Secretary Of Labor v. Hicks et al

Filing 32

REPORT AND RECOMMENDATIONS re 30 Amended Motion for Default Judgment. Signed by Magistrate Judge J. Mark Coulson on 4/15/2016. (nd2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
THOMAS E. PEREZ, SECRETARY OF
LABOR, UNITED STATES
DEPARTMENT OF LABOR
Plaintiff,

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v.

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BRIAN HICKS, ET AL.,

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Defendants.

Case No. 15-cv-1097-ELH

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REPORT AND RECOMMENDATION

This Report and Recommendation addresses the Amended Motion for Default Judgment
filed by Plaintiff, the U.S. Secretary of Labor (the “Secretary”), against Defendants, Brian Hicks
(“Defendant Hicks”), Trojan Horse, Ltd., Capitol Expressways, Inc., Glen Burnie Hauling, Inc.,
and BDH Logistics, LLC (the “Company Defendants”), and Trojan Horse Ltd. 401(k) Plan (the
“Plan”). (ECF No. 30.) Defendants have not filed a response, and the time for doing so has
passed. See Loc. R. 105.2.a. On March 9, 2016, in accordance with 28 U.S.C. § 636 and Local
Rules 301 and 302, Judge Hollander referred this case to me for a report and recommendation on
Plaintiff’s motion. (ECF No. 31.) I find that a hearing is unnecessary. See Fed. R. Civ. P.
55(b)(2); Loc. R. 105.6 (D. Md. 2014). For the reasons set forth below, I respectfully recommend
that the Court GRANT the Secretary’s Amended Motion for Default Judgment and award
damages and other equitable relief.
I.

FACTUAL AND PROCEDURAL HISTORY
On April 16, 2015, Plaintiff commenced this action against Defendants, alleging that they

violated the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §
1132(a)(2) and (5). (ECF No. 1.) The Complaint alleges that Defendant Hicks and the Company

Defendants were fiduciaries of the Plan and parties in interest with respect to the Plan, which is
governed by ERISA. The Secretary alleges that Defendant Hicks and the Company Defendants
deducted but failed to remit certain contributions to the Plan, and that they failed to segregate
Plan assets from the general assets of the Company Defendants, which resulted in losses to the
Plan and its participants and beneficiaries. Additionally, upon the termination of the Company
Defendants, the Complaint alleges that Defendant Hicks and the Company Defendants failed to
terminate the Plan and make the requisite distribution of the Plan’s assets to its participants and
beneficiaries. The Complaint alleges that Defendant Hicks and the Company Defendants thereby
failed to discharge their fiduciary duties with respect to the Plan, and dealt with assets of the Plan
in their own interests, all in violation of ERISA.
Service of process was affected on the Company Defendants and the Plan on July 15 and
16, 2015. (ECF Nos. 10, 11, 12, 13, 14, 15, 16.) Service of process by publication was affected
on Defendant Hicks on December 9, 2015. (ECF No. 24.) Defendants did not file answers or
responsive pleadings within the requisite time period. Upon the Secretary’s Motions, the Clerk
entered orders of default against the Company Defendants and the Plan on September 11, 2015,
and against Defendant Hicks on January 6, 2016. (ECF Nos. 20, 27.) The Secretary filed his
Amended Motion for Default Judgment on March 7, 2016. The Secretary seeks an order
directing Defendant Hicks and the Company Defendants to restore to the Plan the losses suffered
as a result of their failure to remit certain employee contributions and loan repayments to the
Plan. (ECF No. 30). With respect those losses, the Declaration of Meredith T. Hochman (Exhibit
A to the Secretary’s motion), states that Defendant Hicks and the Company Defendants failed to
remit a total of $18,588.34 to the Plan, which would have earned approximately $1,572.40 in
interest as of January 29, 2016. (Pl.’s Mem. Ex. 1, ECF No. 30-2.) The Secretary also asks the

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Court remove Defendant Hicks and the Company Defendants from their fiduciary roles with
respect to the Plan, to appoint an independent fiduciary to effectuate the Plan’s termination and
the distribution of its assets to its participants and beneficiaries, and to order Defendant Hicks
and the Company Defendants to shoulder the cost of the services provided by the independent
fiduciary. Finally, the Secretary asks the Court to permanently enjoin Defendant Hicks and the
Company Defendants from serving as fiduciaries, trustees, agents, representatives, or service
providers in any capacity for any plan governed by ERISA and from further violating ERISA.
II.

LEGAL ANALYSIS
A.

Standard for Entry of Default Judgment

In determining whether to award a default judgment, the Court accepts as true the wellpleaded factual allegations in the Complaint as to liability. See Ryan v. Homecomings Fin.
Network, 253 F.3d 778, 780-81 (4th Cir. 2001); Entrepreneur Media, Inc. v. JMD Entm’t Grp.,
LLC, 958 F. Supp. 2d 588, 593 (D. Md. 2013). Nonetheless, the Court must consider whether the
unchallenged facts constitute a legitimate cause of action because a party in default does not
admit mere conclusions of law. United States v. Redden, No. WDQ-09-2688, 2010 WL 2651607,
at *2 (D. Md. June 30, 2012) (citing Ryan, 253 F.3d at 790). Although the Fourth Circuit has a
“strong policy that cases be decided on the merits,” United States v. Shaffer Equip. Co., 11 F.3d
450, 453 (4th Cir. 1993), default judgment “is appropriate when the adversary process has been
halted because of an essentially unresponsive party.” S.E.C. v. Lawbaugh, 359 F.Supp.2d 418,
421 (D. Md. 2005). If the Court determines that liability is established, the Court must then
determine the appropriate amount of damages. CGI Fin., Inc., v. Johnson, No. ELH-12-1985,
2013 WL 1192353, at *1 (D. Md. March 21, 2013). The Court does not accept factual allegations
regarding damages as true, but rather must make an independent determination regarding such
allegations. Entrepreneur Media, Inc., 958 F. Supp. 2d at 593.
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Rule 55 of the Federal Rules of Civil Procedure establishes the Court’s legal framework
for resolving this matter. “If, after entry of default, the plaintiff’s complaint does not specify a
‘sum certain’ amount of damages, the court may enter a default judgment against the defendant
pursuant to Fed. R. Civ. P. 55(b)(2).” Entrepreneur Media, Inc., 958 F. Supp. 2d at 593. A
plaintiff’s assertion of a sum in a complaint does not make the sum “certain” unless the plaintiff
claims liquidated damages; otherwise, the complaint must be supported by affidavit or
documentary evidence. Redden, 2010 WL 2651607, at *2. Rule 55(b)(2) provides that “the court
may conduct hearings or make referrals . . . when, to enter or effectuate judgment, it needs to . . .
determine the amount of damages.” The Court is not required to conduct an evidentiary hearing
to determine damages; it may rely instead on affidavits or documentary evidence in the record to
determine the appropriate sum. See, e.g., Mongue v. Portofino Ristorante, 751 F. Supp. 2d 789,
795 (D. Md. 2010).
B.

Liability

Under ERISA, plan fiduciaries must discharge their duties with respect to a plan “solely
in the interest of the participants and beneficiaries” for the exclusive purposes of “providing
benefits to participants and their beneficiaries” and “defraying reasonable expenses of
administering the plan,” and they must do so with “care, skill, prudence, and diligence.” 29
U.S.C. § 1104(a)(1)(A)-(B). Additionally, plan assets must not inure to the benefit of the
employer, and fiduciaries are prohibited from engaging in transactions that deal with the plan’s
assets in their own interests as well as transactions that they know or should know constitute a
direct or indirect transfer to a party in interest. 29 U.S.C. §§ 1103(c), 1106. The Secretary
contends that Defendant Hicks and the Company Defendants were fiduciaries of the Plan and
that they failed to remit certain payments to the Plan, instead retaining those payments for their
own use. The Secretary alleges that Defendant Hicks and the Company Defendants thereby
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breached their fiduciary duties, caused the Plan’s assets to inure to the benefit of the employer,
and engaged in transactions dealing with the Plan’s assets in their own interests and transactions
transferring the Plan’s assets to a party in interest, all in violation of ERISA. Accepting these
factual allegations as true, the Secretary has thus stated a claim for relief under ERISA, and I
recommend that the Court enter Judgment in favor of the Secretary.
C.

Relief

Having determined that Plaintiffs have established liability, it is now appropriate to
determine the relief to which the Secretary is entitled. Under ERISA, any person who breaches
any fiduciary duty is personally liable to make good to the plan any losses. 29 U.S.C. § 1109(a).
Additionally, a person who breaches his fiduciary duty “shall be subject to such other equitable
or remedial relief as the court may deem appropriate, including removal of such fiduciary.” Id.
Here, the Secretary seeks $20,160.74 in monetary damages to be paid to the Plan. (See
ECF No. 30). As noted, the secretary submitted the Declaration of Meredith T. Hochman, an
investigator with the Washington District Office of the Employee Benefits Security
Administration of the United States Department of Labor, in support of his requested relief. Ms.
Hochman stated that Defendant Hicks and the Company Defendants failed to remit a total of
$18,588.34 in employee contributions and loan repayments to the Plan, and that that sum would
have earned approximately $1,572.40 in interest as of January 29, 2016. (Hochman Decl. ¶ 9.)
In support of her statement, Ms. Hochman attached a spreadsheet detailing her calculations.
(Hochman Decl. Ex. 1, ECF No. 30-3.) Because the Secretary presented sufficient evidence to
support the amount of damages claimed, I recommend that the Court award $20,160.74 in
damages.
In conjunction with a default judgment, the Court also enjoys broad discretion to enter
appropriate equitable relief under ERISA. Flynn v. Jocanz, 480 F. Supp. 2d 218, 221 (D.D.C.
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2007); see also Chao v. Merino, 452 F.3d 174, 185 (2d Cir. 2006) (“ERISA grants the court wide
discretion in fashioning equitable relief . . . that relief may include a permanent injunction
barring a former ERISA fiduciary from providing services or acting as a fiduciary to any
employee benefit plan in the future.” (internal citations and quotation marks omitted)). Here, the
Secretary seeks removal of Defendant Hicks and the Company Defendants as fiduciaries of the
plan and entry of a permanent injunction prohibiting Defendant Hicks and the Company
Defendants from acting as fiduciaries, trustees, agents, representatives, or service providers to
any plan governed by ERISA and from engaging in further violations of ERISA. Removal of
Defendant Hicks and the Company Defendants as fiduciaries of the Plan is plainly appropriate in
light of their breaches and their failure to properly terminate the Plan. It is likewise appropriate
to prohibit Defendant Hicks and the Company Defendants from serving as fiduciaries, trustees,
agents, representatives, or service providers to any plan governed by ERISA and from engaging
in future violations of ERISA. See Perez v. Estate of Buckingham, Civil No. PWG-12-3576,
2014 WL 320130, at * 6 (D. Md. Jan. 28, 2014) (removing fiduciaries and permanently enjoining
them from serving as fiduciaries of plans in the future, in conjunction with entry of default
judgment). Accordingly, I recommend that the Court remove Defendant Hicks and the Company
Defendants as fiduciaries of the Plan and enjoin them from any future service as a fiduciary,
trustee, agent, representative, or service provider for an ERISA governed plan.
Finally, where fiduciaries of a plan governed by ERISA have been removed, it is
appropriate for the Court to appoint an independent fiduciary to serve in their place. See
Katsaros v. Cody, 744 F.2d 270, 281 (2d. Cir. 1984). The Secretary solicited and compared bids
from potential independent fiduciaries, the lowest of which was submitted by Metro Benefits and
attached to Ms. Hochman’s Declaration. (Hochman Decl. Ex. 2, ECF No. 30-4.) I accept Ms.

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Hochman’s representations as credible, and a hearing on the matter is thus unnecessary.
Accordingly, I recommend that the Court appoint Metro Benefits to serve as an independent
fiduciary for the purpose of terminating the Plan and distributing its assets to its participants and
beneficiaries in accordance with the terms of the Plan. I further recommend that the Court order
Defendant Hicks and the Company Defendants to reimburse the Plan for the cost of the services
to be provided by Metro Benefits, up to the amount of its $28,050.00 bid. See Perez, 2014 WL
320130 at *6.
III.

CONCLUSION
In sum, I recommend that:
1.

The Court GRANT the Secretary’s Amended Motion for Default Judgment (ECF

No. 30) against Defendants, Brian Hicks, Trojan Horse, Ltd., Capitol Expressways, Inc.,
Glen Burnie Hauling, Inc., and BDH Logistics, LLC;
2.

The Court order Defendants, Brian Hicks, Trojan Horse, Ltd., Capitol

Expressways, Inc., Glen Burnie Hauling, Inc., and BDH Logistics, LLC to restore to the
Plan damages in the amount of $20,160.74;
3.

The Court remove Defendants, Brian Hicks, Trojan Horse, Ltd., Capitol

Expressways, Inc., Glen Burnie Hauling, Inc., and BDH Logistics, LLC as fiduciaries of
the Plan and permanently enjoin them from serving as fiduciaries, trustees, agents,
representatives, or service providers to any plan governed by ERISA and from engaging
in future violations of ERISA;
4.

The Court appoint Metro Benefits as an independent fiduciary to effectuate the

termination of the Plan and the distribution of its assets to its participants and
beneficiaries; and

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5.

The Court Order Defendants, Brian Hicks, Trojan Horse, Ltd., Capitol

Expressways, Inc., Glen Burnie Hauling, Inc., and BDH Logistics, LLC to reimburse the
Plan for the cost of the services to be provided by Metro Benefits, in an amount not to
exceed $28,050.00.
Any objections to this Report and Recommendation must be served and filed within
fourteen (14) days, pursuant to Federal Rule of Civil Procedure 72(b) and Local Rule 301.5.b.

Dated: April 15, 2016

________/s/___________________
J. Mark Coulson
United States Magistrate Judge

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