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Perez v. Leiter

United States District Court, C.D. Illinois, Peoria Division

May 16, 2018

THOMAS E. PEREZ, Plaintiff,
v.
THOMAS E. LEITER, et al., Defendants.

          ORDER

          James E. Shadid, Chief U.S. District Judge.

         Before the Court are the Plaintiff's Motion for Partial Summary Judgment (D. 18)[1] and Supporting Memorandum thereto (D. 19), the Defendants' Response (D. 27), and the Plaintiff's Reply (D. 28). For the reasons stated, infra, the Plaintiff's Motion for Partial Summary Judgment is GRANTED in part, DENIED in part, and the Court RESERVES RULING in part.

         Background

         The Plaintiff, Thomas E. Perez, the Secretary of the United States Department of Labor, [2]brought this action pursuant to Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001, et seq., ERISA § 502(a)(2) and (5), 29 U.S.C. § 1132(a)(2) and (5). (D. 1). The Secretary seeks to enjoin the Defendants, Thomas E. Leiter and The Leiter Group Attorneys and Counselors Professional Corporation (“The Leiter Group”), from “acts and practices which violate the provisions of Title I of ERISA, to obtain appropriate equitable relief for breaches of fiduciary duty under ERISA § 409, 29 U.S.C. § 1109, and to obtain such further equitable relief” as appropriate to redress and enforce the provisions of Title I of ERISA. Id. at pg. 1. The Plan at issue-a defined contribution profit sharing plan governed by ERISA- is also a named Defendant, pursuant to Federal Rule of Civil Procedure 19(a), to ensure complete relief can be granted. The undisputed facts demonstrate the following:

         The Leiter Group is an Illinois professional corporation providing legal services. Leiter is the president, secretary, and sole owner of The Leiter Group. The Leiter Group established the Plan, restating it in 2009 under an adoption agreement. Leiter signed the adoption agreement as a representative of The Leiter Group and as the Plan's appointed trustee. The Leiter Group has been the only administrator of the Plan during its existence, making Leiter the sole fiduciary of the Plan. Leiter made all of the investment decisions for the Plan. Leiter concedes that he had the discretion to agree to the terms of all of the loans discussed below, as the discretionary trustee of the Plan.

         On August 12, 1998, Leiter created the Main-Flora Land Trust (“Main-Flora Trust”) and appointed himself as trustee. (D. 19-7 at pg. 2). He had 100% of the beneficial interest in the trust. Id. The Main-Flora Trust's only asset is a commercial building located at 427 Main Street, Peoria, Illinois. On January 1, 2010, Leiter assigned his wife, Barbara K. Leiter, 50% of his beneficial interest in the Main-Flora Trust. (D. 19-8 at pg. 2).

         On April 8, 2002, Leiter created Beacon Properties, LLC (“Beacon”), a Florida limited liability company, to develop, own, and sell real estate. Leiter is the managing member and president of Beacon, receiving 100% of its profits. Beacon's sole asset is a 50% interest in Hacienda del Mar, LLC (“HDM”), another Florida limited liability company. Leiter is the president and manager of HDM, receiving 100% of its profits. Beacon's and HDM's principal offices are both located at 309-A Main Street, Peoria, Illinois.

         At all times relevant to this action, Leiter valued the Plan's investments at their book value. (D. 19-3 at pg. 48). He does not believe he ever considered valuing the investments in any other manner. Id. at pg. 50. Leiter admitted, however, that he knew it was possible to calculate the value of investments by including their increase and/or loss in value. Id. at pp. 50-52.

         A. Main-Flora Trust Loans

         On January 10, 2010, at the direction of Leiter, the Plan made a $122, 000.00 loan to the Main-Flora Trust, which was accidentally recorded as going to the Apollo Building Trust. (D. 19-13 at pg. 2); (D. 19-14 at pg. 2). Under the terms of the Apollo loan, Leiter agreed that the Main-Flora Trust would pay the Plan the principal sum at an annual percentage rate of four percent interest, payable by January 10, 2013. (D. 19-13 at pg. 2). By 2011, the Main-Flora Trust paid the Plan $4, 480.00 in interest and $2, 120.00 toward the principal, resulting in a principal loan balance of $119, 880.00. (D. 19-14 at pg. 2).

         Leiter executed another promissory note to the Plan, loaning the Main-Flora Trust $119, 880.00 on January 1, 2011. (D. 19-15 at pg. 2). He agreed that the Main-Flora Trust would pay the Plan the principal sum, along with an annual percentage rate of four percent interest, this time payable by January 1, 2014. Id. On January 1, 2014, Leiter loaned the Main-Flora Trust $134, 265.60 from the Plan. (D. 19-16 at pg. 2). The 2014 Main-Flora Trust loan represented his calculation of the unpaid principal and interest rolled over from the 2011 Main-Flora Trust loan. (D. 19 at pg. 9); (D. 27 at pg. 3). Once again, he agreed that the Main-Flora Trust would pay the Plan the principal sum with an annual percentage rate of four percent interest. (D. 19-16 at pg. 2). Leiter further promised an annual principal payment of $5, 000.00. Id. The entire balance was due in full by January 1, 2017. Under the terms of the 2014 Main-Flora Trust loan, if the Main-Flora Trust defaulted on a scheduled payment, the Plan had the option to collect the entire unpaid balance, along with accrued interest, immediately. (D. 19-16 at pg. 2). Leiter admits that he chose the interest rate because it was beneficial to the Main-Flora Trust and that he did not consult with any banks to determine what current competitive interest rates were. (D. 19 at pg. 10); (D. 27 at pg. 3).

         On January 1, 2017, after the filing of the instant suit, Leiter executed another promissory note from the Main-Flora Trust to the Plan. (D. 19-17 at pg. 2). This loan was for $233, 855.00 and was an explicit renewal of the 2011 Main-Flora Trust loan, including “accrued interest and advances[.]” Id. Leiter agreed that the Main-Flora Trust would pay the Plan an annual percentage rate of four percent interest, along with a lump sum payment upon maturity by January 1, 2020.

         B. Beacon Loans

         On December 31, 2007, Leiter directed the Plan to loan Beacon $60, 000.00 at an annual percentage interest rate of eight percent. (D. 19-18 at pg. 2). All principal and interest was due on December 31, 2010 and the loan balance could be paid early without penalty. Id. Leiter was the only person with authority to enter into agreements on behalf of Beacon. (D. 19 at pg. 11); (D. 27 at pg. 3). He testified that he paid the Plan, on behalf of Beacon, an interest payment of $4, 800.00. (D. 19-3 at pg. 30).

         On January 1, 2010, Leiter had the Plan loan Beacon $60, 000.00 at an annual percentage interest rate of six percent. (D. 19-19 at pg. 2). Like the 2007 Beacon loan, all principal and interest was due exactly three years later (on January 1, 2013) and the loan balance could be paid off early without penalty. Id. Leiter testified that his decision to lower the interest rate on the 2010 Beacon loan was based on “market conditions.” (D. 19-3 at pg. 34). He never demanded payment for the 2010 Beacon loan on behalf of the Plan. (D. 19 at pg. 12); (D. 27 at pg. 3).

         On January 1, 2013, Leiter rolled the 2010 Beacon loan into another loan. (D. 19-20). The 2013 Beacon loan from the Plan was for $70, 800.00 and had an annual percentage interest rate of four percent. Id. at pg. 2. The principal balance represented the balance and accrued interest from the 2010 Beacon loan, and was due, along with its accrued interest, by January 1, 2016 with no penalty for early payment. Id.; (D. 19-3 at pg. 36). Leiter based his decision to lower the interest rate on “current market conditions.” (D. 19-20 at pg. 37). Beacon did not pay the loan by January 1, 2016 and the Plan did not request that Beacon pay the balance it was owed. Id. at pg. 38.

         C. HDM Loans

         Beacon created a limited liability corporation called the Beacon Properties Florida Waterfront Residential Fund I (“Fund”) to invest in an HDM project (“Project”). (D. 19-21 at pg. 4). HDM's Project was a real estate condominium development in Placida, Florida. Id. HDM owned the Project and Beacon developed it. Id. The Fund planned to “invest in 20% Preferred Equity Investment Units issued by” HDM and Beacon, which were to be paid for “from distributable cash from earnings of the Project in preference to returns to the members of” HDM and Beacon. Id. The Fund had approximately ten members, one of which was the Plan. (D. 19-3 at pg. 40). Each of the Investment Units were “designed to pay a return of 20% annually on the invested capital payable as a preferred distribution from” HDM. (D. 19-22 at pg. 2). The Fund ...


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