Pension Benefit Guaranty Corporation v. Galicia

Background

The Pension Benefit Guaranty Corporation sued Kristyan Galicia as statutory trustee of the Avocado Inc. Defined Benefit Plan under Title VI of the Employee Retirement Income Security Act of 1974 (ERISA). The agency alleged that Galicia violated ERISA fiduciary duties and engaged in prohibited transactions involving plan assets.

The opinion states that Galicia was a trustee and beneficiary of the plan, exercised discretionary authority over its assets, and was the 100% owner of Avocado, the plan’s employer. In January 2019, he allegedly made several withdrawals from plan assets. When the plan later terminated, it allegedly lacked enough assets to pay all benefits, leaving a shortfall of $37,500.

Default and Legal Standard

Galicia did not answer the complaint or otherwise defend the action. The Clerk entered a Certificate of Default. The Pension Benefit Guaranty Corporation then moved for default judgment. The court also issued an order requiring Galicia to explain why default judgment should not be entered, but he did not respond.

Under Federal Rule of Civil Procedure 55, a court may enter default judgment after the Clerk has entered a default. A defendant’s failure to answer generally admits the well-pleaded allegations concerning liability, but it does not admit the amount of damages. Before entering judgment, the court must still determine whether the allegations establish liability as a matter of law.

Fiduciary-Duty Claims

The court determined that the allegations established violations of ERISA’s duties of loyalty and prudence. ERISA requires a fiduciary to act solely for plan participants and beneficiaries, primarily to provide benefits and pay reasonable plan-administration expenses. It also requires the care, skill, prudence, and diligence that a prudent person would use in similar circumstances.

The court accepted the allegation that Galicia caused plan assets to be transferred to a corporate entity he solely owned, rather than using those assets to pay benefits or plan expenses or otherwise acting in the participants’ and beneficiaries’ interests. The court stated that this conduct breached the duties of loyalty and prudence and made Galicia personally liable to the plan for the resulting losses under 29 U.S.C. § 1109.

Prohibited Transactions

The court also concluded that the alleged transfers violated ERISA’s prohibitions on certain transactions between a plan and a party in interest, including transfers to or involving the plan’s employer. It further concluded that transferring plan assets to a company solely owned by Galicia constituted dealing with plan assets in his own interest. The opinion states that no qualifying statutory exception applied and that Galicia was personally liable for the resulting losses under § 1109.

Co-Fiduciary Liability

The court additionally addressed liability under ERISA’s co-fiduciary provision, 29 U.S.C. § 1105. It stated that when Galicia’s co-fiduciary caused any portion of the suspect asset transfers, Galicia was liable for those losses under § 1105 and personally liable under § 1109(a).

Disposition

The court granted the Pension Benefit Guaranty Corporation’s motion for default judgment as to liability. The opinion’s conclusion does not state a damages award or otherwise specify the disposition of damages.