White v. Mancini's Sleepworld, Inc.

Background

Clint White and Kathryn L. Lopez brought this Employee Retirement Income Security Act (ERISA) action concerning a deceased family member's 401(k) account. They alleged that the decedent had named one or both plaintiffs as beneficiaries, that the beneficiary designation was changed after his death, and that the account funds were distributed to Brandy LaRue. The complaint asserted claims for breach of fiduciary duties and denial of benefits and sought equitable relief under ERISA.

The defendants included Mancini's Sleepworld, Inc., Marie Higgins, and ADP Payroll Services, Inc. ADP answered the complaint after stipulating with the plaintiffs to extend its response deadline. Mancini's Sleepworld and Higgins did not initially answer, so the clerk entered default against Mancini's Sleepworld on July 8, 2020, and against Higgins on July 20, 2020. They then moved under Federal Rule of Civil Procedure 55(c) to set aside the entries of default.

Legal standard

Under Rule 55(c), a court may set aside an entry of default for “good cause.” The court considered three factors: whether the defendants' failure to answer was culpable, whether they had a potentially meritorious defense, and whether setting aside the defaults would prejudice the plaintiffs. The court explained that default is a severe remedy and that doubts should generally be resolved in favor of allowing the case to be decided on its merits. At this stage, the defendants needed to allege facts that, if true, would constitute a defense; the court did not need to decide whether those facts were true.

Analysis

The defendants said they missed the response deadline because they believed ADP was coordinating the defense for all defendants. The court found no indication of bad faith. It also noted that the defendants promptly obtained counsel and sought to set aside the defaults after learning of the mistake. Mancini's Sleepworld's president stated that the company had completely shut down because of the COVID-19 pandemic and had only a fraction of its ordinary workforce when the case was filed.

The court found no prejudice to the plaintiffs because the case was still at an early stage: ADP had only recently answered, no initial case-management conference had occurred, no schedule had been set, and the defendants had prepared draft answers. The court also found that the defendants had identified possible defenses, including that Higgins was not the 401(k) plan administrator; that the plaintiffs had not exhausted required administrative remedies; that LaRue, rather than the plaintiffs, was the designated beneficiary; that the beneficiary had not been changed after the decedent's death; that the defendants followed plan procedures and were not responsible for third-party fraud; and that any state-law fiduciary-duty claim was preempted by ERISA.

The court did not resolve the truth or ultimate legal strength of those defenses. It concluded that there was some possibility that the result after full litigation would differ from the result produced by default and therefore found good cause to set aside both defaults.

Other requests and disposition

The court considered the plaintiffs' late opposition briefs despite their untimely filing, while warning counsel to comply with future deadlines. It denied the plaintiffs' request to condition the order on protections against alleged efforts to hide evidence, explaining that discovery would provide a means to request information. It also denied the plaintiffs' request for attorneys' fees.

The court granted the motions to set aside default as to Mancini's Sleepworld and Higgins. It directed them to file answers within five days, continued the telephonic case-management conference to September 22, 2020, and required a new joint case-management statement by September 15, 2020. The order also terminated Docket No. 45.