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Hilda L. Solis, Secretary of the United States Department of v. Matthew D. Hutcheson

June 13, 2012

HILDA L. SOLIS, SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR, PLAINTIFF,
v.
MATTHEW D. HUTCHESON, HUTCHESON WALKER ADVISORS LLC, GREEN VALLEY HOLDINGS LLC, AND THE RETIREMENT SECURITY PLAN AND TRUST, F/K/A PENSION LIQUIDITY PLAN AND TRUST. DEFENDANTS.



The opinion of the court was delivered by: Honorable Edward J. Lodge U. S. District Judge

PRELIMINARY INJUNCTION

On May 15, 2012, plaintiff, Hilda L. Solis, Secretary of the United States Department of Labor (the "Secretary"), filed a complaint in this action (Dkt. 1) and, at the same time, a motion for a temporary restraining order and preliminary injunction removing defendants Matthew D. Hutcheson ("Hutcheson") and Hutcheson Walker Advisors LLC ("HWA") as fiduciaries of the Retirement Security Plan and Trust, f/k/a Pension Liquidity Plan and Trust ("RSPT") and the plans for which RSPT holds ERISA-covered assets (the "Plans") and appointing Jeanne B. Bryant of Receivership Management, Inc. as independent fiduciary to RSPT and the Plans. (Dkt. 2.)

On May 16, 2012, the Court granted the Secretary's motion for a temporary restraining and took the motion for preliminary injunction under advisement. (Dkt. 6.) In that same order defendants were directed to file responsive briefs on or before June 5, 2012. Id. No responsive briefs have been filed to date. The Court notes Hutcheson did file a pro se declaration on June 11, 2012 (Dkt. 15) indicating he had not been served as represented by Plaintiff but acknowledged he did receive a copy of the Court's Order of May 30, 2012 (Dkt. 9) on May 31, 2012 which provided notice to Hutcheson that he had until June 5, 2012 to file a response to the motion for preliminary injunction.

Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this motion shall be decided on the record before this Court without oral argument. Dist. Idaho Loc. Civ. R. 7.1(d)(2)(ii). Based on the following findings of facts and conclusions of law, the Court finds as follows:

I. Preliminary Injunction Standard: Preliminary injunctions are designed to preserve the status quo pending the ultimate outcome of litigation. They are governed by Federal Rule of Civil Procedure 65(b) which requires the moving party to show "specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition. . . ." Under Rule 65(b) and Ninth Circuit case law, a plaintiff may obtain a preliminary injunction only where he or she can "demonstrate immediate threatened injury." See, e.g., Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 1988) (emphasis in original). Speculative injury does not constitute irreparable injury sufficient to warrant granting a preliminary injunction. Goldie's Bookstore Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir. 1984). Fed. R. Civ. P. 65(b) discusses the procedure to be followed on an application for a preliminary injunction. A preliminary injunction may issue even though a plaintiff's right to permanent injunctive relief is not certain. The grant or denial of a preliminary injunction is a matter of the court's discretion exercised in conjunction with the principles of equity. See: Inland Steel v. United States, 306 U.S. 153 (1939); Deckert v. Independence Shares Corp., 311 U.S. 282, 61 S. Ct. 229, 85 L.Ed. 189 (1940); and Stanley v. Univ. of Southern California, 13 F.3d 1313 (9th Cir. 1994).

While courts are given considerable discretion in deciding whether injunctive relief should be issued, injunctive relief is not obtained as a matter of right and it is considered to be an extraordinary remedy that should not be granted unless the movant, by a clear showing, carries the burden of persuasion. See: Sampson v. Murray, 415 U.S. 61 (1974); Brotherhood of Locomotive Engineers v. Missouri-Kansas-Texas R. Co., 363 U.S. 528 (1960); and Stanley v. Univ. of Southern California, 13 F.3d 1313 (9th Cir. 1994).

In each case, the district court "must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Production Co. v. Gambell, 480 U.S. 531, 542 (1987). In Winter v. Natural Resource Defense Council, Inc., 555 U.S. 7 (2008), the United States Supreme Court held that, in order to be entitled to a preliminary injunction, the moving party must demonstrate (1) likelihood of success on the merits; (2) that he or she is likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in his or her favor; and (4) that an injunction is in the public interest. 555 U.S. at 20; see also, Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127 (9th Cir. 2009).

Prior to the Supreme Court's ruling in Winter, the Ninth Circuit applied alternative tests in determining whether a preliminary injunction should be granted: "[a] preliminary injunction is appropriate when a plaintiff demonstrates either: (1) a likelihood of success on the merits and the possibility of irreparable injury; or (2) that serious questions going to the merits were raised and the balance of hardships tips sharply in [the plaintiff's] favor." Lands Council v. McNair, 537 F.3d 981, 987 (9th Cir. 2008). The Ninth Circuit reasoned that "[t]hese two options represent extremes on a single continuum: the less certain the district court is of the likelihood of success on the merits, the more plaintiffs must convince the district court that the public interest and balance of hardships tip in their favor." Id. In Winter, the Supreme Court expressly disapproved the "possibility of harm standard," stating that "the Ninth Circuit's 'possibility' standard is too lenient . . . [and the proper] standard requires plaintiffs seeking preliminary relief to demonstrate that irreparable injury is likely in the absence of an injunction." 555 U.S. at 22 (emphasis in original). This left open the question, however, of whether the remaining aspects of the Ninth Circuit's sliding scale test for preliminary injunctions remained good law.

The Ninth Circuit clarified the issue in Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127 (9th Cir. 2011). In that case, the Court of Appealsheld that although Winter had raised the bar on what must be shown on the irreparable harm prong to justify a preliminary injunction, it did not alter the district court's authority to balance the elements of the preliminary injunction test, so long as a certain threshold showing is made on each factor. 632 F.3d at 1134-35. The court in Wild Rockies stated that "the 'serious questions' approach survives Winter when applied as part of the four-element Winter test." Id. at 1135. In other words, "'serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Winter test are also met." Id.

II. Findings of Fact:

Based on the record in this case, the Court finds as follows:

1. This Court has jurisdiction and venue is proper. Hutcheson resides in Idaho. ERISA § 502(e)(1) & (2), 29 U.S.C. §§ 1132(e)(1) & (2).

2. On May 15, 2012, Plaintiff Hilda L. Solis, Secretary of the United States Department of Labor, filed the Complaint in this case alleging claims for violations of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. ("ERISA"). (Dkt. 1.) The claims relate to Hutcheson's alleged wrongful transfer of $3.276 million dollars of ERISA-covered plan assets to accounts controlled by him in late 2010 and subsequent use of those funds for his personal benefit. (Dkt. 1.) At the time of the transfer, the Complaint states, Hutcheson was a fiduciary of the ERISA-covered plans whose assets are held by an entity known as the Retirement Security Plan and Trust, f/k/a Pension Liquidity Plan and Trust ("RSPT"). The transfer in question in the Complaint was made from RSPT. As a result of the transfer, the Complaint alleges, there appears to be insufficient funds in RSPT to provide all of the benefits due to the participants and beneficiary of the plans for which RSPT holds ERISA-covered plan assets. Plaintiff now seeks injunctive relief removing Defendants Hutcheson and HWA as fiduciaries of the Plans and appointing an independent fiduciary over RSPT and the Plans.

3. At all times relevant, RSPT has been an entity entrusted with discretionary authority and control over assets of employee benefit plans (as that term is defined by ERISA § 3(3), 29 U.S.C. § 1002(3) and over the administration of those plans. Defendants Hutcheson and HWA exercised authority and control over the ERISA-covered assets entrusted to RSPT and over the management of the plans for which RSPT held assets. Defendants Hutcheson and HWA also had discretionary authority and responsibility in the administration of those plans. Thus, Defendants Hutcheson and HWA were each a fiduciary of each of the plans to which those assets belong pursuant to ERISA § 3(21), 29 U.S.C. § 1002(21).

4. Hutcheson and his wife, Annette Hutcheson, are majority shareholders in Green Valley Holdings, LLC ("GVH"), an Idaho limited liability company organized on August 5, 2010. GVH is thus a party-in-interest with respect to the plans for which RSPT holds and manages assets pursuant to ERISA § 3(14), 29 U.S.C. § 1002(14).

5. Plaintiff has filed a Declaration of J. Michael Ebbesen, Senior Investigator for the Employee Benefits Security Administration of the United States Department of Labor. (Dkt. 2, Ex. 2.) Mr. Ebbesen has conducted an investigation concerning the alleged misuse of the $3,276,000 in funds from the RSPT trust by Hutcheson. This investigation purports to show that Mr. Hutcheson directed for the transfer of funds in order to purchase a bank note (the "PCB Note")*fn1 , which was secured by a golf course at Tamarack, for the benefit of Green Valley Holdings, LLC. (Dkt. 2, Ex. 2.) The PCB Note was later pledged as collateral to another individual for a loan to pay Hutcheson's legal bills. Hutcheson defaulted on the loan and, as a result, may have lost title to the PCB Note. Mr. Ebbesen contends that Hutcheson concealed pertinent details about the transactions concerning the PCB Note. The Declaration goes on to detail the commencement of the Government's involvement and knowledge concerning the transfer of funds by Hutcheson including the filing of Form 5500 and the findings of the Independent Auditor's Report finding of a "Prohibited Transaction." (Dkt. 2, Ex. 2 at ¶¶ 28-32.) Mr. Ebbesen concludes with the statement that HWA has continued to make distributions from RSPT knowing that $3,276,000 in assets are missing. (Dkt. 2, Ex. 2 at ¶ 33.) Attached to Mr. Ebbesen's Declaration are several Exhibits that support the conclusions made therein. (Dkt. 2-3, 5.)*fn2

6. As a result of the alleged prohibited transaction, there are insufficient plan assets in RSPT to provide all of the benefits due to all of the participants and beneficiaries of ERISA-covered plans whose assets are held by RSPT.

7. Based on the foregoing and without any evidence being submitted by Defendants to counter Mr. Ebbesen's Declaration, the Court finds the Plaintiff has demonstrated the type of immediate and irreparable injury necessitating entry of a preliminary injunction. Plaintiff has clearly shown by way of Mr. Ebbesen's Declaration and the attachments thereto, specific facts evidencing a real threat of immediate and irreparable injury, loss, or damage will result if the preliminary injunciton is not issued. Though a great deal of funds have already been transferred from the particular funds at issue, there is a danger that the remaining ERISA-covered assets could be further diminished by these Defendants. Accordingly, the Court finds grounds have been shown upon which to grant the preliminary injunction.

III. Procedural Background:

On May 15, 2012, the Secretary filed a complaint in this action. (Dkt 1.) She concurrently filed a motion for a temporary restraining order and preliminary injunction, seeking removal of defendants Hutcheson and HWA as fiduciaries of RSPT and the Plans. The Secretary also asked this Court to appoint Jeanne B. Bryant of Receivership Management, Inc. as independent fiduciary to RSPT and the Plans. (Dkt. 2.)

On May 16, 2012, the Court granted the Secretary's motion for a temporary restraining and took the motion for preliminary injunction under advisement. (Dkt. 6.) In that same order defendants were directed to file responsive briefs on or before June 5, 2012. Id.

On May 21, 2012, the Secretary filed an Expedited Motion to Extend the Temporary Restraining Order and to Expedite Briefing on the Application for Preliminary Injunction. (Dkt. 7.) In her application, the Secretary asked the Court to extend the temporary restraining order in effect (Dkt. 6) beyond the fourteen (14) days provided in Fed. R. Civ. P. 65, until briefing on the motion for preliminary injunction was complete and the Court had the opportunity to rule on the motion for preliminary injunction. In the same motion, the Secretary requested that the Court expedite the Defendants' response to the Secretary's request to extend the temporary restraining order. Id.

On May 23, 2012, the Court issued an Order expediting the briefing on the motion to extend the temporary restraining order. (Dkt. 8.) Defendants were ordered to respond to the Secretary's motion to extend the temporary restraining order no later than 5:00 p.m. on May 29, 2012. Although Defendants have been properly served with copies of these documents, they have failed to respond. See Hartman Declaration (Dkt. 14).

On May 30, 2012, the Court granted the Secretary's motion to expedite briefing on the Application for Preliminary Injunction pursuant to Dist. Idaho Loc. Civ. R. 7.1(e)(2). (Dkt. 9.) In that Order, Defendants again were instructed to file their response to the Secretary's Application for Preliminary Injunction on or before June 5, 2012, as follows:

Defendants are to file their response brief to this Application on or before June 5, 2012. The Court revises the date Plaintiff's reply is due to June 11, 2012. After reviewing the briefing on the Application, the Court will determine whether a hearing date is necessary and, if so, contact the parties to schedule a hearing on the Application for Preliminary Injunction to be scheduled no later than June 13, 2012. (Emphasis added.) Defendants have failed to file or serve any response to the Secretary's Application for Preliminary Injunction. Pursuant to Dist. Idaho Loc. Civ. R. 7.1(e)(2), the Court may deem the failure to file a response as consent by the non-moving party to the granting of the motion.

IV. Conclusions of Law.

The Secretary is entitled to preliminary injunctive relief because she has established all of the grounds necessary for the ...


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