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The Michelin Retirement Plan v. Chicago Transit Authority Retiree Health Care Trust

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

July 7, 2019

The Michelin Retirement Plan; The Investment Committee of the Michelin Retirement Plan, Plaintiffs,
v.
Chicago Transit Authority Retiree Health Care Trust, Intervenor Plaintiff,
v.
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 JUDGE

          JACQUELYN D. AUSTIN UNITED STATES MAGISTRATE JUDGE.

         This 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.

         Michelin 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.

         BACKGROUND

         The 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. ¶ 16.].

         “RHCT 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. ¶ 37.]

         Dilworth 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. ¶ 29.]

         RHCT 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 fake;
• 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, 192-211.]

         Plaintiffs 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.]

         Between 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. ΒΆΒΆ 168, 169, 175.] RHCT's funds were wired on August 25, 2014, from its account in Chicago, Illinois, to the trust ...


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