Johnson et al v. Allied Excavating, Inc. et al
MEMORANDUM OPINION AND ORDER ORDER denying 20 Motion for Entry of Judgment; granting 33 Motion to Set Aside Default(Written Opinion) Signed by Chief Judge John R. Tunheim on March 30, 2017. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
GLEN JOHNSON, TIMOTHY GILLEN,
KYLE JONES, STEVEN HALL,
CLAYTON JOHNSON, MARK HUBBARD,
STEVE PIPER, and BILL PATT, as Trustees of the
Operating Engineers Local #49 Health and Welfare
Fund; MICHAEL R. FANNING, as a Fiduciary of
the Central Pension Fund of the International Union
of Operating Engineers and Participating
Employers; JOSEPH RYAN, BRUCE CARLSON,
GLEN JOHNSON, FRANK FRATTALONE,
LEE HILLER, TONY PHILLIPI,
GREG WAFFENSMITH, and MARK RYAN, as
Trustees of the Local #49 International Union of
Operating Engineers and Associated General
Contractors of Minnesota Apprenticeship and
Training Program; THE OPERATING
ENGINEERS LOCAL #49 HEALTH AND
WELFARE FUND; THE CENTRAL PENSION
FUND OF THE INTERNATIONAL UNION OF
OPERATING ENGINEERS AND
PARTICIPATING EMPLOYERS; and THE
LOCAL #49 INTERNATIONAL UNION OF
OPERATING ENGINEERS AND ASSOCIATED
GENERAL CONTRACTORS OF MINNESOTA
APPRENTICESHIP AND TRAINING PROGRAM,
Civil No. 15-3237 (JRT/DTS)
AND ORDER SETTING
ASIDE ENTRY OF DEFAULT
ALLIED EXCAVATING, INC. and
Christy E. Lawrie, McGRANN SHEA CARNIVAL STRAUGHN &
LAMB, CHTD, 800 Nicollet Mall, Suite 2600, Minneapolis, MN 55402,
Susan E. Tegt, LARKIN HOFFMAN DALY & LINDGREN, LTD, 8300
Norman Center Drive, Suite 1000, Minneapolis, MN
Plaintiffs are three multi-employer jointly-trusteed fringe benefit plans and their
fiduciaries and trustees (collectively the “Funds”). Defendant Allied Excavating, Inc.
(“Allied”) is an employer who executed a collective bargaining agreement (“CBA”) with
the Associated General Contractors of Minnesota, Highway, Railroad, and Heavy
Construction Division and the International Union of Operating Engineers, Local No. 49
(collectively, the “Union”). 1
Defendant Jeffrey Jewison (“Mr. Jewison”) is one of
Allied’s corporate officers. 2
The Funds served the summons and complaint on
Defendants on August 10, 2015. On September 2, 2015, after Defendants failed to
respond to the action, the Clerk of Court granted the Funds’ application for entry of
default pursuant to Fed. R. Civ. P. 55(a). The Funds now move, pursuant to Fed. R. Civ.
P. 55(b)(2), for entry of default judgment in the amount of $141,481.55 against Allied
and $75,569.85 against Mr. Jewison. Defendants move for the Clerk’s entry of default to
be set aside pursuant to Fed. R. Civ. P. 55(c).
The Court finds that there is good cause to set aside the default, given that
Defendants’ delay was excusable, they have a potentially meritorious defense, and any
resulting likelihood of prejudice to the Funds is low. Therefore, the Court will grant
The Funds were created and maintained pursuant to 29 U.S.C. § 186(c) and are
administered in accordance with the provisions of the Employee Retirement Income Security Act
of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. (2012).
Allied and Mr. Jewison are collectively referred to as “Defendants.”
Defendants’ motion to set aside the entry of default and will deny as moot the Funds’
motion for entry of judgment.
Defendants have had a contractual relationship with the Union going back to at
On August 29, 2011, Allied’s CEO Pamela Jewison (“Ms. Jewison”)
executed a CBA with the Union effective May 1, 2011, to April 30, 2014. (Decl. of
Michael Streater (“Streater Decl.”), Ex. N (“First CBA”), Feb. 22, 2017, Docket No. 42;
Aff. of Mike Streater (“Streater Aff.”), Ex. B at 49, Dec. 16, 2015, Docket No. 13.) On
January 7, 2015, Ms. Jewison executed a subsequent CBA with the Union effective
through April 30, 2017. 3 (Streater Aff., Ex. A (“Second CBA”); id., Ex. B at 50.) At all
relevant times, the applicable CBA required Allied to make monthly contributions to the
Funds on behalf of employees for hours worked on tasks covered by the CBA. (First
CBA at 15-17; Second CBA at 15-17.)
All page references to the CBAs are to internal pagination as opposed to CM/ECF
Based on the record, it appears that the First CBA – executed August 29, 2011 –
remained in force beyond its stated expiration date until the Second CBA was executed. (See
First CBA at 18 (stating that the CBA “shall remain in full force and effect through April 30,
2014,” and in the absence of notice from either party sixty days before expiration, the CBA will
be “renewed automatically for a further period of twelve (12) months”; also stating that if such
notice is given by either party “and a new Agreement is not signed before the expiration of this
Agreement, then this Agreement shall continue in force until a new Agreement is signed”).)
In addition, prior to the execution of the relevant CBAs, on March 16, 2002, 4
Mr. Jewison (then CEO of Allied) executed the Operating Engineers Local #49 Health
and Welfare Fund Participating Agreement (“Welfare Participating Agreement”).
(Streater Aff., Ex. C.) The Welfare Participating Agreement, which complements the
CBA in force at any given time, specifically obligates Allied to make contributions to the
Operating Engineers Local #49 Health and Welfare Fund (the “Health & Welfare Fund”)
as specified in the applicable CBA, and it also purports to bind in an individual capacity
any corporate officer signing on behalf of an employer. (Id.) The Welfare Participating
Agreement is “in effect for the period stipulated in [the CBA applicable at the time of
execution] and any renewal or extension thereof.” (Id.)
The CBA gives the Funds the right to examine Allied’s payroll and employment
records at any reasonable time in order to determine if the company is in compliance with
its fringe benefit obligations. (Second CBA at 16; First CBA at 16.) Pursuant to this
authority, in February 2015, the Funds selected Allied for an audit and requested access
to Allied’s records going back to January 1, 2014. (Streater Decl. ¶ 2; id., Ex. F.) After
numerous unanswered requests over many months, (id. ¶¶ 2-7), on August 7, 2015, the
Funds filed this lawsuit pursuant to 29 U.S.C. § 1145. 5 The Funds originally sought
The Court assumes that Allied has been a signatory to the Union’s CBAs going back as
far as March 16, 2002.
Every employer who is obligated to make contributions to a multiemployer plan
under the terms of the plan or under the terms of a collectively bargained
(Footnote continued on next page.)
injunctive relief requiring Allied to provide the requested documents. The Funds also
seek to collect any unpaid contributions as well as attorney fees and damages as
permitted under the terms of the CBA and by statute. 6 Defendants were personally
served with process on August 10, 2015. (Summons Returned Executed on Jeffrey
Jewison, Aug. 12, 2015, Docket No. 4; Summons Returned Executed on Allied
Excavating, Inc., Aug. 12, 2015, Docket No. 5.)
agreement shall, to the extent not inconsistent with law, make such contributions
in accordance with the terms and conditions of such plan or such agreement.
29 U.S.C. § 1145. In turn, § 1132(a) permits plans fiduciaries to initiate civil actions against
employers who owe delinquent contributions.
The CBA provides that if an employer becomes “delinquent” in terms of their fringe
benefit contributions, the Funds are entitled to liquidated damages equal to fifteen percent of the
unpaid contributions as well as all costs of collection including attorney fees and costs. (Second
CBA at 15-16; First CBA at 15-16.) In addition, ERISA entitles plan fiduciaries to certain
damages upon entry of judgment in an enforcement action for delinquent contributions as
In any action . . . by a fiduciary for or on behalf of a plan to enforce [29 U.S.C.
§ ]1145 . . . in which a judgment in favor of the plan is awarded, the court shall
award the plan –
the unpaid contributions,
interest on the unpaid contributions,
[liquidated damages provided for under the plan not to exceed twenty
reasonable attorney’s fees and costs of the action, to be paid by the
such other legal or equitable relief as the court deems appropriate.
29 U.S.C. § 1132(g)(2).
Defendants did not respond to the complaint in the time required under law, and
on September 1, 2015, the Funds applied for entry of default under Fed. R. Civ. P. 55(a).
(Appl. for Entry of Default, Sept. 1, 2015, Docket No. 6.) The Clerk entered default the
following day. (Clerk’s Entry of Default, Sept. 2, 2015, Docket No. 9.) Though they
made no formal appearance in Court, shortly after the lawsuit was filed, Defendants
communicated directly with the Funds regarding the document requests.
Melissa Urban-Brown (“Urban-Brown Decl.”) ¶ 3, Feb. 22, 2017, Docket No. 44.)
Eventually, on September 16, 2015, Defendants provided the auditor access to selected
(Streater Decl. ¶ 11.)
After additional requests, Allied provided more
records between January 25 and April 18, 2016. (Streater Decl. ¶¶ 12-14; Decl. of
Christy E. Lawrie (“Lawrie Decl.”) ¶¶ 4-7, Feb. 22, 2017, Docket No. 45.)
Based on the documents Defendants provided, in April 2016 the Funds’ auditor
completed an audit invoice. (Aff. of Michael Streater ¶ 6, July 18, 2016, Docket No. 23.)
The auditor concluded that Defendants owed $158,462.54 in delinquent contributions, of
which $76,583.38 was owing to the Health & Welfare Fund (and thus, Mr. Jewison
would be personally responsible for this amount).
In addition, the auditor
determined the Funds were entitled to $23,769.38 in liquidated damages, $11,487.51 of
which was due to the Health & Welfare Fund. (Id. ¶ 7.) The auditor sent a copy of the
audit invoice to Allied on May 2, 2016. (Streater Decl. ¶ 18.) On July 18, 2016, the
Funds filed the instant motion for entry of judgment against Defendants based on the
Defendants finally retained counsel in August 2016, (see Lawrie Decl. ¶ 11); the
following month, Defendants provided additional documentation to the Funds, (id. ¶ 13).
As a result of this new information, the Funds revised their audit, removing 2,865 hours
(Streater Decl. ¶ 23.)
This reduced the total delinquent contributions by
On February 15, 2017, shortly before the scheduled hearing on the Funds’ motion
for entry of judgment, Defendants filed a motion to set aside the default pursuant to Fed.
R. Civ. P. 55(c). Defendants argue there is good cause to set aside the default because
their delay in responding to the lawsuit was excusable, the Funds will not be prejudiced if
the default is set aside, and they have three meritorious defenses. First, Defendants argue
that the Welfare Participating Agreement did not effectively bind Mr. Jewison in his
personal capacity. Second, they assert that the CBA between Allied and the Union was
orally terminated in March 2015, based on conversations the Jewisons had with Doug
Zila, a former Business Representative for the Union. (See Decl. of Pamela Jewison in
Supp. of Defs.’ Mot. to Set Aside Entry of Default (“Decl. of Pamela Jewison”), Ex. B,
Feb. 15, 2017, Docket No. 36.) And third, they claim the revised audit is overstated
because it includes hours worked that are not covered by the CBA.
MOTION TO SET ASIDE THE DEFAULT
[Fed. R. Civ. P.] 55(c) provides that the district court may set aside an entry
of default “[f]or good cause shown,” and may set aside a default judgment
“in accordance with Rule 60(b).” Although the same factors are typically
relevant in deciding whether to set aside entries of default [for good cause]
and default judgments [under Fed. R. Civ. P. 60(b)], “[m]ost decisions . . .
hold that relief from a default judgment requires a stronger showing of
excuse than relief from a mere default order.” Conn. Nat’l Mortg. Co. v.
Brandstatter, 897 F.2d 883, 885 (7th Cir. 1990); accord Shepard Claims
Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190, 193-94 (6th Cir.
1986); Meehan v. Snow, 652 F.2d 274, 276-77 (2d Cir. 1981). This is a
sound distinction. There is a “judicial preference for adjudication on the
merits,” Oberstar v. FDIC, 987 F.2d 494, 504 (8th Cir. 1993), and it is
likely that a party who promptly attacks an entry of default, rather than
waiting for grant of a default judgment, was guilty of an oversight and
wishes to defend the case on the merits.
Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 783-84 (8th Cir. 1998).
Whether to set aside entry of default is “committed to the district court’s
discretion.” Id. at 785. In determining whether to set aside an entry of default under the
relatively “lenient” good cause standard, the Court weighs “whether the conduct of the
defaulting party was blameworthy or culpable, whether the defaulting party has a
meritorious defense, and whether the other party would be prejudiced if the default were
excused.” Id. at 784.
Blameworthiness or Culpability
Whether a defaulting party’s conduct is excusable is the primary factor relevant to
whether there is good cause to set aside a clerk’s entry of default. See id. (“[W]e focus
heavily on the blameworthiness of the defaulting party.”).
Whether the conduct of the moving party is excusable is an equitable
determination that considers all germane circumstances surrounding the
party’s omission. [Johnson, 140 F.3d at 784 (quoting Pioneer Inv. Servs.
Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993)).] Conduct
that has been held excusable includes “late filings caused by inadvertence,
mistake or carelessness.” Pioneer, 507 U.S. at 395. A court will rarely
excuse an intentional delay or disregard for deadlines and procedural rules.
Johnson, 140 F.3d at 784.
SICK, Inc. v. Motion Control Corp., No. 01-1496, 2002 WL 832609, at *2 (D. Minn.
Apr. 30, 2002).
Defendants argue they mistakenly believed that their cooperation with the Funds’
efforts to obtain Allied’s records in order to complete the audit was a sufficient response
to the complaint. They assert that even after the entry of default in September 2015, they
were in contact with Doug Zila – then a Business Representative for the Union – and
their belief that they were complying with the audit requirements was based on Zila’s
representations to them.
Furthermore, Defendants argue that once they did retain
counsel, their counsel worked diligently with the Funds’ counsel to move forward in the
case, and both sides had to cancel and reschedule meetings for legitimate reasons, which
led to some additional excusable delay.
Delay based on a mere belief that cooperation with an audit is a sufficient response
to a federal lawsuit, without more, may not amount to excusable conduct. Cf. Bd. of Trs.
of IBEW Local Union No. 100 Pension Tr. Fund v. Elijah Elec., Inc., No. 1:06-1860,
2008 WL 4490023, at *3-4 (E.D. Cal. Sept. 29, 2008) (setting aside entry of default in a
similar context when the defendant argued that the delay was excusable because the
defendant was actively engaged in the plaintiffs’ audit process, but also finding it
relevant, for the purpose of determining blameworthiness, that unlike in the case at hand,
the defendant’s attorney had abandoned him and the defendant had not received notice of
events in the litigation because the court did not have his address). However, unlike in
Elijah, the facts before the Court indicate not only that Defendants mistakenly believed
that cooperation with the audit was sufficient, but also that they held this belief because
of representations made by a Union employee. Defendants maintain that Zila assured
Defendants that their cooperation with the documents was sufficient. The Court finds
that Defendants’ reliance on a statement from a representative of the Union provides a
colorable explanation for Defendants’ mistaken belief that they need not respond in some
other way in court, and this fact makes Defendants’ delay excusable.
The Court notes that Defendants’ delay was not as brief as in some cases in which
a default has been set aside. See, e.g., Johnson, 140 F.3d at 783-84 (setting aside entry of
default when the delay was “relatively brief,” given that the defendant filed an answer to
the complaint one day after the entry of default and moved for the default to be set aside
less than two months later). But length of delay alone is not dispositive on the question
of culpability. There is no evidence that Defendants acted in bad faith or intended the
delay in order, for example, to take advantage of the Funds or manipulate the legal
process. See, e.g., Grant v. City of Blytheville, 841 F.3d 767, 772-73 (8th Cir. 2016)
(finding a district court did not abuse its discretion in setting aside the entry of default
when the court “perceive[d] no bad faith or intentional effort to delay” by the defaulting
party); Johnson, 140 F.3d at 784-85 (setting aside entry of default when the defaulting
party continuously acted in good faith, among other reasons); Iowa State Univ. Research
Found., Inc. v. Greater Continents Inc., 208 F.R.D. 602, 604 (S.D. Iowa 2002) (finding
the defaulting defendant was culpable when the defendant failed to appear as a litigation
Given Defendants’ plausible mistake, and without some showing that
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Defendants’ delay was intentional or the result of bad faith, the Court finds Defendants
are not blameworthy or culpable for the delay.
Existence of a Meritorious Defense
“Whether a meritorious defense exists is determined by examining whether the
proffered evidence would permit a finding for the defaulting party.” Stephenson v. ElBatrawi, 524 F.3d 907, 914 (8th Cir. 2008) (internal quotation marks omitted). The task
for the Court is not to resolve disputed facts, but rather, to determine whether the
defendant has come forward with facts that, if true, would provide a defense. See
Johnson, 140 F.3d at 785 (explaining that the defendant need not show that he or she will
succeed on the merits or that the evidence is undisputed).
Defendants posit three defenses to the Funds’ substantive claims: (1) as to the
claims against Mr. Jewison in his individual capacity, the Welfare Participating
Agreement did not effectively bind Mr. Jewison personally to make contributions to the
Health and Welfare Fund; (2) the CBA between the Union and Allied terminated in
March 2015; and (3) the Funds’ audit is inaccurate, such that their damages demand is
Mr. Jewison’s Personal Liability
Defendants argue that the Welfare Participating Agreement is not enforceable
against Mr. Jewison in his personal capacity because that document “does not evidence a
clear intent to bind Mr. Jewison” personally. (Mem. of Law in Supp. of Defs.’ Mot. to
Set Aside Entry of Default (“Defs.’ Mem.”) at 10, Feb. 15, 2017, Docket No. 38.)
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Defendants further argue that by executing the Welfare Participating Agreement,
Mr. Jewison never possessed subjective intent to be personally bound, and therefore, he is
not personally bound.
“Although [the Eighth Circuit has] held that Congress did not intend corporate
officers to be personally liable under ERISA’s definitions of ‘employer’ and ‘person’,
such officers could be personally liable under ERISA if the terms of the plan imposed
such liability on them.”
Rockney v. Blohorn, 877 F.2d 637, 643 (8th Cir. 1989).
Minnesota contract law applies to the question of whether a contract personally binds a
corporate officer. Id.
In Minnesota, a corporate officer may contractually guarantee a corporate debt.
See Baker v. Citizens State Bank of St. Louis Park, 349 N.W.2d 552, 557-58 (Minn.
1984). “It is settled in this jurisdiction that a guaranty is construed the same as any other
contract, the intent of the parties being derived from the commonly accepted meaning of
the words and clauses used, taken as a whole.” Am. Tobacco Co. v. Chalfen, 108 N.W.2d
702, 704 (Minn. 1961). “Unambiguous contract language must be given its plain and
ordinary meaning, and shall be enforced by courts even if the result is harsh.”
Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn. 1999); see also Atkins
v. Hartford Cas. Ins. Co., 801 F.2d 346, 348 (8th Cir. 1986) (“If the court determines that
there is no ambiguity, then the . . . interpretation of the contract is for the court to
determine, as garnered from the four corners of the document.” (citation omitted));
Cooper v. Lakewood Eng’g & Mfg. Co., 874 F. Supp. 947, 953 (D. Minn. 1994) (same).
In other words, the parties’ “outward manifestation of assent is determinative, rather than
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a party’s subjective intention.” Speckel by Speckel v. Perkins, 364 N.W.2d 890, 893
(Minn. Ct. App. 1985).
Defendants offer the following to support their argument that the Welfare
Participating Agreement is ambiguous on its face as to whether Mr. Jewison is bound in
his individual capacity: (1) the language purporting to bind Mr. Jewison in his individual
capacity is “in small font in the fifth paragraph of the document,” (Defs.’ Mem. at 3); and
(2) Mr. Jewison signed the Welfare Participating Agreement once on behalf of Allied
(and, arguably, himself individually), and there is no separate signature line for
Mr. Jewison to execute the document in his individual capacity. However, the Welfare
Participating Agreement is one page long, with the language regarding individual liability
in the last of five paragraphs, all of which are in the same size font. (Streater Aff.,
Ex. C.) The operative language is just above the date and signature block; if anything,
this placement evinces intent to emphasize rather than hide the relevant language. (Id.)
Furthermore, “[t]here is no requirement under Minnesota law of a separate signature line
to hold someone personally liable.” Operating Eng’rs Local #49 Health & Welfare Fund
v. Arrowhead Indus. Serv., Inc., No. 10-624, 2011 WL 1456781, at *3 (D. Minn. Apr. 15,
Defendants rely on a case in which a court in this district held that a similar type
of agreement “[did] not include language that evinces a clear intent that [the defendant]
fully understood and intended to assume personal liability.” Trs. of the Minn. Ceramic
Tile & Allied Trades Ret. Fund v. His & Hers Ceramic Tile, No. 01-978, 2002 WL
507018, at *2 (D. Minn. Apr. 1, 2002). In His & Hers Ceramic Tile, the defendant
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argued that among other reasons, the court should find she did not intend to be personally
bound because the personal guarantee was not the subject of negotiations prior to
execution and there was no separate signature block indicating intent to be individually
However, the court’s decision in His & Hers Ceramic Tile was rooted in the lack
of clear language in the agreement; the language purporting to bind the corporate officer
in her individual capacity in that case was markedly less straightforward than the
language in the Welfare Participating Agreement. 7
Here, like other courts recently
confronted with the same issue in relation to the same contract, 8 the Court finds that the
In His & Hers Ceramic Tile, the relevant language was as follows:
This agreement is binding personally and individually upon each of the following:
The Union, The Undersigned Employer, and each of the Individuals, Partners,
Officers, or Stockholders of the Employer of the Undersigned. Signators each
certify that such signators have authority to enter into this agreement and to bind
the persons and parties described in this paragraph.
2002 WL 507018, at *1.
In contrast, the relevant language in the Welfare Participating
If this Agreement is signed for and in behalf of a corporation, the officer or
officers signing for such corporation by the execution of this Agreement not only
binds the corporation but individually binds himself to the full and faithful
performance of the Agreement stated herein.
(Streater Aff., Ex. C.)
See, e.g., Johnson v. Charps Welding & Fabricating, Inc., No. 14-2081, 2016 WL
8200937, at *2 n.3 (D. Minn. June 27, 2016) (finding the same language unambiguously
imposed personal liability on the signatory); Arrowhead Indus. Serv., 2011 WL 1456781, at *2-3
(same). But see Operating Eng’rs Local # 49 Health & Welfare Fund v. Listul Erection Corp.,
220 F. Supp. 2d 1042, 1044 (D. Minn. 2002) (holding the opposite).
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plain language of the Welfare Participating Agreement is unambiguous on its face as to
the question of Mr. Jewison’s individual liability. Because the “outward manifestation of
assent is determinative,” as opposed to a party’s “subjective intention,” Malcolm v.
Harden & Harden, Inc., No. 03-5211, 2004 WL 2203407, at *2 (D. Minn. Sept. 23,
2004) (citation omitted), Defendants’ argument as to Mr. Jewison’s liability fails as a
matter of law. The Court finds there is no likelihood that this defense will be meritorious
if the default is set aside.
Effectiveness of the CBA
Defendants also argue they have a defense to the Funds’ claim that contributions
are due for work completed after March 2015 because the CBA between the Union and
Allied was terminated that month. Around March 2015, the Jewisons transferred at least
a portion of the work covered by the CBA that had been done through Allied to a new
company also operated by the Jewisons – Vortech Hydro Vac, Inc. (“Vortech”). (Decl.
of Pamela Jewison ¶¶ 1, 3.) Apparently, the Union believed the Jewisons were shuttering
Allied and shifting all operations to Vortech (Urban-Brown Decl. ¶¶ 4-5), but in reality it
appears that at least some work that would have been covered under the CBA continued
to be completed by employees of Allied, as opposed to Vortech. Defendants assert that
they believed, based on a series of conversations they had with Mr. Zila, that the Union
consented to essentially substitute Vortech for Allied. (Decl. of Pamela Jewison ¶¶ 3-6.)
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Defendants have no written documentation of the CBA’s termination. 9
counter that termination of the CBA is not a defense in an ERISA action under 29 U.S.C.
“Congress intended that [§ 1145] would simplify actions to collect delinquent
contributions[ to ERISA funds], avoid costly litigation, and enhance the actuarial
planning necessary to the administration of multiemployer pensions plans. Cent. States,
Se. & Sw. Areas Pension Fund v. Indep. Fruit & Produce Co., 919 F.2d 1343, 1348
(8th Cir. 1990). Under the scheme Congress enacted, pension funds bringing suit to
collect delinquent contributions are in “a better position than [they] would otherwise
occupy in relation to the collective bargaining agreement” if they were treated as ordinary
third-party beneficiaries under existing contract law. Id. Thus, “suit [by a trustee] cannot
be thwarted by defenses not apparent from the face of the [a]greement.” Id. at 1349
(quoting Bituminous Coal Operators’ Ass’n, Inc. v. Connors, 867 F.2d 625, 634 (D.C.
Cir. 1989)). The Eighth Circuit has only recognized two defenses in such an action
(1) “that the pension contributions are themselves illegal or [(2)] that the collective
bargaining agreement is void.” Id.
A number of other circuits, as well as district courts in this circuit, have
recognized that termination of the underlying CBA is an additional defense that may be
available in such an action. See Heimerl v. Tech Elec. of Minn., Inc., 9 F. Supp. 3d 1002,
1021-22 (D. Minn. 2014) (recognizing termination as a defense and collecting cases from
Ms. Jewison executed a CBA and a Welfare Participating Agreement on behalf of
Vortech on March 26, 2015. (Decl. of Pamela Jewison ¶ 5 & Ex. A.)
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other jurisdictions that have held the same). The Eighth Circuit recently addressed this
question and declined to recognize the termination defense based on the facts before it.
See Twin City Pipe Trades Serv. Ass’n, Inc. v. Frank O’Laughlin Plumbing & Heating
Co., 759 F.3d 881, 885-86 (8th Cir. 2014) (“We decline to formally recognize a
termination defense in this case . . . because the circumstances involved here would not
support such a defense in any event.”).
In the case at hand, at the motion to set aside entry of default, Defendants have
demonstrated there is an issue of fact as to whether the parties to the CBA behaved in a
way demonstrating “clear and explicit termination of the contract,” Heimerl,
9 F. Supp. 3d at 1022, and thus whether the facts might support a termination defense, see
Twin City Pipe, 759 F.3d at 885. 10 There are also unanswered questions about Mr. Zila’s
actual and apparent authority in relation to terminating the CBA that distinguish the
circumstances of this case from the facts before the Eighth Circuit in Twin City Pipe.
Therefore, the Court finds it is possible that Defendants might have a meritorious defense
as to contributions for work performed after March 2015. 11
The Court does not definitively decide at this time whether it is proper to recognize
termination as a viable defense in an ERISA action for delinquent contributions. See Twin City
Pipe, 759 F.3d at 885-86. The Court encourages the parties to fully brief this issue with
reference to any new evidence that becomes available at a later stage in the proceedings.
In recognizing there is a possibility that Defendants could put forward a meritorious
defense, the Court keeps in mind a key difference between the present circumstances and those
in Heimerl and Twin City Pipe. In those cases, the question before the Court was whether the
employers gave effective notice to terminate the CBAs as permitted under the CBAs’ evergreen
clauses, and thus whether the CBA automatically renewed at the end of the term stated on the
face of the contract. Twin City Pipe, 759 F.3d at 885-86; Heimerl, 9 F. Supp. 3d at 1025-26. In
contrast, here Defendants argue the CBA was effectively terminated two years before the CBA’s
(Footnote continued on next page.)
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Accuracy of the Audit
Although the Court has already determined Defendants have posited a potentially
meritorious defense, the Court will also consider Defendants’ third possible meritorious
defense: their argument that the Funds’ audit is overstated because it seeks contributions
for hours of work not covered by the CBA. To support this contention, Defendants
provide two examples: (1) descriptions of work completed by Allied employee Trent
Ranzau on April 7 and 8, 2014, which Defendants argue were inconsistently accounted
for in the audit (with one day’s work included and the other day’s work excluded) (Decl.
of Pamela Jewison, Exs. D-E), and (2) similar records for work completed by another
Allied employee, Kevin Hunter, on January 26, 2015, which Defendants argue the audit
also counted inconsistently (id., Exs. F-G).
The parties agree that in ERISA fund audits, a burden-shifting framework applies,
such that where the employer’s “records [are] inadequate to determine whether the work
they describe[ is] covered by the CBA, the auditor [should] treat the work as covered[,
given] that ERISA puts the burden on employers to maintain accurate records regarding
contributions.” Seipel v. Arrowhead Indus. Serv., Inc., No. 07-3864, 2010 WL 605722, at
stated expiration date. While Defendants “could not unilaterally terminate the CBA on a
different date,” Twin City Pipe, 759 F.3d at 886, the Court understands the issue to be whether
Allied and the Union mutually agreed to terminate the CBA early. Such a result may be in
tension with the express terms of the duration provision in the CBA. (Second CBA at 18; First
CBA at 18.) But given the “judicial preference for adjudication on the merits,” Oberstar, 987
F.2d at 504, the Court finds it is proper to allow Defendants to present their case on the merits on
this issue rather than entering default judgment.
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*4 (D. Minn. Feb. 11, 2010) (citing 29 U.S.C. § 1059(a)(1)). An employer may rebut an
auditor’s report by providing “material evidence challenging the legitimacy of [the]
audit.” Laborers’ Pension Fund v. Milco Constr., Inc., No. 99-374, 2000 WL 1372846,
at *4 (N.D. Ill. Sept. 22, 2000).
The Funds assert that Defendants’ two examples do not necessarily conflict with
the auditor’s calculations, and therefore this evidence does not call into question the
legitimacy of the audit. After closely reviewing the evidence, the Court agrees. If
accuracy of the audit alone were the sole defense available to Defendants, the Court
would find that Defendants have failed to “proffer evidence [that] ‘would permit a
finding for the defaulting party.’” Stephenson, 524 F.3d at 914 (quoting Johnson, 140
F.3d at 785).
However, given that Defendants have another potentially meritorious
defense justifying setting aside the default, the Court will permit Defendants to bring
forward material evidence rebutting the audit if they so choose.
In assessing prejudice, the Court focuses on “concrete” harms “such as ‘loss of
evidence, increased difficulties in discovery, or greater opportunities for fraud and
collusion.’” Johnson, 140 F.3d at 785 (quoting Berthelsen v. Kane, 907 F.2d 617, 621
(6th Cir. 1990)). “[P]rejudice may not be found from delay alone or from the fact that the
defaulting party will be permitted to defend on the merits.” Id. The core inquiry in
assessing prejudice is “whether [a plaintiff’s] ability to pursue his [or her] claim will be
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hindered.” Iowa State Univ., 208 F.R.D. at 605 (quoting TCI Grp. Life Ins. Plan v.
Knoebber, 244 F.3d 691, 701 (9th Cir. 2001)).
The Funds appear to concede that if the default is set aside, there is little danger of
lost evidence, discovery difficulties, or expanded opportunities for fraud and collusion.
Instead, the Funds assert that they would be prejudiced because they “would be force[d]
to spend additional plan assets in prosecuting the claims against Defendants and because
the participants and beneficiaries will be forced to forgo the benefits resulting from the
contributions [they] seek in the meantime.” (Pls.’ Mem. of Law in Opp. to Defs.’ Mot. to
Set Aside Default at 36, Feb. 22, 2017, Docket No. 41.) The Court will address each of
these prejudice arguments in turn.
First, while “forcing a party to expend further time and money to collect on a
claim as to which there are no meritorious defenses [may] unfairly prejudice[ a] plaintiff
to some degree,” Int’l Painters & Allied Trades Union & Indus. Pension Fund v. H.W.
Ellis Painting Co., 288 F. Supp. 2d 22, 31 (D.D.C. 2003), there is a potentially
meritorious defense available to Defendants. Under these circumstances, the fact that a
defaulting party will be permitted to defend on the merits, and therefore, that a plaintiff
must expend resources to prosecute on the merits, does not give rise to prejudice that
might weigh against setting aside a default. See Johnson, 140 F.3d at 785. Furthermore,
if the Funds are successful on the merits, then they will be entitled to attorney fees, costs,
and liquidated damages under the terms of the Agreements and by statute. 29 U.S.C.
§ 1132(g)(2); (Second CBA at 15-16; First CBA at 15-16.) Thus, in the end the Funds
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are unlikely to suffer prejudice as a result of being forced to expend plan assets
prosecuting their claims against Defendants.
Second, the Funds argue that if the default is set aside, they will be prejudiced
because they will have to wait to receive money damages until after proving their
entitlement to those damages. Without more, this is not the type of prejudice that weighs
against setting aside entry of default under Rule 55(c). See Johnson, 140 F.3d at 785.
Overall, because Defendants’ conduct was excusable, Defendants have
demonstrated a fact issue as to whether they have a meritorious defense regarding the
effectiveness of the CBA, and the risk of prejudice to the Funds is low, the Court will set
aside the clerk’s entry of default. The Court will require the parties to establish and
adhere to a strict schedule to resolve all remaining issues in the case.
MOTION FOR ENTRY OF JUDGMENT
Because the Court will grant Defendants’ motion to set aside the default, the Court
will deny as moot the Funds’ motion for entry of judgment. See, e.g., Metcalf v. E.I. du
Pont de Nemours & Co., No. 05-1035, 2006 WL 1877069, at *6 (D. Minn. July 6, 2006)
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
Defendants’ Motion to Set Aside the Entry of Default [Docket No. 33] is
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Plaintiffs’ Motion for Entry of Judgment [Docket No. 20] is DENIED.
The parties are ordered to confer with the Magistrate Judge to establish an
expedited schedule to proceed with motion practice and briefing, as well as discovery if
necessary. The parties must strictly adhere to the Magistrate Judge’s schedule.
DATED: March 30, 2017
at Minneapolis, Minnesota.
JOHN R. TUNHEIM
United States District Court
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