Acosta v. Schwab, 5:18-cv-3544

• Decision Date: 20 December 2019
• Docket Number: No. 5:18-cv-3544,5:18-cv-3544
• Parties: R. ALEXANDER ACOSTA, SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff, v. ADAM SCHWAB, JODI SCHWAB, SCHWAB CONTRACTING, INC., and SCHWAB CONTRACTING, INC. SIMPLE IRA PLAN, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

R. ALEXANDER ACOSTA, SECRETARY OF

LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff, v. ADAM SCHWAB, JODI SCHWAB, SCHWAB CONTRACTING, INC., andSCHWAB CONTRACTING, INC. SIMPLE IRA PLAN, Defendants.

No. 5:18-cv-3544

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA

December 20, 2019

OPINION

Plaintiff's Motion for Entry of Default Judgment, ECF No. 7—Granted

Joseph F. Leeson, Jr. United States District Judge

I. BACKGROUND

The Secretary of Labor of the United States¹ commenced this action against Adam Schwab, Jodi Schwab, Schwab Contracting, Inc., and Schwab Contracting, Inc. SIMPLE IRA Plan, to enjoin acts and practices which allegedly violate provisions of the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"), as well as to obtain restitution resulting from alleged breaches of fiduciary duties thereunder. See generally, Plaintiff's Complaint ("Compl."), ECF No. 1. According to the Secretary, Schwab Contracting,Inc., ("the Company") is a general construction contractor located in Allentown, Pennsylvania, and is principally owned by Adam Schwab, with Jodi Schwab, his wife, serving as payroll officer ("the Schwabs") (collectively, "Defendants"). See id. ¶¶ 7-8, 10. The Company is allegedly the Plan Sponsor and Plan Administrator of Schwab Contracting, Inc. SIMPLE IRA Plan ("the Plan"), an employee benefit plan as defined by ERISA. Id. ¶ 6. The Secretary contends that in 2015 and 2016, the Plan was unlawfully mismanaged by the Schwabs. Specifically, the Secretary alleges that the Schwabs failed to remit employee contributions to the Plan, remitted certain employee contributions late without interest, and commingled employee contributions with the general assets of the Company. See id. ¶¶ 12-13. As a result, the Secretary claims the Plan suffered approximately $18,531.57 in losses from unremitted employee contributions, and approximately $1,706.36 in lost interest. See id. ¶ 17.

The Defendants have failed to respond to the Secretary's Complaint, see ECF No. 1, or otherwise appear in this action. On December 6, 2018, the Secretary moved for entry of default pursuant to Federal Rule of Civil Procedure 55(a), see ECF No. 6, which the Clerk of the Court entered the same day. On March 1, 2019, the Secretary moved for entry of default judgment pursuant to Federal Rule of Civil Procedure 55(b). See generally Plaintiff's Motion for Entry of Default Judgment, ECF No. 7; see also Plaintiff's Memorandum in Support of his Motion ("Pl.'s Mem."), ECF No. 7-1. The Defendants have failed to respond to the Secretary's motion despite proper service.

For the reasons set forth below, the Secretary's Motion for Entry of Default Judgment is granted.

II. LEGAL STANDARD

"When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." FED. R. CIV. P. 55(a). Once the Clerk enters default, if the claim is not for a sum certain as contemplated by Federal Rule of Civil Procedure 55(b)(1), then "the party must apply to the court for a default judgment." FED. R. CIV. P. 55(b)(2); see, e.g., Phoenix Ins. Co. v. Small, 307 F.R.D. 426, 433 (E.D. Pa. 2015). In reviewing a motion for default judgment under Rule 55(b),

[t]he court's initial inquiry is "whether the unchallenged facts constitute a legitimate cause of action." 10A Charles Alan Wright, Arthur R. Miller, et al., Federal Practice and Procedure § 2688 (3d ed. 2013) (citing cases). As at the motion to dismiss stage, the court accepts as true the well-pleaded factual allegations in the plaintiff's complaint, except those relating to damages, as though they were admitted or established by proof, Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990), as well as all reasonable inferences that can be drawn from the complaint, e.g., Yang v. Hardin, 37 F.3d 282, 286 (7th Cir. 1994). Conclusory allegations and the parties' legal theories or "conclusions of law" are not entitled to the same presumption and are not deemed admitted. Wright & Miller, supra, § 2688.

Joe Hand Promotions, Inc. v. Yakubets, 3 F. Supp. 3d 261, 270-71 (E.D. Pa. 2014) (footnotes omitted).

"If the court determines that the plaintiff has stated a cause of action, it must then assess damages." Yakubets, 3 F. Supp. 3d at 271. To that end, "[t]he court must 'conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.'" Spring Valley Produce, Inc. v. Stea Bros., No. CIV.A. 15-193, 2015 WL 2365573, at *3 (E.D. Pa. May 18, 2015) (quoting Star Pacific Corp. v. Star Atlantic Corp., 574 F. App'x. 225, 231 (3d Cir. 2014)). Rule 55(b)(2) provides that the court "may conduct hearings" when it needs to determine the amount of damages; however, "[i]f the court can determine the amount of damages to be awarded basedon affidavits or other evidentiary materials, '[t]he Court is under no requirement to conduct an evidentiary hearing with testimony.'" Yakubets, 3 F. Supp. 3d at 271 n.8 (quoting E. Elec. Corp. of N.J. v. Shoemaker Constr. Co., 657 F. Supp. 2d 545, 552 (E.D. Pa. 2009)).

In addition to whether a complaint's allegations state a cognizable claim, and, if so, whether damages are ascertainable with "reasonable certainty," Spring Valley Produce, Inc., 2015 WL 2365573, at *3, there are three critical factors a court must consider in resolving a motion for entry of default judgment—factors which recognize that entry of defaults and default judgments are not favored. See United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984); see also E. Elec. Corp. of New Jersey, 652 F. Supp. 2d at 604 ("Generally, the entry of a default judgment is disfavored because it has the effect of preventing a case from being decided on the merits. Thus, because a party is 'not entitled to a default judgment as of right,' the court must use 'sound judicial discretion' in weighing whether or not to enter a default judgment." (quoting Prudential-LMI Commercial Ins. Co. v. Windmere Corp., 1995 WL 422794, at *1 (E.D. Pa. July 14, 1995))). These three factors are "(1) prejudice to the plaintiff if default is denied, (2) whether the defendant appears to have a litigable defense, and (3) whether defendant's delay is due to culpable conduct."² Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000); cf. Malibu Media, LLC v. Waller, No. 15-CV-03002, 2016 WL 184422, at *2-*3 (D.N.J. Jan. 15, 2016) (explaining that "[u]nder Fed. R. Civ. P. 55(c), a district court 'may set aside an entry of default for good cause'" only where it considers "(1) 'whether the plaintiff will be prejudiced,' (2) 'whether the defendant has a meritorious defense,' and (3) 'whether the default was the result of the defendant's culpable conduct,'" and observing that"[t]hese are the same three factors that the Third Circuit considers in determining whether to grant default judgment against a defendant" (quoting Budget Blinds, Inc. v. White, 536 F.3d 244, 256-57 (3d Cir. 2008) and Chamberlain, 210 F.3d at 164)).

III. ANALYSIS

A. The Secretary has stated claims for violations of ERISA.

The Secretary's Complaint claims that the Defendants, through their conduct with respect to the Plan, have violated six substantive provisions of ERISA: (1) Section 403(c)(1) of ERISA, 29 U.S.C. § 1103(c)(1), which prohibits the assets of a plan from inuring to the benefit of an employer; (2) Section 404(a)(1)(A) of ERISA, 29 U.S.C. § 1104(a)(1)(A), which provides that a fiduciary shall discharge his duties for the exclusive purpose of providing benefits to plan participants and their beneficiaries, as well as defraying reasonable expenses of administering the plan; (3) Section 404(a)(1)(B) of ERISA, 29 U.S.C. § 1104(a)(1)(B), which provides that a fiduciary shall discharge his duties with care, skill, prudence, and diligence; (4) Section 406(a)(1)(D) of ERISA, 29 U.S.C. § 1106(a)(1)(D), which prohibits a fiduciary from causing a plan to engage in a transaction constituting a direct or indirect transfer to, use by, or for the benefit of, a party of interest, of any asset of the plan; (5) Section 406(b)(1) of ERISA, 29 U.S.C. § 1106(b)(1), which prohibits a fiduciary from dealing with the assets of a plan in his own interest or for his own account; and (6) Section 406(b)(2) of ERISA, 29 U.S.C. § 1106(b)(2), which prohibits a fiduciary from acting in any transaction involving a plan on behalf of a party whose interests are adverse to the interest of the plan or the interest of its participants and beneficiaries. See Compl. ¶¶ 19(a)-(f).

1. Facts alleged in the Complaint

The Secretary contends the following allegations in the Complaint state claims for violations of each of the above-six provisions of ERISA.

Schwab Contracting, Inc, is a general construction contractor that performed business in the Allentown, Pennsylvania area. Compl. ¶ 10. At all relevant times, Adam Schwab was the owner and principle officer of the Company, and his wife, Jodi Schwab, was the Company's payroll officer. Id. ¶¶ 7-8. The Company allegedly established the Schwab Contracting, Inc. SIMPLE IRA Plan on March 1, 2014, which permitted employee-participants to contribute a portion of their pay to the Plan as elective salary deferrals through payroll deductions. Id. ¶ 11. The Secretary asserts that Adam and Judy Schwab exercised discretionary authority or control as to the management and administration of the Plan and disposition of the Plan's assets, as well as discretion over how employee contributions were withheld by the Company through weekly payroll deductions. Id. ¶¶ 7-8, 14-15. The Complaint contends that, as a result, both Adam and Judi Schwab are fiduciaries of the Plan within the meaning of Section 3(21) of ERISA, 29 U.S.C. § 1002(21), as well as "parties in interest" within the meaning of Section 3(14)(A), (C), (E), and (F) of ERISA, 29 U.S.C. § 1002(14)(A), (C), (E), and (F).³ Id. ¶¶ 7-8.

The...