Solis v. Sonora Envtl., L.L.C.
| Decision Date | 24 October 2012 |
| Docket Number | CV 10-00675-TUC-JGZ |
| Parties | Hilda L. Solis, Secretary of Labor, United States Department of Labor, Plaintiff, v. Sonora Environmental, L.L.C., an Arizona Corporation; Lee Jolley, an individual; Sonora Environmental, L.L.C. 404(K) Profit Sharing Plan, an employee benefit plan, Defendants. |
| Court | U.S. District Court — District of Arizona |
Pending before the Court is Plaintiff's Motion for Default Judgment. (Doc. 30.) On May 24, 2012, this Court ordered Plaintiff to show cause for her failure to file a timely application for default judgment. (Doc. 29.) Plaintiff filed her declaration on June 1, 2012. (Doc. 31.) Upon review of Plaintiff's Motion and declaration, Plaintiff's Motion for Default Judgment is granted.
On November 15, 2010, Hilda L. Solis, Secretary of Labor filed an action alleging Defendants failed to manage Sonora Environmental's 401(k) Profit Sharing Plan within the provisions of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"). (Complaint, Doc. 1.) The Complaint names as Defendants Sonora Environmental, LLC("Sonora"), Lee Jolley - President and Owner of Sonora, and Sonora's 401(k) Profit Sharing Plan ("the Plan"). (Id. ¶¶ 5-7.)
The Complaint alleges the following facts: The Plan is an employee benefit plan within the meaning of ERISA. (Complaint, Doc. 1, ¶ 4.) The Plan was established January 1, 2005 by Sonora. (Id. ¶ 10.) Sonora was the Plan Sponsor, Named Fiduciary, and Plan Administrator of the Plan. (Id. ¶ 5.) Jolley was and is the President and owner of Sonora; he was and is the Named Fiduciary and Plan Trustee of the 401(k) Plan; he exercised discretionary authority and control with respect to the management and disposition of the Plan's assets; and he exercised discretionary authority and responsibility in the administration of the Plan. (Id. ¶ 6.) Sonora and Jolley are fiduciaries within the meaning of ERISA §§ 3(21)(A)(i) and (iii), 29 U.S.C. §§ 1002(21)(A)(i) and (iii), and they are parties in interest of the Plan within the meaning of ERISA §§ 3(14)(A),(E) and (H), 29 U.S.C. §§ 1002(14)(A), (E) and (H). (Id. ¶¶ 5-6.)
Sonora and Jolley, acting in fiduciary capacities, permitted the assets of the Plan to inure to the benefit of Sonora, in violation of ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1). (Id. ¶ 22(a).) Between January 2005 and October 2008, Defendants failed to timely remit approximately $38,000 of employees' pay for salary reduction contributions and loan payments to the 401(k) Plan in accordance with the Plan's governing documents and 29 C.F.R. § 2510.3-102(a).2 (Id. ¶ 15.) From October 28, 2005 to October 2008, Defendantscaused Sonora to withhold at least $2,000 from employees' pay for salary reduction contributions and loan payments to the 401(k) Plan, but Defendants failed to remit the amounts withheld into the 401(k) Plan's account. (Id. ¶ 17.)
Sonora and Jolley also violated various fiduciary duties by failing to diligently administer the Plan to the benefit of the employees. Defendants failed to file Annual Report Forms 5500 pursuant to ERISA § 104 and failed to secure a fidelity bond as required by ERISA § 412. (Id. ¶ 19.) Defendants failed to provide for the prudent and complete termination of the Plan, including determining whether participants received proper notice of the Plan distributions to which they are entitled. (Id. ¶ 21.)3 Defendants' failure to remit at least $2,000 of employee contributions and loan payments to the 401(K) Plan and Defendants' commingling of the funds with Sonora's accounts violated ERISA § 406(a)(1)(B) and (D), 29 U.S.C. § 1106(a)(1)(B) and (D). (Id. ¶ 17.) By failing to remit employee contributions and commingling of Plan assets with Sonora's accounts, Defendants also failed to act solely in the interest of the participants and beneficiaries of the Plan, and for the exclusive purpose of providing benefits to participants and their beneficiaries, and defraying reasonable expenses of 401(k) Plan administration, in violation of ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A). (Id. ¶ 22(b).) Defendants failed to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would exercise, in violation of ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B). (Id. ¶ 22(c).)
As a direct and proximate result of Sonora and Jolley's breach of fiduciary duties, the Plan has suffered losses, including lost-opportunity income. (Id. ¶ 24.)
On May 29, 2009, before this action was commenced, the Employee Benefits Security Administration ("EBSA") sent a notice letter to Jolley, citing him for various ERISAviolations. (Doc. 30-1, ¶ 4(m).)4 Jolley confirmed receipt of the letter, but he failed to take any corrective action regarding the violations. (Id.)
On November 18, 2010, the Secretary sent waiver of service of summons forms to all Defendants. (Declaration of Donna F. Bond, Doc. 30-2, ¶ 4.) On December 14, 2010, Defendant Jolley waived service as an individual and for the Plan. (Docs. 8 & 9.) On January 14, 2011, Jolley waived service on behalf of Sonora. (Doc. 11.)
On January 18, 2011, Jolley filed an Answer on behalf of himself and Sonora. (Doc. 13.) The Court set a scheduling conference (doc. 14) and ordered that Sonora and the Plan retain counsel before the scheduling conference on May 10, 2011, because Jolley, appearing pro per, could not represent the corporate defendants. (Doc. 15.) Defendants failed to appear at the scheduling conference. (Doc. 25.) The Court set another scheduling conference and warned that if no action was taken with regard to the unrepresented defendants, those defendants would be dismissed. (Doc. 17.) Defendants again failed to appear. (Doc. 23.) The Secretary applied for entry of default against Sonora and the Plan. (Doc. 18.) On December 15, 2011, the Clerk of the Court entered default against Sonora and the Plan. (Doc. 22.)
On January 4, 2012, the Court filed an order to show cause, noting that despite answering the Complaint and contacting Magistrate Judge Marshall's chambers, Jolley had failed to defend the matter. (Doc. 23.) On February 10, 2012, the Magistrate Judge recommended that the District Court enter default against Jolley. (Doc. 25.) On March 15, 2012, this Court adopted the Magistrate Judge's Report and Recommendation (doc. 26), and the Clerk of the Court entered default against Jolley. (Doc. 27.)
The Secretary now brings her Motion for Default Judgment, requesting that the Court enter judgment in her favor and award damages and equitable relief against Defendants.
After entry of a default, a court may, in its discretion, grant a default judgment on the merits of the case.5 See Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In determining whether default judgment is appropriate, the Court considers:
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
Upon consideration of the Eitel factors, the Court concludes that entering default judgment against Defendants Sonora and Jolley is proper.
The Court first considers whether the Secretary will suffer prejudice if default judgment is not entered. Eitel, 782 F.2d at 1471-72. Defendants failed to remit $2,078.46 in employee contributions and participant loan payments to the Plan and instead, retained and commingled those contributions and payments with Sonora's accounts. Defendants also failed to timely remit $38,314.03 of employee contributions and participant loan payments to the Plan, which constituted a prohibited extension of credit. Jolley was provided an opportunity to remedy the ERISA violations without judicial intervention, but he failed to take any corrective action regarding the violations. The Court concludes that the Secretary would suffer prejudice if her motion for default judgment was denied because she would be "without other recourse for recovery." PepsiCo, Inc. v. California Security Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002).
Eitel "require[s] that a plaintiff state a claim on which the [plaintiff] may recover." Philip Morris U.S.A., Inc. v. Castworld Products, Inc., 219 F.R.D. 494, 499 (C.D. Cal. 2003) (internal quotation marks omitted). The Secretary alleges that Sonora and Jolley, acting in their roles as fiduciaries: (1) permitted the assets of the Plan to inure to the benefit of Sonora; (2) failed to act solely in the interest of the participants and beneficiaries of the Plan; (3) failed to act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of a like character; and (4) inappropriately managed the employees' contributions to their own benefit. (Complaint, Doc. 1, ¶ 22.) Given these allegations and the Court's acceptance of these allegations as true, the Court finds that the Secretary has adequately shown that Defendants violated ERISA. See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).
This factor requires the Court to consider the amount of money at stake in relation to the seriousness of the defendants' conduct. Eitel, 782 F.2d at 1471-72. In this case, the damage award sought by the Secretary is the payment of $2,078.46, which Defendants failed to remit to the 401(k) Plan (doc. 30-1, ¶ 4(i)), and...
To continue reading
Request your trial
-
Perelman v. Perelman, Civil Action No. 10–5622.
...the authority provided by ERISA § 502(a)(3) or § 502(a)(5), 29 U.S.C. § 1132(a)(5).5See, e.g., Solis v. Sonora Envtl., L.L.C., No. 10–675, 2012 WL 5269211, at *6 (D.Ariz. Oct. 24, 2012) (permanently enjoining a trustee in a suit brought by the Secretary from providing any services—whether a......