Hearing Date: March 24, 2011 At: 10:00 a.m.

Objection Deadline: March 17, 2011

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------------X In re THELEN LLP,

Chapter 7

Case No. 09-15631 (ALG) Debtor. ----------------------------------------------------------------X THE SECRETARY OF LABORS LIMITED OBJECTIONS TO THE TRUSTEES APPLICATIONS FOR AN ORDER AUTHORIZING AND APPROVING TRUSTEES EMPLOYMENT OF CERTAIN PROFESSIONALS TO ASSIST TRUSTEE IN DISCHARGING DUTIES UNDER 11 U.S.C. 704(a)(11), PAYING THOSE PROFESSIONALS AND HIS LAW FIRM FROM THE SUBJECT PENSION PLANS, QUASHING OR CONDITIONING AN ADMINISTRATIVE SUBPOENA DIRECTED TO THE TRUSTEE AS PLAN FIDUCIARY AND OTHER RELIEF Hilda L. Solis, Secretary of Labor, United States Department of Labor (the Secretary), hereby asserts limited objections to the application dated January 13, 2011 (the Application) and the prior related application dated July 9, 2010 ( the Prior Application) of the Chapter 7 trustee (the Trustee) for Thelen LLP (the Debtor). The Secretary files these limited objections in furtherance of her obligation to promote the uniform application of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001, et seq. (ERISA), to protect plan participants and beneficiaries and to ensure the financial stability of plan assets. Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 692-3 (7th Cir. 1986)(en banc). ERISA is a comprehensive remedial statute designed to protect the interests of participants and the assets of employee benefit plans. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983).

INTRODUCTION AND SUMMARY OF THE SECRETARYS LIMITED OBJECTIONS I. THE TRUSTEES RESPONSIBILITIES UNDER ERISA

At the commencement of this bankruptcy case, the Debtor had three separate pension plans: (1) the Thelen LLP 401(k) Plan (401(k) Plan); (2) the Reid & Priest Defined Benefit Pension Plan for Staff Employees (Defined Benefit Plan); and (3) the Thelen LLP Cash Balance Plan (Cash Balance Plan) (collectively the Plans). It is undisputed that each plan is covered by ERISA. It is also undisputed that at the time the petition was filed, the Debtor was the named plan administrator of each of the Plans within the meaning of ERISA 3(16), 402(a), 29 U.S.C. 1002(16), 1102(a). Therefore, the Trustee is required to continue to perform the duties of the plan administrator to each plan pursuant to 11 U.S.C. 704(a)(11).1 In performing the duties of plan administrator, the Trustee is a fiduciary to the Plans within the meaning of ERISA 3(21), 29 U.S.C. 1002(21), and must comply with ERISAs fiduciary duties. In re The Robert Plan Corp., 439 B.R. 29, 39 (Bankr. E.D.N.Y. 2010); In re AB & C Group, Inc., 411 B.R. 284, 293 (N.D. W.Va. 2009). The obligations of a fiduciary under ERISA are those of trustees of an express trust the highest known to the law. Donovan v. Bierwirth, 680 F.2d. 263, 272, n.8 (2d Cir. 1982). Consequently, breach of those duties subject the fiduciary to personal liability for any losses to the Plans caused by the breach under ERISA 409(a), 502(a)(2), 29 U.S.C.
1

11 U.S.C. 704(a)(11) provides, in pertinent part, that: if, at the commencement of the case, the debtor (or any entity designated by the debtor) served as the administrator (as defined by Section 3 of the Employee Retirement Income Security Act of 1974) of an employee benefit plan [the trustee shall] continue to perform the obligations required of the administrator.

1109(a), 1132(a)(2) and to equitable relief under ERISA 502(a)(3) and (5), 29 U.S.C. 1132(a)(3) and (5). In re NSCO, Inc., 427 B.R. 165, 173 (Bankr. D. Mass. 2010). The Secretary is responsible for the enforcement of ERISAs fiduciary responsibility provisions and has the authority to investigate whether any person has violated or is about to violate ERISA, including the power to subpoena documents and to compel the testimony of witnesses at administrative depositions. ERISA 504(a), (c), 29 U.S.C. 1344(a), (c). II. SUMMARY OF THE SECRETARYS LIMITED OBJECTIONS TO THE RELIEF SOUGHT BY THE TRUSTEE

The Application explicitly states that one reason the Trustee seeks this relief is to obtain some measure of personal insulation [from personal liability under ERISA] by implied judicial immunity. Application at 10. The Secretary summarizes below her limited objection to the specific relief sought by the Trustee. Her objections are fully explained below in the Argument section. A. Termination of Plans

Relief Sought: The Trustee seeks Court authorization to terminate the Plans. Secretarys Response: The Secretary does not object to the Court authorizing the Trustee to make the decision to terminate the Plans. The decision to terminate, as distinguished from the manner in which termination is implemented, is a settlor decision to be made by a bankruptcy trustee on behalf of a debtor which sponsors a plan, not a fiduciary decision governed by the fiduciary provisions of ERISA. See, e.g., Waller v. Blue Cross, 32 F.3d 1337, 1343 & n. 12 (9th Cir. 1994). Under each of the Plans, the Debtor has the power to terminate the Plans. 401(k) Plan, 8.02 (Ex. A, excerpts from Plan); Defined Benefit Plan, 13.1 (Ex. B, excerpts from Plan); Cash Balance Plan,

11.1 (Ex. C, excerpts from Plan). The Trustee, acting on behalf of the Debtor, not as the administrator of the Plans, has the power to decide to terminate the Plans. B. Retention of Linquist and Payment of Its Fees from the Plans

Relief Sought: The Trustee seeks Court authorization to retain Linquist LLP (Linquist), an accounting firm, to provide services to the Cash Balance Plan and the 401(k) Plan and to pay Linquists fees and expenses from the assets of the appropriate plan. Secretarys Response: The Secretary does not object to the retention of Linquist but does object to the Court approving the fees to be paid by the Plans to Linquist or any other plan service provider because this Court lacks jurisdiction to approve payments from the Plans, as they are not assets of the bankruptcy estate. Even if the Court finds it has such jurisdiction: (i) the relief requested is an improper comfort order that would violate ERISAs prohibition against exculpation of fiduciaries and nullifies ERISAs statute of limitations; (ii) the Court may not issue, in effect, a declaratory order approving fees under ERISA; and (iii) the relief requested cannot be obtained without first filing an adversary proceeding and appointing an independent fiduciary to represent the Plan. C. Payment of Fox Rothschilds Fees from the Plans

Relief Sought: The Trustee seeks Court authorization to pay approximately $165,338 to the Trustees law firm, Fox Rothschild (including his own fees), from the assets of the ERISA Plans. Fox Rothschilds retention was previously approved by the Court and payment of these fees and expenses were first sought in the Prior Application. A total of $69,038.50 was sought from the Plans at that time. The more recent Application does not state how much the Trustee has determined should be paid by each

plan or whether it includes a request for fees incurred since July 2010. Billing records obtained by the Secretary in her investigation show that Fox Rothschild has billed approximately $66,027 to the 401(k) Plan, $38,540 to the DB Plan and $58,278 to the CB Plan (a total of $165,338) from October 2009 to August 2010. See Mori Decl. at __. Secretarys Response: The Secretary objects to the Court approving the fees to be paid by the Plans to the Trustees law firm because this Court lacks jurisdiction to approve the amounts to be paid by the Plans which are not assets of the estate. Even if the Court finds it has such jurisdiction: (i) the Trustee may not use the Court to circumvent ERISA and engage in a self-dealing transaction (Trustee paying his own law firm with trust assets) that is expressly prohibited by ERISA 406(b), 29 U.S.C. 1106(b); (ii) the Court may not issue, in effect, a declaratory order approving fees under ERISA; (iii) the relief requested is an improper comfort order because it would violate ERISAs prohibition against exculpation of fiduciaries and nullify ERISAs statute of limitations; and (iv) the relief requested cannot be obtained without first filing an adversary proceeding and appointing an independent fiduciary to represent the Plan. The Secretary has attempted to work with the Trustee to resolve these matters in a way that is consistent with ERISA. While the Trustee selected his own law firm to provide services to the Plans and wants to pay the firm $165,338 in assets of the Plans, he has refused to even speak with the Secretarys investigators. The Secretary does not have even basic information about the decision-making process he followed in selecting his firm and the other professionals he hired to serve the plan and setting their fees. Several practical solutions exist to the legal problems posed in this case which the Secretary encourages the Trustee to pursue. First, the Secretary and the Trustee could

enter into a negotiated settlement to set the amount of fees to be paid by the Plans to Fox Rothschild as a resolution of the Secretarys investigation of the fees. Second, the Trustee could apply to the Department of Labor for an individual prohibited transaction exemption. ERISA 408(a), 11 U.S.C. 1108(a).2 The Secretary is willing to work with the Trustee to resolve these matters but that will require cooperation which he has thus far refused. D. Appointment of an Independent Fiduciary

Relief Sought: The Trustee seeks Court authorization to amend the Plans to permit the appointment of an Independent Fiduciary to approve all of the professional fees paid from the Plans, including the fees of Fox Rothschild, Altman & Cronin (actuaries and consultants), David Crutcher (special counsel to the Plans), and Linquist. Application at 6. The retention of Altman & Cronin and Crutcher and payment of their fees from the appropriate plan was previously approved by the Court, without the benefit of the Secretarys legal position. The Trustee, however, apparently now seeks approval of all professional fees by an Independent Fiduciary before paying them. The Trustee also requests Court authorization to retain Pointe Benefit LLC to act as such Independent Fiduciary and to pay its fees and expenses from the assets of the appropriate plan. Secretarys Response: The Plans need not be amended to appoint an Independent Fiduciary. Under the plan documents, the Trustee (acting for the Debtor) has the authority to appoint a trustee (or Independent Fiduciary), including Pointe Benefit
2

The Secretarys Employee Benefits Security Administration is conducting a review of its Abandoned Plan regulation, 29 C. F. R. 2578, and related Prohibited Transaction Exemption 2006-06, 71 Fed. Reg. 20855 (April 21, 2006), to consider whether they should be amended to provide similar prohibited transaction relief to bankruptcy trustees who terminate plans as another practical solution to these issues.

LLC, with the responsibility of approving the payments of fees from the Plans. 401(k) Plan, Art. 1 (definition of Trustee) and 7.01 (Ex A); Defined Benefit Plan, 11.1 (Ex. B); Cash Balance Plan, Art. 1 (definition of Trustee) and 8.01 (Ex. C). In fact, the pre-petition Debtor appointed Edward R. Tinson as trustee of the Defined Benefit Plan and the Cash Balance Plans; he still serves and has fiduciary insurance. Ex. D; Ex. E. The pre-petition Debtor also appointed Charles Schwab as the directed trustee of the 401(k) Plan. Ex. F. 3 Just as the Court lacks jurisdiction to approve the payment of the Plans assets to plan professionals, it lacks jurisdiction to approve the appointment of an Independent Fiduciary to exercise control and discretion over those non-estate assets. Moreover, the Trustees appointment of an Independent Fiduciary to approve the fees to be paid to his own law firm will not entirely avoid the prohibited transaction under ERISA 406(b), 29 U.S.C. 1106(b), which the Trustee himself acknowledges is inherent in the Trustees compensating his own firm with assets of the Plans. Application at 11; Memorandum of Law at 6, n.1. If the Trustee approved the fees to be paid to the Independent Fiduciary and the Independent Fiduciary approved fees to be paid to the Trustees law firm, both fiduciaries would have an interest in the transaction that might affect the exercise of their best fiduciary judgment and the Independent Fiduciary would not be truly independent. See 29 C.F.R. 2550.408b-2(f) (Example 5).

It should be noted that if the Pension Benefit Guaranty Corporation (PBGC) grants the Trustees pending requests for a distress termination of the Defined Benefit Plan or the Cash Balance, a trustee will need to be appointed and it will likely be the PBGC. 29 U.S.C. 4041(c)(3)(B)(iii), 4042(b). The PBGC or another trustee will then have the fiduciary responsibility to determine how to spend the Plans assets, not the Trustee, including the payment of fees to plan service providers. 7

Again, as described above, practical solutions to this problem exist, but they will require the Trustees cooperation. E. Limiting the Secretarys Investigative Authority

Relief Sought: The Trustees seeks an order modifying or quashing the deposition subpoena issued to the Trustee by the Secretary after the Trustee refused to voluntarily allow the Secretarys investigators to interview him. Secretarys Response: This request is jurisdictionally defective, and the Trustee failed to provide any legally cognizable basis for such relief. The request to pay the Trustees law firm $165,338 from the assets of the Plan and the billing records obtained by the Secretary raise many questions. They cannot be answered until the Secretary is permitted to conduct and conclude the investigation that Congress empowered her to conduct to carry out her responsibility to enforce ERISA. The Secretary is unable to formulate substantive objections until that time. ARGUMENT I. THE COURT LACKS JURISDICTION TO APPROVE THE PAYMENT OF THE FEES OF PLAN PROFESSIONALS WITH PLAN ASSETS OR THE APPOINTMENT OF AN INDEPENDENT FIDUCIARY TO CONTROL THOSE ASSETS To the extent that the Application seeks payment of the fees of plan professionals from the assets of the Plans and the appointment of an Independent Fiduciary for the Plans to control those assets, the Application is not a core proceeding because it is not a proceeding arising under Title 11 or arising in a bankruptcy case within the meaning of 28 U.S.C. 157(b), 1334(b). Nor is it related to a case under title 11 within the meaning of 28 U.S.C. 1334(b). Therefore, as fully explained below, the Court lacks jurisdiction to approve payment of fees with the Plans assets and the appointment of an Independent Fiduciary to control the payment of those assets.

A.

The Application Does Not Constitute a Core Proceeding

Core proceedings are those arising under or arising in Title 11. 28 U.S.C 157(b)(1). The Second Circuit has adopted the test articulated in Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir. 1987), to determine whether core jurisdiction exists. MBNA America Bank, N.A. v. Hill, 436 F.3d 104, 109 (2d Cir. 2006). Wood sets forth the following tests for determining whether a proceeding is core: [S]ection 157 apparently equates core proceedings with the categories of arising under and arising in proceedings. Congress used the phrase arising under title 11 to describe those proceedings that involve a cause of action created or determined by a statutory provision of title 11. The meaning of arising in proceedings is less clear, but seems to be a reference to those administrative matters that arise only in bankruptcy cases. In other words, arising in proceedings are those that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of bankruptcy. 825 F.2d at 96-97. In In re AB & C Group, Inc., 411 B.R. 284 (N.D. W. Va. 2009), as in the instant case, the bankruptcy court was asked to approve a procedure by which a chapter 7 trustee would pay an ERISA plan service provider. The bankruptcy court ruled that it lacked jurisdiction over the use of ERISA plan assets. The court in AB & C concluded: [A] proceeding to determine the appropriateness of fees to be charged to the Plan does not arise under title 11 or arise in the bankruptcy case, because the determination requires no resolution of bankruptcy law and the determination frequently arises in non-bankruptcy cases. Id. at 292. Therefore, as the court determined in AB & C, and as described below, no core jurisdiction exists. 1. The Court Does Not Have Arising Under Jurisdiction Over The Use Of Non-Estate Assets Arising under jurisdiction exists where a claim clearly invoke[s] substantive rights created by federal bankruptcy law. MBNA America, 436 F.3d at 108-09. The case law is clear

that for arising under jurisdiction to exist, a proceeding must do more than rely upon a provision in the Bankruptcy Code; it must invoke a substantive right under the Bankruptcy Code. Judge Posner described the difference as follows: Core proceedings are actions by or against the debtor that arise under the Bankruptcy Code in the strong sense that the Code itself is the source of the claimants right or remedy, rather than just the procedural vehicle for the assertion of a right conferred by some other body of law, normally state law. In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997). Section 704(a)(11) of the Code makes the Trustee the vehicle for administering an ERISA plan; it creates no substantive rights. This difference was clearly explained by the court in In re Mid-States Express, Inc., 433 B.R. 688, 695-96 (Bankr. N.D. Ill. 2010), as follows: It cannot be said that section 704(a)(11) invokes a right created by the Bankruptcy Code in the same strong sense. It is not adjunct to, or supplemental of, any substantive right created by the Bankruptcy Code. Section 704(a)(11) stands alone in putting the trustee in the shoes of the ERISA plan administrator. The plan administrators rights and obligations are found in ERISA. The Bankruptcy Code does not alter those rights and obligations. The Trustees request for an order authorizing him to use non-estate assets to pay fees does not involve a substantive right under the Bankruptcy Code. To the contrary, the question of how ERISA plan assets can be spent is governed solely by ERISA, not the Bankruptcy Code. In re AB & C Group, 411 B.R. at 292 (no jurisdiction over the use of ERISA plan assets where "the ultimate goal sought by [the Trustee] is an order under which the court would be obligated to rule upon the propriety of charges against the [pension] plan a determination that is governed by the terms of ERISA, not the Bankruptcy Code").

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The Trustee relies on In re The Robert Plan Corp., 439 B.R. 29 (Bankr. E.D.N.Y. 2010), to support his argument that the court has jurisdiction over the use of the Plans assets.4 This reliance is misplaced. The court held that he had jurisdiction to approve the retention of plan professionals and their compensation under 11 U.S.C. 327(a), 330, 331. 439 B.R.at 44-45. The court recognized, however, that it did not have jurisdiction over the assets of an ERISA plan or to approve the payment of fees from plan assets. Accordingly, it explicitly stated that [a]ny order awarding fees would contain no determination of whether Plan funds could be used to satisfy the award. 439 B.R. at 45 The Robert Plan court obviously believed in the abstract that it was more appropriate that ERISA plan funds, rather than bankruptcy estate assets, be used to pay for ERISA plan administrator functions. However, the court also believed that the most appropriate source of compensation would vary depending upon the terms of the ERISA plan and the specific functions for which a professional was seeking compensation. Even more significant, the court recognized that it had no jurisdiction over ERISA plan assets. Consequently, the court went no further than stating that any order would direct the Trustee to first seek to satisfy the award from Plan funds. 439 B.R. at 45. Thus, the court in Robert Plan recognized that a bankruptcy trustee would have to rely upon his own judgment, not a court order, to determine whether a fee award could be paid with ERISA plan funds, in accordance with both the terms of the plan and the requirements of ERISA. 2. The Court Does Not Have Arising In Jurisdiction Over The Use Of NonEstate Assets

The Trustee also cites In re NSCO, 427 B.R. 165 (Bankr. D. Mass. 2010), to support his argument that the Court has subject matter jurisdiction to authorize the use of plan assets. However, the court in NSCO never addressed whether it would have had jurisdiction over ERISA assets because all such assets were distributed pre-petition. Id. at 169. 11

The fact that a controversy arises during the pendency of a bankruptcy case is an insufficient basis for creating arising in jurisdiction. Valley Historic Ltd. Partnership v. Bank of N.Y., 486 F.3d 831, 836 (4th Cir. 2007). Rather, the controversy must be one that would have no existence outside the bankruptcy. In re Middlesex Power Equipment & Marine, Inc., 292 F.3d 61, 68 (1st Cir. 2002) (citation omitted). In addition, the relief being sought must have some effect upon the bankruptcy estate in order for arising in jurisdiction to exist. Poplar Run Five Ltd. Pship v. Va. Elec. & Power Co., (In re Poplar Run Five Ltd. Pship), 192 B.R. 848, 857-58 (Bankr. E.D. Va. 1995). Disputes over the use of ERISA plan assets routinely arise outside of bankruptcy. The fact that it is the Trustee requesting an order regarding the use of the Plans assets makes no jurisdictional difference. For arising in jurisdiction to exist, the termination itself must also be a task which arises only in bankruptcy. See In re Newfound Lake Marina, Inc. 2008 WL 4868885, at *3 (Bankr. D. N.H. Nov. 6, 2008) (stating that claims that arise in a bankruptcy case are claims that by their nature, not their particular factual circumstances, could only arise in the context of a bankruptcy case) (citation omitted). It is well-established that the concept of core jurisdiction grew out of the Supreme Courts decision in Northern Pipe Line Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). E.g., CoreStates Bank, N.A. v. Huls America, Inc., 176 F.3d 187, 197 (3d Cir. 1999). In Marathon, the Court stated that the core of the federal bankruptcy power is the restructuring of debtor-creditor relations. 458 U.S. at 71. The Trustees administration and termination of the Plan does not trigger the bankruptcy courts core jurisdiction because it does not involve property of the estate or the restructuring of the Debtors relations with its creditors. Rather, it involves the distribution of the assets of ERISA plans, non-estate assets, to those who hold an interest in the Plan.

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There is nothing novel about the idea that a controversy involving property of the estate is at the core of a bankruptcy courts jurisdiction. Only a few years ago, the Supreme Court observed: Bankruptcy jurisdiction, at its core, is in rem. Bankruptcy jurisdiction, as understood today and at the time of the framing, is principally in rem jurisdiction. Central Va. Cmty. College v. Katz, 546 U.S. 356, 362, 370 (2006). This has been the Courts understanding of the essential nature of bankruptcy jurisdiction for more than 130 years. See, e.g., New Lamp Chimney Co. v. Ansonia Brass and Copper Co., 91 U.S. 656, 661 (1875); Hanover Natl Bank v. Moyses, 186 U.S. 181, 192 (1902); Straton v. New, 283 U.S. 318, 321 (1931). It is also significant that when Congress explicitly gave trustees the duty to administer ERISA plans in 2005, it carefully avoided creating any jurisdictional link between an ERISA estate and a bankruptcy estate. Specifically, instead of extending the breadth of a bankruptcy courts jurisdiction by making a trustees administration of ERISA plan assets a core function, Congress explicitly excluded employee contributions to ERISA plans from the definition of property of a debtors estate. 11 U.S.C. 541(b)(7). The exclusion of ERISA plan assets from the definition of property of the estate is fatal to the Trustees claim of core jurisdiction. For example, in Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc), 72 F.3d 1171 (3d Cir. 1996), a negligence action was brought against a bankruptcy trustee for the loss of a painting which was stored on the debtors property but was not part of the debtors estate. The bankruptcy court rejected the negligence claim on its merits, and the district court affirmed. The Third Circuit reversed the lower courts rulings and ordered a dismissal of the action for a lack of subject matter jurisdiction. The Third Circuit held that the bankruptcy court did not have core jurisdiction over the negligence action because, in order for

13

core jurisdiction to exist, the alleged negligence by the trustee needed to involve the administration of property of the estate. Specifically, the Third Circuit stated: Even if we were to interpret the language of 157(b)(2)(a) in the broadest possible manner consistent with the Constitution, this case still would not qualify as a core proceeding. Assuming arguendo that Maggio [the trustee] engaged in all of the conduct that Torkelsen alleges and that such conduct was administrative in nature, our inquiry under 157(b)(2)(a) does not end there. Section 157(b)(2)(a) refers to matters concerning the administration of the estate. Since it is uncontroverted that the Summertime painting is not part of the bankrupt estate, the trustees alleged misconduct does not fall within the plain language of this provision. Id. at 1179. The courts decision in Mid-States is also instructive as to why the Application does not trigger this courts arising in jurisdiction. The chapter 7 trustee in Mid-States claimed the court had arising in jurisdiction to, among other things, authorize him to pay administrative expenses from an ERISA plan because he was a creature of the Bankruptcy Code and was merely trying to fulfill one of his statutory duties. 433 B.R. at 691, 697. The Mid-States court rejected the argument that because a bankruptcy trustee was asserting or defending a right, the proceeding could only arise in a bankruptcy case. Id. at 697. The court went on to state that [t]he trustee does not carry around arising in jurisdiction with him. Id.; see also AB & C, 411 B.R. at 292 (holding that request to make payments pursuant to obligations under 704(a)(11) did not create arising in jurisdiction because the same obligations would have arisen if no bankruptcy had been commenced). The same view was expressed in In re Trans-Industries, 419 B.R. 21 (Bankr. E.D. Mich. 2009). Like the chapter 7 trustees in Mid-States and AB&C, the chapter 7 trustee in TransIndustries argued that arising in jurisdiction existed because he had commenced an adversary proceeding in furtherance of his obligations under 704(a)(11). Id. at 29. As in Mid-States and

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AB & C, the court in Trans-Industries ruled that actions taken in furtherance of a trustees 704(a)(11) obligations -- without more -- do not trigger arising in jurisdiction. The actions themselves (not simply the fact that the actions were being undertaken by a chapter 7 trustee) must be actions that would only occur in bankruptcy. The court held: This proceeding also is not one arising in a case under Title 11, because the claims asserted are not claims that by their very nature, could only arise in bankruptcy cases. [The chapter 7 trustees] ERISA and contract claims, of course, can exist outside of bankruptcy. They do not fit into the narrow category of administrative matterswhich have no existence outside of the bankruptcy. 419 B.R. at 30 (citations omitted).5 In this case, as in Torkelsen, Mid-States, AB & C, and TransIndustries, no arising in jurisdiction exists because the Motion involves issues that routinely arise outside of bankruptcy and does not involve assets of the Debtors estate. See also 28 U.S.C. 157(b)(2)(A) (using the term administration of the estate to describe a core proceeding rather than the broader term administration of the case). For the reasons detailed supra, in the arising under discussion, the Trustees reliance on Robert Plan is misplaced. The Secretary further maintains that the Robert Plan courts analysis of core jurisdiction was incorrect because it was premised on the idea that but for [the trustees] appointment under the Code, he would have no role as administrator of the Plan. In re The Robert Plan Corp., 439 B. R. at 43. However, the courts but for analysis is flawed because it takes into account factual circumstances that lead to a proceeding, which are irrelevant when

Interestingly, the Robert Plan court quoted extensively from Trans-Industries to support its view that the source of funds for payment of ERISA plan work was not central to its jurisdictional analysis. In Re The Robert Plan Corp., 439 B.R. at 46. However, in the section of the Trans-Industries opinion quoted by the Robert Plan court, the court was describing why it was appropriate to use bankruptcy estate funds for the purpose of administering an ERISA plan and why the use of those funds created related to jurisdiction. Trans-Industries, 419 B.R at 3539. The Robert Plan court never acknowledged or addressed the Trans-Industries courts conclusion that the fact that 704(a)(11) created the trustees duty to act as a plan administrator was insufficient to create core jurisdiction. Trans-Industries, 419 B.R. at 30-31. 15

determining arising in jurisdiction. See In re Newfound Lake, 2008 WL 4868885, at *3; MidStates, 433 B.R. at 697. The but for test is also inappropriate because, if applied literally, it could expand the bankruptcy courts jurisdiction beyond the constitutional limits under Marathon. Mid-States, 433 B.R. at 697. The Robert Plan court also held that it had core jurisdiction over the trustees plan administrative work (as discussed supra, the court recognized that it did not have jurisdiction over the use of plan assets to pay for that work) because the trustee was a creature of the Bankruptcy Code. The court then compared the duties set forth in 704(a)(11) to allegedly analogous duties under the Code that require trustees to comply with non-bankruptcy statutes, e.g. filing tax returns and complying with 704(a)(12). In re The Robert Plan Corp., 439 B.R. at 40. However, in this case, the use of the Plans assets, unlike the trustee duties referenced by the Robert Plan court, has no impact on the Debtors estate.6

The Secretary also respectfully contends that the Robert Plan courts assertion that a trustees duties under 704(a)(11) are analogous to a trustees duty to file tax returns and comply with the obligations in 704(a)(12) is erroneous. First, Congress chose not to limit a trustees potential liabilities under ERISA when it enacted 704(a)(11). A trustee does, however, have limited liabilities in connection with his obligations to ensure the estate is complying with federal tax provisions. See 11 U.S.C. 505(b). Second, ERISA is a comprehensive statutory scheme designed to protect ERISA plan participants and beneficiaries; when Congress passed 704(a)(11), it deliberately avoided creating a jurisdictional link between ERISA assets and a debtors estate. See 11 U.S.C. 541(b)(7). By contrast, 704(a)(12), unlike 704(a)(11), is part of a statutory scheme that Congress created in the Bankruptcy Code to ensure that health care patients will be protected. See 11 U.S.C. 333 (appointment of patient care ombudsman); 11 U.S.C. 101(27A), (40A) and (40B) (defining health care business, patient and patient records); 11 U.S.C. 330 (provisions governing compensation paid to patient care ombudsman); 11 U.S.C. 351 (provision governing disposal of patient records); Fed. R. Bankr. P. 2015.1 (reports due from the ombudsman and procedures to be used to review confidential patient records); Fed. R. Bankr. P. 2015.2 (notice provisions governing trustees ability to transfer patients in a health care business); Fed. R. Bankr. P. 6011 (disposal of patient records in health care business case). 16

B. The Court Does Not Have Related To Jurisdiction Over The Use Of NonEstate Assets There is also no related to jurisdiction over the relief sought by the Trustee. The Second Circuit has determined that related to jurisdiction exists only where the outcome of the proceeding could conceivably have any effect upon the estate being administered. Turner v. Ermiger, 724 F.2d 338, 341 (2d Cir. 1983) (controversies may be so tangential that no related to jurisdiction exists). Accord, CIT Communications Fin. Corp. v. Level 3 Communications, LLC, 483 F. Supp.2d 380,389 (D. Del. 2007) (conceivable effect of state court action on bankruptcy too attenuated to create related to jurisdiction); 19 Court Street Assocs, LLC v. RTC, 190 B.R. 983, 996 (Bankr. S.D.N.Y. 1996) (any impact on the administration of the debtors estate is too remote to invoke our jurisdiction). The Trustees request for authorization to use non-estate assets to pay fees or for the appointment of an Independent Fiduciary to control the payment of those non-estate assets has no conceivable effect on the bankruptcy estate. See 11 U.S.C. 541(b)(7) (contributions to an employee benefit plan are not part of the bankruptcy estate); 11 U.S.C. 541(d) (assets the debtor holds in trust are not part of the bankruptcy estate); ERISA 403(a), (c); 29 U.S.C. 1103(a), (c) (general rule that assets of an ERISA pension plan must be held in trust and not inure to the benefit of the sponsoring employer). The courts analysis in AB&C is instructive as to why the Court lacks related to jurisdiction to approve payment of fees from the Plans. The trustee in AB & C, like the Trustee in this case, sought bankruptcy court approval to use assets of an ERISA-covered pension plan to pay fees and expenses related to the administration and termination the plan. The AB & C court found that that the terms of the proposed order were designed primarily to resolve Plan-specific

17

issues and had no discernible impact upon the estate, the Debtor, or any of its pre-petition creditors. 411 B.R. at 295. The court went on to state that: the limited purpose of providing the Trustee with a possible future defense of immunity does not provide a nexus sufficiently close to a bankruptcy proceeding upon which this court can rely for related to jurisdiction. . . . [T]he basis for related to jurisdiction over the payment provisions of the Proposed Order cannot be its mere relationship to the bankruptcy Trustee; rather, there must be a closer connection to the underlying bankruptcy case. 411 B.R. at 295. The court concluded by holding that because the Proposed Order governs the Trustees ERISA fiduciary obligations to a non-estate trust, and the order could not impact the administration of the bankruptcy estate, the order does not relate to the bankruptcy case. Id. In this case, as in AB & C, the assets of the Plans are being used to pay administrative and termination expenses. Accordingly, this Court, like the court in AB & C, lacks related to jurisdiction because the relief requested concerns non-estate assets that cannot impact the administration of the estate. See also Mid-States, 433 B.R. 688, 700, n. 17 (finding that trustee was essentially seeking a comfort order, which could not ever, by definition, fit within related to jurisdiction); compare Trans-Industries, 419 B.R. at 39 (finding related to jurisdiction over adversary proceeding brought by chapter 7 trustee against debtors officers, who were fiduciaries to the pension plan, because estate assets were being used to fund the proceeding and because debtors estate would be reimbursed for funds expended if the adversary proceeding was successful). In sum, the Courts jurisdiction is not invoked here because this matter does not involve property of the estate and could not conceivably have any effect on the Debtors estate.

18

II.

EVEN IF THE COURT FINDS IT HAS SUBJECT MATTER JURISDICTION, THE CONTESTED RELIEF REQUESTED SHOULD BE DENIED Assuming, arguendo, that the Court has subject matter jurisdiction, the relief requested

should still be denied because, as detailed below: (A) the Trustee may not use the Court to circumvent ERISA and engage in a transaction expressly prohibited by ERISA 406(b); (B) the Court may not issue, in effect, a declaratory order approving fees under ERISA; (C) the relief requested is an improper comfort order that would violate ERISAs prohibition against exculpation of fiduciaries and nullify ERISAs statute of limitations; and (D) the relief requested cannot be obtained without first filing an adversary proceeding and appointing an independent fiduciary to represent the Plan in that proceeding. A. The Trustee May Not Use The Court To Circumvent ERISA And Engage In A Transaction Expressly Prohibited Under 406 Of ERISA As a fiduciary to the Plans, the Trustee has a duty of undivided loyalty to the Plans under ERISA 404(a)(1)(A), 29 U.S.C. 1104(a)(1)(A). Leigh v. Engle, 727 F. 2d 113, 123 (7th Cir. 1984) (stating that the duty of loyalty set forth in ERISA 404(a)(1)(A) requires fiduciaries to act with complete and undivided loyalty to the beneficiaries of the trust and with an eye single to the interests of the participants and beneficiaries); In re The Robert Plan Corp., 439 B.R. at 39 (bankruptcy trustee must comply with obligations imposed by 29 U.S.C. 1104(a)(1)(A)). By definition, the Trustee could not have acted with complete and undivided loyalty to the beneficiaries of the Plan when he determined the amount to be paid to his own law firm by the Plans. In addition, ERISA prohibits fiduciaries from engaging in certain per se prohibited transactions under ERISA 406(b), 11 U.S.C. 1106(b). A fiduciary is prohibited from dealing with the assets of the plan in his own interest or for his own account (self-dealing) by ERISA

19

406(b)(1) and is prohibited from acting in any transaction on behalf the plan and on behalf of a party whose interests are adverse to the plan by ERISA 406(b)(2).7 Section 406 of ERISA creates a per se ERISA violation; even in the absence of bad faith, or in the presence of a fair and reasonable transaction, 1106 establishes a blanket prohibition of certain acts, easily applied, in order to facilitate Congress remedial interest in protecting employee benefit plans. Patelco Credit Union v. Sahni, 262 F.3d 897, 911 (9th Cir. 2001) (citation omitted); Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1213 (2d Cir. 1987) (stating that protection of beneficiaries requires that liability be imposed under 406(b)(1) even where there is no taint of scandal, no hint of self-dealing, no trace of bad faith). Here, the Trustee selected his own firm to provide services to the Plans for a fee and decided which services he personally would render for a fee in the absence of any independent representation of or approval by the Plans and while refusing to discuss his decision-making process with the Secretarys investigators. This is a per se violation of section 406(b)(1)s prohibition against self-dealing. Patelco, 262 F.3d at 911 (fiduciary,
who sets his own compensation and collects the amount from plan assets, violates ERISA 406(b)(1)); La Scala v. Scrufari, 479 F.3d 213, 221 (2d Cir. 2007) (same where fiduciary unilaterally awarded raises to himself and his son, who was also a fiduciary); Weisler v.

ERISA 406(b), 29 U.S.C. 1106(b), provides as follows:

(b) Transactions Between Plan and Fiduciary. A fiduciary with respect to a plan shall not (1) deal with the assets of a plan in his own interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, . . . .

20

Metal Polishers Union, 3 EBC 2119 (S.D.N.Y. 1982) (fiduciary participates in decision to pay himself an excessive salary from plan); Gilliam v. Edwards, 492 F. Supp. 1255, 1263 (D. N.J. 1980) (fiduciary authorized payment for his own services). Similarly, the Trustees decision violates section 406(b)(2) because he acted on behalf of the Plans (purchasers of

services) and on behalf of his own law firm (seller of services) in the transaction. See Cutaiar v. Marshall, 590 F.2d 523, 529-30 (3d Cir. 1979) (because the interests of a
borrower and lender are, by definition adverse, trustees violated 406(b)(2) when they negotiated a loan between two plans for which they both served as trustees). Cf. Dairy

Fresh Corp. v. Poole, 108 F. Supp.2d 1344, 1359-60 (S.D. Ala. 2000) (holding that ERISA fiduciarys decision to seek court approval of an action that would benefit the fiduciary violated 406(b)(1)) The Trustee also has several practical options available to allow his law firm to be paid appropriate fees under ERISA without running afoul of ERISA 406. One alternative would be the appointment of an Independent Fiduciary with undivided loyalty to approve the fees. Under section 403(a) of ERISA, 29 U.S.C. 1103(a), one or more trustees must have exclusive authority and discretion to manage and control the assets of the Plans. Under section 403(a) and the terms of the Plan, the Trustee (acting for the Debtor) has the authority to appoint a discretionary trustee with the responsibility of approving the payments of fees from the Plans. Accordingly, the Trustee could avoid engaging in a prohibited transaction by appointing a trustee with undivided loyalty (which could be called an Independent Fiduciary) to approve the fees to be paid to his law firm. As explained above, however, the Court does not have jurisdiction to approve the appointment of an Independent Fiduciary whose sole job would be to approve the payment of fees from assets of the Plans which are not within its jurisdiction. 21

The Trustees appointment of an Independent Fiduciary to approve the fees to be paid to his own law firm, however, will not entirely avoid the prohibited transaction under ERISA 406(b), 29 U.S.C. 1106(b), if the Trustee approves the Independent Fiduciarys compensation from the Plans. If the Trustee approved the fees to be paid to the Independent Fiduciary and the Independent Fiduciary approved fees to be paid to the Trustees law firm, both fiduciaries would have an interest in the transaction that might affect the exercise of their best fiduciary judgment and the Independent Fiduciary would not be truly independent. See 29 C.F.R. 2550.408b-2(f) (Example 5). As explained earlier, this problem could be overcome in two ways. First, the Secretary and the Trustee could enter into a negotiated settlement to set the amount of fees to be paid by the Plans to Fox Rothschild to resolve the Secretarys investigation of the fees. Second, the Trustee could apply to the Department of Labor for an individual prohibited transaction exemption. ERISA 408(a), 11 U.S.C. 1108(a). B. The Court May Not Issue A Declaratory Order Approving Fees under ERISA The Trustee, in effect, is seeking a declaration from the Court that his proposed payment of plan assets to his own law firm complies with ERISA. Even if the Court could authorize an action which is prohibited by statute, which it cannot, the declaratory relief sought by the Trustee is not available under ERISAs remedial provision, ERISA 502, 29 U.S.C. 1132. Congress allowed the Secretary and plan participants and beneficiaries to decide whether to sue fiduciaries and provided for exclusive federal court jurisdiction over such suits. See 29 U.S.C. 1132 (a)(2),(3) and (5) and (e)(1). Courts sometimes permit a fiduciary to bring a declaratory judgment action under 29 U.S.C. 1132(a)(3), but such an action must be designed to enforce the provisions of ERISA or an ERISA plan. ERISA does not authorize a fiduciary to sue to obtain a

22

judicial declaration that a certain fiduciary course of action does not violate ERISA. See Newell Operating Co. v. Intl Union, UAW Aerospace and Agric. Implement Workers of Am., 532 F.3d 583, 588-89 (7th Cir. 2008) (dismissing suit seeking declaration that implementation of plan amendments did not violate ERISA because suit was not designed to enforce any provision of the Plan or ERISA and was an attempt to usurp the jurisdictional choice of the UAW and retirees by filing an anticipatory suit), overruled on other grounds, Envision Healthcare, Inc. v. PreferredOne Ins. Co., 604 F.3d 983 (2010). Here, the Trustee is not seeking to enforce ERISA or the Plan. Instead, he is seeking relief which is expressly prohibited by ERISA. In summary, although the Trustee has several options which would allow his law firm to be paid reasonable fees from the Plan without violating ERISA, obtaining Court approval of a prohibited transaction that is illegal on its face is not one of those options. C. The Relief Requested Is An Improper Comfort Order That Contravenes 410 and 413 Of ERISA One explicit reason the Trustee seeks authorization to pay fees with assets of the Plans is to obtain some measure of personal insulation by implied judicial immunity from personal liability under ERISA. Application at 10. The Trustee seeks this relief without any adjudication or demonstration that the payments comply with ERISA, without any independent representation of the Plans and their participants and beneficiaries, and without even discussing the basis of his decisions with the Secretarys investigators. Such relief would undermine ERISAs enforcement scheme for two reasons: it would run afoul of ERISA 410(a), 29 U.S.C. 1110(a), because it purports to prospectively relieve a fiduciary from fiduciary liability and contravenes ERISA 413, 29 U.S.C. 1113, ERISAs statute of limitations. Congress knows how to provide non-debtors with a release from liability, if appropriate. Congress created a mechanism in 524(g) for releasing non-debtors in asbestos cases. Congress

23

created a mechanism in 505(b) for eliminating a trustees potential tax liability. Congress created no such mechanism when it enacted 704(a)(11). What the Trustee is indirectly seeking is a new protection which Congress did not choose to add to the Bankruptcy Code when it enacted section 704(a)(11). Further, [i]n enacting ERISA, one of Congress primary goals was to devise a system whereby plan participants and beneficiaries could hold fiduciaries accountable for their obligations. Herman v. NationsBank Trust Co., 126 F.3d 1354, 1366 (11th Cir. 1997). To that end, Congress passed section 410(a) of ERISA, 29 U.S.C. 1110(a), which provides that, any provision in an agreement or instrument which purports to relieve the fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [Part 4 Fiduciary Responsibility] shall be void as against public policy. The Trustees request for an exculpatory court order is directly contrary to section 410(a) of ERISA. Courts have construed section 410(a) to invalidate exculpatory provisions in bankruptcy as well as outside of bankruptcy. See, e.g., Herman v. Egea (In re Egea), 236 B.R. 734, 746 & n.76 (Bankr. D. Kan. 1999) (bankruptcy case); In re Benefit Mgmt. Corp., No. MM7-87-03292, 1988 WL 384076, at *8 n.6 (Bankr. W.D. Wis. 1988) (same); IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415, 1418-1419 (9th Cir. 1997) (outside bankruptcy); Chicago Bd. of Options Exch., Inc. v. Connecticut Gen. Life Ins. Co., 713 F.2d 254, 259 (7th Cir. 1983) (same); Solis v. Plan Benefit Services, Inc., 620 F.Supp.2d 131, 145 (D. Mass. 2009) (same). The proposed relief violates section 410 for the same reason the Fifth Circuit concluded that an arbitration rule violates section 410: it bars an ERISA claim that could be within ERISA's statute of limitations. Kramer v. Smith Barney, 80 F.3d 1080, 1085 (5th Cir. 1996). In Kramer, the court held that section 410 barred a rule that required a claim to be brought within

24

six years of an event's occurrence because ERISA tolls the six-year period in cases of fraud or concealment. Id. It necessarily follows that the proposed relief, which drastically shortens ERISA's six-year limitations period, is also void under section 410. Like the rule in Kramer, the requested exculpatory order impermissibly relieve[s] a fiduciary from ... liability. Id. (quoting 29 U.S.C. 1110(a)).8 The requested relief should also be denied because it would nullify the statute of limitations under ERISA 413, 29 U.S.C. 1113.9 A fiduciary that breaches any of his duties under ERISA is personally liable for plan losses resulting from the breach and may be sued to recover those losses or to obtain other appropriate equitable relief. 29 U.S.C. 1109(a), 1132(a)(2), (3), (5). The general six-year time limit set forth in 413 of ERISA reflects Congress determination to impress upon those vested with the control of pension funds the

The plain language of 410 applies to an order from the Court because an order is an instrument. See Blacks Law Dictionary 813 (8th ed. 2004) (instrument seems to embrace contracts, deeds, statutes, wills, Orders in Council, orders, warrants, schemes, letters patent, rules, regulations, by-laws, whether in writing or in print)(citation omitted); see also Board of Trustees of the CWA/ITU Negotiated Pension Plan v. Weinstein, 107 F.3d 139, 142 (2d Cir. 1997) (instrument refers to a document that sets out rights, duties, or obligations, or has some other legal effect).
9

29 U.S.C. 1113 provides as follows: No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty or obligation under this part, or with respect to a violation of this part, after the earlier of (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation. . . .

25

importance of the trust they hold and not to allow those who violate that trust [to] easily find refuge in a time bar. Brock v. Nellis, 809 F.2d 753, 754 (11th Cir. 1987). Replacing ERISAs statute of limitations with alleged protections arising from notice and disclosure in the bankruptcy context would severely undermine the Congressional intent to protect vulnerable pension plan participants. See The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), H.R. Rep. No. 109-31, pt. 1 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, at 105 (under heading "Protections for Employees) (stating that the bill streamlines the appointment of an ERISA administrator for an employee benefit plan, under certain circumstances, to minimize the disruption that results when an employer files for bankruptcy relief). D. The Court Has No Authority To Authorize The Use Of Non-Estate Assets Without The Commencement Of An Adversary Proceeding The assets of an ERISA plan are not property of the Debtors estate pursuant to 11 U.S.C. 541(b)(7). Therefore, a request to recover money from the Plans cannot be sought by a motion. Instead, the request must be brought through commencement of an adversary proceeding because it is a proceeding to recover money or property. Fed. R. Bankr. P. 7001(1); In re Ledgemere Land Corp.,116 B.R. 338, 340 (Bankr. D. Mass. 1990) (stating that relief in the form of a money judgment may only be sought through a complaint which commences an adversary proceeding); In re Lionel Corp., 23 B.R. 224, 225 (Bankr. S.D.N.Y. 1982) (stating that action to recover money or determine an interest in property must be brought by an adversary proceeding, not by motion). In the adversary proceeding, the Trustee would be asserting a claim against the Plans. While the Secretary has the power to bring an action against a fiduciary who has breached its obligations to a plan or to otherwise enforce the provisions of ERISA under ERISA 502(a)(2)

26

and (5), 29 U.S.C 1132(a)(2) and (5), the Secretary does not represent the Plans as such. Therefore, the Secretary could not represent the Plans in the adversary proceeding. As the Trustee would be the plaintiff, he obviously also could not represent the defendant Plans at the hearing. In addition to violating basic adversarial norms, an attempt by the Trustee to represent both the plaintiff and the defendant would constitute both a prohibited transaction under 406(b)(2) of ERISA, 29 U.S.C. 1106(b)(2), and a violation of his fiduciary duties under 404(a)(1)(A) of ERISA, 29 U.S.C. 1104(a)(1)(A). Therefore, an independent fiduciary would have to be appointed to represent the interests of the Plans in the adversary proceeding. See, e.g., In re Northwest Airlines Corp, 2007 WL 1295758 (Bankr. S.D.N.Y. 2007) (independent fiduciary appointed to pursue claims against chapter 11 debtor). The foregoing discussion illustrates the procedural burdens and needless expense associated with trying to shoehorn the use of ERISA plan assets for the payment of plan administration duties into the framework of the Bankruptcy Code. Congress passed 11 U.S.C. 704(a)(11) to minimize the disruption that results when an employer files for bankruptcy relief. The Secretary respectfully submits that, if the Court stretches the jurisdictional boundaries set forth in 28 U.S.C. 1334 to cover the use of Plan assets, the Court will create severe disruption (and needless expense) for both ERISA plan participants and creditors of debtors estates. III. THE TRUSTEE HAS FAILED TO PROVIDE ANY CREDIBLE BASIS FOR QUASHING OR MODIFYING THE SUBPOENA The Trustee and his professionals will incur hundreds of thousands of dollars in fees and expenses which the Trustee intends to charge the Plan. The Trustee also intends to transfer at least $168, 038 of the Plans assets to his own law firm which, for the reasons discussed above, is prohibited by ERISA, unless approved by a fiduciary with undivided loyalty. As described in the accompanying declaration of Sharon Mori dated

27

March 17, 2011 (the Mori Declaration), when the Secretary sought to interview him about these matters, he refused to cooperate voluntarily.10 Following her usual practice, and in order to carry out her responsibilities to enforce ERISA, the Secretary then issued a subpoena for the Trustees deposition testimony. Without citing any relevant legal authority, the Trustee seeks to quash the deposition subpoena. There is no valid legal basis for the Court to grant this request. As a threshold matter, a motion to quash an administrative subpoena cannot be brought until an agency first commences an action to enforce the subpoena. E.g., Reisman v. Caplin, 375 U.S. 440 (1964); Ramirez v. United States, (In re Ramirez) 905 F.2d 97 (5th Cir. 1990); Belle Fourche Pipeline Co. v. United States, 751 F.2d 332 (10th Cir. 1984); Woodmen v. EEOC, 2001 WL 1852248 (D. Neb. 2001). The underlying rationale for these decisions is that the subpoenaed entity has a sufficient opportunity to challenge the subpoena, if the agency seeks to enforce it. Id. In addition, the Trustee is wrongly seeking injunctive relief in a motion, rather than by commencing an adversary proceeding, as required by Bankruptcy Rule 7001(7). The Court can and should deny the Trustee's motion on these bases alone. Assuming the Trustees motion to quash is properly before the Court, there is absolutely no reason to deny enforcement of the Secretarys entirely appropriate administrative subpoena. In United States v. Morton Salt Co., 338 U.S. 632, 642- 643 (1950), the Court, describing the very broad freedom accorded federal agencies in pursuing their investigatory powers, held that an agency can investigate merely on

As described in the Mori Declaration, the Trustee also failed to voluntarily produce the three Plans and other relevant Plan documents until a subpoena was issued. 28

10

suspicion that the law is being violated, or even just because it wants assurance that it is not. Accord McVane v. F.D.I.C. (In re McVane), 44 F. 3d 1127, 1135 (2d Cir. 1995). The Secretary of Labors power to compel the examination of any person is found in section 504 of ERISA, 29 U.S.C. 1134.11 No restrictions are enumerated

11

Section 504, 29 U.S.C. 1134, states: (a) Investigation and submission of reports, books, etc. The Secretary shall have the power, in order to determine whether any person has violated or is about to violate any provision of this title or any regulation or order thereunder (1) to make an investigation, and in connection therewith to require the submission of reports, books, and records. . . and (2) to enter such places, inspect such books and records and question such persons as he may deem necessary to enable him to determine the facts relative to such investigation, if he has reasonable cause to believe there may exist a violation of this subchapter or any rule or regulation issued thereunder or if the entry is pursuant to an agreement with the plan. ... (b) Frequency of submission of books and records The Secretary may not under the authority of this section require any plan to submit to the Secretary any books or records of the plan more than once in any 12 month period, unless the Secretary has reasonable cause to believe there may exist a violation of this subchapter or any regulation or order thereunder. (c) Other provisions applicable relating to attendance of witnesses and production of books, records, etc. For the purposes of any investigation provided for in this subchapter, the provisions of sections 49 and 50 of Title 15 [the Federal Trade Commission Act] (relating to the attendance of witnesses and the production of books, records, and documents) are hereby made applicable . . .

The Federal Trade Commission Act, as referenced, provides, inter alia: The Commission may order testimony to be taken by deposition in any proceeding or investigation pending under this subchapter at any stage of such proceeding or investigation.

29

regarding the Secretarys right to exercise or delegate these investigatory powers. See Donovan v. Natl Bank of Alaska, 696 F.2d 678, 682 (9th Cir. 1983). There is no question that the Secretary acted within her statutory authority when she issued the subpoena at issue in this case. Considering the Secretary's broad powers to investigate potential violations, including through the issuance of subpoenas to depose testimony, the power of a court to quash such subpoena is extremely limited. In re McVane, 44 F.3d at 1135. The applicable test was described in National Labor Relations Board v. American Medical Response, 438 F.3d 188, 192 (2d Cir. 2006), as follows: An agency must show only [1] that the investigation will be conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to the purpose, [3] that the information sought is not already within [its] possession, and [4] that the administrative steps required ... have been followed .... RNR Enters., Inc. v. SEC, 122 F.3d 93, 96 (2d Cir.1997) (emphasis added) (quoting United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964)). Am. Medical Response, 438 F.3d at 192; accord EEOC v. United Parcel Serv., Inc., 587 F. 3d 136,139 (2d Cir. 2009). The law enforcement inquiry pursuant to which the subpoena in question was issued easily satisfies the Second Circuits above-stated test. First, it is conducted pursuant to a legitimate purpose, because, as set forth above, it is one that the Secretary is specifically authorized to make. As stated in the Mori Declaration, the purpose of this subpoena is to depose the Trustee regarding possible violations of ERISA concerning the Trustee's management of the Thelen Plans, particularly the expenses being incurred in administering the Plan. Mori Declaration at 2 . Second, the inquiry is indisputably relevant to the purpose of the investigation. As set forth in the Mori Declaration, the examination sought by the subpoena relates to 15 U.S.C. 49. 30

the Trustees administration of an ERISA plan.12 No person is in a better position to inform the Secretary about the Trustees conduct in administering the Thelen Plans than the Trustee himself. Therefore, the inquiry could not be more central or relevant to the purposes of ERISA or the Secretarys authority to enforce the statute. Third and fourth, the information being sought from the Trustee is otherwise not in the possession of the Secretary and the proper administrative steps have been followed. See Mori Declaration at 16-17. The subpoena is thus prima facie within the authority of the Secretary to enforce. Once an agency has made a prima facie showing that a subpoena is within the authority of the agency, the burden shifts to the respondent to provide compelling reasons why the subpoena should not be enforced. Powell, 379 U.S. at 57-58 (enforcement of Internal Revenue Service subpoenas); see Donovan v. Shaw, 668 F.2d. 985, 989 (8th Cir. 1982) (applying Powell framework in ERISA case to the Department of Labors administrative subpoenas); Marshall v. Amalgamated Insurance Agency Services, Inc., 523 F. Supp. 231, 233 (N.D. Ill. 1981) (same). A party opposing enforcement must demonstrate that the subpoena is unreasonable, or issued in bad faith or for other improper purposes, or that compliance would be unnecessarily burdensome. Am. Medical Response, 438 F.3d at 192-193 (citing RNR Enters., Inc., 122 F.3d at 97 (quoting SEC v. Brigadoon Scotch Distrib. Co., 480 F.2d 1047, 1056 (2d Cir.1973)). The Trustee here does not come close to meeting this heavy burden. For good reason, no allegation of bad faith on the part of the Secretary has been made. Rather, the
12

An affidavit from a governmental official is sufficient to establish a prima facie showing that the subpoena is relevant to an investigation. RNR Enterprises, Inc., 122 F.3d at 97. An agencys appraisal of relevancy must be accepted so long as it is not obviously wrong. In re McVane, 44 F.3d at 1135 (citation omitted). 31

Trustees primary basis for quashing the subpoena is that the Secretary is acting unreasonably or is imposing unnecessary burdens on him in that the information that the Secretary seeks would be better sought from the professionals that he has retained. Application at 15, 42. The Trustee further maintains that this information may be obtained through document discovery or written questions. Id. at 43. He asserts the same information could be obtained in a more economically prudent manner by means of written responses to the DOLs questions. Trustee Memorandum of Law at 7. None of these claims even remotely satisfies any established criteria for being unreasonable. Section 504 (a)(2) of ERISA explicitly allows the Secretary to question such persons as he may deem necessary to enable him to determine the facts relative to such investigation. 29 U.S.C. 1134(a)(2). The explicit language in section 504 and the previously described long established tradition of deferring to an agencys choices in its conduct of an investigation would be violated if the Trustee were allowed to dictate the manner (i.e., written rather than oral, document review rather than deposition) and the source (retained professional rather than ERISA plan administrator) from where relevant information could be sought. Even in the case of a judicial subpoena, as opposed to an investigatory subpoena, where greater limitations may be imposed, see Morton Salt Co., 338 U.S. at 642-643, written questions are recognized as not being an adequate substitute for oral depositions. Mill-Run Tours, Inc. v. Khashoggi, 124 F.R.D. 547, 549 (S.D.N.Y. 1989). [C]ourts have refused to modify investigative subpoenas unless compliance threatens to unduly disrupt or seriously hinder normal operations of a business. F.T.C. v. Rockefeller, 591 F.2d 182, 190 (2d Cir 1979). The Secretarys subpoena here does not

32

approach that standard, where, as described in the Mori Declaration at 11, 12-14, 16. the Trustee has refused to appear for even a single, informal interview. As the person who is given the responsibility under the Bankruptcy Code for administration of the ERISA Plans, there are certain questions that the Trustee should be in the best position to answer. For example: How were the professionals/service providers chosen? Did he obtain bids for services from multiple providers or follow some other procedure to ensure that the Plans were paying reasonable fees? As multiple professionals have been retained, what guidelines have been established for delineating their separate roles to avoid unnecessary duplication? All of these questions are relevant to whether the Trustee is exercising his control of the Plans and their assets in conformity with his fiduciary duties under ERISA. The Trustee also seeks to bar his examination because the Secretary will use the interview process to elicit statements from the Trustee to the effect that he intends to follow the dictates of the Bankruptcy law, rather than be guided by the Secretarys view of a bankruptcy courts jurisdiction in the administration of an ERISA plan. Application at 15, 44. It is claimed that [t]his imposes an unreasonable burden on the Trustee and unjustly exposes him to additional personal liability. . . . Trustee Memorandum of Law at 7. But speculation as to possible harm has been rejected as a basis for quashing a

subpoena. Fanelli v. Centenary College, 211 F.R.D. 268, 270 (D.N.J. 2002 ([g]ood cause cannot be established upon some general or speculative alleged harm). Presupposing how the Secretary may use the Trustees responses is doubly speculative. While the Trustee already has made clear the conflicting view he holds regarding a bankruptcy trustees administration of an ERISA plan, that legal disagreement does not

33

give him the right to withhold relevant information; nor does the issuance of the subpoena preclude the Trustee from later raising valid legal defenses should the investigation result in an enforcement action. Given these circumstances, the Trustees failure to provide any case law to support his position is unsurprising. The fact that the Secretarys investigation involves the ERISA plans of a chapter 7 debtor does not alter the Trustees burden. The Trustee asserts that he is relying upon section 105(a) of the Bankruptcy Code, 11 U.S.C. 105(a), but totally ignores that the injunction he seeks would enjoin the exercise of the governments police power, an area that Congress explicitly chose to except from the scope of the automatic stay in section 362(b)(4). The burden upon a movant for obtaining a court order which is in conflict with Congresss policy choice in creating the police power exception to the automatic stay is a heavy one. Rather than being a source of unbridled discretion, the Second Circuit has made clear that section 105(a)s use is limited to advancing purposes for which Congress made explicit provision in the Bankruptcy Code. New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc. (In re Dairy Mart Convenience Stores, Inc), 351 F.3d 86, 92 (2d Cir. 2003). Thus, the court in Brennan v. Poritz (In re Brennan), 198 B.R. 445 (D.N.J. 1996), stated: The plain language of 11 U.S.C. 105 restrains the bankruptcy courts discretionary authority to issue 105 injunctive relief, as the statute specifically states that any action taken under 105 must be designed to carry out the provisions of the bankruptcy code. Because the bankruptcy code expressly exempts state actions brought under state police or regulatory powers from the automatic stay, it is only in rare cases that a 105 injunction of a police power exercise will carry out the codes provisions. . . . Although there are limited circumstances in which a bankruptcy court may stay a state police power exercise under 105, there must be a finding of serious conflict between the continuance of the state action and the policies of the bankruptcy code.

34

Id. at 450 451. Accord In re 1820-1838 Amsterdam Equities, Inc., 191 B.R. 18 (S.D.N.Y. 1996) (district court reverses bankruptcy courts use of 105(a) to enjoin the citys exercise of its police powers). Finally, in the apparent hope of affecting this Courts view of the need for the subpoena, the Trustee gives a false impression of the manner in which he has responded to the Secretarys prior request for documents. The Trustee asserts: Notwithstanding Trustees cooperation and production [of documents], on October 1, 2010 the DOL served a subpoena upon the Trustee for the same set of documents requested in document demand pursuant to the investigatory request. Application at 8, 17. Contrary to this distorted presentation of the facts, however, the Trustee was largely unresponsive to the Secretarys request for documents until being served with a subpoena on October 1, 2010, which was almost two months after the Secretarys letter request for the same documents. As described in the Mori Declaration at 6, as of October 1, 2010, the Trustee had not provided the Secretary with a copy of even one of the three ERISA Plans that the Secretary requested. Instead, the Trustee had made only a negligible response to the Secretarys document request over the prior two months.13 Significant document production began on October 12, more than two months after the Secretary first requested the documents and only after service of a subpoena. Id. at 7-8. Therefore, the fact is that the Secretary subpoenaed the documents only after the Trustee failed to cooperate voluntarily. Similarly, she had to serve the deposition subpoena after he refused to voluntarily appear for an interview. In light of this lack of voluntary cooperation, the complete absence of legal authority supporting the Trustees

13

The only documents produced as of October 1 were a copy of two ERISA bonds, a copy of an insurance policy and seven Form 5500 filings. See Mori Declaration at 6.

35

continued resistance to submitting to questioning, and the clear statutory authority for the Secretary to seek information in the form of oral testimony directly from the Trustee, this Court should reject the motion to quash for the reasons stated above. IV. THE SECRETARY CANNOT FORMULATE SUBSTANTIVE OBJECTIONS TO THE FEES IF PREVENTED FROM EXERCISING HER INVESTIGATIVE AUTHORITY

The Trustees request for authorization to use the assets of the Plans to pay his own firm and other plan professionals raises many questions concerning compliance with ERISA.14 As explained above, because the Trustee will not speak to the Secretarys investigators, she cannot get answers to them. Accordingly, the Secretary cannot formulate substantive objections to the fees. The Secretary needs to understand the Trustees decision-making process in selecting the plan service providers, including his own firm, and negotiating their fees, if any negotiations occurred. Did the Trustee put out bid requests or follow some other process to select competent providers at reasonable rates from among those providing such services? For example, Fox Rothschild purports to have ERISA expertise, and one of its
14

In addition to the restrictions in ERISA 406(b), 11 U.S.C. 1106(b), the amount allowed to be paid to a service provider by an ERISA-covered plan is governed by the fiduciarys general duty to defray reasonable expenses of administering the plan and his duty of prudence described in ERISA 404(a)(1)(A)(ii) and (B), 29 U.S.C. 1104(a)(1)(A)(ii) and (B), by ERISA 406(a)(1)(C), 29 U.S.C. 1106(a)(1)(C), which states that a fiduciary shall not cause the plan to engage in a transaction, if he knows that such transaction constitutes the direct or indirect furnishing of goods, services, or facilities between the plan and a party in interest. A specific exemption to such a prohibited transaction is found in ERISA 408(b)(2), 29 U.S.C. 1108(b)(2), which allows the contracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefore. Likewise, a fiduciary may receive reasonable compensation pursuant to ERISA 408(c)(2), 29 U.S.C. 1108(c)(2). (emphasis added).

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ERISA experts, Harvey Katz, charges $675 an hour. Yet, the Trustee also hired Crutcher, an ERISA specialist who has previous experience serving these Plans, to be special counsel to the Plans at about half that hourly rate. If Crutcher is an ERISA expert with more knowledge of the plans, would it not be prudent to have him do the ERISA work alone? A review of the billing records show that most work done by Katz at Fox is reviewed and discussed extensively with Crutcher anyway. Why then is Katz necessary? Did the Trustee survey other firms and evaluate their services and fees or only consider his firm? The Secretary needs the answers to these questions. The billings raise many other specific questions on their face. Good explanations may exist, but the Secretary will not know them if the Trustee will not speak to her investigators. Here are a few examples. Fox spent 30.1 hours reviewing and finalizing government Forms 5500s. Why was so much lawyer time necessary on a these forms? Fox spent 19.45 hours putting together retention letters for professionals. Are not these letters largely boilerplate? Fox spent 9.1 hours on things that appear to be settlor work that cannot be billed to the Plans. Some of Yann Gerons billings seem to be for tasks that are administrative, not legal. E.g., 8/26/10, 3/30/10, 5/10/10, 8/3/10. In October 2009, $2,500 was billed for work done on a welfare plan. Is the Trustee billing 401k Plan, the CB Plan, or DB Plan for that? Fox doubled billed an entry on 8/6/2010. There are billings about amending the plan to permit payment of expenses. E.g., 9/20/10, 9/21/10, 9/24/10. Why was this necessary since the existing plan documents allow the Plans to pay expenses? Moreover, the Secretary did not receive those amendments in response to the document subpoena.

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Unless the Secretary is permitted investigate and complete her investigation, she will be unable to formulate substantive objections to the fee requests. CONCLUSION For all the above reasons, the Application should be denied to the extent of the Secretarys objections. Dated: March 17, 2011 M. PATRICIA SMITH Solicitor of Labor TIMOTHY D. HAUSER Associate Solicitor G. WILLIAM SCOTT Deputy Associate Solicitor

/s/ Leonard H. Gerson LEONARD H. GERSON Trial Attorney U.S. Department of Labor Office of the Solicitor Plan Benefits Security Division P.O. Box 1914 Washington, D.C. 20013 (202) 693-5615

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