United States District Court, D. South Carolina, Greenville Division
The Michelin Retirement Plan; The Investment Committee of the Michelin Retirement Plan, Plaintiffs,
Chicago Transit Authority Retiree Health Care Trust, Intervenor Plaintiff,
Dilworth Paxson LLP; BFG Socially Responsible Investments, Ltd.; Burnham Financial Group, Inc.; Burnham Securities, Inc.; COR Fund Advisors, LLC; GMT Duncan, LLC; Thorsdale Fiduciary and Guaranty Company Ltd.; 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; and Michelle A. Morton, Defendants,
REPORT AND RECOMMENDATION OF THE MAGISTRATE
JACQUELYN D. AUSTIN UNITED STATES MAGISTRATE JUDGE.
matter is before the Court on a motion to dismiss filed by
Defendants Dilworth Paxon, LLP (“Dilworth”) and
Timothy B. Anderson (collectively, the “DP
Defendants”). [Doc. 429.] Pursuant to the provisions of
28 U.S.C. § 636(b) and Local Civil Rule 73.02(B)(2)(e),
D.S.C., this magistrate judge is authorized to review all
pre-trial matters in cases involving litigation by
individuals proceeding pro se and to submit findings and
recommendations to the District Court.
Retirement Plan and the Investment Committee of the Michelin
Retirement Plan (collectively, “Michelin”) filed
this action on November 10, 2016, alleging eleven causes of
action against the above-named defendants. [Doc. 1.] On June
12, 2017, this Court granted a motion by Chicago Transit
Authority Retiree Health Care Trust and the Board of Trustees
of the Chicago Transit Authority Retiree Health Care Trust
(collectively, “RHCT”) to intervene as
Plaintiffs. [Doc. 218.] RHCT filed its Intervenor Complaint
on June 27, 2017, and filed an Amended Intervenor Complaint
(the “Complaint”) on January 28, 2019. [Docs.
222; 411.] On February 18, 2019, the DP Defendants filed a
motion to dismiss the Complaint for lack of jurisdiction and
for failure to state a claim. [Doc. 429.] RHCT filed a
response opposing the motion on March 18, 2019. [Doc. 441.]
And the DP Defendants filed a reply on April 8, 2019. [Doc.
467.] Accordingly, the motion is now ripe for review.
following facts are taken directly from the Complaint.
Plaintiff, the Michelin Retirement Plan (“the
Plan”), is an employee welfare benefit plan governed by
the Employee Retirement Income Security Act of 1974
(“ERISA”). [Doc. 411 ¶ 15.] The Plan was
established and is maintained by Michelin North America,
Inc., a corporation with its principal place of business in
Greenville, South Carolina. [Id.] Plaintiff, the
Investment Committee of the Michelin Retirement Plan (the
“Investment Committee”), “is a fiduciary
of” the Plan and “is comprised of individuals who
reside in Greenville, South Carolina.” [Id.
is a pension fund, and body politic and corporate of the
State of Illinois, established under the Illinois Pension
Code (40 ILES 5/22-101B), to provide health care benefits to
retirees of the Chicago Transit Authority, an independent
governmental agency of the City of Chicago, Illinois.”
[Id. ¶ 12.] “On or about September 9,
2009, RHCT entered an Investment Management Agreement”
(the “RHCT Agreement”) with Hughes Capital
Management, LLC (“HCM”), an institutional
investment firm in Alexandria, Virginia. [Id.
¶¶ 7, 37.] “HCM was to manage and invest
certain RHCT retirement funds in accordance with the RHCT
Agreement, and the investment guidelines attached thereto,
which limited the authority of HCM to invest RHCT's funds
in high-risk or speculative securities.” [Id.
is a law firm operating as a limited liability partnership
organized under the laws of Pennsylvania and has offices
throughout the Middle Atlantic States, with no offices in
Illinois or South Carolina. [Id. ¶ 27.] None of
Dilworth's partners are citizens of Illinois or South
Carolina. [Id. ¶ 28.] At all times relevant,
Anderson was a Dilworth partner, but he now works for another
law firm from its address in Philadelphia. [Id.
alleges that it was one of multiple victims that lost
millions of dollars as the result of a fraudulent scheme
created by Jason Galanis (“Jason”) and John
Galanis to misappropriate the proceeds of Wakpamni Lake Bonds
(“the Bonds”). The Bonds were issued by Wakpamni
Lake Community Corporation (“WLCC”), a tribally
chartered corporation associated with the Oglala Sioux Tribe
in South Dakota. [Id. ¶¶ 4, 59, 63.] The
scheme is described in more detail in the Complaint; however,
the essence of the scheme involved the Defendants engaging in
the following acts:
• Setting up the Bond transaction to supposedly invest
the proceeds in an “annuity” that was entirely
• Placing co-conspirators in control of each entity
involved with every aspect of the Bond transaction and
carrying out their conspiracy with those persons;
• Acquiring ownership and control of investment
management companies in order to steal retirement funds
entrusted to those companies by “investing” those
funds in fraudulent bonds;
• Using their conspiratorial cooperation to force client
funds into the purchase of the issued tribal bonds; and
• Raiding the proceeds from closing the bonds.
[Id. ¶¶ 5, 7, 46, 57, 63-64, 82, 84,
do not allege that the DP Defendants were actually aware of
the plan to misappropriate the bond proceeds, but they do
allege the DP Defendants played a part in the bond
transaction and an unwitting role in the misappropriation.
Dilworth served as legal counsel for the placement agent,
Burnham Securities, and undertook responsibility for
preparing and examining the documents necessary to financing
WLCC's project. [Id. ¶¶ 88, 92.] A
Dilworth partner with significant experience with tribal
bonds, Anderson served as Dilworth's lead attorney in
this matter. [Id. ¶¶ 29, 58-60.] The
Complaint alleges a laundry list of facts known to the DP
Defendants that RHCT alleges should have alerted the DP
Defendants that further investigation was needed before they
could conclude that the bond purchasers would receive the
return on their investment that they were promised.
[Id. ¶¶ 94-117, 131-34, 158-60, 175,
180-82, 187-91, 278-80, 283-84, 296-98, 300.]
August 22, 2014, and August 26, 2014, HCM agreed to purchase
$27, 077, 436 worth of the Bonds on behalf of nine of
HCM's clients, two of which were RHCT and Michelin.
[Id. ¶¶ 168, 169, 175.] RHCT's funds
were wired on August 25, 2014, from its account in Chicago,
Illinois, to the trust ...