Walsh v. Satori Grp., CIVIL ACTION NO. 20-3906-KSM

• Decision Date: 24 May 2021
• Docket Number: CIVIL ACTION NO. 20-3906-KSM
• Parties: MARTIN J. WALSH, Secretary of Labor, Plaintiff, v. SATORI GROUP, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

MARTIN J. WALSH, Secretary of Labor, Plaintiff, v. SATORI GROUP, INC., et al., Defendants.

CIVIL ACTION NO. 20-3906-KSM

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

May 24, 2021

MEMORANDUM

MARSTON, J.

Presently before the Court is Plaintiff the Secretary of Labor's (the "Secretary") motion for default judgment against Defendants Satori Group, Inc. (the "company"), John Florio, Amy Wright, and the Satori Group, Inc. 401(k) Plan (the "Plan").¹ (Doc. No. 5.) The Secretary claims that Defendants violated the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., by failing to forward employees' contributions to the Plan, or remitting such contributions late and without interest, and instead commingling Plan assets with the company's business operating funds. (See generally Doc. No. 1.)

For the reasons discussed below, we grant in part Plaintiff's motion for default judgment.

I. Background

Around October 1, 2001, the company established the Satori Group, Inc. 401(k) Plan.²(Id. at ¶ 10.) Employees who participated in the Plan could contribute a portion of their pay to the Plan as elective salary deferrals through payroll deductions. (Id.) Florio, the company's Chief Operating Officer, and Wright, the Plan Administrator, both acted as fiduciaries of the Plan. (Id. at ¶¶ 7-8.) In addition, the company served as the Plan Sponsor and Plan Administrator and was also a fiduciary of the Plan. (Id. at ¶ 6.)

From January 1, 2012 to December 31, 2014, the company, Florio, and Wright deducted money from participants' payroll as employee contributions to the Plan, but failed to timely forward these contributions to the Plan. (Id. at ¶¶ 11-12, 15.) Specifically, Defendants either did not remit employee contributions to the Plan or remitted them late and without interest. (Id. at ¶¶ 12-13.) Plan assets (i.e., the employee contributions) were commingled with the company's general assets in the company's business operating account. (Id. at ¶ 14.) Ultimately, the Secretary claims that at least $75,044.04 of employee contributions were not forwarded to the Plan, and that as of June 6, 2020, interest in the amount of $23,986.08 was owed to the Plan. (Id. at ¶ 15.)

The Secretary filed a complaint on August 11, 2020, requesting that this Court:

• order the company, Florio, and Wright to restore to the Plan all losses, including interest or lost opportunity costs and the cost of an independent fiduciary;

• order the Plan to set off Florio and Wright's individual account balances against the amount of the losses and reallocate the account balance to the non-breaching participants, if the losses are not otherwise restored to the Plan;

• order the company, Florio, and Wright to provide all records relating to the finances and administration of the Plan to the Secretary and to make an accounting to the Secretary and the independent fiduciary of all contributions to the Plan and all transfers, payments, or expenses incurred or paid in connection with the Plan;

• appoint an independent fiduciary;

• remove Florio and Wright as fiduciaries of the Plan and any other employee benefit plan for which they act as fiduciaries;• permanently enjoin Florio, Wright, and the company "from acting directly or indirectly, in any fiduciary capacity, with respect to any employee benefit plan subject to ERISA";

• permanently enjoin Florio, Wright, and the company "from exercising any custody, control, or decision making authority with respect to the assets of any employee benefit plan covered by ERISA";

• bar Florio and Wright from engaging in any future violations of ERISA; and

• award the Secretary the costs of this action.

(See id. at pp. 7-8.)

Defendants did not respond to the complaint, nor did they otherwise appear in this action. (See generally ECF 20cv3906.)

On October 19, 2020, this Court issued an Order, noting that none of the Defendants had filed a responsive pleading and stating that if any Defendant failed to file a responsive pleading by October 29, 2020, the Secretary could file a request for default against that Defendant pursuant to Federal Rule of Civil Procedure 55(a). (Doc. No. 3.) In accordance with that Order, on November 4, 2020, the Secretary requested that the Clerk of Court enter default against all Defendants (see Doc. No. 4), which the Clerk entered that day.

Two months later, on January 4, 2021, the Secretary moved for default judgment. (Doc. No. 5-2.) In an affidavit to the motion, Sean D. White, an investigator, submitted that, as of December 21, 2020, $26,770.66 in interest had accrued and was owed to the Plan. (Doc. No. 5-3 at pp. 3-4.) White also averred that Defendants owed the Plan a grand total of $101,81470, comprised of the $26,770.66 in interest and $75,044.04 in unremitted employee contributions. (Id.)

The Court scheduled a hearing on the motion for April 20, 2021, ordered the Secretary to file a supplemental memorandum and affidavit, and directed the Secretary to serve Defendants with copies of the Order, the motion for default judgment, and the supplemental memorandumand affidavit. (Doc. No. 6.)

The Secretary filed an Affidavit of Service, confirming that the required documents had been served on Defendants by way of personal service and email. (Doc. No. 11.)

Defendants did not attend the hearing on April 20, 2021. The day before the hearing, Defendants indicated to the Secretary that they did not intend to attend the hearing or contest the entry of default judgment. (Rough Draft Hr'g Tr. at 2:9-16.)

II. Legal Standard

"After a clerk enters default pursuant to Federal Rule of Civil Procedure 55(a) against a party that has 'failed to plead or otherwise defend' an action, the party may be subject to entry of a default judgment." Serv. Emps. Int'l Union, 325 F. Supp. 3d at 634 (quoting Fed. R. Civ. P. 55(a)). The clerk may enter default judgment in a plaintiff's favor if "the plaintiff's claim is for a sum certain or a sum that can be made certain by computation." Fed. R. Civ. P. 55(b)(1). "In all other cases, the party must apply to the court for a default judgment." Fed. R. Civ. P. 55(b)(2). A court's decision to enter default judgment pursuant to Rule 55 "is left primarily to the discretion of the district court." Perez v. Kwasny, Civil Action No. 14-4286, 2016 WL 558721, at *2 (E.D. Pa. Feb. 9, 2016) (quoting Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984)).

When the plaintiff files a motion to enter default judgment, the Court considers the three factors outlined by the Third Circuit in Chamberlain v. Giampapa: "(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." 210 F.3d 154, 164 (3d Cir. 2000); see also, e.g., Spurio v. Choice Sec. Syst., Inc., 880 F. Supp. 402, 404 (E.D. Pa. 1995); Acosta v. Schwab, No. 5:18-cv-3544, 2019 WL 7046916, at *2 (E.D. Pa. Dec. 20, 2019). However beforeturning to the Chamberlain factors, the Court must first "ascertain whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." Serv. Emps. Int'l Union, 325 F. Supp. 3d at 635 (quotation marks omitted).³

III. Discussion

A. The Secretary Has Stated Claims for Violations of ERISA

In the complaint, the Secretary claims that the company, Florio, and Wright violated several substantive provisions of ERISA, including:

1) failure to hold all assets of the Plan in trust, in violation of Section 403(a) of ERISA, 29 U.S.C. § 1103(a);

2) failure to ensure that the assets of the Plan did not inure to the benefit of the company in violation of Section 403(c)(1) of ERISA, 29 U.S.C. § 1103(c)(1);

3) failure to discharge their duties with respect to the Plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the Plan, in violation of Section 404(a)(1)(A) of ERISA, 29 U.S.C. § 1104(a)(1)(A);

4) failure to discharge their duties with respect to the Plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterpriseof a like character and with like aims, in violation of Section 404(a)(1)(B) of ERISA, 29 U.S.C. § 1104(a)(1)(B);

5) causing the Plan to engage in transactions which they knew or should have known constituted the direct or indirect transfer of Plan assets to, or use of Plan assets by or for the benefit of a party-in-interest, in violation of Section 406(a)(1)(D) of ERISA, 29 U.S.C. § 1106(a)(1)(D);

6) dealing with assets of the Plan in their own interest or for their own account, in violation of Section 406(b)(1) and (2) of ERISA, 29 U.S.C. §§ 1106(b)(1) and (2).

(Doc. No. 1 at pp. 5-6 (cleaned up).) The Court addresses each claim in turn below.

a. Section 403(a) of ERISA, 29 U.S.C. § 1103(a)

First, the Court considers the Secretary's contention that Defendants violated Section 403(a) of ERISA, 29 U.S.C. § 1103(a), which provides that "all assets of an employee benefit plan shall be held in trust by one or more trustees." Here, the Secretary alleges that Defendants failed to remit some employee contributions to the Plan and commingled Plan assets with the company's general assets by keeping them in the general business operating account. (See Doc. No. 1 at ¶¶ 12-16.) The Court concludes that this is sufficient to show that the assets of the employee benefit plan were not held in trust and that the Secretary therefore has stated a claim for violation of Section 403(a). See Kwasny, 2016 WL 558721, at *1-2 (granting default judgment and finding that the Secretary had stated a claim for violation of 29 U.S.C. § 1103(a), where the defendants...