Fadi Chaaban v. Mario Criscito , 468 F. App'x 156 ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-2096
_____________
DR. FADI CHAABAN; DR. SABINO R. TORRE;
DR. CONSTANTINOS A. COSTEAS;
DR. ANTHONY J. CASELLA,
as Trustees of Diagnostics & Clinical Cardiology, P.A. Profit Sharing Plan
v.
DR. MARIO A. CRISCITO,
Appellant
______
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 2:08-cv-01567)
District Judge: Honorable Garrett E. Brown, Jr.
______
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
March 6, 2012
Before: SCIRICA, AMBRO, and VAN ANTWERPEN, Circuit Judges
(Filed: March 7, 2012)
______
OPINION OF THE COURT
______
VAN ANTWERPEN, Circuit Judge.
The current Trustees of the Diagnostics & Clinical Cardiology, P.A. Profit Sharing
Plan (the “Plan”) filed suit alleging that Dr. Mario Criscito (“Criscito”), the trustee of the
Plan until 2007, violated the fiduciary duties he owed to the Plan participants under the
Employee Retirement Income Security Act (“ERISA”). The District Court granted the
Trustees’ motion for summary judgment, denied Criscito’s motion for summary
judgment, and awarded the Trustees $4,117,464.65. Criscito appeals the decision. We
will affirm the District Court. 1
I.
We write only for the parties and assume their familiarity with the factual and
procedural history of this case. Accordingly, we will state only those facts essential to
resolving this dispute. Criscito formed the Plan for Diagnostics & Clinical Cardiology
(“DCC”) in 1975, and served as its trustee from its inception until 2007. This position
imposed fiduciary duties on Criscito in his management of the Plan. See Eric D. Chason,
Redressing All ERISA Fiduciary Duties Under § 409(a), 83 TEMP. L. REV. 147, 150
(2011) (“ERISA creates a fiduciary relationship with respect to any ‘employee benefit
plan’ or simply ‘plan,’ which provides either ‘pension’ or ‘welfare’ benefits.”).
The suit filed by the Trustees focuses on a sale of stock by Criscito in January of
2000, when he was the Plan’s trustee. At that time, the Plan consisted of two types of
1
We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291, to the extent it is a
final decision of the District Court. See section II.C infra discussing failure to seek
District Court review of Magistrate Judge’s order.
2
accounts. The first was a commingled account where assets were held in a single account
with each participant owning a portion of the account’s assets. The second was an
individual account, which participants owned in the entirety. The two large commingled
accounts that are the focus of this suit were the “Morgan Stanley Account” and the
“Smith Barney Account.” In January 2000 Criscito decided to do away with the
commingled accounts in favor of creating individual accounts for each participant.
Before the commingled accounts were split into individual accounts, Criscito sold
the stock in the Morgan Stanley Account near the peak of the “tech bubble” in January of
2000. The assets in the Account were worth $12,952,936.42 at the end of 1999, 2 but
Criscito reported to the third-party administrator, American Pension Corporation
(“APC”), that the balance of the account was $4,017,942.57. 3 (Compare Appendix
(“App.”). at 74 (statement showing balance in Morgan Stanley Account of
$12,952,936.42) with App. at 82 (Criscito fax to APC stating balance of Morgan Stanley
Account was $4,017,942.57) and App. at 658–66 (APC’s 1999 year-end report reflecting
2
The 1998 year-end statement for the Morgan Stanley Account shows a value of
$2,355,460.58. App. at 72. In 1999, however, the price of “Veritas Software” stock
increased drastically, from $59 15/16 on December 31, 1998, to $143 1/8 on December
31, 1999. Throughout this period purchases were made, increasing the number of shares
in the Account from 7,875 at the end of 1998 to 67,125 at the end of 1999. Compare
App. at 72 with App. at 74. This stock was subsequently sold between January 5 and 12,
2000, at prices ranging from a high of $140 3/8 to a low of $110 3/8. App. at 80.
Although other assets were in the Account, this stock accounted for a majority of the
value in the Account.
3
Criscito owned roughly 88% of the two commingled accounts, so a large portion of the
roughly $8.9 million that he understated belonged to himself. Criscito also understated
the value of the Smith Barney account by about $3.1 million. Compare App. at 83 and
App. at 1129 (1999 year-end value of $3,924,549.92) with App. at 82 (report to APC that
1999 year-end value was $798,425.50).
3
this information)). Criscito’s mendacious reports understated the value of each
individual’s portion of the Morgan Stanley Account, and so the participants received
smaller transfers into their individual accounts when the transition occurred.
Criscito was able to do this because he exercised complete control over the Plan
and its accounts. He instructed both APC and Morgan Stanley employees that they were
not permitted to speak to anyone other himself, and requested that all information be sent
only to his home address. App. at 676–82. This even included a threat by Criscito that
he would go to APC and “beat” an APC employee if any information regarding the Plan
went to the DCC office or to Casella. 4 App. at 679. When Criscito provided APC with
the year-end numbers, he did so either verbally or by providing documents which he
created. App. at 533 & 674. He did not provide copies of statements from the accounts.
APC used the inaccurate information it was given by Criscito to prepare the Form 5500
for the Plan, and Criscito signed these forms and submitted them to the IRS. Criscito
proceeded to use the balance of the Morgan Stanley Account for personal transactions.
These transactions are detailed at length in the Trustee’s brief, pages 17–25, and included
withdrawals that Criscito admits were for personal use, as well as transfers to other
accounts in Criscito’s name, trusts, real estate investments, and resorts in South Florida.
Criscito succeeded in concealing his actions. For example, Mark Brown, DCC’s
administrator, requested information regarding his balance in the commingled account in
1999. Representatives from both APC and Morgan Stanley informed Brown that they
4
The employee did not believe he was being physically threatened; rather he was under
the impression that if the information went to DCC or Casella, APC would be fired. App.
at 639–40.
4
could not release information to him; only Criscito could access the information Brown
was seeking. App. at 688–90. When Brown sought the information from Criscito, he
was told “Don’t ask Mario. You’re fine. Uncle Mario is taking care of you,” before
being given a balance on a napkin. App. at 689. The degree of Criscito’s control is also
shown by the fact that the new Trustees did not discover his fraudulent actions in dealing
with the Morgan Stanley Account until he was removed as the Plan’s trustee in 2007.
Criscito provided no documentation to the new Trustees and only after analyzing and
piecing together the information APC had on file were the new Trustees able to discover
Criscito’s fraudulent scheme. During this review by the Trustees, it was also discovered
that APC received a copy of a March 2000 statement from Morgan Stanley that disclosed
the full value of the account. APC possessed this statement but never opened it or
discovered the discrepancy.
Criscito states that he did not deprive the participants of their funds; rather, he kept
them invested in the Smith Barney Account even while he was transferring monies from
that Account. (Appellant’s Br. at p.9.) This directly conflicts, however, with the lawsuit
he has filed in New Jersey state court asserting full ownership of the assets of the
Account. App. at 1385 ¶50; 1386 ¶55; 1390 ¶13.
The District Court found no genuine issues of material fact regarding the Trustees’
suit, granted their motion for summary judgment, and awarded them damages. It also
denied Criscito’s motion for summary judgment. Criscito timely appealed.
II.
5
On appeal, Criscito argues that the District Court erred: (1) in denying his motion
to dismiss as well as his motion for summary judgment on the grounds of the statute of
limitations; (2) in granting summary judgment to the Trustees; (3) in failing to allow him
to implead APC as a third-party defendant; and (4) in its calculation of compensatory
damages. We reject Criscito’s arguments, and will affirm.
A.
We review the District Court’s denial of Criscito’s motion to dismiss and motion
for summary judgment de novo and apply the same standard as that Court. Meditz v. City
of Newark, 658 F.3d 364, 369 (3d Cir. 2011). A motion to dismiss is granted if the
complaint fails to state a claim upon which relief may be granted; failing to satisfy the
statute of limitations is one such ground. Fed.R.Civ.P. 12(b)(6); Robinson v. Johnson,
313 F.3d 128, 135 (3d Cir. 2002). When reviewing a motion to dismiss, we accept all
allegations in the complaint as true and view them in the light most favorable to the
plaintiff. Summary judgment is granted only “where the movant shows that 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). We must “view the underlying facts and all reasonable
inferences therefrom in the light most favorable to the” Trustees, since they are the party
opposing the motion. Pa. Coal Ass’n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995)
ERISA has a statute of limitations for bringing actions against fiduciaries. 29
U.S.C. § 1113. 5 “This section [] creates a general six year statute of limitations,
5
29 U.S.C. § 1113 reads:
6
shortened to three years in cases where the plaintiff has actual knowledge of the breach,
and potentially extended to six years from the date of discovery in cases involving fraud
or concealment.” Ranke v. Sanofi-Synthelabo Inc., 436 F.3d 197, 201 (3d Cir. 2006).
The “fraud or concealment” exception is the focus here. This exception aims to
“codify a portion of the common law for ERISA breach of fiduciary duty claims.” In re
Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 242 F.3d 497, 502 (3d Cir. 2001)
(“Unisys III”) “The issue raised by this provision is not simply whether the alleged
breach involved some kind of fraud but rather whether the fiduciary took steps to hide its
breach so that the statute should not begin to run until the breach is discovered.” Id.Simply alleging a “complaint [that] ‘sounds in concealment’” is insufficient; a plaintiff
must show “evidence that the defendant took affirmative steps to hide its breach of
fiduciary duty.” Kurz v. Philadelphia Elec. Co., 96 F.3d 1544, 1552 (3d Cir. 1996).
The Trustees’ complaint alleges that Criscito misreported the value of the Plan’s
assets in order to misappropriate these assets for his own use on or about January 13,
2000. The Trustees state that they did not discover these actions until July 2007, when
No action may be commenced under this subchapter with respect to a
fiduciary's breach of any responsibility, duty, or obligation under this part,
or with respect to a violation of this part, after the earlier of—
(1) six years after (A) the date of the last action which constituted a part of
the breach or violation, or (B) in the case of an omission the latest date on
which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual
knowledge of the breach or violation;
except that in the case of fraud or concealment, such action may be
commenced not later than six years after the date of discovery of such
breach or violation.
7
Criscito was removed from his position as trustee of the plan and they took over as
trustees.
Based upon the following undisputed material facts, we conclude that Criscito’s
actions constitute “fraudulent concealment.” When the Trustees removed Criscito as
trustee of the Plan, he provided them with no documentation of his activities for the thirty
years he was the trustee. The new Trustees were forced to consult the files of APC and
other sources in order to piece together the financial transactions taken by Criscito. It
was only at this point that it became clear that Criscito had submitted false information to
APC regarding the division of the Morgan Stanley Account. 6 This fraud is made plain by
the fact that Criscito signed the Forms 5500 for the Plan, containing the false information
he provided to APC, and submitted them to the IRS.
While this fraud was occurring, Criscito insisted that APC send all information
regarding the Plans only to his home address. He instructed APC employees that they
were not permitted to speak to anyone other than himself about the Plans, and multiple
documents from the APC file confirm these instructions. App. at 676–82. Criscito
succeeded in hiding his actions, as they went undiscovered until 2007.
The incident with Brown is illustrative of the effects of Criscito’s control of the
information pertaining to the value of the Plan’s assets. Had Brown been provided the
true value of his portion of the Morgan Stanley Account when he asked for it in 1999, he
would have known of Criscito’s deception when his individual account was set up and
6
As mentioned earlier, Criscito either verbally submitted the numbers, or provided
documents which he created. He did not provide APC with the actual statements
showing the balances in the various accounts.
8
contained a smaller balance than he had previously been told. This incident is indicative
of the affirmative acts Criscito took to hide the full value of the commingled accounts.
He alone could access the information, and with this power he provided erroneous
balances to the individuals with interests in the commingled accounts, like Brown. This,
in turn, allowed Criscito to understate the 1999 year-end balance 7 and distribute smaller
balances to the plan participants than they were entitled to.
Criscito’s broad response is that he did not actively conceal any information from
the Trustees, nor did he take any fraudulent actions while he was trustee of the accounts.
More narrowly, he states that APC possessed the true values of the brokerage accounts as
of March 2000, which it received directly from Morgan Stanley, 8 and failed to cross-
check the figures on the brokerage accounts with the figures Criscito earlier provided to
APC. Because APC possessed the real values that showed discrepancies, Criscito
contends he cannot be considered to have actively concealed his actions. Further,
Criscito argues that the Trustees did not exercise due diligence regarding their
investments. Instead they “willfully blind[ed] themselves to the truth and [now] claim to
have been defrauded.”
Criscito’s attempt to shift the blame for his actions to APC and the Trustees is
unavailing. The record makes clear that Criscito (1) fraudulently misreported the account
7
Since APC relied upon the asset values provided in the 1999 Form 5500 to calculate the
value of the Forms 5500 from 2000 to 2005, this misrepresentation affected many
documents.
8
This disclosure was inadvertent, as Criscito informed Morgan Stanley that no
information was to be sent directly to APC or anyone else. Again, Criscito demanded
that only he have access to the information. App. at 690.
9
balance of the commingled account at the end of 1999, (2) transferred monies from the
commingled account to the individual accounts that did not represent each individual’s
full interest in the commingled account, and (3) exerted such control over the activities
and information of the Plan that he was able to hide his fraudulent actions for years. As a
result, the “fraud or concealment” exception in § 1113 applies in this case and the
Trustees complaint was not barred by the statute of limitations. The decisions by the
District Court to deny Criscito’s motion to dismiss, as well as his motion for summary
judgment, were proper and will be affirmed.
B.
We now turn to Criscito’s claim that the District Court erred in granting the
Trustees’ motion for summary judgment. Under 29 U.S.C. § 1132(a)(2) and 29 U.S.C. §
1109(a), the Trustees may file a civil action for damages. Section 1109(a) states that
“[a]ny person who is a fiduciary with respect to a plan who breaches any of the
responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall
be personally liable to make good to such plan any losses to the plan resulting from each
such breach.” We have previously distilled these sections and stated the elements of such
a claim are “(1) a plan fiduciary (2) breaches an ERISA-imposed duty (3) causing a loss
to the plan.” Leckey v. Stefano, 501 F.3d 212, 225–26 (3d Cir. 2007). 9
9
The relevant ERISA duties are set forth in 29 U.S.C. § 1104(a)(1)(B) (“a fiduciary shall
discharge his duties with respect to a plan solely in the interest of the participants and
beneficiaries . . . with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like aims . . . .”) and
10
It is clear that Criscito was a plan fiduciary. Despite protestations by Criscito, it is
also clear the Trustees have demonstrated that the absence of a genuine dispute regarding
whether Criscito breached his ERISA-imposed duty or caused a loss to the plan. As
discussed above, the facts demonstrate that Criscito violated the fiduciary duties he owed
to the Plan’s beneficiaries by fraudulently reporting inaccurate account balances to APC
and the beneficiaries, improperly distributing the Plan’s assets, and using the assets for
his personal benefit. These fraudulent actions resulted in a loss when the Plan
participants received an amount smaller than their proportionate shares in the Morgan
Stanley Account. The Trustees satisfied their burden of demonstrating no genuine
disputes as to the material facts regarding this claim, and on these facts they are entitled
to judgment as a matter of law.
C.
Criscito argues that the District Court abused its discretion in failing to grant him
leave to file a third-party complaint against APC. The Trustees reply that because the
decision was made by Magistrate Judge Arleo and Criscito did not ask the District Judge
to review the decision, Magistrate Judge Arleo’s order is final. Continental Cas. Co. v.
Dominick D’Andrea, Inc., 150 F.3d 245, 250 (3d Cir. 1998) (“As a general rule, we do
not consider on appeal issues that were not raised before the district court in the absence
of exceptional circumstances.”). In his reply brief, Criscito concedes that “[t]he
§ 1106(b)(1) (“A fiduciary with respect to a plan shall not . . . deal with the assets of the
plan in his own interest or for his own account . . . .”).
11
[Trustees] are correct from a procedural standpoint.” Accordingly, we will not address
the issue.
D.
We now turn to Criscito’s claim regarding prejudgment interest. We have held
awarding prejudgment interest furthers the remedial purposes of ERISA. Anthuis v. Colt
Indus. Operating Corp., 971 F.2d 999, 1010 (3d Cir. 1992). We review the District
Court’s computation of damages and the interest on those damages for abuse of
discretion. Skretvedt v. E.I. Dupont de Nemours, 372 F.3d 193, 205–06 (3d Cir. 2004)
(applying to ERISA “the long-standing rule that, in the absence of an explicit statutory
command otherwise, district courts have broad discretion to award prejudgment interest
on a judgment obtained pursuant to a federal statute”); see also Jones v. UNUM Life Ins.
Co. of Am., 223 F.3d 130, 139 (2d Cir. 2000) (“In a suit to enforce a right under ERISA,
the question of whether or not to award prejudgment interest is ordinarily left to the
discretion of the district court. . . . Since prejudgment interest is an element of the
plaintiff’s complete compensation, the same considerations that inform the court’s
decision whether or not to award interest at all should inform the court’s choice of
interest rate.” (internal quotations and citations omitted)).
ERISA fiduciaries who breach the duties imposed upon them are
personally liable to make good to such plan any losses to the plan resulting
from each such breach, and to restore to such plan any profits of such
fiduciary which have been made through use of assets of the plan by the
fiduciary, and shall be subject to such other equitable or remedial relief as
the court may deem appropriate . . . .
29 U.S.C. § 1109(a).
12
Here, the District Court calculated the principal removed from the plan by Criscito
to be $1,681,572.65. App. at 1433. The Court added $2,418,292 in interest and $17,600
in clerical costs. Id. The amount of interest was calculated using the Voluntary
Fiduciary Correction Program Online Calculator (“VFCP calculator”) provided by the
Department of Labor. DEP’T OF LABOR, Voluntary Fiduciary Correction Program
Online Calculator with Instructions, Examples and Manual Calculations,
http://www.dol.gov/ebsa/calculator/. The VFCP calculator is approved by the
Department of Labor and uses rates calculated by the Internal Revenue Service to
determine the “Lost Earnings” of ERISA plan beneficiaries. Voluntary Fiduciary
Correction Program Under the Employee Retirement Income Security Act of 1974, 71
Fed. Reg. 20262, 20272 (proposed Apr. 19, 2006). The “Lost Earnings” amount “is
intended to approximate the amount that would have been earned by the plan on the
Principal Amount, but for the Breach.” Id. at 20271, § 5(b)(5).
Criscito attacks the damage award on several grounds. First, he argues that the
District Court erred in assuming that he “stole” roughly $1.68 million from the
commingled accounts. We have already stated above, in the context of the parties’
motions for summary judgment, that the Trustees have shown there is no genuine dispute
regarding whether Criscito fraudulently took money that belonged to other investors in
the Plan. Given this finding, as well as our review of the evidence submitted by the
parties, we agree with the District Court’s calculation of the amount of principal that
Criscito did not transfer into the individual accounts of the Plan participants.
13
Criscito’s second line of attack focuses on the Smith Barney Account. He asserts
that the Smith Barney Account belongs to the Plan and that the value of it reflects
amounts that still belong to the Plan participants. But, Criscito has asserted in New
Jersey state court that he is the rightful owner of the Smith Barney Account, which
contradicts his argument in this case. App. at 1385 ¶50; 1386 ¶55; 1390 ¶13. The
Trustees below stated that it was “crystal clear that no Plan participant other than Criscito
had an interest in the Smith Barney Account after December 31, 1999.” Because there is
no evidence that others possessed an interest in the Smith Barney Account, it cannot be
used to reduce Criscito’s liability.
Finally, Criscito argues it was inappropriate for the District Court to use the VFCP
calculator because it was “designed to provide a ‘safe harbor’ whereby a fiduciary may
voluntarily remedy a breach of fiduciary duty, and thereby avoid civil or criminal
liability.” He points to the regulations promulgated by the Department of Labor
regarding the purpose of the program, and the amount to be restored for participant-
directed accounts. Adoption of Voluntary Fiduciary Correction Program, 67 Fed. Reg.
15066 (March 28, 2002) (“The VFC Program is structured to make the plan whole
without the need for investigation and suit and the costs attendant thereto in exchange for
relief from penalties under section 502(l).”); Id. at 15074 (“For a participant-directed
defined contribution plan, the Lost Earnings to be restored to the plan is the amount that
each participant would have earned on the Principal Amount from the Loss Date to the
Recovery Date.”).
14
We believe that the District Court did not abuse its discretion in using the VFCP
calculator in this case. No one can determine the rate of return the individual participants
would have earned had Criscito distributed to each individual his or her full share of the
Morgan Stanley Account, because no one knows with certainty what actions the
individuals would have taken had they received their fair share of the accounts. But yet
the district courts are tasked with coming up with an interest rate to award prejudgment
interest. Because of this inherent difficulty, the district courts have “broad discretion” in
resolving the problem. See Skretvedt, 372 F.3d at 205–06.
The use of the VFCP calculator was an appropriate way for the District Court to
resolve the problem of calculating damages. Other district courts faced with this problem
have also used this calculator. See Hawaii Carpenters Trust Funds vs. TNT Plastering &
Stucco, Inc., Civ. No. 10-00352, 2011 WL 613695, at *7 (D. Haw. Feb. 11, 2011) (stating
that plaintiffs would be entitled to full amount under VFCP calculator if they had
requested it); Trs. of the Plumbers Local Union No. 1 v. Philip Gen. Constr., No. 05-CV-
1665, 2007 WL 3124612, at *12 (E.D.N.Y. Sept. 12, 2007) (stating that using VFCP
calculator “appears to be reasonable” and using it to determine the plaintiffs lost
earnings). We need not address Criscito’s proposed alternative calculations because the
question before us is not whether the District Court calculated the damage in the best way
possible; it is whether using the VFCP calculator was an abuse of discretion. We hold
that the District Court did not abuse its discretion in determining the different
components of its compensatory damages award given the facts of this case.
III.
15
For the foregoing reasons, the District Court properly (1) denied Criscito’s motion
to dismiss and motion for summary judgment, (2) granted the plaintiffs’ motion for
summary judgment, and (3) calculated the damages. Accordingly, we will affirm the
District Court’s opinion in all respects.
16