Friday, 09 December 2022

Department of Labor: Konocti Harbor settlement final

KELSEYVILLE – It's official: The US Department of Labor's suit against the owners of Konocti Harbor Resort & Spa is settled.


As Lake County News first reported in May, the suit reached a tentative settlement May 15.


Court documents from that May settlement conference also indicated that the sale of Konocti Harbor to Page Mill Properties of Palo Alto is under way.


Judge Phyllis J. Hamilton of the US District Court of the Northern District of California signed the final 27-page consent order in the case on Friday, which the Department of Labor filed against Local 38 of the United Association of Plumbers, Pipefitters and Journeymen, whose Convalescent Trust Fund, Lakeside Haven, has owned Konocti Harbor since 1959.


“Workers’ retirement dreams, health and other benefits were jeopardized by the gross mismanagement of their benefit plans,” said Secretary of Labor Elaine L. Chao. “This legal action puts the benefit plans under new, independent management and restores at least $3.5 million to the pension plan.”


A call to attorney James P. Baker, who represented Local 38 in the suit, was not returned Friday afternoon.


Citing the need to protect union workers, Chao filed the suit in November 2004 against Local 38.


The suit alleged that Local 38's current and former trustees violated the Employee Retirement Income Security Act (ERISA) in managing retirement, health, scholarship, apprenticeship, and vacation and holiday funds that cover more than 2,000 people who are employed throughout Northern California, the Department of Labor reported.


The Department of Labor Local 38's trustees of diverting more than $36 million from the funds to renovate and operate Konocti Harbor.


A statement issued Friday by Chao's office specifically named trustees Lawrence J. Mazzola Sr., Local 38's business manager and financial secretary-treasurer; his son, Lawrence Mazzola Jr.; William B. Fazande; Larry Lee; James R. Shugrue; Vohon J. Kazarian; Tom Irvine; Robert E. Buckley; Robert Buckley Jr.; Art Rud; Ron Fahy; Robert Nurisso; former plan administrator Frank Sullivan; and Local 38.


Chao's Friday statement alleged that the suit's defendants “maintained inadequate financial controls, violated plan documents, engaged in self-dealing, and imprudently spent millions to build and maintain facilities at Konocti despite the resort’s continuing financial losses.”


In addition, Chao said that those dealings caused Local 38 to profit from the interest on a $6 million loan.


The settlement appoints independent fiduciaries to manage the pension funds, replaces all but two trustees Mazzola Jr. and Buckley Jr., who are required to attend training on ERISA fiduciary responsibilities – and permanently bars the replaced trustees and the former plan administrator from serving as fiduciaries or service providers for pension plans.


Hamilton's order includes the provisions that professional investment managers will now oversee Local 38's pension funds, and that an investment monitor will be responsible for supervising all pension plan assets.


The court also appoints WhiteStar Advisors LLC as a second fiduciary to oversee the management and operation of Konocti Harbor, as well as its sale to Page Mill Properties, which now is under way.


In a previous interview with Lake County News, Baker said he could not comment on the specifics of the sales because it is protected by a confidentiality agreement.


Court documents say Konocti Harbor's sale is estimated to fetch $25 million.


The court has ordered that the first $4 million in sale proceeds go to Local 38 to repay a loan it made to the Convalescent Trust Fund in 2000; the next $6 million will go to Local 38's Pension Trust Fund; Local 28 and the Pension Trust Fund will share equally any additional sale proceeds.


In addition, Local 38's fiduciary liability insurer must pay the Local 38 Pension Trust Fund more than $2.9 million, and pay the union's civil penalty of $583,333 to the United States Treasury.


The San Francisco Regional Office of the Labor Department’s Employee Benefits Security Administration investigated the case, the Department of Labor reported.


E-mail Elizabeth Larson at This email address is being protected from spambots. You need JavaScript enabled to view it..


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