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Feds sue Chimes for ERISA violations; nonprofit denies allegations

Baltimore-based Chimes International Ltd. breached its fiduciary duty as overseer of its employee health plan, which became a cash cow for the plan’s administrators and an inappropriate source of donations to the organization, the federal government alleges in a lawsuit.

Lawyers for Chimes International Ltd. say in court filings that the federal government’s allegations that the nonprofit failed to monitor its employee health plan’s administration and expenses while paying millions of dollars in excessive expenses are ‘wholly lacking in specificity.’ (Courtesy of Chimes)

Lawyers for Chimes International Ltd. say in court filings that the federal government’s allegations that the nonprofit failed to monitor its employee health plan’s administration and expenses while paying millions of dollars in excessive expenses are ‘wholly lacking in specificity.’ (Courtesy of Chimes)

Despite receiving annual financial reports, Chimes and senior executives failed to “prudently and loyally” monitor the plan’s administration and expenses since 2008 even as the plan “paid millions of dollars in excessive expenses” run up by its corporate representative and third-party administrator, the U.S. Department of Labor states in the lawsuit, filed in U.S. District Court in Baltimore.

Chimes, a nonprofit that provides job training to the disabled, denies the allegations against the organization; its outgoing president, Martin Lampner; and former Chief Operating Officer Albert Bussone, who retired in 2014. Attorneys for the defendants have strongly denied government’s allegations and have urged the court to dismiss the case.

Levi Rabinowitz, a Chimes spokesman, said Friday afternoon that neither Chimes management nor its counsel would comment on the litigation “at this stage.”

The case before U.S. District Judge Richard D. Bennett is proceeding as Chimes is preparing for an Aug. 1 change in chief executive officers, from Lampner to Terence Blackwell, who worked with Services for the Underserved in New York.

Lampner has been with the nonprofit for 28 years and president since July 2010.

Bennett has not set a date for ruling on the dismissal motion.

Meanwhile, the Labor Department stands firm in its allegations.

“Based on these [financial] reports, the Chimes defendants knew or should have known that the plan’s expenses were excessive for a plan of its size and nature, but failed to take adequate steps to reduce expenses by searching for alternate providers,” the department stated in amended complaint, filed June 7. “From at least 2008 through the present, the plan has spent millions of dollars more than would be reasonable for a partially self-funded plan of this size and nature.”

While inattentive to these expenses, Lampner and Bussone solicited more than $680,000 in donations to Chimes’ charitable foundation from the plan’s representative, Benefits Consulting Group, and third-party administrator, FCE Benefit Administrators Inc., the department added in alleging Chimes and the executives violated duties under the federal Employee Retirement Income Security Act.

Son hired

The lawsuit also claims Lampner “solicited” FCE to hire his son in 2010, a time when Lampner was negotiating FCE’s fees and recommending that the contract with the administrator be renewed.

“By the conduct alleged in this complaint, the Chimes defendants received benefits, in the form of FCE’s payments to the Chimes Foundation and FCE’s employment of Martin Lampner’s child, in connection with the plan’s retention of FCE, and thus failed to loyally discharge their fiduciary duties [under ERISA]; failed to prudently discharge their fiduciary duties, in violation of ERISA … and dealt with assets of the plan in their own interest or for their own account” in violation of ERISA, the Labor Department alleges.

Attorneys for Chimes, Lampner and Bussone counter in the dismissal motion that the allegations are “wholly lacking in specificity.” Quoting from a 2009 Supreme Court case, the lawyers called the complaint “a textbook example of ‘threadbare recitals of a cause of action, supported by mere conclusory statements.’”

Specifically, the dismissal motion claims neither Chimes International nor Lampner nor Bussone owed a duty under ERISA because the plan was, by its origin and terms, to be monitored not by them but by a legally separate entity, Chimes District of Columbia Inc.

In addition, the department’s complaint “vaguely” contends the plan received unreasonably excessive fees “but notably missing from the complaint are any allegations of what would have constituted a reasonable fee, much less any supporting facts involving comparisons, benchmarks, or standards against which the fees should (or could) have been measured,” stated the lawyers, Harold M. Walter and Howard K. Kurman, of Offit Kurman P.A. in Baltimore.

“These are exactly the kinds of bare assertions that other courts have found failed to meet the federal pleading requirements,” they added. “Here, the DOL’s excessive fee claim floats completely untethered to any plausible factual support and … should be dismissed.”

‘Difficult to fathom’

In addition, Lampner and Bussone were well within their authority as officers of the charitable foundation to seek donations from the plan administrator and representative without violating ERISA, the lawyers wrote.

“The DOL does not assert that the donations were used for anything other than charitable purposes or that the Chimes Foundation specifically allocated or earmarked the donations for Mr. Lampner, Mr. Bussone, Chimes DC, or Chimes International, or even that Mr. Lampner or Mr. Bussone received any compensation or bonus tied to the donations,” the dismissal motion stated. “In fact, the relevant facts – which both contradict and trump [the department’s] generalized allegations – show that the funds were not to be directed toward the Chimes defendants, but were to be used for capital projects that will not only improve services, but enhance the quality of life for individuals with disabilities.”

The lawyers also dispute Lampner’s alleged impropriety in inquiring about a job for his adult child with FCE, saying that Chimes’ president did not control the governance committee that retained FCE as plan administrator.

“Simply put, the DOL’s claim that the hiring was unlawful is difficult to fathom,” Walter and Kurman wrote.

The department seeks a court ordering requiring the Chimes defendants to restore losses caused to the plan and account for and disgorge all profits received as a result of ERISA violations

The case is Thomas E. Perez, Secretary of Labor v. Chimes International Ltd. et al., No. 15-cv-3315-RDB.