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Acosta v. Davis-Paige Management Systems, LLC

United States District Court, E.D. Virginia, Alexandria Division

February 13, 2018

ALEXANDER R. ACOSTA, Plaintiff,
v.
DAVIS-PAIGE MANAGEMENT SYSTEMS, LLC, et al., Defendants.

          REPORT AND RECOMMENDATION

          THERESA CARROLL BUCHANAN UNITED STATES MAGISTRATE JUDGE

         This matter comes before the Court on Plaintiff's Motion for Default Judgment (Dkt. 34), seeking default judgment against Defendant Davis-Paige Management Systems, LLC ("the Davis-Paige LLC"). When no attorney for the Davis-Paige LLC responded to Plaintiff's Motion or appeared at the hearing on January 12, 2018, the undersigned U.S. Magistrate Judge took the matter under advisement.[1] For the reasons stated below, the undersigned now recommends that Plaintiff s Motion for Default Judgment be GRANTED IN PART. The undersigned further recommends, should the recommendation for default judgment be adopted, that the remaining defendants in this case be DISMISSED, thereby concluding the case in its entirety.

         I. INTRODUCTION

         A. Background

         On April 27, 2017, Edward C. Hugler, the Acting Secretary of Labor for the U.S. Department of Labor, filed this lawsuit under the Employee Retirement Income Security Act of 1974 ("ERISA") against Defendants Micheal E. Davis ("Mr. Davis"), the Davis-Paige LLC, and the Davis-Paige Management Systems 401(k) Plan (the "Davis-Page 401(k) Plan"). On August 24, 2017, R. Alexander Acosta ("Plaintiff"), the Secretary of Labor for the U.S. Department of Labor, [2] filed an amended complaint that added Davis-Paige Management Systems Employee Benefit Plan (the "Davis-Paige Health Plan") as a defendant in this lawsuit. Mr. Davis participated in this lawsuit pro se, but at no time were the Davis-Paige LLC, the Davis-Paige 401(k) Plan, or the Davis-Paige Health Plan represented by counsel.

         Plaintiff brought suit against Defendants alleging violations of Sections 403, 404, and 406 of ERISA, 29 U.S.C. §§ 1103, 1104, and 1106. (Am. Compl. ¶¶ 23-24.) Specifically, Plaintiff alleges that Mr. Davis and the Davis-Paige LLC failed to consistently remit timely employee contributions, participant loan repayments, employer prevailing wages, and employer matching contributions to the Davis-Paige 401(k) Plan and the Davis-Paige Health Plan. (IcL ¶¶ 11-17, 20-21, 23-24.) On December 18, 2017, the Court entered a Consent Judgment (Dkt. 42) against Mr. Davis. Plaintiff now seeks default judgment against the Davis-Paige LLC and requests various types of relief. (Mem. Supp. Default. J. at 2-3.) Plaintiff does not seek any judgment against the Davis-Paige 401(k) Plan or the Davis-Paige Health Plan. (Id. at 1 n.l; Clar. Mot. Default J. at 2.)

         B. Jurisdiction and Venue

         Jurisdiction and venue over ERISA cases such as this are conferred upon the Court by 29 U.S.C. §§ 1132(e), which provides that an action may be brought in any district court of the United States in which the relevant benefit plan is administered, where the alleged breach took place, or where a defendant resides or may be found. In this case, jurisdiction and venue are proper in this Court because the relevant benefit plans, the Davis-Paige 401(k) Plan and the Davis-Paige Health Plan, are both administered in this District. (Compl. ¶ 3.)

         C. Service of Process

         Federal Rule of Civil Procedure 4(h) provides that an association may be served in a judicial district of the United States by delivering a copy of the complaint and a copy of the summons to any agent of Defendant authorized to receive service of process. Also, process in an ERISA action may be served in any judicial district where a defendant resides or may be found. 29 U.S.C. § 1132(e)(2). Further, Federal Rule of Civil Procedure 5(a)(1)(B) requires that a defendant be served with any pleading filed after the original complaint, such as an amended complaint.

         Service of process has been proper in this action with regards to the Davis-Paige LLC. On July 13, 2017, in accordance with Federal Rule of Civil Procedure 4(h), Plaintiff served Mr. Davis, the registered agent for' the Davis-Paige LLC, with a copy of the summons for this case. (Dkt. 10.) Plaintiff then filed his First Amended Complaint (Dkt. 19) on August 24, 2017, at a time that the Davis-Paige LLC was not represented by counsel. While no filing provided by Plaintiff definitively shows that the Davis-Paige LLC was served a copy of the First Amended Complaint, at the default judgment hearing on January 12, 2018, Mr. Davis stated that he did receive a copy of the First Amended Complaint and that he accepted it as the registered agent for the Davis-Paige LLC. Therefore, the undersigned accepts that service of process was proper to the Davis-Paige LLC under both Federal Rules of Civil Procedure 4 and 5.

         D. Grounds for Default Judgment:

         To date, the Davis-Paige LLC has not properly appeared or otherwise participated in these proceedings. While Mr. Davis initially attempted to represent the Davis-Paige LLC pro se, on August 21, 2017, the Court ordered the Davis-Paige LLC to obtain counsel by September 1, 2017, and that if counsel is not secured, then Plaintiff should immediately seek an entry of default against the Davis-Paige LLC. (Dkt. 15.)[3] The Davis-Paige LLC did not secure counsel by September 1, 2017. On September 14, 2017, the Court formally ordered Plaintiff to seek an entry of default against the Davis-Paige LLC. (Dkt. 24.)

         On September 22, 2017, Plaintiff filed its Request for Entry of Default (Dkt. 29), seeking an entry of default for the Davis-Paige LLC. On September 25, 2017, the Clerk of the Court issued the Entry of Default (Dkt. 30) for the Davis-Paige LLC. On December 13, 2017, Plaintiff filed its Motion for Default Judgment. The undersigned then held a hearing on Plaintiff's Motion on January 12, 2018, at which no counsel for Defendant appeared, although Mr. Davis himself did appear. Finding the matter uncontested, the undersigned took the matter under advisement to issue this Report and Recommendation.

         II. FINDINGS OF FACT

         Upon a full review of the pleadings and the record in this case, the undersigned finds that Plaintiff has established the following facts.

         The Davis-Paige LLC is a company that has been the sponsor and administrator of the Davis-Paige 401(k) Plan and the Davis-Paige Health Plan (the "Davis-Paige Plans"). (Am. Compl. ¶ 6.) Mr. Davis has served as president of the Davis-Paige LLC. (Id. ¶ 7.) The Davis-Paige LLC established the Davis-Paige Plans in 2002. (Id. ¶¶ 9-10.) The Davis-Paige LLC and Mr. Davis exercised discretionary authority and control with regards to the management of the Davis-Paige Plans. (Id. ¶¶ 7, 9-10.) The Davis-Paige LLC was responsible for collecting, forwarding, and remitting employee contributions that were withheld from the paychecks of employees who participated in either or both of the Davis-Paige Plans. (Id. ¶ 6.) Mr. Davis was responsible for deciding how the Davis-Paige LLC would commit its funds, including the funds relevant to the Davis-Paige Plans. (Id. ¶ 7.)

         The Davis-Paige 401(k) Plan was funded by employee contributions and mandatory employer prevailing wage contributions. (Id. ¶ 9.) The employee contributions involved participants contributing a portion of their pay to the Plan through payroll deductions. (Id.) The Davis-Paige 401(k) Plan's assets included unremitted employee contributions and loan repayments. (Id. ¶ 13.) However, the Davis-Paige LLC and Mr. Davis failed to segregate unremitted employee contributions and loan repayments from the Davis-Paige LLC's own general assets and failed to hold the unremitted employee contributions and loan repayments in trust as the Davis-Paige 401(k) Plan's assets. (Id. ¶¶ 13, 16.) The Davis-Paige LLC and Mr. Davis did deduct sums from participants' pay as employee contributions and loan repayments, but from January 7, 2013, to April 7, 2016, they failed to actually remit those sums to the Davis-Paige 401(k) Plan. (Id. ¶¶ 11, 20.) Some of the contributions that the Davis-Paige LLC and Mr. Davis did remit were remitted late and without interest. (Id. ¶ 11.) The Davis-Paige LLC and Mr. Davis also failed to remit mandatory employer prevailing wages from January 7, 2013, to April 7, 2016. (Id. ¶ 20.)

         The Davis-Paige Health Plan was fully insured through CareFirst BlueCross Blue Shield ("CareFirst"). (Id. ¶ 10.) The Davis-Paige Health Plan permitted participants to have insurance premiums deducted from their pay. (Id.) The Davis-Paige Health Plan's assets included unremitted insurance premium payments. (Id. ¶ 14.) However, the Davis-Paige LLC and Mr. Davis failed to segregate unremitted insurance premium payments from the Davis-Paige LLC s own general assets and failed to hold the unremitted premium payments in trust as the Davis-Paige Health Plan's assets. (Id. ¶ 17.) The Davis-Paige LLC and Mr. Davis did deduct sums from participants' pay for insurance premiums in accordance with the goals of the Davis-Paige Health Plan, but they failed to actually remit all of those deducted sums to CareFirst. (Id. ¶¶ 10, 12.)

         On January 13, 2017, CareFirst notified the Davis-Paige LLC that it had not received full payments for coverage for January 2017, and that if CareFirst did not receive the payments, the Davis-Paige Health Plan's coverage would be terminated. (Id. ¶ 18.) As of January 31, 2017, the Davis-Paige LLC owed approximately $100, 934.82 to CareFirst in unremitted sums, which resulted in CareFirst suspending the Davis-Paige Health Plan on January 31, 2017. (Id. ¶¶ 10, 12, 18.) The Davis-Paige LLC and Mr. Davis failed to give their employees advanced notice of the cancellation of their benefit coverage or any notice that coverage may be terminated due to the insurance premiums not being timely paid. (Id. ¶¶ 18-19.)

         III. EVALUATION OF PLAINTIFF'S COMPLAINT

         When a defendant has defaulted, the well-pleaded allegations of facts set forth in the plaintiff's complaint are deemed admitted. JTH Tax, Inc. v. Grabert, 8 F.Supp.3d 731, 736 (E.D. Va. 2014) (citing Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001)). Before entering default judgment, however, the Court must evaluate the plaintiff's complaint against the standards of Federal Rule of Civil Procedure 12(b) (6) to ensure that the complaint properly states a claim. GlobalSantaFe Corp. v. Globalsantafe.com, 250 F.Supp.2d 610, 612 n.3 (E.D. Va. 2003). As such, it is appropriate to ...


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