Bureau Of National Affairs
Mediation in Pension Fraud Litigation Yields Some Results; More Defendants Named
By Tom Alkire
Monday, September 10, 2001
PORTLAND, Ore.--A court-ordered mediation this summer has yielded some settlements in a large and complex pension fraud case involving more than 40 union pension fund trusts in the western United States.
But even as the settlements await approval in federal district court, possibly as early as October, more defendants have been sued in the past few weeks by the trusts in the hope of recouping some of the millions of dollars lost in the alleged mishandling of some $927 million in pension funds by Capital Consultants LLC, a Portland investment management company.
Late last spring Judge Garr King of the U.S. District Court for the District of Oregon ordered the parties into mediation from mid-May until Aug. 27 to resolve some of the claims by the trusts against Capital Consultants and other defendants. Mediation was conducted in Portland by Judge Edward Leavy, a senior judge in the U.S. Court of Appeals for the Ninth Circuit. Little public information has been available about the results of the mediation due to a broad confidentiality order issued by the court.
Settlements were reached with some of the defendants, and King has scheduled an Oct. 16 hearing to approve them. Details on the settlements are expected to become available at the hearing.
A number of defendants have yet to settle and a trial is expected to be scheduled for next spring.
One year ago, federal authorities seized the assets of Capital Consultants and placed the firm in receivership. At the time of the federal takeover, the firm had $927 million under its management, a large share of which was union pension funds. Just less than half of the total funds were invested in public equities and cash but slightly more than half were invested in higher risk private investments, according to court records.
Funds from the Taft-Hartley plans and other union plans accounted for $407 million of the private investments. A number of these high-risk private investments have done poorly and may be nearly worthless, according to court documents.
It is unclear how much money the trusts may have lost through Capital Consultants' alleged mismanagement, but the Department of Labor has said the union funds lost more than $100 million.
Since the federal takeover, the federal district court in Oregon has been inundated by lawsuits, including one by the Department of Labor alleging violations of the Employee Retirement Income Security Act (Herman v. Capital Consultants, D. Or. No. CV 00-1291) and another from the Securities and Exchange Commission alleging violations of securities laws (SEC v. Capital Consultants, D. Or. No. CV 00-1290).
The Capital Consultants case is one of the largest pension fraud cases that the Labor Department has handled in terms of the amount of money and the number of trusts involved, said Gloria Della, spokeswoman for the department's Pension and Welfare Benefits Administration.
More than 40 union pension trusts are suing Capital Consultants and their professional advisors. In addition, a number of union members are suing their own pension fund trustees. The lawsuits have been parceled out to three judges in the federal court. In recent weeks, union trusts have also sued a law firm and an accounting firm that advised Capital Consultants, claiming the firms conspired with Capital Consultants to mishandle the pension funds.
Stoel Rives, a Portland law firm, was sued and also is subject to a dispute with the court-appointed receiver over documents relating to the case. Receiver Thomas Lennon is trying to get the court to order Stoel Rives to turn over documents while the firm is claiming attorney-client privilege, according to court documents.
Moss Adams, LLP, the accounting firm that was sued, provided accounting and auditing services to Capital Consultants. The trusts are seeking $260 million, according to court documents. The case was originally filed in Oregon Circuit Court, was remanded to federal court, and now the trusts are attempting to get it returned to state court.
The trusts may be receiving some funds from Lennon, who is in the process of liquidating assets of Capital Consultants. For example, one court document involved Lennon's request to the court to sell a group of Portland area commercial buildings with a net value of $27 million.
The other two judges handling Capital Consultants' cases are Dennis Hubel and Ancer Haggerty. King is handling the Labor Department and Secrities and Exchange Commission cases, Hubel is handling the trusts' suits against Capital Consultants and its professional advisors, and Haggerty is handling cases by union members against their fund trustees.
As of Sept. 5, the cases had not been consolidated. Some of the major cases by union trusts against Capital Consultants and its professional advisors include Hazzard v. Capital Consultants, D. Ore, No. CV 00-1338; Hazzard v. Moss Adams, D. Or, No. CV 01-603; Madole v. Capital Consultants, D. Or. No. CV 00-1660; Chilia v. Capital Consultants, D. Or., No. CV 00-1633; Chilia v. Stoel Rives, D. Or., No. CV 01-1315.
The union pension trusts involved include the United Association Union Local 290, Plumber, Steamfitters and Shipfitter Industry Pension Plan, 401(k) Plan and Trust and Health and Welfare Plan and Trust; the Office and Professional Employees International Union, Local No. 11 401(k) Retirement Fund and Health and Welfare Trust; the Denver-based Eighth District Electrical Profit Sharing, Pension Trust, and Welfare Trust; the Signatory Employers-Idaho Laborers Pension Trust Fund; and three plans of the Oregon Laborers-Employers: the Defined Contribution and 401(k) Plan, the Health and Welfare Trust Fund and the Pension Plan and Trust.
In addition, individual trustees for some of the above plans and other plans also have been named in suits by union members alleging breach of fiduciary duty.
Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.