Cummings v. Quick Start Day Care Center Inc.

Background

The trustees of the District Council 37, Local 95 Head Start Employees Welfare Fund sued Quick Start Day Care Center Inc. and unidentified officers, directors, or representatives called Jane Does. The plaintiffs sought unpaid fringe-benefit contributions allegedly owed to the Fund under the Labor Management Relations Act, the Employee Retirement Income Security Act (ERISA), the applicable collective bargaining agreement, and the Trust Agreement.

The plaintiffs alleged that Quick Start was required to make contributions for March and April 2022 so covered employees could receive health-care benefits through the Fund. The Trust Agreement provided for recovery of unpaid contributions, interest, liquidated damages, attorney fees, court costs, and audit fees. The plaintiffs also alleged that Quick Start and the Jane Does improperly diverted or used plan assets for their own benefit and violated ERISA’s fiduciary-duty and prohibited-transaction provisions.

Quick Start was served with the summons and complaint on July 6, 2023, but did not answer or otherwise respond. The plaintiffs obtained a certificate of default and then moved for default judgment. The opinion addresses the motion as to Quick Start; a footnote also describes the third and fourth claims as asserted against Quick Start and the Jane Does.

Default-Judgment Standard

Under Federal Rule of Civil Procedure 55, entry of default formally recognizes that a defendant failed to defend. A default judgment is a later judgment awarding relief if the complaint’s well-pleaded factual allegations establish liability as a matter of law. A default admits well-pleaded facts, but it does not admit legal conclusions. Damages also must be supported by evidence.

Liability on the Contribution Claims

The first cause of action alleged that Quick Start breached the collective bargaining agreement and Trust Agreement by failing to pay the required contributions. The second alleged that the same failure violated ERISA, 29 U.S.C. § 1145, which requires an employer obligated under a collective bargaining agreement to make contributions according to the plan or agreement.

The court found that the complaint and attached documents established that Quick Start did not make the required contributions. The documents included the collective bargaining agreement, the Trust Agreement, unpaid invoices of $7,134.25 for March 2022 and $7,204.70 for April 2022, and calculations of interest. The court therefore granted the plaintiffs’ motion for default judgment with respect to the first and second causes of action.

Claims Concerning Fiduciary Duties and Plan Assets

The third and fourth causes of action alleged that Quick Start and the Jane Does breached ERISA fiduciary duties and engaged in prohibited transactions by diverting or using Fund assets for their own benefit.

The court stated that the facts currently alleged did not constitute valid causes of action for breach of fiduciary duty. The plaintiffs had not sufficiently pleaded that Quick Start or the Jane Does were ERISA fiduciaries. In particular, the plaintiffs asserted that the Trust Agreement contained a provision treating unpaid contributions as plan assets, but the version submitted to the court did not contain the cited provision, and the court could not identify another provision doing so. The plaintiffs also had not identified the Jane Does, so the court could not determine whether they exercised control over plan assets.

The opinion does not enter a separate dismissal of these claims. Instead, the conclusion gives the plaintiffs a choice between asking the court to dismiss the third and fourth causes of action or seeking leave to amend the complaint to support them.

Damages and Fees

The court stated that the supported unpaid contributions totaled $14,338.95. It awarded interest at 1.00% per month, non-compounded, and liquidated damages equal to 20% of the delinquent contributions, or $2,867.79. The court also awarded $4,896.25 in attorney fees and $479.50 in costs, for total fees and costs of $5,375.75.

Conclusion and Procedural Status

The court’s conclusion states that the motion for default judgment is GRANTED in part. The plaintiffs were directed to inform the court within fourteen days whether they wanted the court to enter a judgment for the contribution-related amounts and dismiss the third and fourth causes of action, or instead grant them leave to amend those claims. If they selected the first option, they were to submit a proposed judgment. The clerk was directed to close the docket entry for the motion, Dkt. No. 14. The opinion does not state that a final judgment had already been entered or that the third and fourth claims had already been dismissed.