaction provisions of § 406. As an initial matter, it is also undisputed that the 401(k) Plan and Benefit Plan are ERISA-Covered Employee Benefit Plans.

With respect to fiduciary status, § 3(21)(A) provides in relevant part: a person is a fiduciary with respect to a plan to the extent

(i) 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.

29 U.S.C. § 1002(21)(A). The Department of Labor has elaborated, explaining that "a plan administrator or a trustee of a plan must, by the very nature of his position, have 'discretionary authority or discretionary responsibility in the administration' of the plan within the meaning of section 3(21)(A)(iii) of the Act. Persons who hold such positions will therefore be fiduciaries."

29 C.F.R. § 2509.75--8.

Additionally, Congress meant for "fiduciary" to be broadly construed to include functional fiduciaries beyond those formally designated as plan administrators.*fn2 This "liberal

1. Fiduciaries of the 401(k) Plan-Terry Hartmann and Bruce Hartmann First, with respect to the 401(k) Plan, I find no genuine dispute as to the status of Terry and Bruce Hartmann as fiduciaries of the 401(k) Plan through March 2009. Defendants admitted that at all relevant times, Mid-States sponsored the 401(k) Plan, for which Terry Hartmann and Bruce Hartmann served as named Trustees. See Secretary's Statement of Material Facts at ¶ 5. Additionally, Defendants admitted that the 401(k) Plan's governing documents required Terry Hartmann and Bruce Hartmann, as Trustees, to "receive, hold, invest, administer and distribute the Trust Fund as provided in this Plan . . . " Id. at ¶ 6. As part of these duties, the Trustees were responsible for making sure that employee contributions were remitted to the 401(k) Plan in a timely manner. Id. Thus, given Bruce and Terry Hartmann's discretionary authority over the management and administration of the 401(k) Plan as named Trustees, I find that they qualify as ERISA fiduciaries.

2. Fiduciary of the Benefit Plan-Bruce Hartmann

Second, with respect to the Benefit Plan, I also find no genuine dispute as to Bruce Hartmann's status as a fiduciary of the Benefit Plan because he exercised discretionary authority over both the administration of the Benefit Plan and the management of the Benefit Plan's assets between November 1, 2006 and March 27, 2009. While ERISA in § 3 defines "fiduciary," it does not define the term "plan assets," which appears throughout the statute. See 29 U.S.C. § 1002. However, the Department of Labor defined "plan assets" with respect to participant contributions to welfare benefit plans as:

(a) . . . amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer, for contribution or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets. . . .

(c) . . . in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

29 C.F.R. § 2510.3--102. Pursuant to this regulation, therefore, the monies withheld from employee wages for contribution to insured benefits under the Benefit Plan were plan assets as of the 90th day following the day the monies were deducted. See also United States v. Whiting, 471 F.3d 792, 799 (7th Cir. 2006) (holding that unremitted employee contributions, including employee contributions withheld from employee paychecks that had not been delivered to their intended benefit plans, could be plan assets under ERISA).*fn3

Additionally, as Mid-States' Chief Financial Officer, Bruce Hartmann was a signatory on all Mid-States corporate bank accounts, where all employee contributions to the Benefit Plan were held. See Secretary at ¶ 29. His approval was required for any action or payment on Mid-States' expenses, including (1) the payment of insurance premiums to carriers providing benefits to the participants and beneficiaries of the Benefit Plan; (2) the decision to pay adjudicated health claims while medical coverage under the Benefit Plan was self-insured;*fn4 and (3) the decision of when to pay specific participant health claims. Id. at ¶¶ 30-31. Thus, because Bruce Hartmann exercised discretionary authority over the assets of the Benefit Plan retained in the Mid-States' bank accounts, he is a fiduciary of the Benefit Plan under ERISA.

A. Counts 1 through 4

ERISA is a comprehensive remedial statute designed to promote and protect the interests of participants and their beneficiaries in employee benefit plans. Nachman Corp. v. Pension Ben. Guar. Corp., 446 U.S. 359, 361, 100 S. Ct. 1723, 1726, 64 L. Ed. 2d 354 (1980). Specifically, Congress' chief concern was the misuse and mismanagement of plan assets by plan fiduciaries. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142, 105 S. Ct. 3085, 3089, n.8, 87 L. Ed. 2d 96 (1985). Thus, Congress passed ERISA to ensure the equitable character and financial soundness of employee benefit plans "by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C. § 1001(b).

Based on the undisputed facts, the Secretary's motion for partial summary judgment is proper on all four counts. I ...

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