Secretary United States Depart v. John Koresko ( 2018 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 16-3806 & 17-1140
_____________
SECRETARY UNITED STATES DEPARTMENT OF LABOR
v.
JOHN J. KORESKO; JEANNE D. BONNEY; PENN MONT BENEFIT SERVICES
INC; KORESKO & ASSOCIATES, P.C.; KORESKO LAW FIRM, P.C.; PENN
PUBLIC TRUST; REGIONAL EMPLOYERS ASSURANCE LEAGUES
VOLUNTARY EMPLOYEES BENEFICIARY ASSOCIATION TRUST; SINGLE
EMPLOYER WELFARE BENEFIT PLAN TRUST
John J. Koresko, V,
Appellant
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 2-09-cv-00988)
District Judge: Honorable Wendy Beetlestone
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
January 23, 2018
______________
Before: HARDIMAN, VANASKIE and SHWARTZ, Circuit Judges
(Filed: March 23, 2018)
______________
OPINION *
* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
______________
VANASKIE, Circuit Judge.
Appellant John J. Koresko, V, proceeding pro se, appeals the District Court’s
August 31, 2016, Order denying his motion for reconsideration of its April 26, 2016,
order of contempt. The Court held Koresko in civil contempt after finding that he failed
to comply with Court orders compelling him to turn over assets he had misappropriated
from employee welfare benefit plans protected by the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. 1001, et seq. Koresko also appeals the
District Court’s December 5, 2016, Order denying his motion to quash a writ of
garnishment issued in aid of collecting the sizeable judgment entered against Koresko.
Discerning no abuse of discretion in the District Court’s decisions, we will affirm both
orders.
I. 1
In 2009, at the time this litigation began, Koresko was a licensed attorney and
certified public accountant, and was also the President of PennMont Benefit Services
Inc., a Pennsylvania corporation that conducts administrative services for trusts. The
United States Department of Labor (“DOL”) filed suit against Koresko, another named
individual, and related entities for alleged violations of ERISA related to their
administration of the Regional Employers Assurance Leagues Voluntary Employees’
1
Our factual recitation is limited to the matters that are relevant to this appeal.
2
Beneficiary Association (“REAL VEBA”) and the Single Employer Welfare Benefit Plan
Trust (“SEWBPT”) (collectively, the “Plans”). Koresko entered his appearance as
counsel for himself and all named defendants.
In 2013, the DOL sought preliminary injunctive relief to remove Koresko from
positions of authority over the Plans, to require him to restore Plan assets, and to prevent
him from further depleting the assets. The DOL also sought the appointment of an
interim Independent Fiduciary to administer the Plans. In support of its motion, the DOL
asserted that Koresko had diverted Plan assets for improper purposes, such as buying
condominiums on the Caribbean Island of Nevis and transferring $1.68 million from Plan
accounts in the United States to a Nevis-based account named the “John Koresko Client
Escrow.” (Supp. App. at 3.) During a hearing on the motion, Koresko admitted to
transferring the $1.68 million and purchasing the Nevis real estate with Plan assets. By
Order dated September 16, 2013, the District Court granted the DOL’s motion.
Specifically, the District Court enjoined Koresko from serving the Plans and their
participants in any capacity, appointed an interim Independent Fiduciary to administer the
Plans, and directed Koresko to return the $1.68 million deposited in a Nevisian bank and
transfer all rights in the Nevis real estate properties to the Independent Fiduciary.
Additionally, Koresko was required to provide both the District Court and the
Independent Fiduciary with the “name, account number, and location of any accounts
containing [P]lan assets and to identify and provide the location and deeds . . . of all real
or personal property purchased with [P]lan assets” within five business days. (Supp.
App. at 21-22.)
3
Koresko failed to comply with the September 16, 2013, Order, leading the DOL to
file its first motion for civil contempt on September 27, 2013. The Court issued an order
to show cause as to why Koresko should not be held in civil contempt, and a hearing was
scheduled. Counsel then entered his appearance on behalf of Koresko.
Koresko was deposed while the contempt motion was pending. He testified that
he had originally purchased real estate in Nevis as a “trust investment,” (Supp. App. at
107, 109), and that he transferred $1.68 million into the Nevis-based “John Koresko
Client Escrow” account to fund the construction of condominium properties. Koresko
also admitted that, after the District Court’s September 16, 2013, Order requiring him to
return the Plan funds to the Independent Fiduciary, he traveled to Nevis for the purpose
of transferring the funds to the Royal Bank of Trinidad and Tobago.
There ensued a number of court proceedings concerning Koresko’s failure to
return the misappropriated funds and to transfer title to the Nevis condominiums to the
Court-appointed Independent Fiduciary. On June 27, 2014, the District Court entered an
order requiring Koresko to wire transfer funds from the Nevis account to the Independent
Fiduciary by July 14, 2014. Three days before the deadline, Koresko filed a declaration
with the Court stating that the Nevis bank would not wire the funds to the United States
as ordered. The District Court then granted leave for Koresko to travel to Nevis to
personally arrange for the transfer of funds, but Koresko was involved in a car accident
and could not complete the transfer.
On September 10, 2014, the District Court denied the DOL’s first motion for
contempt, “except with respect to Mr. Koresko’s failure to transfer to the United States
4
the accounts held in the Nevis branch of the Royal Bank of Trinidad and Tobago.”
(Supp. App. at 54.) The order gave Koresko until October 3, 2014, to effectuate the
transfer. The Court thereafter extended its deadline to October 31, 2014, but required
Koresko to sign a power of attorney authorizing the Independent Fiduciary to gain
control of the accounts in the event that Koresko could not transfer the funds in time.
Koresko eventually executed a power of attorney approved by the Independent
Fiduciary’s Nevisian lawyer, but the power of attorney did not enable the Independent
Fiduciary to effectuate the transfer of funds or real property.
On February 6, 2015, following a bench trial, the District Court issued a
comprehensive opinion on the merits of the DOL’s claims. The District Court concluded
that Koresko and the other defendants had breached their fiduciary duties of loyalty and
prudence by misappropriating and diverting Plan assets, as well as engaging in prohibited
self-dealing. On March 13, 2015, the District Court entered judgment against Koresko
and his co-defendants in the amount of $38,417,109.63. 2 This amount did not include the
funds that Koresko wrongfully transferred to the Royal Bank of Trinidad and Tobago and
that were the subject of the pending contempt motion.
Unable to secure the return of the Plan assets held in Nevis, the DOL filed its
second contempt motion on February 9, 2016. On March 31, 2016, the District Court
2
We affirmed the District Court’s judgment. See Sec’y U.S. Dep’t of Labor v.
Koresko, 646 F. App’x 230 (3d Cir. 2016). We also affirmed the September 16, 2013,
Order to the extent that Koresko challenged the appointment of an Independent
Fiduciary.
5
entered an order requiring Koresko to file a response to the DOL’s contempt motion by
April 14, 2016, and scheduled a hearing for April 26, 2016.
Koresko failed to respond to the contempt motion, and neither Koresko nor his
attorney appeared at the April 26 contempt hearing. Accordingly, the District Court held
Koresko in contempt. As summarized by the District Court in denying Koresko’s motion
to reconsider the contempt order, the Court made the following findings at the conclusion
of the April 26 hearing:
1. On September 16, 2013, the Court issued an Order directing
Defendant Koresko to turn over all trust assets and assign all
rights in the Nevis condominiums to the Independent
Fiduciary.
2. Koresko was present at the September 16, 2013 hearing that
preceded the Court’s Order and he took part in the argument
between the parties regarding the language of the Court’s
Order.
3. Koresko submitted a declaration acknowledging his
knowledge of the Court’s September 16, 2013 Order, and he
appealed the Court’s September 16, 2013 Order. . . .
4. Koresko was represented by counsel from the law firm of
Dilworth Paxson, who responded on his behalf to the DOL’s
first motion for contempt and related supplemental briefings
arising from the Court’s September 16, 2013, Order.
5. On June 27, 2014, the Court issued an Order directing
Koresko to complete a wire transfer of the funds in Nevis to
the Independent Fiduciary.
6. On September 10, 2014, the Court issued an Order directing
Koresko to transfer the Nevis accounts to the United States no
later than October 3, 2014.
6
7. On October 15, 2014, the Court issued an Order directing
Koresko to transfer the accounts from Nevis to the United
States no later than October 31, 2014.
8. On March 13, 2015, the Court issued an Order directing
Koresko to immediately turn over all REAL VEBA or
SEWBPT assets remaining in his custody or control to the
Independent Fiduciary.
9. Koresko participated in the Court’s Case
Management/Electronic Case Filing system, by which he was
served at his email account . . . pursuant to Local Rule
5.1.2.(4)(c).
10. Koresko used trust assets in the amount of $3.372 million
to purchase real property in Nevis at the Nelson Springs resort
and moved $1.68 million from bank accounts in the United
States containing trust assets to an account in Nevis in the name
of “John J. Koresko Client Escrow.”
11. Koresko failed to surrender to the Independent Fiduciary
the trust assets that were transferred first to the Scotia Bank and
then to the Royal Bank of Trinidad and Tobago. Koresko
retained custody and control over these funds throughout the
pendency of this case, up to and including the Court’s final
judgment and Order in March 2015. Koresko has the present
ability to transfer these funds, but has refused to do so.
12. Koresko failed to assign all rights to the real property in
Nevis to the Independent Fiduciary. Koresko has the present
ability to assign whatever rights he has in the properties to the
Independent Fiduciary, but has refused to do so.
(App. at 36-37) (internal citations omitted).
Based on these findings, the Court determined that the DOL proved, through clear
and convincing evidence, that: (1) Koresko had knowledge of the Court’s September 16,
2013, Order; (2) Koresko had knowledge of four subsequent orders directing Koresko to
comply with the original order; and (3) Koresko had a present ability to comply with the
7
Court’s orders, but failed to do so. The Court directed Koresko to surrender to the United
States Marshals Service on May 4, 2016. Koresko was ordered to remain in custody until
such time as he had transferred the money and title to the real estate held in his name in
Nevis to the Independent Fiduciary. Koresko, however, failed to self-surrender by the
required date, and the Court issued a warrant for his arrest. Koresko was subsequently
arrested and placed in custody, where he remains.
On May 17, 2016, Koresko’s attorney moved for relief from the contempt order,
which the Court denied. 3 The Court then held four status conferences regarding
Koresko’s civil contempt, which he refused to purge. In the meantime, Koresko filed
seven documents that the District Court collectively construed as Koresko’s motion for
reconsideration of the Court’s order of civil contempt. In the documents, Koresko
appeared to challenge the Court’s general authority to impose civil contempt orders, an
argument the Court deemed meritless. Koresko also argued that there was improper
notice of the contempt proceedings, which the Court rejected on the ground that the DOL
properly served Koresko’s attorney pursuant to the Federal Rules of Civil Procedure with
a copy of the second contempt motion, and that Koresko also received electronic service
of all documents. Accordingly, on August 31, 2016, the District Court denied Koresko’s
motion for reconsideration. Koresko timely appealed.
3
Koresko’s attorney withdrew his appearance on May 26, 2016, and Koresko has
since proceeded pro se.
8
After final judgment was entered, the DOL represented to the District Court that
Koresko had deposited funds with Jetstream Escrow & Title Services, Inc., in Oklahoma
(“Jetstream Escrow”). On September 23, 2016, the Court issued a writ of continuing
garnishment to retrieve funds from the Jetstream Escrow. In response to the garnishment
order, Jetstream Escrow informed the Court that Koresko held a $50,000 non-exempt
interest in the escrow account. Koresko moved to quash the writ, which the Court denied
on December 5, 2016. Koresko also timely appealed this order.
II.
The District Court had subject-matter jurisdiction under 28 U.S.C. § 1331 and 29
U.S.C. § 1132(e), and, nd we have jurisdiction under 28 U.S.C. § 1291. We review the
denial of a motion for reconsideration for abuse of discretion, N. River Ins. Co. v. CIGNA
Reinsurance Co., 52 F.3d 1194, 1203 (3d Cir. 1995), and we review the District Court’s
factual conclusions for clear error. Id. (citing Ram Constr. Co., Inc. v. Am. States Ins.
Co., 749 F.2d 1049, 1053 (3d Cir. 1984)). We review the District Court’s garnishment
order for abuse of discretion. United States v. Clayton, 613 F.3d 592, 595 (5th Cir.
2010).
III.
A.
A defendant may move for reconsideration of a court’s order, but “[t]he standard
for granting such a motion is strict . . . .” Shrader v. CSX Transp., Inc., 70 F.3d 255, 257
(2d Cir. 1995); see also Velazquez v. UPMC Bedford Mem’l Hosp., 338 F. Supp. 2d 609,
611 (W.D. Pa. 2004) (“District Courts grant motions for reconsideration sparingly as
9
there is an interest in finality.”). Motions for reconsideration may be granted only “to
correct manifest errors of law or fact or to present newly discovered evidence.” Harsco
Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985).
The crux of Koresko’s argument is that the District Court wrongfully imprisoned
him for civil contempt because, according to Koresko, he “did not disobey” the Court’s
orders. (Appellant’s Br. at 4.) Accordingly, Koresko argues for his immediate release
from prison.
“There can be no question that courts have inherent power to enforce compliance
with their lawful orders through civil contempt.” Shillitani v. United States, 384 U.S.
364, 370 (1966) (citations omitted). A civil contempt order may issue upon a court
finding: “(1) that a valid order of the court existed; (2) that the defendants had knowledge
of the order; and (3) that the defendants disobeyed the order.” Marshak v. Treadwell, 595
F.3d 478, 485 (3d Cir. 2009) (citation and internal quotation marks omitted). The movant
must prove these elements by “clear and convincing evidence, and ambiguities must be
resolved in favor of the party charged with contempt.” John T. ex rel. Paul T. v. Del. Cty.
Intermediate Unit, 318 F.3d 545, 552 (3d Cir. 2003) (citations and internal quotation
marks omitted). All three conditions for issuance of a contempt order were satisfied by
evidence that is indeed clear and convincing.
First, the District Court’s orders requiring the return of Plan assets were valid.
The DOL is authorized by 29 U.S.C. §§ 1132(a)(2) and (a)(5) to obtain appropriate
equitable relief to redress a breach of fiduciary duty by a person in Koresko’s position in
relation to the Plans. And, “[a] federal court enforcing fiduciary obligations under
10
ERISA is . . . given broad equitable powers to implement its remedial decrees.”
Delgrosso v. Spang & Co., 769 F.2d 928, 937 (3d Cir. 1985). Return of Plan assets was
well within the District Court’s remedial authority.
Koresko challenges the validity of the contempt order by arguing that it unlawfully
imprisoned him for collection of a money judgment. See 28 U.S.C. § 2007(a) (“A person
shall not be imprisoned for debt on a writ of execution or other process issued from a
court of the United States in any State wherein imprisonment for debt has been
abolished.”); see also Colburn v. Colburn, 123 A. 775, 775-76 (Pa. 1924) (noting
Pennsylvania’s prohibition on imprisonment for recovery of a money judgment stemming
from a contract). There is a difference, however, between imprisonment for debt, and
imprisonment for failure to comply with a court order, the latter being permissible. See
United States v. Harris, 582 F.3d 512, 515 (3d Cir. 2009) (“With civil contempt, the
contemnor will be released [from prison] subject to compliance with some condition. He
is thus understood, in a by-now familiar observation, to carr[y] the keys of his prison in
his own pocket.” (citation and internal quotation marks omitted)); see also Santibanez v.
Wier McMahon & Co., 105 F.3d 234 (5th Cir. 1997); Ne. Women’s Ctr., Inc. v.
McMonagle, 939 F.2d 57 (3d Cir. 1991); Usery v. Fisher, 565 F.2d 137 (10th Cir. 1977).
The District Court made clear that Koresko was imprisoned for failure to comply with its
orders which, among other things, required him to turn over Plan assets to the
Independent Fiduciary. We thus reject Koresko’s argument that his imprisonment for
civil contempt was for collection of a money judgment. In this regard, it bears
emphasizing that the final judgment entered against him did not include the money he
11
wrongfully transferred to the Royal Bank of Trinidad and Tobago or transfer of title to
the Nevisian real estate, both of which were covered by the September 16, 2013, Order
and subsequent confirming orders.
Second, the District Court had an ample basis for concluding that Koresko had
knowledge of the orders at issue. Koresko represented himself when the September 16,
2013, Order was issued, he received notice via the Court’s Electronic Case Filing System,
and he participated in multiple proceedings after the September 16, 2013, Order that
concerned enforcement of the directives that he return Plan assets from Nevis.
And finally, Koresko cannot dispute that he has not complied with the orders. He
has not transferred the funds from the Royal Bank of Trinidad and Tobago, and he has
not transferred to the Independent Fiduciary title to the Nevis condominiums.
Accordingly, the District Court did not abuse its discretion in holding Koresko in
contempt.
Aside from attacking the underlying contempt order, Koresko raises other
arguments, which we similarly find to be meritless. Koresko argues that the District
Court should have held a “turnover proceeding” to determine whether the Nevis property
was in Koresko’s possession and control, but we have reserved this principle for
bankruptcy proceedings, a context that requires us to determine “whether the bankrupt
had property within his possession or control at the date of bankruptcy which he had not
delivered to his trustee.” Toplitz v. Walser, 27 F.2d 196, 197 (3d Cir. 1928); see also In
re Contemporary Apparel, Inc., 488 F.2d 794, 798 (3d Cir. 1973); Price v. Kosmin, 149
12
F.2d 102, 104 (3d Cir. 1945). As such, we deem this type of hearing inapplicable to
Koresko’s case.
Koresko also argues that he was denied due process during the contempt
proceedings. We have observed that due process mandates “notice and a hearing before a
finding of contempt is made and before the imposition of contempt sanctions so that the
parties ‘have an opportunity to explain the conduct deemed deficient . . . and that a record
will be available to facilitate appellate review.’” Harris v. City of Philadelphia, 47 F.3d
1311, 1322 (3d Cir. 1995) (quoting Newton v. A.C. & S., Inc., 918 F.2d 1121, 1127 (3d
Cir. 1990)). As reflected in the record, Koresko received adequate notice of the District
Court’s scheduled contempt hearing and resulting order. The contempt hearing afforded
Koresko an opportunity to be heard, but he chose not to attend, and he also chose not to
object in writing. Significantly, Koresko was still represented by counsel when the 2016
contempt proceedings were conducted.
Finally, Koresko argues that the District Court’s March 13, 2015, final decision
on the merits, where the Court found him and other defendants liable for $38.4 million
stemming from ERISA violations, “swallowed up” the September 16, 2013, Order.
(Appellant’s Br. at 38) (citation omitted). But the District Court was careful to note that
the money and property in Nevis were not subsumed within the judgment on the merits.
The September 16, 2013, Order remained in effect and was not rendered moot by the
judgment on the merits.
In sum, we hold that the District Court did not abuse its discretion in denying
Koresko’s motion for reconsideration, as Koresko has not demonstrated a manifest error
13
of law or fact in the Court’s contempt order, and has not presented any newly discovered
evidence that is relevant to his appeal. 4
B.
We next address the District Court’s denial of Koresko’s motion to quash the writ
of garnishment. A breaching fiduciary “shall be personally liable to make good to such
plan any losses to the plan resulting from each such breach . . . .” 29 U.S.C. § 1109(a).
“A court may issue a writ of garnishment against property . . . in which the debtor has a
substantial nonexempt interest and which is in the possession, custody, or control of a
person other than the debtor, in order to satisfy the judgment against the debtor.” 28
U.S.C. § 3205(a). Moreover, nationwide execution of a garnishment order in favor of the
United States is appropriate because “[a] writ of execution on a judgment obtained for the
use of the United States in any court thereof shall be issued from and made returnable to
the court which rendered the judgment, but may be executed in any other State . . . .” 28
U.S.C. § 2413. “In garnishment proceedings, the Defendant bears the burden of
establishing that his property is exempt.” United States v. King, No. 08-66-01, 2012 WL
1080297, at *3 (E.D. Pa. Apr. 2, 2012) (citing 28 U.S.C. § 3014(b)(2)).
4
In his reply brief, Koresko cites two recent Supreme Court decisions, Ziglar v.
Abbasi, 137 S. Ct. 1843 (2017), and Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), for
the proposition that the DOL lacked standing to seek relief against him because, he
contends, the Plans did not sustain a pecuniary loss. While instructive in the areas of
immigration (Ziglar) and the Fair Credit Reporting Act (Spokeo, Inc.), these cases have
nothing to do with standing to obtain redress for an ERISA fiduciary’s breach of duties.
As we explained in Edmonson v. Lincoln National Life Insurance, 725 F.3d 406, 417 (3d
Cir. 2013), “a financial loss is not a prerequisite for standing to bring a disgorgement
claim under ERISA.” Nothing in Ziglar or Spokeo alters that conclusion.
14
Koresko argues that a final monetary judgment in favor of the DOL never existed,
and that the District Court “never directed [him] to pay a dime to the [DOL].”
(Appellant’s Br. at 52.) Moreover, Koresko argues that the DOL had no authority under
ERISA to collect a monetary judgment for the Plan participants.
Koresko is mistaken. The District Court found, and we affirmed, that Koresko
committed breaches of his fiduciary duties, which resulted in losses to the Plans and their
participants and beneficiaries. Pursuant to ERISA, the DOL has authority to seek
“appropriate relief” under 29 U.S.C. § 1132(a)(2), including removal of a fiduciary and
restoration of plan assets. Id. § 1109. The DOL demanded payment of the outstanding
judgment on behalf of Plan participants, and representatives from the Jetstream Escrow in
Oklahoma asserted that Koresko held a $50,000 non-exempt interest in the account. We
do not find any procedural defects in the DOL’s method of collecting the judgment on
behalf of the Plans. And the DOL properly sought to execute the garnishment order in
Oklahoma because nationwide execution is appropriate. We thus find that the District
Court did not abuse its discretion by entering the writ of continuing garnishment.
IV.
Accordingly, we will affirm the orders of the District Court entered on August 31,
2016, and December 6, 2016.
15