Mink v. Baltimore Behavioral Health Inc.

• Decision Date: 04 December 2012
• Docket Number: CIVIL NO. WDQ-11-1937
• Parties: GAIL MINK, ET AL. v. BALTIMORE BEHAVIORAL HEALTH INC., ET AL.
• Court: U.S. District Court — District of Maryland

GAIL MINK, ET AL.

v.BALTIMORE BEHAVIORAL HEALTH INC., ET AL.

CIVIL NO. WDQ-11-1937

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Dated: December 4, 2012

REPORT AND RECOMMENDATION

This is an action brought under Employee Retirement Income Security Act ("ERISA") and Racketeering Influenced Corrupt Organization Act ("RICO") for various violations regarding plaintiffs' and other participants in certain Retirement and Disability Plans in 2009 and 2010. (ECF No. 20, 1-2). The plaintiffs request the following: reimbursement of unpaid contributions for all plan participants into the Plans in the amount of $49,990.62, representing employees' own contributions not deposited in the Plans and the required employer match not deposited in the Plans (ECF No. 20, 2); pre-judgment interest at the rate of 6% per year and post-judgment interest in accordance with 28 U.S.C. § 1961 for unpaid contributions (ECF No. 20, 3); and reasonable attorney's fees and costs to be determined at a later time (ECF No. 18, 2). Finally, plaintiffs request trebledamages for unpaid contributions for all plan participants under RICO. (ECF No. 20, 4).¹

Plaintiffs move for an entry of default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2) against defendants Baltimore Behavioral Health Inc. ("BBH, Inc.") and William Hathaway for failure to appear or otherwise defend in this matter. (ECF No. 18).

This case has been referred to the undersigned magistrate judge in accordance with 28 U.S.C. § 636 and Local Rule 301 and 302. The Court has requested and received additional supporting materials and held a hearing on November 29, 2012, to fully understand the damages evidence and methodology. For the reasons set forth below, the undersigned recommends that plaintiffs' motion be GRANTED in part and DENIED in part, and that damages be awarded as set forth herein.

I. Default Judgment Standard

Federal Rule of Civil Procedure 55(b)(2) authorizes courts to enter a default judgment against a properly served defendant who fails to file a timely responsive pleading.

In deciding whether to grant a motion for default judgment, the Court must first consider the following three factors: (1) whether the plaintiff will be prejudiced if default is not granted, (2) whether the defendant has a meritorious defense, and (3) whether the defendant's delay was the result of culpable misconduct. Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 73 (3rd Cir. 1987); see also Smith v. Bounds, 813 F.2d 1299 (4th Cir. 1987) (relying on these factors in determining whether a default judgment merited reconsideration).

The Court must also determine whether plaintiff has alleged legitimate causes of action. In reviewing plaintiffs' Motion for Entry of a Default Judgment, the Court accepts as true the well-pleaded factual allegations in the complaint as to liability. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780-81 (4th Cir. 2001). It, however, remains for the Court to determine whether these unchallenged factual allegations constitute a legitimate cause of action. Id.; see also 10A WRIGHT, MILLER & KANE, FEDERAL PRACTICE AND PROCEDURE § 2688 (3rd ed. Supp. 2010) ("[L]iability is not deemed established simply because of the default . . . and the Court, in its discretion, may require some proof of the facts that must be established in order to determine liability.").

If the Court determines that liability is established, it must then determine the appropriate amount of damages. Ryan,253 F.3d at 780-81. Unlike factual allegations as to liability, the Court does not accept factual allegations regarding damages as true, but rather must make an independent determination regarding such allegations. Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 154 (2nd Cir. 1999). In so doing, the Court may conduct an evidentiary hearing. FED. R. CIV. P. 55(b)(2). The Court can also make a determination of damages without a hearing so long as there is an adequate evidentiary basis in the record for the award. See, e.g., Stephenson v. El-Batrawi, 524 F.3d 907, 917 n.11 (8th Cir. 2008) ("Foregoing an evidentiary hearing may constitute an abuse of discretion when the existing record is insufficient to make the necessary findings in support of a default judgment."); Adkins v. Teseo, 180 F. Supp. 2d 15, 17 (D.D.C. 2001) (finding that a court need not make determination of damages following entry of default through hearing, but rather may rely on detailed affidavits or documentary evidence to determine the appropriate sum).

II. Preliminary Factors

The Clerk of Court having filed entry of default on January 3, 2012 (ECF No. 12), the undersigned concludes that the procedural requirements for entry of default judgment have been met. Moreover, because the defendants have failed to file any responsive pleadings or otherwise show cause as to why defaultshould not be granted, the Court is "not in a position to judge whether any delay was the result of culpable misconduct." Sambrick, 834 F.2d at 73. Further, defendants' failure to appear deprived plaintiffs of any other means of vindicating their claim and plaintiffs would be prejudiced if default is not granted.

III. Discussion

A. ERISA Claims

Accepting the facts alleged in the plaintiffs' complaint as true, the undersigned finds that plaintiffs have adequately stated a cause of action under ERISA in count four of their complaint for unpaid contributions and pre- and post-judgment interest. (ECF No. 4, 1148-51).

1. Standing

Named plaintiffs Ms. Mink and Mr. Ziemski have brought this lawsuit "on their own behalf and on behalf of the Retirement and Disability Plans and all individual plan participants and beneficiaries." (ECF No. 4, 3). Section 1132(a)(2) of ERISA allows "a participant, beneficiary or fiduciary" to bring a civil action for breach of fiduciary duty. 29 U.S.C. § 1132(a)(2). A participant is defined as "any employee or former employee of an employer or any member or former member of an employee organization, who is or may become eligible to receivea benefit of any type from an employee benefit plan." 29 U.S.C. § 1002(7). A plan participant may not sue unless he or she seeks recovery on behalf of the plan. Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412, 1417-1418 (9th Cir. 1991)("An individual beneficiary may bring a fiduciary breach claim, but must do so for the benefit of the plan.").

Both Ms. Mink and Mr. Ziemski have properly pled that they are participants in the Baltimore Behavioral Health Retirement and Disability Plans. (ECF No. 4, ¶¶ 2, 4.). They bring suit on behalf of the plan, and any damages received by plaintiffs will be paid to the plan, which will then determine the proper means of disbursement. (ECF No. 22, 1).² As such, they have standing to sue Baltimore Behavioral Health, Inc. on behalf of these plans and for their benefit.

Plaintiffs also have standing to sue Mr. Hathaway for breach of fiduciary duty. An individual is a fiduciary under ERISA to the extent the person "exercises any discretionary authority or control respecting management of [a] plan or control respecting management or disposition of its assets." 29 U.S.C. (21)(A). The Fourth Circuit has held that where "an employer is entrusted with employee funds for remittance to aclaims administrator, along with any employer contributions, the employer is acting in a fiduciary capacity under ERISA." Phelps v. C.T. Enter., Inc., 394 F.3d 213, 219 (4th Cir. 2005). An individual corporate officer "who voluntarily assume[s] the role of fiduciary . . . become[s] subject to the obligations of a fiduciary under ERISA." Id. Plaintiffs have alleged that Mr. Hathaway was the Chief Financial Officer of Baltimore Behavioral Health Inc. As part of his responsibilities he oversaw the payroll and "was entrusted with employee funds for remittance to a claims administrator." (ECF No. 24, 1). As such, plaintiffs have properly included Mr. Hathaway as a defendant. Phelps, 394 F.3d at 221 (reasonable fact finder could find that officers of company who directed actions on its behalf were fiduciaries under ERISA when, as representatives of the Employer and Plan Administrator, they directed that the Employees' own paycheck contributions be diverted instead for other purposes).

2. Count II and III

In Count II, plaintiffs allege that defendant Hathaway and BBH Inc. breached their fiduciary duty to plaintiffs and other plan participants by failing to prudently invest plan assets in violation of 29 U.S.C. § 1104 and 29 U.S.C. § 1106. (ECF No. 4, ¶ 9-10). Count III alleges a failure to diversify investments, also in violation of § 1104 and § 1106. (Id., 10-11).

At the outset, neither Count implicates § 1106, which deals with prohibited transactions but does not relate to prudent or diversified investments. Both of these counts fall under 29 U.S.C. §1104 (a)(1)(B) and (C). Sub-section (B) requires fiduciaries to act "with care, skill, prudence and diligence," and has been read to require a duty to investigate, review and research investment options for the assets of a plan. Plasterers' Local Union No. 96 Pension Plan v. Pepper, 663 F.3d 210, 215 (4th Cir. 2011). Sub-section (C) requires that fiduciaries diversify "the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so." U.S.C. §1104(a)(1)(C).

There is no factual support in plaintiffs' complaint for a violation of either of these sub-sections. Plaintiffs allege that defendants have "diverted and stolen" employee contributions to "pay tax obligations and other incidental expenses." (ECF No. 4, ¶ 28, 30). While the complaint parrots the statutory language of § 1104 of lack of "pruden[ce]" and "diversif[ication]," there are no factual allegations that these contributions were invested imprudently, or that investments were not properly diversified. Indeed, based on the facts asserted, the employee contributions were not invested at all nor were...