Gesualdi et al v. Quadrozzi Equipment Leasing Corp. et al

Filing 72

MEMORANDUM AND ORDER: Having addressed the deficiencies in the Court's prior decision identified by the Second Circuit, and ever mindful of the strong preference for adjudication on the merits, the Court remains convinced that denying Defendants ' motion to vacate the default judgment is the appropriate outcome for this case. Accordingly, the Court concurs in Magistrate Judge Scanlon's recommendation: Defendants' objections to the report and recommendation are overruled and th e motion to vacate the default judgment is denied. Now, after five years of litigation during which this dispute never advanced past the default judgment stage, this case is at an end. The clerk is directed to close the case.. Ordered by Judge Raymond J. Dearie on 12/15/2016. (Rodriguez, Lori)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------- :x
THOMAS GESUALDI; LOUIS
BISIGNANO; ANTHONY PIROZZI;
DOMINICK MARROCCO; ANTHONY
D' AQUILA; FRANK FINKEL; JOSEPH
FERRARA; MARC HERBST; THOMAS
CORBETT; and DENISE RICHARDSON,
as Trustees and Fiduciaries of the Local 282
Int'l Brotherhood of Teamsters Welfare,
Pension, Annuity, Job Training, and
Vacation and Sick Leave Trust Funds,

Plaintiffs,

MEMORANDUM & ORDER
11 CV 115 (RJD) (VMS)

- against QUADROZZI EQUIPMENT LEASING
CORP. and AMSTEL RECYCLING &
CONCRETE CORP.,
Defendants.
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DEARIE, District Judge
This is the second time the Court has addressed this motion to vacate a default judgment
entered against Defendants Quadrozzi Corporation and Amstel Corporation in this employee
benefits case. See ECF Nos. 23-25. The Court first denied Defendants' motion to vacate the
default judgment in 2013, but Defendants successfully appealed to the Second Circuit, which
vacated the Court's order denying the motion and remanded for additional findings. See
Gesualdi v. Quadrozzi, 629 F. App':x 111, 113-14 (2d Cir. 2015). On remand, the Court referred
the motion to Magistrate Judge Scanlon who, by report and recommendation issued August 3,
2016, recommends that the Court deny Defendants' motion to vacate the default judgment once
again. See ECF No. 55 ("R&R"). Defendants object to that recommendation, and responses and

replies have been filed. See ECF Nos. 57, 60, 67, 71. For the following reasons, Defendants'
objection is overruled and the motion to vacate default judgment is again denied.
BACKGROUND
The Court presumes familiarity with the facts and procedural history of this action, which
have been set forth comprehensively in Magistrate Judge Scanlon's report and recommendation,
and are adopted herein.
DISCUSSION
When a party objects to a magistrate judge's report and recommendation, the Court "must
determine de novo any part of the magistrate judge's disposition that has been properly objected
to" and may "accept, reject, or modify, in whole or in part, the findings and recommendations
made by the magistrate judge." Fed. R. Civ. P. 72(b)(3); see also 28 U.S.C. § 636(b)(l)(C). In
ruling on the objection, the Court may rely on the magistrate judge's proposed findings and
recommendation to whatever extent it chooses. United States v. Raddatz, 447 U.S. 667, 676
(1980).
Federal Rule of Civil Procedure 60(b)( 1) governs motions to vacate a default judgment.
Under Rule 60(b)(1 ), the Court may relieve a party from a judgment based on "mistake,
inadvertence, surprise, or excusable neglect." See also Fed. R. Civ. P. SS(c) ("The court may set
aside an entry of default judgment for good cause, and it may set aside a final default judgment
under Rule 60(b)."). There is a strong preference in favor of resolving cases on the merits, and
in ruling on a motion to vacate a default judgment, the Court must resolve all doubts in favor of
the moving party. See New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005). The Second Circuit
has enumerated three factors the Court must consider in deciding whether to grant a motion to
vacate a default judgment: "(I) whether the default was willful, (2) whether the defendant

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demonstrates the existence of a meritorious defense, and (3) whether, and to what extent,
vacating the default will cause the nondefaulting party prejudice." State St. Bank & Tr. Co. v.
Inversiones Errazuriz Limitada, 374 F.3d 158, 166-67 (2d Cir. 2004) (citations omitted).
When vacating the Court's earlier order denying Defendants' motion to vacate the default
judgment, the Second Circuit instructed the Court to address three issues on remand: (1) the legal
sufficiency of Plaintiffs' complaint (a preliminary requirement for granting a default judgment,
see Citv ofNew York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011); Finkel v.
Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009)); (2) whether the Defendants have meritorious
defenses; and (3) the extent to which vacating the default would prejudice Plaintiffs. See
Gesualdi, 629 F. App'x at 113-14. Because Defendants' objections to Magistrate Judge
Scanlon' s report and recommendation largely track these three issues, the Court will address
each in turn. 1
A. Legal Sufficiency of the Complaint
'"It is an ancient common law axiom that a defendant who defaults thereby admits all
well-pleaded factual allegations contained in the complaint."' Gesualdi, 629 F. App'x at 113
(internal quotation marks omitted) (quoting Mickalis, 645 F.3d at 13 7). Thus, in assessing the
propriety of a default judgment, the Court must determine whether Plaintiffs' allegations

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The Second Circuit expressly limited its remand to these three issues, but the parties'
objections and responses address two additional issues previously resolved by this Court: the
willfulness of Defendants' default and the untimeliness of Defendants' motion to vacate the
default judgment. On appeal, the Second Circuit acknowledged the Court's prior findings on
these additional issues and left them undisturbed, choosing instead to remand for additional
findings on the three issues specified above. See Gesualdi, 629 F. App'x at 113-14. Because the
willfulness of Defendants' default and the untimeliness of Defendants' motion to vacate the
default judgment were, if not expressly decided by the Second Circuit, at least '"impliedly
resolved by the appellate court's mandate,'" the Court need not address them further. See Brown
v. City of Svracuse, 673 F.3d 141, 147 (2d Cir. 2012) (quoting Yick Man Mui v. United States,
614 F.3d 50, 53 (2d Cir. 2010)).
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establish Defendants' liability as a matter of law. See id.
Plaintiffs, trustees for a union's employee benefits plan, allege that the Defendants are
jointly and severally liable under the Employee Retirement Income Security Act of 1974
("ERISA") for failing to make contributions due to the plan under a collective bargaining
agreement. See 29 U.S.C. §§ l 132(g)(2), 1145. The collective bargaining agreement, however,
has just two signatories, the union and Quadrozzi; Amstel did not sign the collective bargaining
agreement. Amstel may nevertheless be bound to the collective bargaining agreement if: (1)
Quadrozzi and Amstel "constitute a 'single employer' and [] the employees of the companies
constitute a single appropriate bargaining unit," Brown v. Sandimo Materials, 250 F.3d 120, 128
n.2 (2d Cir. 2001) (citation omitted), or (2) Amstel is an alter ego of Quadrozzi. See id. at n.3.
For Amstel to be liable for contributions to the plan (and for a default judgment against Amstel
to be appropriate), Plaintiffs' complaint must adequately allege at least one of these two theories.
Although the single employer and alter ego theories have the same effect-binding a
non-signatory like Amstel to a collective bargaining agreement-the analysis required for each
theory differs.
Two or more companies constitute a "single employer" if they are '"part of a single
integrated enterprise,'" and their employees "constitute a single appropriate bargaining unit." Id.
at n.2 (quoting Lihli Fashions Coro. v. NLRB, 80 F.3d 743, 747 (2d Cir. 1996) (per curiam)). In
assessing whether separate companies are part of a single integrated enterprise, the Court looks
to several factors, "none of which is controlling and not all of which need be present:" (1) the
interrelation of operations, (2) existence of common management, (3) presence of centralized
control of labor functions, and (4) common ownership, as well as family connections, and the
common use of facilities and equipment. See id. The analysis of whether the employees

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constitute a single bargaining unit also depends on several factors, namely whether there is a
"community of interest" among employees, as well as "'factors such as bargaining history,
operational integration, geographic proximity, common supervision, similarity injob function
and degree of employee interchange."' Id. (citation omitted) (quoting Brown v. Dominic Prisco
Transp., Inc., No. CV-95-1121ADS,1997 WL 1093463, at *3 (E.D.N.Y. Aug. 16, 1997)).
Unlike the single employer doctrine, the alter ego doctrine focuses on "'the existence of a
disguised continuance or an attempt to avoid the obligations of a collective bargaining agreement
through a sham transaction or technical change in operations."' Lihli, 80 F.3d at 748 (quoting
Truck Drivers, 944 F.2d at 1046). This test is flexible, and the court may "'weigh the
circumstances of the individual case,' while recognizing that the following factors are important:
'whether the two enterprises have substantially identical management, business purpose,
operation, equipment, customers, supervision, and ownership."' Ret. Plan of Unite Here Nat'l
Ret. Fund v. Kombassan Holding A.S., 629 F.3d 282, 288 (2d Cir. 2010) (quoting Goodman
Piping Prods., Inc. v. NLRB, 741 F.2d 10, 11 (2d Cir. 1984)).
Plaintiffs' allegations closely track the factors courts consider when applying the alter
ego or single employer theories. See Compl. ~~ 42-67. Among other things, Plaintiffs allege (on
information and belief) that Amstel and Quadrozzi share common management, office space,
ownership, operations, supervision, customers, business purpose, and equipment. See id.~~ 4345, 47-51, 59. Plaintiffs also contend (on information and belief) that Amstel and Quadrozzi
have the same principal and principle place of business. See id.~~ 10-11, 16-17. Finally,
Plaintiffs allege (again on information and belief) that Quadrozzi and Amstel have used the same
employees to perform similar services for similar customers under similar conditions in the same
location, with Amstel employees (among other things) performing work covered by the

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collective bargaining agreement between Quadrozzi and the union. See id. ,, 52-58, 63-34.
Taking the allegations in Plaintiffs' complaint as true (as the Court must at this stage, see
Finkel, 577 F.3d at 84), and discarding mere legal conclusions (see Igbal, 556 U.S. at 680), the
complaint is sufficient to establish Amstel' s liability under either the single employer or alter ego
theory. 2 Plaintiffs' allegations are sparse, but they are not merely legal conclusions, even if they
hew closely to the relevant factors in the single employer and alter ego analysis. See Trs. of
Mosaic & Terrazzo Welfare Pension. Annuity, & Vacation Funds v. Cont'l Floors, Inc., No. 13
CV 1739 (ILG) (SMG), 2013 WL 5637492, at *6 (E.D.N.Y. Oct. 15, 2013) (citing Operating
Eng'rs Local 101 Pension Fund v. Al Muehlenberger Concrete Constr., Inc., No. 13-2050-JARDJW, 2013 WL 5409116, at *6 (D. Kan. Sept. 26, 2013)). Moreover, the fact that these
allegations are based on "information and belief' does not render them insufficient. See Arista
Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010). Rather, the weight of authority
addressing the adequacy of similar alter ego and single employer allegations in the wake of the
Supreme Court's decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) and
Igbal, 556 U.S. 662 is clear and supports the Court's conclusion that the Complaint sufficiently
alleges Defendants' liability under either theory. See, e.g., Trs. of Laborers Union Local No.
1298 v. A to E, Inc., 64 F. Supp. 3d 435, 440-41 (E.D.N.Y. 2014) (concluding that allegations
"closely track[ing] the factors courts consider when applying the alter ego and single employer
doctrines" were legally sufficient); Gesualdi v. Bavwood Concrete Coro., No. 11 CV 4080

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Defendants do not object to Magistrate Judge Scanlon's conclusion that the Complaint
is sufficient to establish Quadrozzi's liability as a matter of law. Indeed, Defendants' objections
contain no arguments whatsoever regarding the sufficiency of the Complaint as to Quadrozzi or
the merits of any defenses Quadrozzi may have. Finding no clear error in Magistrate Judge
Scanlon' s discussion of Quadrozzi' s liability and defenses, the Court adopts these portions of
Magistrate Judge Scanlon's report without qualification. See R&R at 8-9, 20-25.
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(DRH) (AKT), 2014 WL 4659265, at *6 (E.D.N.Y. Sept. 17, 2014) (holding that a proposed
amended complaint containing similar allegations sufficiently alleged that two entities were alter
egos or a single employer); Gordotzke v. Seafood Ave. Corp., 17 F. Supp. 3d 185, 190-91
(E.D.N.Y. 2014) (determining that similar allegations, "[t]aken as true and based on the relevant
factors, ... state a plausible claim" that the defendant entities were alter egos or constituted a
single employer) ; Trs. of Empire State Carpenters Annuitv, Apprenticeship, Labor-Management
Corp., Pension & Welfare Funds v. Dykeman Carpentry, Inc., No. 13-CV-1508 (JS) (ARL),
2014 WL 976822, at *4-5 (E.D.N.Y. Mar. 12, 2014) (concluding that a complaint "which closely
track[ ed] the factors courts consider when applying the single employer and alter ego doctrines"
was legally sufficient); see also Cont'l Floors, 2013 WL 5637492, at *6 (collecting further
cases).
Defendants argue that the Court should disregard these cases as inconsistent with the
Second Circuit's decision in Taizhou Zhongneng Import and Export Co., Ltd. v. Koutsobinas,
509 F. App'x 54 (2d Cir. 2013). Setting aside the fact that summary orders like the one issued in
Taizhou are not precedential (and thus not binding), Defendants' reliance on Taizhou is
misplaced. The allegations the Second Circuit addressed in Taizhou were "plainly legal
conclusions," supported by no factual allegations whatsoever, and failed to make even
conclusory allegations as to a necessary element of the plaintiffs cause of action. See id. at 57.
As the Court has already explained, in this case Plaintiffs' allegations ("short and plain" as they
may be, see Fed. R. Civ. P. 8(a)(2)) are more than mere legal conclusions, and they plausibly
allege all the necessary elements of both the single employer and alter ego doctrines.
As a result, the Court agrees with Magistrate Judge Scanlon's report and
recommendation: Plaintiffs' Complaint is legally sufficient.

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B. Existence of Meritorious Defenses
In ruling on a motion to vacate a default judgment, the Court must also consider whether
Defendants have any meritorious defenses to the well-pleaded allegations in Plaintiffs'
complaint. See State St. Bank & Tr. Co., 374 F.3d at 166-67. Defendants bear the burden of
presenting evidence establishing a complete defense. See Bricklayers & Allied Craftworkers
Local 2 v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 187 (2d Cir. 2015) (per curiam)
(citing State St. Bank & Tr. Co., 374 F.3d at 167).
This portion of Defendants' objection again focuses on the single employer and alter ego
doctrines. As explained earlier, Plaintiffs need only establish the application of one of these two
doctrines. In other words, if Amstel and Quadrozzi are a single employer or alter egos of one
another, then Amstel is bound to the collective bargaining agreement. Because Defendants' do
not have a meritorious defense to Plaintiffs' alter ego allegations, the Court need not analyze
Defendants' defenses to Plaintiffs' single employer allegations.
Defendants argue that the alter ego doctrine cannot apply to two entities (like Amstel and
Quadrozzi) which existed and operated simultaneously. Although Defendants cite some
authorities that arguably support their position, see, e.g., Iowa Express Distributions, Inc. v.
NLRB, 739 F.2d 1305, 1312 (8th Cir. 1984), these authorities are inapposite under controlling
precedent. "[Defendants'] argument that alter ego status cannot apply where the entities exist
simultaneously is ... incorrect. 'Although the alter ego doctrine is primarily applied in
situations involving successor companies, where the successor is merely a disguised continuance
of the old employer, it also applies to situations where the companies are parallel companies.'
Parallel existence, therefore, is not an impediment to imposing alter ego status." Kombassan,

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629 F.3d at 288 (internal citation omitted) (quoting Mass. Carpenters Cent. Collection Agency v.
Belmont Concrete Corp., 139 F.3d 304, 307 (1st Cir. 1998)).
Because the parallel existence and operation of both Quadrozzi and Amstel is no bar to
the application of the alter ego doctrine, Defendants have failed to demonstrate the existence of a
meritorious defense.
C. Prejudice to Plaintiffs
The third issue on which the Second Circuit remanded this case for additional findings
was the "prejudice to [P]laintiffs ifthe default judgment were vacated."3 Quadrozzi, 629 F.
App'x at 114. In assessing this issue, the Court must address "whether and to what extent[]
vacating the default judgment will prejudice the non-defaulting party." Green, 420 F.3d at 110.
More than mere delay is required in order to find that the non-defaulting party will prejudiced,
but to the degree that delay "'thwart[s] plaintifrs recovery or remedy,"' the Court may find
sufficient prejudice. Id. (quoting lOA Charles A. Wright, et al., Fed. Prac. & Proc.: Civ., § 2699,
at 169 (3d ed. 1998)).
Plaintiffs argue that their recovery would be thwarted if the Court vacated the default
judgment because of Defendants' tenuous financial situation. Although the parties dispute the
particulars of Defendants' financial situation and some apparently ongoing proceedings in
bankruptcy court, it appears Plaintiffs would be prejudiced in two ways were the Court to grant

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As Magistrate Judge Scanlon noted, see R&R at 25 n.11, given the Court's prior
conclusion that Defendants' default was willful and the absence of any meritorious defense, the
Court may, in its discretion, not address the issue of prejudice. See Bricklayers & Allied
Craftworkers, 779 F.3d at 187 (noting that a court "need not reach the question of whether the
plaintiff would suffer prejudice" if it is "'persuaded that the default was willful and ... [is]
unpersuaded that the defaulting party has a meritorious defense.'") (quoting SEC v. McNulty,
137 F.3d 732, 738 (2d Cir. 1998)). Out ofrespect for the Second Circuit's mandate and in the
interests of completeness, however, the Court addresses this issue as well.

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.

.

Defendants' motion. First, vacating the default judgment puts Plaintiffs at risk of losing lien
priority against Defendants' various creditors (and possibly losing some amount of money they
have already recovered in a settlement in bankruptcy court). Second, given the passage oftime
and apparent dissolution of at least Quadrozzi, "[P]laintiffs reasonably express concern that the
individual and corporate defendants may be judgment-proof by the conclusion of this litigation."
Lopez v. Traffic Bar & Rest., Inc., 12 Civ. 8111(JCF),2015 WL 545190, at *5 (S.D.N.Y. Feb.
9,2015).
Given the risk of thwarting Plaintiffs' recovery or remedy if the default judgment were
vacated, the Court finds Plaintiffs would be prejudiced if the default judgment were vacated.
CONCLUSION
Having addressed the deficiencies in the Court's prior decision identified by the Second
Circuit, and ever mindful of the strong preference for adjudication on the merits, the Court
remains convinced that denying Defendants' motion to vacate the default judgment is the
appropriate outcome for this case. Accordingly, the Court concurs in Magistrate Judge
Scanlon's recommendation: Defendants' objections to the report and recommendation are
overruled and the motion to vacate the default judgment is denied. Now, after five years of
litigation during which this dispute never advanced past the default judgment stage, this case is at
an end. The clerk is directed to close the case.

SO ORDERED.
Dated: Brooklyn, New York
December /{_, 2016

s/ RJD

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