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Perez v. Eye Centers of Tennessee, LLC

United States District Court, M.D. Tennessee, Nashville Division

November 10, 2016

THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Secretary,
v.
EYE CENTERS OF TENNESSEE, LLC; LARRY E. PATTERSON, M.D., an individual; RAYMOND K. MAYS, an individual; and the EYE CENTERS OF TENNESSEE 401 k PROFIT SHARING PLAN; Defendants.

          MEMORANDUM

          KEVIN H. SHARP UNITED STATES DISTRICT JUDGE.

         This action arises under the Employee Retirement Income Security Act of 1975 (“ERISA”), 29 U.S.C §§ 1104 and 1106. The Secretary Thomas E. Perez, Secretary of Labor for the United States Department of Labor (“Secretary”) brings this action against Eye Centers of Tennessee (“ECOTN”), Larry E. Patterson, M.D. (“Patterson”), Raymond K. Mays (“Mays”), and the Eye Centers of Tennessee 401(k) Profit Sharing Plan (“the Plan”) (collectively, Defendants) for ERISA violations. Secretary filed a Partial Motion for Summary Judgment, to which Defendants responded in opposition, and Secretary replied. This Court will grant Secretary's Motion.

         BACKGROUND

         The Secretary asserts, and Defendants do not dispute, that the following parties and/or entities are “parties in interest.” This is important because ERISA prohibits certain transactions involving “parties in interest.” ECOTN is an ophthalmology practice based in Crossville, Tennessee with offices in other locations. Patterson is the majority owner of ECOTN and Mays is the Office Administrator who “runs everything that has to do with the business side of the practice.” (Docket No. 52-4 at 19). “The Plan” is an employee benefit plan within the meaning §3(3) of ERISA, 29 U.S.C. §1002(3), and is subject to coverage under ERISA pursuant to §4(a), 29 U.S.C. §1003(a). ECOTN is the Plan sponsor and Employer.

         The Plan is a contribution based pension plan that permits discretionary profit sharing contributions to be made by ECOTN. The named fiduciaries of the Plan are ECOTN, Patterson, and Mays who are also “part[ies] in interest” (Docket No. 53-1 at 4-5) to the Plan within the meaning of ERISA §3(14)(A) and (C), 29 U.S.C. §1002(14)(A) and (C). Patterson and Mays also serve as the Plan trustees.

         Defendants had access to ECOTN's and the Plan's records including Mays who had discretion to manage the Plan's assets. The Plan allowed participants, through payroll deductions, to contribute a portion of their paycheck to the Plan. Employee contributions are (or were) deducted from compensation each bi-weekly pay period. While it is disputed how often Mays had knowledge of when employee contributions were remitted to the Plan (i.e. “during all relevant times” or not) (Docket No. 53-1 at 6), it is undisputed that he was aware that remittances occurred. Additionally, the Plan's Safe Harbor Nonelective Contribution Plan requires that ECOTN make payments to the Plan no later than the date it filed its tax returns for the year in which the contributions occurred. The parties dispute whether ECOTN paid its employer safe harbor contributions in 2007 through 2012.

         It is undisputed that Plan assets were transferred to Maple Leaf Developments, LLC (“MLD”) and that Mays and Patterson are (or were) the majority owners of MLD, a “party in interest” to the Plan (Docket No. 53-1 at 8) within the meaning of ERISA § 3(14)(G), 29 U.S.C. §1002(14)(G). Between February 5, 2007 until August 17, 2012, “Mays transferred Plan assets totaling $782, 250 to MLD by writing checks from the Plan account and depositing each check into MLD's account by authorizing the check with his signature.” (Docket No. 52-1 at 10; Docket No. 53-1 at 9). “Mays and Patterson did not document the Plan's ownership interest in property owned by MLD.” (Docket No. 53-1 at 11). The parties dispute whether Mays and Patterson restored the money transferred to MLD or the lost opportunity costs to the Plan.

         Mays and Patterson also transferred assets totaling $50, 000 from the Plan to ECOTN without “document[ing] loan terms, secur[ing] a promissory note, requir[ing] collateral, or document[ing] a repayment schedule” (Docket No. 53-1 at 12) in an attempt to use Plan funds to pay for operations. Accountants for Defendants even credited particular payments made from ECOTN to the Plan toward the $50, 000 transfer in an apparent attempt to benefit Defendants. The parties dispute the Plan's lost opportunity costs arising from this transfer.

         Mays, undisputedly, is (or was) the majority owner of Park Street Properties, LLC (“PSP”), which is also a “party in interest” to the Plan. (Docket No. 53-1 at 13). Between January 28, 2005 and June 19, 2012, Mays made payments from the Plan totaling $344, 225.39 to PSP. Mays authorized each check with his signature. The parties dispute whether these payments were for the sole advantage of PSP or to reimburse expenses incurred for the benefit of the Plan properties. The Secretary asserts that Defendants “did not provide evidence demonstrating that PSP has or ever had employees, nor did they produce receipts or invoices for the payments that the Plan made to PSP.” (Docket No. 53-1 at 15). The parties dispute whether Mays and Patterson restored this money withdrawn from the Plan's account or the lost opportunity costs to the Plan associated with this withdrawal.

         From January 2, 2008 through December 31, 2010, Charles Daren Mays (“Daren Mays”), brother of Mays, was an employee of ECOTN and a participant in the Plan. It is undisputed that, during this time, he was a “party in interest” (Docket No. 53-1 at 17). Daren Mays owned “Upper Cumberland Building Consultants, LLC” (“UCBC”). Id. The Plan used UCBC services to improve its properties while Daren Mays was an employee of ECOTN. It is undisputed that Mays acted for the Plan in hiring his brother Daren Mays. Id. From March 14, 2008 to November 10, 2010 Mays caused the Plan, by writing and signing checks, to pay UCBC $17, 077.24. At times, Mays and Patterson paid UCBC directly from the PSP account. The Secretary also asserts that some of the invoices for UCBC services “did not have a description of the services for the corresponding charge.” (Docket No. 53-1 at 19).

         In October 2006, the Plan purchased commercial property known as “the Lantana Road Property” for $285, 000. Prior to purchasing this property, Mays discussed with Patterson that the Mays family would rent it to operate a gym. From around January 2008 to the present date, the Plan has rented the Lantana Road Property, which is 8, 563 square feet, to The Pit Barbell Club (“The Pit”), a workout facility, for $5, 000 a year. Mays acted on behalf of The Pit “in entering [this] lease agreement” (Docket No. 53-1 at 21). “[He also] has signatory authority on The Pit's checking account, writes all of the checks associated with The Pit's business, endorses the checks, and deposits them in the Plan's accounts, makes rental payments to the Plan, and signs tax return documents as President of the Pit.” (Docket No. 53-1 at 21). It is undisputed that Kiersten Mays, wife of Mays and also a “party in interest” owns all of the outstanding shares of The Pit. Id. The Pit made only one payment to the Plan in 2008 for $1, 200 and made no other payments again until 2010 when it paid $6, 000. The next payment was made in February 2013 for $5, 000 and then in 2014 it paid $11, 750, 00 and again in 2015 paid $5, 000, totaling $28, 950 to the Plan compared with the $45, 000 to the Plan it should have paid at a lease rate of $5, 000 annually since January 2008. No late penalties were collected from The Pit; no delinquent rent requests were made; and the Trustees never attempted to evict The Pit during the years it did not make payments. Rather, the Plan paid mortgage payments of $31, 422.96, annually, on the Lantana Road Property. The Pit's lease rate of $5, 000 per year was around one-sixth of the Plan's $2, 618.58 monthly mortgage payment on the Lantana Road Property.

         In December 2009, Lucretia Medlin (“Medlin”), a former ECOTN employee and Plan participant, requested Mays stop her employee contributions from her paychecks to the Plan. In October 2012, she “requested a distribution from the Plan in the form of a rollover of her assets to another plan sponsored by her new employer.” (Docket No. 53-1 at 26). After not receiving it, she complained to the Employee Benefits Security Administration (“EBSA”) in January 2013. She later received her distribution in February 2013.

         LEGAL STANDARD

         Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “Once a moving party has met its burden of production, ‘its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.'” Blizzard v. Marion Tech. Coll., 698 F.3d 275, 282 (6th Cir. 2012) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). “Reviewing the facts in the light most favorable to the nonmoving party, the court must ultimately determine whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Blizzard, 698 F.3d at 282 (internal citations and quotations omitted). The movant “must show that the record contains evidence satisfying the burden of persuasion and that the evidence is so powerful that no reasonable jury would be free to disbelieve it.” Arnett v. Myers, 281 F.3d ...


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