SPEAR et al v. FENKELL et al

Filing 674

MEMORANDUM AND/OR OPINION. SIGNED BY MAGISTRATE JUDGE RICHARD A. LLORET ON 12/29/16. 12/29/16 ENTERED AND COPIES MAILED, E-MAILED.(rf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPEAR, et al.

:
:
:
:
:

v.
FENKELL, et al.

CIVIL ACTION

NO. 13-2391

MEMORANDUM
The parties seek reconsideration of this Court’s ruling on their respective motions
for summary judgment. This memorandum rules on them all. In Part II of this
Memorandum, I will address the Stonehenge parties’ motion for reconsideration. In
Part III, I will address the Sefcovic parties’ motion for reconsideration. In Part IV, I will
address the Fenkell parties’ motion for reconsideration. In Part V, I will address the
Alliance parties’ motion for clarification of the Order dated September 30, 2016.
I.

STANDARD OF REVIEW
“The United States Court of Appeals for the Third Circuit has held that the

purpose of a motion for reconsideration is to correct manifest errors of law or fact or to
present newly discovered evidence.” Cohen v. Austin, 869 F.Supp. 320, 321
(E.D.Pa.1994). Accordingly, a district court will grant a party’s motion for
reconsideration in any of three situations: (1) the availability of new evidence not
previously available, (2) an intervening change in controlling law, or (3) the need to
correct a clear error of law or to prevent manifest injustice. Id.
Federal courts have a strong interest in the finality of judgments. Cont'l Cas. Co.
v. Diversified Indus., Inc., 884 F.Supp. 937, 943 (E.D.Pa.1995). Because of the interest
in finality, at least at the district court level, motions for reconsideration should be
granted sparingly; the parties are not free to relitigate issues the court has already
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decided. Rottmund v. Continental Assurance Co., 813 F.Supp. 1104, 1107 (E.D.Pa.1992).
Stated another way, dissatisfaction with the Court’s ruling is not a proper basis for
reconsideration. Glendon Energy Co. v. Borough of Glendon, 836 F.Supp. 1109, 1122
(E.D.Pa.1993); Bhatnagar v. Surrendra Overseas Ltd., 52 F.3d 1220, 1231 (3d Cir.
1995) (a motion for consideration may not be used to give a litigant a “second bite at the
apple”). A motion for reconsideration may only address “‘factual and legal matters that
the Court may have overlooked’ and may not ‘ask the Court to rethink what it had
already thought through – rightly or wrongly.’” Jarzyna v. Home Properties, L.P. __ F.
Supp. 3d __ 2016 WL 26236888 (E.D.Pa. May 6, 2016) (citing Glendon Energy Co.,
836 F. Supp. at 1122).
II.

THE STONEHENGE PARTIES’ MOTION FOR RECONSIDERATION
The Stonehenge parties allege three grounds for reconsideration: (1) the opinion

erroneously fails to recognize that ERISA greatly restricts liability and available relief
against non-fiduciaries; (2) the opinion errs by failing to separately consider the
Stonehenge defendants’ statute of limitations arguments; and (3) the opinion errs by
suggesting that ERISA preemption depends on whether plaintiffs can successfully prove
their claims and on availability of relief under ERISA. I will address each argument
separately.
a. THE OPINION DID NOT ERR IN FINDING THAT THE
STONEHENGE DEFENDANTS “PARTICIPATED” IN FENKELL’S
FIDUCIARY BREACHES AND IN FINDING THAT ACCOUNTING
AND DISGORGEMENT ARE “APPROPRIATE EQUITABLE
RELIEF.”
The Stonehenge parties allege that the opinion erred in denying summary
judgment as to Counts IV and V on the grounds that the Stonehenge defendants
“participated” in Fenkell’s Fiduciary breaches as a matter of law. The Stonehenge parties
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also allege that the court erred in finding that the remedies of accounting and
disgorgement are “appropriate equitable relief” under ERISA. The Fenkell and Sefcovic
parties join in these arguments. I will address these arguments together.
i.

Under ERISA, non-fiduciaries can only be liable for knowingly
participating in prohibited transactions (not fiduciary breaches).

The parties argue that, under ERISA §406(b), non-fiduciaries can only be liable
for knowingly participating in prohibited transactions, not merely fiduciary breaches.
The parties argue that “the Opinion’s repeated references to the Stonehenge Defendants’
non-fiduciary ERISA liability for knowing participation in ‘fiduciary violations’ see e.g.,
Op. at 57, 59, 60, 64, 65 68, rather than ‘prohibited transactions,’ is manifest error.”
Stonehenge Mem. in Support of Motion for Reconsideration (“Stonehenge Mem.”) at 2.
The parties correctly cite the standard of liability for non-fiduciaries, which
requires knowing participation in a prohibited transaction. The opinion also correctly
cites this standard numerous times. See Op. at 58, 60, 61.
Although there is reference in the decision to “knowing participation in a
fiduciary breach,” the opinion is clearly referring to Stonehenge’s participation in a
prohibited transaction, namely the spread transaction where the payments to DBF
amounted to a kickback. See e.g. Op. at 60-62 (explaining that Stonehenge’s fee of $30
million for facilitating the spread deal was “contingent on the profitability of the Spread
Deal, and was paid through AH III via the same ‘waterfall’ that generated fees for the
ESOP and Alliance.”) Any portion of the Opinion that references participation in a
fiduciary breach is hereby modified to reflect the standard that I relied on in my
analysis, but that was sometimes referred to as a breach of fiduciary duty: that a non-

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fiduciary is liable only for knowing participation in a prohibited transaction under
ERISA.
ii.

Under ERISA, receipt of plan assets is one way, but not the only way,
non-fiduciaries can “participate” in a prohibited transaction.

The Stonehenge parties argue that non-fiduciaries can only “participate” in a
prohibited transaction by receiving plan assets. Stonehenge Mem. at 2. The Fenkell and
Sefcovic parties join in this argument. I will address the parties’ arguments together.
Stonehenge cites to Harris Trust and Savings Bank et al. v. Salomon Smith
Barney Inc., et al., 530 U.S. 238, 250-253, 120 S.Ct. 2180 (2000), arguing that the
Court “repeatedly tied ERISA liability of non-fiduciaries to the receipt of plan assets.”
The parties urge the court that reconsideration is necessary to correct a clear error of
law of fact or to prevent manifest injustice. I disagree. The parties are attempting to
relitigate an issue that has already been discussed at length and decided. The Opinion
states,
Stonehenge’s primary argument is that it never received plan assets, because it
was always paid by AH III, not Alliance Holdings or the Alliance ESOP. This,
Stonehenge argues, means that it never “participated” in a fiduciary violation, in
the sense required under Harris Trust. The argument rests on the premise that
Harris Trust liability only attaches if a non-fiduciary receives plan assets. I
disagree. Receiving plan assets through a prohibited transfer is one way, but not
the only way, a non-fiduciary can “knowingly participate” in a fiduciary violation.
It happens to be the type of fiduciary violation at issue in Harris Trust.
Op. at 59 (emphasis supplied) (internal citations omitted). Relying on Harris Trust,
Iola 1, and the plain language of the statute, I held that receipt of plan assets is one way
but not the only way a non-fiduciary can “knowingly participate” in a prohibited
transaction. Id.
Nat'l Sec. Sys., Inc. v. Iola, CIV- 00-6293AET, 2007 WL 2868634 (D.N.J. Sept. 26,
2007), aff'd in part, vacated in part sub nom. Natl. Sec. Sys., Inc. v. Iola, 700 F.3d 65,
86 (3d Cir. 2012); 29 U.S.C. § 406(b)(3).

1

4

With this framework in mind, the decision turned to whether Stonehenge
“knowingly participated” in a prohibited transaction. I held that Stonehenge
“participated” in the prohibited transaction based on Stonehenge’s “active involvement
in managing the deal, and its $34 million in fees” which was not materially different
than [the defendant’s] commissions in Iola. Op. at 62-63. I also held that there were
issues of fact whether Stonehenge “knowingly” participated in a fiduciary breach. See
Op. at 63-64. Knowing participation under Harris Trust requires actual or constructive
knowledge of the facts that made the underlying transaction unlawful. Id. at 63. The
parties set forth various facts on either side of the argument, which created a genuine
issue of material fact about whether Stonehenge actually or constructively knew of
Fenkell’s fiduciary breaches.
The parties argue that the Court’s reliance on Iola was misplaced because Iola is
distinguishable:
[p]rincipally relying upon Iola, the Opinion notes that ‘Barrett, the salesman in
Iola, did not receive trust assets’ yet was liable for knowing participation.” This
statement fails to recognize the central distinguishing fact that Barrett’s liability
turned on his status as [an] agent of his employer (Tri-Core) which was a
fiduciary.”
Stonehenge Mem. at 3 (internal citations omitted). This argument is without merit and
is improper on a motion for reconsideration. The Stonehenge parties are conflating the
section of the opinion that discussed whether participation requires receipt of plan
assets, see Op. at 58-60, and a subsequent section that dealt with whether Stonehenge
“knowingly participated” in a prohibited transaction, see Op. at 63. Stonehenge fails to
cite to a manifest error of law or fact, and is attempting to relitigate that which was
already decided.

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Stonehenge also argues that the opinion’s reliance on Mellon Bank, N.A. ex rel.
Weiss Packing Co., Inc. Profit Sharing Plan v. Levy, 71 Fed. Appx. 149 (3d Cir. 2003)
was “inaccurate” because in Mellon Bank, the Court held that “the attorney did not
participate because he did not receive funds from the transaction (i.e. he did not receive
plan assets) – not because his conduct was limited in scope.” Stonehenge Mem. at 3-4.
Stonehenge’s argument is no different from the position I rejected in the Opinion. See
Op. at 61-63. Stonehenge’s assertion that the third circuit held that the defendant did
not participate because he did not receive funds from the transaction is a misstatement
of the law, and this argument is without merit. Mellon Bank does not stand for the
proposition that receipt of trust assets is the sine qua non of participation. The Court
provided a set of non-exclusive factors to be taken into account when evaluating
“participation.” These factors include whether a party “participated in the actual
exchange of money for property, ever saw profit from the transaction, or ever possessed
title or right to the property or money involved.” Op. at 62, citing Mellon Bank, 71 Fed.
Appx. 149. I do not read Mellon Bank to hold that receipt of plan assets is the only way a
party can participate in a fiduciary breach. Receipt of plan assets is one way, but not the
only way, to establish participation. I have already decided the issue in my Opinion and
will not revisit it on a motion for reconsideration. See Op. at 61-63.
iii.

The remedy of accounting and disgorgement are appropriate
equitable remedies under ERISA.

Stonehenge argues that the Court made four errors in ruling that the remedy of
accounting and disgorgement are appropriate equitable remedies: (1) “the Opinion fails
to recognize the Supreme Court’s requirement that Plaintiff’s must identify ‘particular
funds’ that can be ‘traced’ within defendant’s possession before relief can be deemed
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equitable”; (2) “the Opinion errs in reasoning that the remedy of disgorgement is
distinct from the equitable remedies of restitution, constructive trust and equitable
lien”; (3) “the Opinion errs by holding that the accounting for profits remedy permits
Plaintiffs to avoid identifying a traceable and identifiable res”; and (4) “the Opinion errs
by conflating the need for an identifiable and traceable res with the wholly separate
issue of whether relief is available after a res is dissipated.” Stonehenge Mem. at 4-8.
The Fenkell and Sefcovic parties join in this argument. I will address the arguments
together.
This issue was discussed at length in the opinion and the parties do not cite to
any errors of law or fact in their motion for reconsideration. In fact, the parties make
identical arguments, citing to the same case law (Mertens v. Hewitt Associates, 508 U.S.
248, 256 (1993), Great-West Life & Annuity Ins. Co v. Knudson, 534 U.S. 204, 209
(2002), and Montanile v. Board of Trustees of the National Elevator Industry Health
Benefit Plan, 136 S. Ct. 651 (2016)). The parties are merely attempting a second bite at
the apple, which is impermissible.
As discussed extensively in the Opinion, see Op. at 65-70, ERISA relief against a
non-fiduciary must be equitable and appropriate under the law. Op. at 65, citing Harris
Trust, 530 U.S. at 250. Equitable remedies are those “‘typically’ available from a court
of equity before the equitable and legal jurisdictions of the federal courts were joined in
1938.” Op. at 65, citing Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356,
362 (2006). The Opinion relied on Edmondson v. Lincoln Nat. Life Inc. Co., 725 F.3d
406 (3d Cir. 2013), in which the Court of Appeals held that the defendant’s “claim for
disgorgement, which is akin to an accounting for profits, is an equitable remedy

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available under ERISA and Great-West Life.” Op. at 66, citing Edmondson, 725 F.3d at
420. The opinion noted,
[t]he Supreme Court’s concerns about permitting damage-like remedies in
equitable guise are well documented. These concerns may be in tension with its
‘typically available in equity test’ when it comes to accounting and disgorgement.
Nevertheless, the Supreme Court has endorsed accounting and disgorgement as
an equitable remedy at least three times, without actually ruling on the subject.
Op. at 67, citing Knudson, 534 U.S. at 215 (quoting Harris, 530 U.S. at 250-51);
Mertens, 508 U.S. at 262; and Edmonsdon, 725 F.3d at 419 (quoting Knudson, 534 U.S.
at 214 n. 2).
Stonehenge argues, again, that under Montanile, a plaintiff “may seek equitable
restitution or disgorgement of funds from a dissipated res only if the spent funds can be
traced to specific assets.” Stonehenge Mem. at 8. However, I concluded in the Opinion
that “Montanile overruled neither the holding nor rational of Edmondson. Absent clear
language from the Supreme Court overruling the holding or rationale of Edmondson, I
must follow the Court of Appeals.” Op. at 70, citing United States v. Mitlo, 714 F.2d 294,
298 (3d Cir. 1983) (quoting Allegheny Gen. Hosp. v. NLRB, 608 F.2d 965, 970 (3d Cir.
1979)); also citing Litman v. Massachusetts Mut. Life Ins. Co., 825 F.2d 1506, 1508
(11th Cir. 1987). The parties fail to cite to any change in the law which would warrant
reconsideration of this decision. Since I addressed this precise issue in the Opinion, the
parties’ argument is improper on a motion for reconsideration.
b. SEPARATE CONSIDERATION OF THE STONEHENGE
DEFENDANTS’ STATUTE OF LIMITATIONS ARGUMENTS.
The Stonehenge parties allege that the Court erred in failing to separately
consider the affirmative defense of statute of limitations with respect to each defendant.
Stonehenge argues that the plaintiffs are required to establish fraudulent concealment
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against each defendant separately in order to toll the statute of limitations. Stonehenge
Mem. at 9, citing Barker v. American Mobil Power Corp., 64 F.3d 1397, 1402 (9th Cir.
1995). There is language in Kurz v. Philadelphia Elec. Co., 96 F.3d 1544 (3d Cir. 1996)
that supports this proposition:
when a lawsuit has been delayed because the defendant itself has taken steps to
hide its breach of fiduciary duty, the limitations period will run six years after the
date of the claim’s discovery. The relevant question is therefore not whether the
complaint ‘sounds in concealment,’ but rather whether there is evidence that the
defendant took affirmative steps to hide its breach of fiduciary duty.
Id. at 1552 (emphasis supplied). I found that there were genuine issues of material fact
that precluded summary judgment against the Alliance Parties on the statute of
limitations question. My opinion did not explain my finding in any detail. I did note,
however, that “for reasons I explained in Section II of this opinion, dealing with
Fenkell’s statute of limitations arguments, I conclude that there are genuine issues of
material fact that preclude summary judgment against the Alliance Parties based on the
statue of limitations.” Op. at 105.
“The ‘fraud or concealment’ exception contained in the last paragraph of 29
U.S.C. §1113 requires that plaintiff produce ‘evidence that the defendant took affirmative
steps to hide its breach of fiduciary duty.’” Op. at 39, citing Kurz, 96 F.3d at 1552; also
citing Ranke v. Sanofi-Synthelabo Inc., 436 F.3d 197, 204 (3d Cir. 2006). Some act of
concealment beyond the underlying fiduciary breach is required. Id. Kurz focused on
the actions of a fiduciary; so did Barker. In neither case were there any non-fiduciaries
implicated as accomplices under 29 U.S.C. § 1132(a)(3). In neither case was there
evidence that the fiduciary had engaged in acts of fraud or concealment. Id; Barker, 64
F.3d at 1401–02; see also In re Unisys Corp. Retiree Med. Benefit "ERISA'' Litig., 242

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F.3d 497, 504 (3d Cir. 2001), as amended (Mar. 20, 2001) (remanding to the district
court to determine whether acts of concealment occurred).
The question whether non-fiduciaries implicated in a fiduciary’s wrongdoing
under an accomplice liability provision, ERISA section 502(a)(3), are also subject to the
6-year “fraud or concealment” statute of limitations under ERISA section 413, as a result
of the fiduciary’s affirmative steps of concealment, presents a materially different
question than the simpler issue presented in Unisys and Kurz. The facts of this case
pose the following question: should a non-fiduciary, knowing participant be subject to
the same “fraud or concealment” statute as the fiduciary, in whose breach the
accomplice participated, where the fiduciary has engaged in “affirmative acts” that
satisfy the fraud or concealment requirement of Kurz and Unisys. It seems appropriate
to address this question after trial reveals the exact contours of the various parties’ acts
and intent, especially since I also concluded that there are issues of fact whether the
Stonehenge Parties themselves took affirmative steps to conceal their wrongdoing.
Alliance argues that “by papering up their scheme with complex and deceptive
contracts, Fenkell/Stonehenge actively hid their ERISA violations.” See Alliance Opp. to
Motion for Summary Judgment at 52-57; see also Alliance Opp. to Stonehenge Motion
for Reconsideration at 6-7. Alliance argues that Fenkell and Stonehenge “drafted sham
ESOP services/fees documents between Alliance, the ESOP, and AH III and
Stonehenge—and then between Stonehenge and DBF Consulting—to effectuate the
scheme.” See Alliance Opp. to Motion for Summary Judgment at 52-57. Alliance points
to a number of examples that tend to establish fraud or concealment on the part of
Stonehenge including but not limited to the following:

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•

“Fenkell/Stonehenge did not include the formula for paying Stonehenge’s
fees in the ESOP Loan Transaction, but rather “buried those details
separately, in a different agreement dated September 1, 1999”;

•

“Fenkell/Stonehenge separately executed the DBF Consulting agreement
where Fenkell was to serve as an “independent contractor” providing
services to Stonehenge, earning $240,000 per year; “[b]y weaving these
sham arrangements in with the AH III form utilized in the ESOP Loan
Transaction documents . . . Fenkell/Stonehenge disguised that they were
both misappropriating ESOP loan investment proceeds for themselves”;

•

“Despite how Fenkell and Stonehenge characterized the [DBF Consulting
agreement] on paper, the evidence confirms that DBF Consulting did not
really perform consulting services for Stonehenge”; and

•

“Despite the Fenkell/Stonehenge deal documents that Stonehenge would
be providing services to Alliance and the Alliance ESOP, and was being
paid millions in fees for these services, Fenkell failed to disclose this
information on any of the IRS Forms 5500 and Stonehenge failed to
correct or amend these forms.”

Id.; see also Alliance Opp. to Stonehenge Motion for Reconsideration at 6-7. If the
evidence at trial convinces me that the Stonehenge Parties engaged in affirmative acts
intended to conceal the true nature of the DBF fees that transcended the bare necessities
of the prohibited transaction by Fenkell, that likely would satisfy any requirement under
Kurz and Unisys. I do not suggest one way or the other what trial will bring, only that
the prospect of such proofs seemed plausible enough to let trial of the issue go forward.
Stonehenge argues that although the deal documents were “complex” this does
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not mean they were “deceptive.” Stonehenge Reply Mem. in Support of Motion for
Summary Judgment at 59. Insofar as Stonehenge argues that I am bound to find this as
a matter of law, I disagree. I find that plaintiffs produced sufficient evidence to
establish, at least, genuine issues of fact that the Stonehenge defendants actively
participated in concealment of the prohibited transaction which would toll the statute of
limitations. Therefore, genuine issues of material fact preclude summary judgment
against the Alliance parties based on the statute of limitations.
Finally, I also determined that there were fact issues that required trial under the
other available limitations options, in section 1113.
In sum, my findings about the Stonehenge Parties’ culpability, and whether a
statute of limitation should absolve them from responsibility for participation in
Fenkell’s misdeeds, will depend to a significant extent on how credible – or not – I find
their testimony, as well as other witnesses’. That is what trials are for.
c. STONEHENGE’S PREEMPTION ARGUMENT IS RAISED FOR THE
FIRST TIME IN THIS MOTION FOR RECONSIDERATION AND IS
IMPROPER.
Stonehenge argues that the Opinion committed an error of law by suggesting
that whether plaintiff’s state law aiding and abetting claim against the Stonehenge
defendants is preempted turns on (1) “[i]f Alliance succeeds in proving its ERISA claim”
and/or (2) “whether ERISA Section 502(a)(3) provides a remedy.” Stonehenge Mem. at
9-10. Stonehenge argues that ERISA has “extraordinary pre-emptive power” and that
whether there is “a viable remedy under Section 502(a)(3) is irrelevant to preemption.”
Id. The Sefcovic and Fenkell Parties join in this argument. Alliance argues that
“Stonehenge seizes on the Court’s ERISA preemption reference in footnote 67 of its
Opinion, seemingly staking out a new position that the aiding-and-abetting claim is
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preempted by ERISA.” Alliance Opp. to Motion for Reconsideration at 7. Alliance alleges
that this is a new argument, that was not made in any of Stonehenge’s “300+ pages of
prior briefing” and is improper on a motion for reconsideration. Id. I agree.
“[A] motion to reconsider may not raise new arguments that could have (or
should have) been made in support of or in opposition to the original motion.” Helfrich
v. Lehigh Valley Hosp., __ F. Supp. 2d __, 2005 WL 1715689 (E.D. Pa. July 21, 2005).
Footnote 67 states,
If Alliance succeeds in proving its ERISA claim concerning the DBF fees,
preemption may require dismissal of the state law claims concerning these fees.
See Pilot Life. Ins. Cp. V. Dedeaux, 481 U.S. 41, 52 (1987) (claim under ERISA
Section 502(a) was exclusive, and preempted state claims concerning the same
transactions). The parties have not briefed this issue, and it is appropriate to sort
it out after a determination at trial of whether ERISA Section 502(a)(3) provides
a remedy.
Op. at P. 113 n. 67. Footnote 67 is not a holding on the issue of preemption. Rather it
suggests that ERISA preemption may have a role to play in deciding Alliance’s state law
claims related to the Stonehenge and DBF fees. As noted in the footnote, the parties did
not raise or brief this issue, and they cannot do so now as an alternate basis for
summary judgment in a motion for reconsideration. If Stonehenge intended to make
this argument, the parties should have done so in their 327 pages of briefing on
summary judgment. This argument is improper on a motion for reconsideration. I will
address this issue, if necessary, after trial.
d. STONEHENGE’S “EXHIBIT A” VIOLATES THE COURT’S ORDER
Alliance argues that I should not consider Stonehenge’s “Exhibit A”, because it
circumvents the Court’s ten-page limit for reconsideration. This argument is moot, as I
have not altered the summary judgment findings as a result of Stonehenge’s motion for
reconsideration (inclusive of Exhibit A).
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III.

THE SEFCOVIC PARTIES’ MOTION FOR RECONSIDERATION

a. The Opinion did not misapprehend facts related to the ASA.
The Sefcovic parties argue that the Court misapprehended the facts to find that
the ASA between Alliance and SLMRS was unreasonable and that “paying SLMRS
$330,000 for dinner parties and introductions was unreasonable.” Sefcovic Mem. in
Support of Motion for Reconsideration (“Sefcovic Mem.”) at 2, citing Op. at 125-129. 2
First, the Sefcovics argue that the “Court misapprehends the value of services
provided by SLMRS to Alliance.” Id. at 3. In support of this argument, the Sefcovics
allege that I erred in my conclusion that networking and standing ready for services in
the student loan industry have no value because the court is not entitled to make
“credibility determinations” at this stage. Id. at 3-4. The Sefcovics argue that I erred in
looking at the ASA in hindsight, “rather than at the time the agreement was
contemplated.” Id. at 4. The parties cite to a seventh circuit case, Overseas Development
Disc Corp. v. Sangamo Const., 840 F.2d 1319, 1322 (7th Cir. 1988), for the proposition
that paying SLMRS $330,000 was not unreasonable as a matter of fact and law. 3 The
Sefcovic Parties also argue that these costs were minor in comparison to the anticipated

The Fenkell parties join in this argument noting that the court erred in finding Fenkell
liable with respect to the ASA without determining (1) if Alliance’s funds used to make
consulting fee payments were ERISA plan assets and (2) if the business judgment rule
applied to the negotiation of the ASA. This first argument was addressed at length in the
Opinion, see P. 125-142, and the parties do not present a manifest error or law of fact.
With respect to the second argument that the business judgment rule should apply, I
will address in section IV(a)(2) below.
3 This case is not binding and is factually distinguishable. In Overseas Development the
parties did not have a contractual relationship and the court, in looking at market value,
interpreted and applied Kuwati law of quantum meruit to determine fees. Fenkell’s
reliance on Overseas Development to establish that “business introductions have value”
and that “paying $330,000 for dinner parties and introductions” is reasonable is
unconvincing.
2

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revenues, and that SLMRS stood “ready willing and able to perform services” which has
tangible value. Sefcovic Mem. at 5-7.
Second, the Sefcovics argue that it was unreasonable for the Court to use SLCS as
a benchmark for reasonableness. 4 Id. at 7-9. The Sefcovics attempt to distinguish the
services provided by SLCS and SLMRS, arguing that SLCS was a “backup administrator”
where SLMRS was “contracted to serve as actual (not standby) administrator/master
servicer.” Id. at 8.
I find these arguments unpersuasive. The Sefcovic parties made these same
arguments in their summary judgment briefs: that the services rendered by SLMRS
were valuable, and that paying $330,000 for these services was reasonable. I addressed
these arguments at length in the Opinion, expressly outlining the alleged “services”
actually provided to Alliance, which were not disputed by the Sefcovics. Op. 125-127. I
held that “paying SLMRS $330,000 for dinner parties and introductions was
unreasonable, and was a breach of Fenkell’s fiduciary duty of prudence to Alliance.” Op.
at 129. The Sefcovics do not allege a manifest error of fact. The Sefcovics are attempting
to relitigate issues that were already decided, which is improper on a motion for
reconsideration.
b. I WILL NOT PRECLUDE EVIDENCE ON THE CIRCUMSTANCES
OF THE NEGOTIATION AND PERFORMANCE OF THE ASA.
The Sefcovics argue that it is unclear whether the Court intended to find any
facts established under Rule 56(g) because there is no “no statement that [the] Court
considered the summary judgment standard in making any findings of fact.” Sef. Mem.

The Opinion states, “Alliance paid about $28,000 per quarter to Paul Sheldon’s
consulting firm, SLCS [which was] a bench-mark for reasonableness in determining
whether the SLMRS fees were appropriate.” Op. at 129.
4

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at 9. It is their position that they should be permitted the opportunity to present all
relevant facts, “including the reasonableness of the ASA.” Id. at 10. The Fenkell parties
join in this argument, noting that since the Court did not enter an order with respect to
any material facts “the parties should not be bound by any factual determinations
contained within the [summary judgment] memorandum.” Fenkell. Mem. in Supp. of
the Sefcovics’ Motion for Reconsideration at 2. Alliance argues that the court has
discretion to make findings of fact under Rule 56(g) or (f) and that “[r]egardless of how
the Order characterizes the Court’s findings, the Court’s opinion plainly stated that there
is no reason to address the reasonableness of the SLMRS agreement at trial.” Alliance
Mem. in Response to the Sefcovics’ Motion for Reconsideration at 6.
Rule 56(g) states, “[i]f the court does not grant all the relief requested by the
motion, it may enter an order stating any material fact – including an item of damages
or other relief – that is not genuinely in dispute and treating the fact as established in
the case.” I am not inclined to limit the parties’ ability to present relevant facts and
evidence that may bear on other issues in this case. The circumstances of the negotiation
of the ASA may bear on the Sefcovic’s liability. See Op. at 123-125, 130-133. I found that
pursuant to Fed. R. Civ. Pro. 56(f), David B. Fenkell breached his fiduciary duty of
prudence to Alliance. I decline to treat any facts as established under Rule 56(g).
IV.

THE FENKELL PARTIES’ MOTION FOR RECONSIDERATION

The Fenkell parties argue that the opinion (a) misapprehends the facts regarding
the DBF-Stonehenge relationship and the ASA and the SLCS services and (b) denied the
Fenkell parties due process.

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a. THE OPINION DID NOT MISAPPREHEND THE FACTS.
1. Ruling 2(A) does not rely on a misapprehension of Fenkell’s facts regarding
the DBF-Stonehenge Relationship.
The Fenkell parties argue that the Court erred in holding that Fenkell violated his
ERISA fiduciary duties. Fenkell Mem. in Support of Motion for Reconsideration
(“Fenkell Mem.”) at 1. Fenkell argues that these ERISA violations were based on the
improper “premise that Fenkell accepted fees from Stonehenge because the DBFStonehenge relationship was related to the ‘unitary’ transaction of the 1999 Corporate
Guaranty Restructuring and 1999 Spread Transaction.” Id. at 2. The Fenkell parties
allege that the court misapprehended the following six facts: (1) the 1999 Corporate
Guaranty Restructuring was not an exchange of cash for stock, (2) spread transactions
were annual corporate transactions starting in 1996 and not part of a “unitary
transaction” with the 1999 corporate guaranty restructuring, (3) the 1998 BOCP
Holdings/DBF Consulting Agreement is the predecessor to the DBF ConsultingStonehenge agreement; neither are related to the spread transactions nor a transaction
involving the ESOP, (4) the plain language of the August 27th letter fails to show
Stonehenge dealt with the ESOP and ERISA plan assets, (5) DBF provided legitimate
advisory services to Stonehenge and others, and (6) the spread transactions did not
occur so that Fenkell could seek fees for DBF. Id. at 2-13.
These issues were discussed at length in the Opinion, and are an improper basis
for a motion for reconsideration. See for instance, Op. at 24-27 (the ESOP transaction
was a unitary transaction); Op. at 73-76 (questions of fact exist whether Stonehenge
dealt with the plan, reasoning that “[t]he [August 27th] letter alone would create a triable
issue of fact”); Op. at 20-27 ($4,000,000 in fees paid from Stonehenge through DBF
17

Consulting represented a kickback in violation of ERISA; “The money wound up in
Fenkell’s pocket. Hence he received consideration for his own account, rather than on
the ESOP’s account”). The Fenkell parties do not allege a clear error of law or fact. These
arguments were previously made in the voluminous briefs by the parties, and were
rejected. The Fenkell parties’ mere disagreement with my original decision is not
grounds for reconsideration.
2. Ruling 2(b) does not rely on a misapprehension of the ASA and the SLCS
services.
The Fenkell parties argue that the Court erred in finding that Fenkell violated his
state law duty of prudence because the Court failed to apply the business judgment rule.
Fenkell Mem. at 13-15. The Sefcovic parties join in this argument, stating that “[t]here is
no evidence, only innuendo from Alliance, to suggest that Fenkell received anything
from the ASA personally.” Sefcovic Mem. in Supp. of Fenkell’s Motion for
Reconsideration at 4. Alliance argues that Fenkell cannot avail himself of the business
judgment rule. Alliance Opp. to Fenkell’s Motion for Reconsideration at 8-9.
At the outset, the Fenkell parties did not argue in their motion that the business
judgment rule applied to this case. 5 The Fenkell parties argued that “[t]he record in this
case is replete with testimony of Mr. Fenkell regarding the good faith and diligence that
he applied in the exercise of his corporate duties as President, CEO, and Director of
Alliance.” Fenkell Mem. of Law in Supp. of Motion for Summary Judgment at 62-63.
Fenkell argued that the evidence established that he acted in good faith and prudence
The Sefcovic parties also did not assert the business judgment rule as a defense to
Alliance’s claim that Fenkell breached his duty of prudence. In fact, the Sefcovic parties
failed to address this argument entirely other than to say that they “join in Sections IX
and X of Fenkell’s Motion. As discussed therein, Plaintiffs have not established fraud
and/or any breach of corporate fiduciary duties by Fenkell.” Sefcovic Mem. of Law in
Supp. of Motion for Summary Judgment at 25.

5

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and that Alliance failed to state a claim for breach of fiduciary duty against Fenkell. 6 Id.
Fenkell did not assert the business judgment rule as a defense to the Alliance parties’
tenth cause of action.
Since neither the Fenkell nor the Sefcovic parties raised the business judgment
rule in their motions, it is improper to do so on a motion for reconsideration absent
manifest error. As discussed below, I find no manifest error because the business
judgment rule does not apply to Fenkell in his role as a corporate officer. 7
Were I to address the business judgment rule on its merits, I would find that it
does not apply to the facts of this case. The business judgment rule “insulates an officer
or director of a corporation from liability for a business decision made in good faith if he
is not interested in the subject of the business judgment, is informed with respect to the
subject of the business judgment to the extent he reasonably believes to be appropriate
under the circumstances, and rationally believes that the business judgment is in the
best interests of the corporation” Id., citing Cuker v. Mikalauskas, 692 A.D.2d 1042,
1045 (Pa. 1997); also citing In re Zambrano Corp., 478 B.R. 670, 685 (Bankr, W.D. Pa.
2012) and Viener v. Jacobs, 834 A.D.2d 546, 557 (Pa. Super. Ct. 2003).
For the reasons discussed in the Summary Judgment Opinion, the overwhelming
evidence establishes that the business judgment rule should not apply. Fenkell was not
acting in good faith and he could not reasonably have believed that the SLMRS ASA was
Fenkell also set forth a statute of limitations argument.
Cf. Op. at 48-50 (dismissing Fenkell’s eleventh third-party claim alleging breach of the
duty to monitor as to Spear, Wanko, Lynn and other directors for instituting the within
lawsuit). I held that Alliance’s decision to institute and pursue this lawsuit was protected
under the business judgment rule because “four of the five Alliance directors were
disinterested outside directors appointed after Fenkell left . . . there [was] no evidence
that the outside directors filed the lawsuit in their own interest . . . Alliance was assisted
by competent counsel . . . the internal investigation was . . . exhaustive . . . [and] [t]here
[was] a rational basis for the lawsuit.”
6
7

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in the best interests of Alliance, especially while receiving similar services from SLCS for
one-third the cost. See Alliance Opp. to Fenkell’s Motion for Reconsideration at 9; see
also Op. at 125-129. This is not based on mere “innuendo from Alliance;” rather the
record evidence establishes that the business judgment rule is inapplicable. Therefore,
the Opinion did not err in finding that Fenkell violated his state law duty of prudence.
b. THE COURT’S RULING AS TO 2(A) UNDER RULE 56(F) DID NOT
DEPRIVE FENKELL OF DUE PROCESS.
The Fenkell parties argue that the Court denied the parties due process by ruling
without providing Fenkell notice and the opportunity to be heard with respect to ruling
2(A)’s finding of liability. Fenkell Mem. at 15. The Fenkell parties allege that the Court
did not notify Fenkell of its intent to rule under 56(f) with respect to ERISA
§406(a)(1)(D). Id. Fenkell claims that no party requested summary judgment with
respect to this section, and it was therefore error to grant summary judgment without
giving Fenkell notice and an opportunity to be heard. Id.
Alliance argues that the Alliance parties did seek summary judgment on this
claim (see Alliance Memorandum in Support of Motion for Summary Judgment at 71),
which Fenkell addressed in opposition (see Fenkell Opp. to Alliance’s Motion for
Summary Judgment at 41-42), and was decided by the Court (see Op. at 34-35). I agree.
The Fenkell parties’ argument is entirely without merit. The Fenkell parties had both
notice and an opportunity to be heard before I ruled on whether Fenkell violated ERISA
§406(a)(1)(D).

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V.

MOTION FOR CLARIFICATION 8

a. ALLIANCE’S MOTION FOR CLARIFICATION AND FENKELL’s
RESPONSE
1. Fenkell’s motion to amend his counterclaims and second amended thirdparty complaint is denied in its entirety.
Alliance seeks clarification that Fenkell’s motion to amend his counterclaims
and second amended third-party complaint is denied in its entirety. Alliance Motion for
Clarification at 2. The Fenkell parties, in their response, expressly declined to address
this issue noting that “[t]here is no substantial difference between the surviving claims
stated in the second amended third-party complaint and the third-amended third-party
complaint. Fenkell Mem. in Resp. to Alliance’s Motion for Clarification at 1. Accordingly,
I hold that Fenkell’s counterclaims and second amended third-party complaint are the

Alliance filed a motion for clarification of the Court’s September 30, 2016 Order and
the Fenkell parties filed a response. The Alliance parties then filed a motion to strike
certain of the Fenkell and Sefcovic parties’ arguments in response to the Alliance parties’
motion to clarify and the Stonehenge parties’ motion for reconsideration. Rule 12(f)
permits a motion to strike pleadings containing “immaterial, impertinent or scandalous
matter.” However, courts are unwilling to construe “pleading” broadly and I find that
Alliance’s motion to strike the parties’ opposition papers is improper. See Styer v. Frito
Lay, Inc., __ F. Supp. 3d __, 2015 WL 999122 (Mar. 6, 2015). In Styer, the plaintiff
moved to strike portions the defendant’s reply brief. The Court reasoned that:
Upon consideration of this motion to strike we find, first, that to the extent that
object of that motion is portions of a reply brief, this brief is not the appropriate
subject of a motion to strike. Furthermore, recognizing that [m]otions to strike
under Fed.R.Civ.P. 12(f) are viewed with disfavor and are infrequently granted,
we also find that it has not been shown that the assertions in this brief are both
“redundant, immaterial, impertinent, or scandalous” and unfairly
prejudicial. Therefore, in the exercise of our discretion, we will deny this motion
to strike portions of this reply brief. However, because we understand the
concerns that motivated the plaintiff to file this pleading, the Court will, instead,
treat this motion to strike as a sur-reply brief on the pending summary judgment
motion, and will consider the plaintiff’s arguments in ruling upon that motion.
(Internal citations omitted). Therefore, I will treat Alliance’s motion to strike as a reply
brief to their motion for clarification.
8

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operative pleadings for Fenkell’s remaining counterclaims and third-party claims.
Fenkell’s proposed third-amended third-party complaint is denied in its entirety.
2. Fenkell’s second cause of action for contribution against the Alliance parties
is dismissed insofar as these claims relate to the Chesemore action.
Fenkell argues that the Court granted summary judgment on Fenkell’s
contribution claims only insofar as they relate to the Chesemore action. Fenkell Mem. in
Resp. to Alliance’s Motion for Clarification at 2, citing Op. at 45 (“I will grant summary
judgment denying Fenkell a contribution remedy against any of the Alliance parties
arising out of the Chesemore litigation.”). Fenkell concludes that the second cause of
action for contribution survives against (1) Spear with respect to Stonehenge, (2) Wanko
and Lynn with respect to the 2007 Trachte Deal, and (3) Alliance with respect to claims
not based on the FAC’s Ninth, Tenth, Thirteenth or Fourteenth claims. Id. Alliance
argues, in a footnote, that despite the language in the opinion that states the claims for
contribution are dismissed with respect to Chesemore, the Order and sub-heading state
the Court’s intent to dismiss the entire claim. Alliance Motion for Clarification at 6.
I find that Fenkell’s second cause of action for contribution against the Alliance
parties is dismissed only insofar as they relate to the Chesemore action. The reasoning
and holding clearly state that contribution is not available to Fenkell “for liability arising
from the Chesemore case.” Op. at 44-45.
3. The Opinion and Order do not dismiss Fenkell’s fourth, fifth, and eighth
third-party claims.
The Opinion and Order dismissed Fenkell’s third-party claim asserting
prohibited transactions by Spear, holding that Fenkell is disqualified from pursuing a
remedy on behalf of the ESOP. Op. at 45-46; Order at ¶ 2(C). Alliance argues that based

22

on the Court’s finding that Fenkell does not have standing as an ESOP participant, the
Court should also dismiss the following third-party claims:
•
•
•

Fourth third-party claim for Trachte-related prohibited transactions against
Wanko, Lynn and Spear;
Fifth third-party claim for Trachte-related prohibited transactions against
Wanko, Lynn and Spear; and
Eighth third-party claim for failure to monitor Spear as trustee against the
Alliance Board, Wanko, Lynn, and Spear.

Alliance Motion for Clarification at 5. It is Alliance’s position that “because each of these
third-party claims also necessarily relies on Fenkell’s now-waived status as an ESOP
participant,” 9 the above-referenced claims should be dismissed. Id. I disagree.
Alliance did not brief this particular issue in their original motion for summary
judgment 10, and now seeks summary judgment on additional grounds in their motion
Fenkell argues in response that this Court held only that Fenkell may be “disqualified”
from contribution claims, but did not hold that Fenkell lacks standing as an ESOP
participant. This is a misstatement of the holding. The Opinion states, “I agree that
Fenkell is disqualified from pursuing a remedy on behalf of the ESOP. He posted his
ESOP plan account – and status as a plan participant – to secure his supersedeas bond
in the Chesemore appeal, and forfeited that account – and his standing as a plan
participant – once he lost his appeal.” Op. at 46. The Fenkell parties also argue that
Fenkell has standing as an ESOP participant because ERISA standing “relates to the
date of the harm.” Fenkell Resp. at 7, citing Bridges v. American Electric Power Co.,
498 F.3d 442 (6th Cir. 2007) (“former employee . . . has ‘participant’ standing despite
having ‘cashed out’ his defined-contribution plan”). This is a new argument that was not
made in the initial briefing. It is therefore improper on a motion for clarification. Even if
this argument were proper, it is without merit. The facts of this case are distinguishable
from Bridges because, as Alliance argues, Fenkell “broadly elected, with advice and
consent of his counsel, to forfeit ‘all of his rights, benefits, and privileges’ to his ESOP
account.” Alliance Motion to Strike at 5. I agree with Alliance, and hold that Fenkell
does not have standing under ERISA as an ESOP participant.
10 Alliance argued that the fourth and fifth third party claims were time barred by the
statute of limitations. Alliance motion for summary judgment at 120-121. With respect
to the eighth third-party claim, Alliance argued that Spear could not be held liable for
the failure to monitor because (1) Spear was not a director at the time the alleged
fiduciary breach occurred (and therefore had no duty to monitor) and (2) the claim is
not cognizable because the failure to monitor is a derivative claim that must be premised
on an underlying breach of fiduciary duty. Alliance did not allege that these claims
should be dismissed because Fenkell did not have standing as an ESOP participant.
9

23

for clarification. I am not inclined to dismiss these third party claims without proper
briefing by the parties. As noted in footnote 71 of the Opinion, even though Fenkell does
not have standing as an ESOP participant, “because he has been sued in an ERISA
fiduciary capacity he may have another basis for standing. Because the parties have not
briefed the issue I will not address it.” I will deny Alliance’s motion with respect to
Fenkell’s fourth, fifth, and eighth third-party claims.
4. Genuine questions of fact exist whether the Stonehenge parties are entitled to
contribution from Wanko, Lynn, and Spear under Pennsylvania state law.
Alliance seeks clarification whether the Court intends to rule on their motion for
summary judgment as to the Stonehenge parties second third-party claim for
contribution under state law. While the claim was not addressed by me in the
September 30, 2016 Opinion, it was addressed in the Order, which provided that all
motions not specifically granted were denied. I will explain why I denied this motion.
The Alliance parties seek dismissal of Stonehenge’s claim for contribution
without making a separate argument, but by incorporating by reference their argument
as to Fenkell’s claims for contribution. 11 Alliance raised this same issue during the
motion to dismiss stage of the litigation. In ruling on this issue, I held that the

The entirety of the Alliance parties’ argument states:
The Stonehenge Defendants seek contribution from Wanko, Lynn and Spear in
the event the Stonehenge Defendants are found liable for plaintiffs’ state law
claims for civil conspiracy and aiding and abetting Fenkell’s breach of corporate
fiduciary duties. See Dkt. 281 at page 38 (dismissing Stonehenge defendants’
contribution claim for the ERISA causes of action in plaintiffs’ amended
complaint, Dkt. 67). As previously discussed, Wanko, Lynn and Spear had no
involvement in the breaches that were part of the Stonehenge payments. See
supra at Part II, §II(B)-(E). Accordingly, the Court should grant judgment
against these claims.
Alliance Mem. of Law in Support of Motion for Summary Judgement at 129.
11

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Pennsylvania contribution statute “permits a contribution remedy for intentional
tortfeasors” reasoning that,
The right of contribution arises when a “joint tortfeasor has discharged the
common liability or paid more than his pro rata share.” Swartz v. Sunderland,
169 A.2d 289, 291 (Pa. 1961). Notably absent is any explicit exclusion of
intentional tortfeasors from the definition of “joint tort-feasors.”
Op. Motion to Dismiss, at 25-26 (Dec. 12, 2014). Alliance has not made any additional,
specific arguments bearing on the Stonehenge contribution claim in their motion for
summary judgment. Therefore, I adhere to my initial ruling at the motion to dismiss
stage for the reasons spelled out therein. Id. at 20-30; 34-40. I find that there are
genuine issues of material fact that preclude summary judgment as to Stonehenge’s
state law claim for contribution from the Alliance Parties.
VI.

CONCLUSION
An order clarifying the September 30, 2016 Order will enter.

BY THE COURT:
s/Richard A. Lloret___
_
HON. RICHARD A. LLORET
U.S. Magistrate Judge

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