UNITED STATES DEPARTMENT OF LABOR v. AMERICA HEALTH CARE, INC. 401(K) PLAN

Filing 10

OPINION. Signed by Judge William J. Martini on 9/25/15. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

THOMAS E. PEREZ, Secretary of Labor,
United States Department of Labor
Plaintiff,

Civ. No. 2:15-0377 (WJM)

OPINION

v.
AMERICA HEALTH CARE, INC. 401(k)
PLAN
Defendant.

Plaintiff Thomas E. Perez, the Secretary of Labor, (the “Secretary”) filed this
action against America Health Care, Inc. 401(k) Plan (the “Plan”), alleging that the
Defendant breached its duties as a fiduciary of an employee benefit plan, as defined
by the Employee Retirement Income Security Act of 1974 (“ERISA”). The
Secretary moves this Court to enter default judgment and appoint an independent
fiduciary in order to terminate the Plan and distribute its assets to its beneficiaries.
For the reasons below, the Secretary’s motion for default judgment is GRANTED.
BACKGROUND
The America Health Care, Inc. 401(k) Plan was established in 2008 to provide
retirement benefits to the employees of America Health Care, Inc. (the “Company”).
(Plaintiff’s Complaint ¶ 6, ECF No. 1.) Lincoln Taylor and Jolayemi Oladimeji were
co-owners of the Company and served as trustees of the Plan. (Id. ¶ 7.) The Plan,
which as of April 16, 2014, held $93,523.22 in assets, is an employee benefit plan
as defined by ERISA. (Id. ¶ 15.) The Company closed down in 2009, and, since
then, the Trustees have ceased to perform their functions as fiduciaries and the Plan
has not been terminated. (Id. ¶¶ 10, 13.) On January 20, 2015, the Secretary filed
the instant action alleging ERISA violations and requesting that this Court remove
the Company from its position as fiduciary and appoint an independent fiduciary to
terminate the Plan and distribute its assets.
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As denoted in the Return of Service, ECF No. 3, service was made via
certified mail on February 2, 2015, on the New Jersey Department of Treasury, the
Company’s statutory agent for service of process. See N.J.S.A. 2A:15-30.1;
N.J.S.A. 14A:4-5. The Clerk entered default on July 21, 2015. The Secretary now
seeks default judgment against the Defendant.
LEGAL STANDARD
Federal Rule of Civil Procedure 55 governs the entry and grant of default
judgment. The mere fact of default does not entitle Plaintiff to judgment. To enter
default judgment, the court must first determine whether a sufficient cause of action
has been stated. See Chanel, Inc. v. Gordashevsky, 558 F.Supp. 2d 532, 535-36
(D.N.J. 2008). A court must treat the factual allegations in the complaint as true.
DIRECTV, Inc. v. Pepe, 431 F.3d 162, 165 (3d Cir.2005). Once a cause of action
has been established, the court must make explicit factual findings as to three factors:
(1) whether the party subject to default has a meritorious defense, (2) the prejudice
suffered by the party seeking default, and (3) the culpability of the party subject to
default. Jose Hand Promotions, Inc. v. Waldron, No. 11-849, 2013 WL 1007398, at
*4 (D.N.J. Mar. 13, 2013) (citing Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide
Funds, 250 F.R.D. 171, 177 (D.N.J. 2008); Emasco Ins. Co. v. Sambrick, 834 F.2d
71, 74 (3d Cir. 1987)).
DISCUSSION
Taking as true the factual allegations in the Complaint, all of the factors set
forth above are satisfied in this case. Under ERISA, plan fiduciaries must act solely
in the interest of the plan participants and beneficiaries. 29 U.S.C. § 1104(a)(1).
The facts establish that the Company was the Plan’s fiduciary and that Mr. Taylor
and Mr. Oladimeji, the last known trustees, have failed to actively administer the
Plan as required by ERISA. Moreover, where a defendant has failed to answer,
move, or otherwise respond, the defendant is presumed culpable. See GP Acoustics,
Inc. v. Brandnamez, LLC, No. 10-539, 2010 WL 3271726, at *4 (D.N.J. Aug. 17,
2010). Lastly, the Secretary (and the eight Plan participants) will suffer prejudice if
judgment is not entered in his favor.
While the Court may grant default judgment, the Court must determine
whether ERISA authorizes the removal of the Company as fiduciary and the
appointment of an independent fiduciary. ERISA authorizes the Secretary to bring
an action “to enjoin any act or practice which violates any provision of this
subchapter.” 29 U.S.C. § 1132(a)(5). ERISA also states that if a fiduciary is found
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to have breached her duties, she “shall be subject to such other equitable or remedial
relief as the court may deem appropriate, including removal of such fiduciary.” 29
U.S.C. § 1109(a).
However, ERISA does not expressly grant district courts the authority to
appoint new fiduciaries to replace inactive or unavailable ones. The Supreme Court
has stated that, with respect to ERISA, “rather than explicitly enumerating all of the
powers and duties of trustees and other fiduciaries, Congress invoked the common
law of trusts to define the general scope of their authority and responsibility.” Cent.
States Pension Fund v. Cent. Transp., 472 U.S. 559, 570 (1985). The Second
Restatement of Trusts notes that when “there is no trustee or if the trustee or one of
several trustees ceases for any reason to be a trustee, a new trustee can be appointed
by a proper court . . . .” Restatement Second of Trusts, § 108 at 238 (1959).
Consequently, in similar actions brought by the Department of Labor, courts have
appointed an independent fiduciary to serve in the place of the absentee fiduciary.
See, e.g., Perez v. Railpower Hybrid Technologies Corp., No. 2:13-CV-134, 2013
WL 6048984, at *2 (W.D. Pa. Nov. 15, 2013); Harris v. Windswept Envtl. 401(k)
Plan, No. 12-CV-6179, 2013 WL 5537024, at *1 (E.D.N.Y. Oct. 7, 2013); Chao v.
Employee Res. Mgmt., Inc., No. 06-12503, 2007 WL 4245390, at *2 (E.D. Mich.
Nov. 29, 2007). Accordingly, the Court finds that Plaintiff has met the criteria of
Federal Rule of Civil Procedure 55(b) and grants the relief sought by the Secretary
in this case.
CONCLUSION
For the above reasons, Plaintiff’s motion for default judgment is GRANTED.
An appropriate order follows.

/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: September 25, 2015

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