A recent Law 360 story by Celeste Bott, “DOL Says Fund ‘Bleeding Money,’ Questions Baker Botts Bills”, reports that the U.S. Department of Labor has asked an Illinois federal judge to prevent trustees from entirely draining a multi-employer benefit fund — after the agency accused them of misappropriating more than $2.8 million in assets and seemingly approving "gargantuan" legal fees charged by Baker Botts LLP.

In a motion for a temporary restraining order and preliminary injunction, the department said that without court intervention, trustees John Fernandez and Gary Meyers will keep "bleeding money" from the United Employee Benefit Fund and leave nothing for the participants and beneficiaries.  The fund provides life insurance for at least 63 employer-sponsored plans.

The Labor Department says it has evidence that the trustees are approving or failing to scrutinize the funds' soaring expenditures toward legal fees and other costs that are rapidly depleting its assets, leading those assets to shrink from $22 million in December 2018 to roughly $12 million in April 2023, and then "dramatically less" as of this May, "to the point where there is a substantial risk that all of the fund's assets will be imminently and completely dissipated."

The agency says Fernandez and Meyers "appear to be turning a blind eye" to unreasonable legal fees, claiming to have received a letter in May from the fund's counsel, Christopher Rillo of Baker Botts, stating that the firm had billed the fund millions in fees, in part to defend against the Employee Retirement Income Security Act lawsuit, and was owed millions more, far exceeding initial estimates.

The suit, first brought by Labor Secretary Marty Walsh last February, alleges that the benefit fund and its trustees used more than $2.8 million to pay home foreclosure costs and make direct payments to themselves.  The complaint also alleges that L. Steven Platt, a real estate attorney, helped transfer $1.1 million from the fund through his companies Husker Properties LLC and Mount Rinderhorn Capital LLC to save a trustee's home from foreclosure in late 2016.  Platt later argued in a motion to dismiss that he was merely following orders from the trustees.

Fernandez and Meyers were both named in the suit, as are the law firm Robbins Salomon & Patt Ltd. and real estate attorney David Schwalb, who the Labor Department alleged conducted prohibited transactions with the fund in 2016 and 2017.  Now, emergency measures are warranted because of "alarming information" the department has learned about the fund's rapidly depleting assets, the department said.

"The $1.385 million the Secretary caused to be restored to the fund between August and November 2021 is likely spent, presenting the distinct possibility that there will be nothing left to make whole the participants harmed by the trustees' violations," the DOL said.  "In addition to the very real possibility that all plan assets will be dissipated before this litigation is resolved, the issue of attorney's fees is concerning because the trustees brazenly amended the fund's governing document to allow the fund to give themselves and defendant Platt indemnification agreements that require it to advance their legal fees, including fees to defend against the Secretary's claims against them for fiduciary violations."

The agency claims that it has asked Rillo of Baker Botts numerous times for information about the fund's assets and legal bills, but it was not until days before the May mediation that he shared those details.  "Fund counsel implies that his 'substantial attorney's fees' are justified by the possibility his firm will recover more money for the fund than the Secretary's enforcement action will," the department said.  "Beyond that, the litigation Rillo filed on behalf of the fund to recover losses from ERISA violations is duplicative of the Secretary's claims — a fact belied by the fund's failed attempt to consolidate its actions with the Secretary's."

Rillo has said there is no insurance coverage available to pay the fund's legal fees in defending the ERISA action, with those costs to defend the trustees coming directly from the fund they are accused of mismanaging, the DOL said.  "Thus, it appears that the trustees are permitting the fund to cash in participants' insurance policies to obtain funds to pay their own enormous legal fees, as well as the unreasonable fees charged to the fund by fund managers," it said.

The department wants an appointed fiduciary to take control of the fund, its assets and participating plans and make sure it complies with ERISA, conduct analysis on whether the legal fees paid since Rillo became the fund's counsel are lawful and prevent the fund from cashing in any life insurance policies except for the benefit of the fund's participants.