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The Michelin Retirement Plan v. Dilworth Paxson, LLP

United States District Court, D. South Carolina, Greenville Division

June 12, 2017

The Michelin Retirement Plan and the Investment Committee of the Michelin Retirement Plan, Plaintiffs,
v.
Dilworth Paxson, LLP, BFG Socially Responsible Investments, Ltd., Burnham Financial Group, Inc., Burnham Securities, Inc., COR Fund Advisors, LLC, GMT Duncan, LLC, Greenberg Traurig, LLP, Thorsdale Fiduciary and Guaranty Company Ltd., U.S. Bank National Association, Valor Group Ltd., Wakpamni Lake Community Corp., Wealth-Assurance AG, Wealth Assurance Private Client Corporation, Timothy B. Anderson, Jon Michael Burnham, Devon D. Archer, Bevan T. Cooney, Hugh Dunkerley, Jason W. Galanis, John P. Galanis, Gary T. Hirst, Frankie D. Hughes, and Michelle A. Morton, Defendants.

          OPINION & ORDER

          HENRY M. HERLONG, JR. SENIOR UNITED STATES DISTRICT JUDGE.

         This matter is before the court with the Report and Recommendation of United States Magistrate Judge Jacquelyn D. Austin, made in accordance with 28 U.S.C. § 636(b)(1)(B) and Local Civil Rule 73.02 of the District of South Carolina.[1] Plaintiffs allege numerous causes of action arising from misappropriation of funds from their ERISA retirement investment accounts. Pending before the court are: (1) Plaintiffs' motion to stay; (2) Michelle Morton's (“Morton”) motion to stay or, in the alternative, for extension of time to answer the complaint; (3) Greenberg Traurig, LLP's (“Greenberg”) motion to dismiss; (4) COR Fund Advisors, LLC's (“COR”) motion to dismiss; (5) Dilworth Paxon, LLP and Timothy B. Anderson's (collectively, the “DP Defendants”) motion to dismiss; and (6) the Chicago Transit Authority Retiree Health Care Trust's (“RHCT”) motion to intervene. In her Report and Recommendation, Judge Austin recommends granting the motions to stay, denying Morton's motion for an extension of time as moot, and denying the remaining motions, with leave to refile. (R&R 8-9, ECF No. 203.)

         I. Factual and Procedural History

         The Michelin Retirement Plan (the “Plan”) is an employee welfare benefit plan governed by ERISA. (Compl. ¶ 1, ECF No. 1.) The Plan was established and is maintained by Michelin North America, Inc. (Id., ECF No. 1.) The Investment Committee of the Michelin Retirement Plan (the “Investment Committee”) is a fiduciary of the plan. (Id. ¶ 2, ECF No. 1.) The Investment Committee entered into an Investment Management Agreement with Hughes Capital in 1999. (Id. ¶¶ 4, 36, ECF No. 1.) Through the agreement, Hughes Capital managed and invested Plan funds. (Id. ¶ 37, ECF No. 1.)

         Between August 22, 2014, and August 26, 2014, Hughes Capital utilized $8, 102, 154 of the Plan's funds to purchase a Wakpamni Lake Bond (the “Bond”) from the Wakpamni Lake Community Corporation. (Compl. ¶ 39, ECF No. 1.) Hughes Capital notified the Investment Committee of the purchase on September 2, 2014. (Id. ¶ 41, ECF No. 1.)

         In a letter dated October 10, 2014, the Investment Committee terminated its Investment Management Agreement with Hughes Capital and directed Hughes Capital to transfer the Plan's portfolio, except for the Bond, to Northern Trust Investments, Inc. (Id., ECF No. 1.) The Investment Committee requested that Hughes Capital dispose of the Bond in the most efficient way possible. (Id., ECF No. 1.) The Plaintiffs allege that they were led to believe that Hughes Capital was attempting to dispose of the Bond. (Id., ECF No. 42.) However, Hughes Capital never disposed of the bond. (Id. ¶ 42, ECF No. 1.)

         Plaintiffs allege that the Bond was part of the Defendants' scheme to fraudulently misappropriate funds from retirement investment groups. (Id. ¶ 45, ECF No. 1.) Additionally, Plaintiffs allege that the Defendants conspired to create fraudulent or fake bonds, control entities involved in handling the bonds, acquire ownership and control of the investment management companies to steal retirement funds, direct other investment funds to invest in the bonds, and use the revenues from the bonds to create a “slush fund” for the benefit of the Defendants. (Compl. ¶¶ 43-117, ECF No 1); (R&R 4-5, ECF No. 203.)

         In addition to this case, there are numerous related actions pending in other courts. A related criminal case, United States v. Jason Galanis, et al., 16 Cr. 0371 (R.A.) (S.D.N.Y.) (Galanis), is pending in the United States District Court for the Southern District of New York.[2] Defendants Morton, Jason W. Galanis, (“Jason Galanis”), John P. Galanis, Devon D. Archer, Bevan T. Cooney, Hugh Dunkerley, and Gary T. Hirst are also charged in that case. On January 19, 2017, Jason Galanis entered a guilty plea, which included a monetary judgment and forfeiture in the amount of $43, 277, 436.00. Galanis, (Jan. 19, 2017 Order, ECF No. 124.) Jason Galanis is currently scheduled for sentencing on August 11, 2017. Galanis, (Apr. 28, 2017 Order, ECF No. 177.) Additionally, the Securities and Exchange Commission has filed a related civil case, Securities and Exchange Commission v. Atlantic Asset Management, LLC, 15 Civ. 9764 (WHP) (S.D.N.Y.) (AAM), based on the same fraudulent scheme. The AAM court has approved a Revised Jointly Proposed Plan of Distribution (the “Distribution Plan”), with directions that the parties submit a status report on its completion by September 15, 2017. AAM (Apr. 24, 2017 Order, ECF No. 196).

         On January 23, 2017, Morton filed a motion to stay and extend the time to file an answer. (Morton Mot. Stay, ECF No. 30.) Morton seeks a stay until the resolution of her criminal charges in Galanis. (Id. at 2, ECF No. 30.) Plaintiffs also filed a motion to stay on February 6, 2017. (Pls. Mot. Stay, ECF No. 62.) Plaintiffs requested a stay for either 120 days or until Jason Galanis is sentenced and the Distribution Plan is approved. (Pls. Mem. Supp. Mot. Stay 1-2, ECF No. 62-1.)

         On February 7, 2017, Greenberg filed a motion to dismiss. (Greenberg Mot. Dismiss, ECF No. 67.) RHCT filed a motion to intervene on February 9, 2017. (RHCT Mot. Intervene, ECF No. 87.) On February 9, 2017, the DP Defendants filed a motion to dismiss. (DP Defs. Mot. Dismiss, ECF No. 91.) COR filed a motion to dismiss on May 4, 2017. (COR Mot. Dismiss, ECF No. 200.) On May 10, 2017, Magistrate Judge Austin issued her Report and Recommendation, recommending granting the motions to stay with the requirement that the Plaintiffs provide a status update within sixty days regarding the AAM and Galanis cases and denying the remaining motions with leave to refile. (R&R 8-9, ECF No. 203.) Greenberg filed objections on May 23, 2017. (Greenberg Objs., ECF No. 209.) On May 24, 2017 the DP Defendants, RHCT, and COR filed objections. (DP Defs. Objs., ECF No. 211); (RHCT Objs., ECF No. 212); (COR Objs., ECF No. 213.) Plaintiffs replied to Greenberg's objections on June 6, 2017. (Pls. Reply Greenberg Objs., ECF No. 216.) On June 7, 2017, Plaintiffs replied to the DP Defendants' objections. (Pls. Reply DP Defs. Objs., ECF No. 217.) This matter is ripe for consideration.

         II. Discussion of the Law

         A. Objections

         Objections to the Report and Recommendation must be specific. Failure to file specific objections constitutes a waiver of a party's right to further judicial review, including appellate review, if the recommendation is accepted by the district judge. See United States v. Schronce, 727 F.2d 91, 94 & n.4 (4th Cir. 1984). In the absence of specific objections to the Report and Recommendation of the magistrate judge, this court is not required to give any explanation for adopting the recommendation. See Camby v. Davis, 718 F.2d 198, 199 (4th Cir. 1983). The court must “only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.” Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005).

         Greenberg, the DP Defendants, RHCT, and COR (collectively “Objectors”) make numerous objections. The Objectors object that the magistrate judge erred in recommending: (1) granting a stay before determining whether the court has subject matter jurisdiction over the Plaintiffs' claims; (2) granting an open-ended stay; and (3) summarily denying their motions without addressing the merits or allowing the motions to remain pending. ...


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