Plan Fiduciary Had Alleged Affair With Adviser, Now Faces ERISA Charges

A federal judge in Atlanta allowed three ERISA claims to move forward accusing a former retirement plan fiduciary of breaching her duties, while dismissing a separate request for equitable relief that sought to affect ongoing divorce proceedings.

U.S. District Judge Sarah Geraghty granted and denied parts of defendant Jan Watkins’ motion to dismiss, ruling that claims alleging breaches of fiduciary duty, prohibited transactions and co-fiduciary liability under the Employee Retirement Income Security Act would proceed.

Watkins, a former plan fiduciary of Accelerated Recovery Centers LLC’s 401(k) and cash balance plans from 2017 through 2021, is accused of engaging in an undisclosed extramarital relationship with the plans’ outside investment adviser, Christopher Norwood of Norwood Economics Inc.

The plaintiffs, including Kevin Kelly—the current plan fiduciary and Watkins’ former spouse—allege that the affair created conflicts of interest that led Watkins to favor the adviser, to improperly allocate retirement assets and to fail to monitor investment performance. The plaintiffs allege that Watkins exercised discretionary authority over the plans’ assets and that her actions caused more than $2 million in losses to the plans.

Geraghty dismissed only the plaintiffs’ claim seeking equitable relief and a constructive trust, concluding that federal abstention principles prevented the court from intervening in matters tied to the ongoing state domestic relations case. The fourth count sought a constructive trust over funds allocated in the parties’ divorce proceedings. Geraghty concluded it would improperly interfere with ongoing state-court contempt and divorce proceedings, requiring abstention under the Younger Doctrine.

In a 22-page order, Geraghty rejected Watkins’ arguments that the federal action was barred by the Rooker-Feldman doctrine because of prior state-court divorce proceedings. Geraghty found the Accelerated Recovery Centers LLC 401(k) Plan and the Accelerated Recovery Centers LLC Cash Balance Plan were distinct parties with interests separate from Kelly’s individual interests in the divorce and therefore were not barred from pursuing their federal ERISA claims. Geraghty also directed the parties to file a joint preliminary report and discovery plan within 14 days.

The court also declined to dismiss the ERISA claims based on the statute of limitations at the pleading stage, finding it was not clear from the face of the complaint when the plans had actual knowledge of the alleged misconduct. The judge further held that the complaint plausibly alleged fraudulent concealment through claims that Watkins withheld documents, deleted communications and used nondisclosure agreements to conceal the alleged misconduct, making dismissal on limitations grounds inappropriate at this stage.

The plaintiffs are represented by Johnson Trial Law LLC. Watkins is represented by Fisher & Phillips LLP, which replaced Cohan & Levy as counsel during the proceedings.