District Council 16 Northern California Health and Welfare Trust Fund v…

Background

The plaintiffs sued Shugart Glass of Texas, Inc., alleging that it failed to comply with an audit of its payroll records and failed to pay contributions for hours worked by its employees, as allegedly required by bargaining and trust agreements and the Employee Retirement Income Security Act (ERISA). Shugart Glass was personally served with the complaint but did not timely answer. The clerk entered default on November 23, 2020.

The plaintiffs moved for default judgment. Shugart Glass moved to set aside the entry of default, stating that the COVID-19 pandemic and financial hardship prevented it from timely hiring a lawyer. The court considered both motions without a hearing.

Legal standard

Federal Rule of Civil Procedure 55(c) allows a court to set aside an entry of default for “good cause.” The court considered whether Shugart Glass engaged in culpable conduct, whether it had a potentially valid defense, and whether setting aside the default would prejudice the plaintiffs. The court explained that default judgment is a drastic remedy and that courts should decide cases on their merits when possible. The good-cause standard is applied more liberally when a party seeks to set aside an entry of default rather than an already-entered default judgment.

Court’s analysis

The court found no culpable conduct. Shugart Glass said it could not afford an attorney, and the plaintiffs did not dispute that explanation. The court rejected the plaintiffs’ argument that Shugart Glass’s conduct before the lawsuit made its failure to answer culpable, noting that the plaintiffs cited no authority supporting that position. The court also found no evidence that Shugart Glass ignored or discarded the complaint or deliberately acted in bad faith.

The court found that Shugart Glass presented a potentially meritorious defense. The company stated that it had performed no work after February 2016 that would trigger an obligation to pay contributions. If that assertion were true, the company presumably would not owe contributions for such work. The court also noted that it was unclear whether the company had to participate in an audit if it had performed no work after February 2016.

The court found that setting aside the default would not prejudice the plaintiffs. The plaintiffs pointed to attorney’s fees and costs incurred in the litigation, but the court explained that additional time and expense generally do not establish the kind of prejudice that prevents a case from being decided on its merits. The court also noted that the plaintiffs’ ability to pursue their claims was not shown to be impaired.

Conditions requested by the plaintiffs

The plaintiffs asked the court to condition relief from default on Shugart Glass’s payment of attorney’s fees and costs and compliance with the audit. The court declined both conditions. It found that Shugart Glass’s failure to respond was not shown to be problematic in the relevant sense because the company stated that it could not afford counsel, and a corporation could not appear in court without counsel. The court also declined to require the audit because the plaintiffs provided no argument supporting that request and the parties appeared to dispute whether an audit was proper years after Shugart Glass allegedly completed its work in the jurisdiction.

Disposition

The court granted Shugart Glass’s motion to set aside the entry of default. It stated that if Shugart Glass failed to timely file a responsive pleading, the plaintiffs could again seek entry of default. The court denied the plaintiffs’ motion for default judgment as moot.