Acosta v. C M S H Electrical et al
Filing
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FINDINGS AND RECOMMENDATIONS signed by Magistrate Judge Carolyn K. Delaney on 2/20/2018 RECOMMENDING that Plaintiff's 7 Motion for Default Judgment be granted; Referred to Judge John A. Mendez; Objections due within 14 days after being served with these F & R's.(Reader, L)
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UNITED STATES DISTRICT COURT
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FOR THE EASTERN DISTRICT OF CALIFORNIA
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R. ALEXANDER ACOSTA,
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No. 2:17-cv-02253 JAM CKD
Plaintiff,
v.
FINDINGS AND RECOMMENDATIONS
CMSH ELECTRICAL, et al.,
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Defendants.
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Before the court is plaintiff’s motion for default judgment. (ECF No. 7.) Defendant has
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failed to file an opposition to this motion in accordance with Local Rule 230(c). Accordingly, the
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hearing on the motion set for January 24, 2018 was vacated.
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The record reflects that defendant was properly served with process on November 16,
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2017 and default was entered December 11, 2017. Plaintiff thereafter filed an application for
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default judgment, seeking injunctive relief. The undersigned has fully considered the briefs and
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record in this case and, for the reasons stated below, will recommend that plaintiff’s motion for
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default judgment be granted.
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I. Background
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In this action, plaintiff, the U.S. Secretary of Labor, avers that defendant CMSH Electrical
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(“CMSH”) is the Plan Administrator for an employee pension benefit plan (“Plan”) as defined
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under the Employee Retirement Income Security Act of 1974 (“ERISA”). (ECF No. 1, “Compl.,”
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¶¶ 3-4.) Plaintiff avers that CMSH’s powers were suspended by the California Franchise Tax
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Board in 2015. (Compl., ¶ 9.) The plan’s sole officer, Etsel Jack Baker, was convicted of felony
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theft and embezzlement after transferring Plan assets into a personal account, and is currently
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incarcerated. (Compl., ¶ 10.) The Plan’s asset custodian, Merrill Lynch, “will not authorize
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distributions of the remaining Plan assets to the Plan’s participants and beneficiaries without
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direction from a properly appointed fiduciary or a court-appointed fiduciary.” (Compl., ¶ 13.)
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As of March 31, 2015, plaintiff alleges, the Plan had five participants other than Mr.
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Baker and $0.00 in Plan assets. (Compl., ¶ 14.) At the time Mr. Baker embezzled the funds, the
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Plan was bonded by Traveler’s Insurance. (Id.) Traveler’s Insurance has indicated that it will
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pay bond proceeds to the Plan, restoring $272,003.00 for the five participants, but at this time
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there is no fiduciary available to receive the funds on behalf of the Plan. (Id.)
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Plaintiff seeks relief pursuant to ERISA §§ 502(a)(2) and 502(a)(5), 29 U.S.C. §§
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1132(a)(2) and 1132(a)(5). Plaintiff seeks only injunctive, not monetary, relief, and requests the
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court to remove CMSH as Plan Administrator and to appoint Metro Benefits, Inc. as an
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independent fiduciary with authority to administer the Plan. (See ECF No. 7-4.)
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II. Legal Standards
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Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party
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against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend
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against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not
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automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans,
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238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25
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(9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies
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within the district court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir.
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1980). In making this determination, the court considers the following factors:
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(1) the possibility of prejudice to the plaintiff, (2) the merits of
plaintiff’s substantive claim, (3) the sufficiency of the complaint,
(4) the sum of money at stake in the action[,] (5) the possibility of a
dispute concerning material facts[,] (6) whether the default was due
to excusable neglect, and (7) the strong policy underlying the
Federal Rules of Civil Procedure favoring decisions on the merits.
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Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily
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disfavored. Id. at 1472.
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As a general rule, once default is entered, well-pleaded factual allegations in the operative
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complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc.
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v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin.
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Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs,
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285 F.3d 899, 906 (9th Cir. 2002). In addition, although well-pleaded allegations in the
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complaint are admitted by a defendant’s failure to respond, “necessary facts not contained in the
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pleadings, and claims which are legally insufficient, are not established by default.” Cripps v.
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Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d
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1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir.
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2007) (stating that a defendant does not admit facts that are not well-pled or conclusions of law);
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Abney v. Alameida, 334 F. Supp. 2d 1221, 1235 (S.D. Cal. 2004) (“[A] default judgment may not
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be entered on a legally insufficient claim”). A party’s default does not establish the amount of
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damages. Geddes, 559 F.2d at 560.
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III. Discussion
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A.
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Appropriateness of the Entry of Default Judgment Under the Eitel Factors
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Factor One: Possibility of Prejudice to Plaintiff
The first Eitel factor considers whether the plaintiff would suffer prejudice if default
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judgment is not entered, and such potential prejudice to the plaintiff militates in favor of granting
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a default judgment. See PepsiCo, Inc., 238 F. Supp. 2d at 1177. Here, the possibility of prejudice
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to the Secretary is great, as without a court-appointed fiduciary the Plan is “in perpetual violation
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of ERISA.” (ECF No. 7-2 at 5.) Absent injunctive relief, “the participants and beneficiaries of
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the Plan will have no way to access their funds and may be without any recourse for recovery.”
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Solis v. Vigilance, Inc., 2009 WL 2031767, *2 (N.D. Cal. July 9, 2009) (granting plaintiff’s
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motion for default judgment and request to appoint a new fiduciary for ERISA plan).
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Accordingly, the first Eitel factor favors the entry of a default judgment.
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Factors Two and Three: The Merits of Plaintiff’s Substantive Claims and
the Sufficiency of the Complaint
The court considers the merits of plaintiff’s substantive claims and the sufficiency of the
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complaint together below because of the relatedness of the two inquiries. The court must
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consider whether the allegations in the complaint are sufficient to state a claim that supports the
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relief sought. See Danning, 572 F.2d at 1388; PepsiCo, Inc., 238 F. Supp. 2d at 1175.
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Under ERISA, an action for equitable relief may be brought by the Secretary of Labor in
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order “to enjoin any act or practice that violates any provision of [Title I of ERISA], or to obtain
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other appropriate equitable relief to redress such violation or to enforce any provision of [Title
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I].” 29 U.S.C. § 1132(a)(5). Such relief includes the appointment of an independent fiduciary to
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carry out the proper administration and management of benefit plans. Solis, 2009 WL 2031767,
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*3, citing Donovan v. Mazzola, 716 F.2d 1226, 1238–39 (9th Cir.1983).
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Plaintiff explains that ERISA prohibits persons convicted of embezzlement and certain
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other felonies from managing and controlling assets of an ERISA plan. Thus, Mr. Baker, the
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Plan’s sole trustee and the sole person with authority to act on behalf of the Plan’s Administrator,
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CMSH, may no longer serve or take any action as fiduciary of the Plan, and only this Court has
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authority to appoint a new Plan administrator. (Compl., ¶ 15.) Plaintiff further avers that
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defendant CMSH, acting in its fiduciary capacity, failed to act solely in the interest of Plan
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participants and benefits, in violation of ERISA 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A); §
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1102(a) and 1103(a); failed to act with the required skill, care and prudence in violation of ERISA
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404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B); and left the Plan bereft of a named fiduciary or trustee
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with authority and discretion to manage and control its assets, in violation of ERISA 402(a) and
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403(a), 29 U.S.C. § 1102(a) and 1103(a). (Compl., ¶ 15.)
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Accordingly, the second and third Eitel factors favor the entry of a default judgment.
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Factor Four: The Sum of Money at Stake in the Action
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Under the fourth factor cited in Eitel, “the court must consider the amount of money at
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stake in relation to the seriousness of Defendant’s conduct.” PepsiCo, Inc., 238 F. Supp. 2d at
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1176-77; see also Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D.
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Cal. 2003). Here, plaintiff seeks only equitable, not monetary, relief. The Plan assets to be
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restored by Traveler’s Insurance are not money that defendant “stands to lose,” but instead
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“constitute[] contributions made to an ERISA-governed 401(k) plan, which belong to the Plan
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participants, and for which the beneficiaries of the Plan are entitled to have a fiduciary.” Solis,
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2009 WL 2031767, *3. Thus the fourth Eitel factor favors default judgment.
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Factor Five: The Possibility of a Dispute Concerning Material Facts
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The facts of this case are relatively straightforward, and the court may assume the truth of
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well-pleaded facts in the complaint (except as to damages) following the clerk’s entry of default.
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Thus, there is no likelihood that any genuine issue of material fact exists. See, e.g., Elektra
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Entm’t Group Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005) (“Because all allegations in
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a well-pleaded complaint are taken as true after the court clerk enters default judgment, there is
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no likelihood that any genuine issue of material fact exists”); accord Philip Morris USA, Inc., 219
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F.R.D. at 500; PepsiCo, Inc., 238 F. Supp. 2d at 1177. As such, the court concludes that the fifth
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Eitel factor favors a default judgment.
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5.
Factor Six: Whether the Default Was Due to Excusable Neglect
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In this case, there is no indication in the record that defendant’s default was due to
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excusable neglect. Despite having been properly served with plaintiff’s complaint, the request for
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entry of default, and the instant motion for default judgment, defendant CMHS has failed to
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defend against this action. In fact, the complaint avers the company ceased operations in 2015.
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Accordingly, this Eitel factor favors the entry of a default judgment.
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6.
Factor Seven: The Strong Policy Underlying the Federal Rules of Civil
Procedure Favoring Decisions on the Merits
“Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782
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F.2d at 1472. However, district courts have concluded with regularity that this policy, standing
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alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action.
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PepsiCo, Inc., 238 F. Supp. 2d at 1177; see also Craigslist, Inc. v. Naturemarket, Inc., 694 F.
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Supp. 2d 1039, 1061 (N.D. Cal. 2010). Accordingly, although the court is cognizant of the policy
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in favor of decisions on the merits—and consistent with existing policy would prefer that this
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case be resolved on the merits—that policy does not, by itself, preclude the entry of default
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judgment.
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In sum, upon consideration of all the Eitel factors, the court concludes that plaintiff is
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entitled to a default judgment against defendants and recommends that such a default judgment be
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entered. All that remains is a determination of the specific relief to which plaintiff is entitled.
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B.
Terms of the Judgment to Be Entered
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After determining that a party is entitled to entry of default judgment, the court must
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determine the terms of the judgment to be entered. Because plaintiff satisfactorily alleged ERISA
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claims as set forth above, the court recommends that plaintiff be granted injunctive relief. The
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requested appointment of an independent fiduciary to manage, liquidate, and terminate the Plan is
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necessary to redress defendant’s failure to comply with ERISA, and is appropriate equitable relief
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under ERISA. See Donovan, 716 F.2d at 1238-39 (holding that appropriate equitable relief
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included the appointment of independent plan investment manager to carry out the proper
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administration and management of a benefit plan).
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Entry of default effects an admission of all well-pleaded allegations of the complaint by
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the defaulted party. Geddes v. United Financial Group, 559 F.2d 557 (9th Cir. 1977). Entry of
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default judgment is proper where, as in the present case, the facts established by the default
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support the causes of action pled in the complaint. The complaint also supports the finding that
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plaintiff is entitled to the relief in the form of injunctive relief requested in the prayer for default
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judgment, which does not differ in kind from the relief requested in the complaint. Henry v.
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Sneiders, 490 F.2d 315, 317 (9th Cir.), cert. denied, 419 U.S. 832 (1974). There are no policy
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considerations which preclude the entry of default judgment of the type requested. See Eitel v.
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McCool, 782 F.2d 1470, 1471-1472 (9th Cir. 1986) (listing seven factors to be considered in
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determining entry of default judgment).
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In view of the foregoing findings, it is the recommendation of this court that plaintiffs=
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motion for entry of default judgment be GRANTED. A proposed judgment has been lodged by
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plaintiffs and is approved as to form and substance (ECF No. 7-4).
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For the foregoing reasons, IT IS HEREBY RECOMMENDED that:
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1. Plaintiff’s motion for default judgment (ECF No. 7) be granted;
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2. Judgment be entered in plaintiff’s favor and against defendants CMSH Electrical and
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CMSH Electrical Profit Sharing Plan;
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3. The proposed default judgment and order at ECF No. 7-4 be adopted; and
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4. The Clerk of Court be directed to vacate all dates and close this case.
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These findings and recommendations are submitted to the United States District Judge
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assigned to this action, pursuant to the provisions of Title 28 U.S.C. § 636(b)(l). Within fourteen
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days after being served with these findings and recommendations, any party may file written
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objections with the court and serve a copy on all parties. Such a document should be captioned
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“Objections to Magistrate Judge’s Findings and Recommendations.” Any reply to the objections
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shall be served and filed within seven days after service of the objections. The parties
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are advised that failure to file objections within the specified time may waive the right to appeal
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the District Court’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
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Dated: February 20, 2018
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CAROLYN K. DELANEY
UNITED STATES MAGISTRATE JUDGE
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