PEREZ v. KWASNY et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 2/8/16. 2/10/16 ENTERED AND COPIES E-MAILED.(mbh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
THOMAS E. PEREZ, Secretary of Labor:
United States Department of Labor
RICHARD J. KWASNY, et al.
EDUARDO C. ROBRENO, J.
February 8, 2016
Presently before the Court is the Secretary of Labor's
(the "Secretary") motion for default judgment against the law
firm of Kwasny and Reilly, P.C.
seeks a default judgment ruling that the Firm violated Title I
of the Employee Retirement and Income Security Act of 1974, as
amended 29 U.S.C.
1001, et seq.
("ERISA") due to its failure
to forward employee contributions to the Kwasny and Reilly,
40l(k) Profit Sharing Plan (the "Plan'') in violation of ERISA.
The Secretary filed this ERISA action on July 16,
The Firm was served with a complaint and summons in
compliance with Federal Rule of Civil Procedure 4(e) on
September 8, 2014.
The Plaintiff filed the proof of service on
September 19, 2014.
On October 24, 2014, Richard Kwasny, representing all
of the Defendants in the case pro se, filed an answer to the
The Secretary filed a motion to strike
the answer asserting that Kwasny could not represent the other
Defendants (having previously had his license to practice
On November 19, 2014, the Court granted the
Secretary's motion to strike.
On November 21, 2014, Kwasny
filed a response to the motion to strike in which he stated that
he intended to file the answer only on his behalf and agreed to
withdraw the answer on behalf of the Firm and the Plan.
requested an opportunity to address the Court prior to the entry
of any default judgment.
He stated that neither the Firm nor
the Plan have any assets and cannot defend the action.
that the causes of action are identical against all Defendants,
and "judgment against one would result in judgment against all."
Therefore, he requested that judgment not be entered against the
Plan and the Firm.
On December 1, 2014, the Secretary filed a request for
default under Rule 55 against the Firm, since it failed to plead
or otherwise defend itself.
the same day.
The Clerk of Court entered default
On January 22, 2015, the Court held a conference
regarding, inter alia, Kwasny's response to the motion to strike
and the Secretary's request for default. On August 12, 2015, the
Secretary filed the instant motion for default judgment against
The Firm failed to respond to the motion and at no
time has it entered an appearance, filed a pleading, or
participated in the litigation in any way.
ALLEGATIONS IN THE COMPLAINT
In his complaint, the Secretary alleges that the Firm
and Richard Kwasny, a partner at the Firm, established the ERISA
Plan so that Firm employees could contribute a portion of their
pay to the Plan through payroll deductions. 1
He asserts that,
beginning January 2007 through 2009, the Firm and Kwasny
withdrew contributions from employees' paychecks but
purposefully failed to deposit those contributions into the Plan
in a timely manner. 2
He alleges that the contributions were
A defined contribution ERISA employee benefit plan
such as the one at issue allows plan members to contribute a
portion of their salary, pre-tax, into individual retirement
See 29 U.S.C. § 1002(34). ERISA was enacted to
create "complex and far-reaching rules designed to protect the
integrity of [employee benefit] plans and the expectations of
their participants and beneficiaries." Barrowclough v. Kidder,
Peabody & Co., 752 F.2d 923, 929 (3d Cir. 1985), overruled on
other grounds, Pritzker v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 7 F.3d 1110, 1111 (3d Cir. 1993).
The Secretary alleges that $40,416.30 in employee
contributions were never deposited into the Plan, while
$2,099.06 in contributions were eventually deposited late and
He seeks from the Firm the $40,416.30 in
commingled with Firm general assets and used to pay the Firm's
expenses; in other words, used for the Firm's own interests.
The Secretary further alleges that at all relevant times, the
Firm exercised authority and control respecting management and
disposition of the Plan's assets and had discretionary authority
and discretionary responsibility in the administration of the
III. LEGAL STANDARD
The Court may enter default judgment pursuant to
Federal Rule of Civil Procedure 55(b).
Its decision to do so
"is left primarily to the discretion of the district court."
Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984).
discretion is not without limits, however, and the Court is
required to make specific factual determinations before entering
the default judgment.
See Emasco Ins. Co. v. Sambrick, 834 F.2d
(3d Cir. 1987); Hritz, 732 F.2d at 1181.
of the entry of a default judgment is that the factual
allegations of the complaint, except those relating to the
amount of damages, will be taken as true."
908 F.2d 1142, 1149 (3d Cir. 1990)
Comdyne I, Inc. v.
withheld contributions along with $9,798.85 in pre-judgment
The ERISA Violations
The Secretary asserts that the allegations described
above establish that the Firm breached its duties under ERISA
ensure that Plan assets are held in a trust account,
(2) act solely in the interest of the Plan
participants and their beneficiaries, 29 U.S.C.
1104 (a) (1) (A));
(3) act prudently, 29 U.S.C.
1104 (a) (1) (B);
(4) prevent the Plan from engaging in a direct or indirect
transfer of Plan assets for the benefit or use of a party in
interest, 29 U.S.C.
1106 (a) (1) (D); and (5) refrain from
dealing with the Plan's assets for the fiduciary's own interest,
The Court agrees with the Secretary's
assessment of the violations.
The Entry of Default Judgment
Before entering default judgment, the court must
consider "some or all of the six-part test enunciated in Poulis
v. State Farm Fire and Casualty Co., 747 F.2d 863, 868
Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 919
(3d Cir. 1992)
(internal citations omitted); see also Anchorage
Assocs. v. Virgin Islands Bd. of Tax Review, 922 F.2d 168, 177
(3d Cir. 1990)
(providing that "[d]epending on the record before
the court, consideration of one or more of the Poulis factors
may be required when a party moves under .
. Rule 55(b) for a
default judgment as a sanction for a failure to plead or
Those factors are:
the extent of the party's personal
the prejudice to the
dilatoriness; (4) whether the conduct of the
party or the attorney was willful or in bad
(5) the effectiveness of sanctions
analysis of alternative sanctions; and (6)
the meritoriousness of the claim or defense.
Poulis, 747 F.2d at 868 (emphasis omitted).
Here, the Firm
appears to be completely responsible for its failure to defend.
It was properly served and one of its named partners has been
litigating the case on his own behalf.
also appears to have been willful.
As a result, its conduct
The prejudice to the
Secretary is great given that it has been deprived of its
ability to litigate the ERISA violations against the Firm.
this reason, no other alternative sanctions appear appropriate.
In that the Firm has not entered an appearance, responded to any
motion or pleading, or in any way been involved in the case,
there is a complete history of dilatoriness.
Finally, based on
the Secretary's allegations, it appears that his claim is
meritorious while the Firm lacks a valid defense.
the entry of default judgment is warranted.
As a result,
In his motion, the Secretary requests the following
relief against the Firm:
(1) restitution of the $40,416.30 in
withheld employee contributions as well as $9,798.85 in prejudgment interest for a total of $50,215.15;
(2) removal of the
Firm as a Plan administrator and the appointment of an
independent Plan fiduciary, paid for by the Firm, to manage and
dispose of the Plan assets; and (3) a permanent injunction
against the Firm ever serving as a fiduciary of any other ERISA
When an ERISA fiduciary breaches his duties, it is:
personally liable to make good to such plan
any losses to the plan resulting from each
such breach, and to restore to such plan any
profits of such fiduciary which have been
made through use of assets of the plan by
the fiduciary, and shall be subject to such
other equitable or remedial relief as the
removal of such fiduciary.
The Court must require a breaching
fiduciary to restore a plan to the position it would have been
in but for that fiduciary's illegal conduct.
86 F. Supp. 3d 293, 392-93 (E.D. Pa. 2015)
Perez v. Koresko,
(citing Donovan v.
Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985)).
court enforcing fiduciary obligations under ERISA is thus given
broad equitable powers to implement its remedial decrees."
Delgrosso v. Spang & Co., 769 F.2d 928, 937 (3d Cir. 1985).
Because the Firm withheld employee contributions from
the Plan, restitution of those funds is the obvious first step
in the restoration of the Plan.
Moreover, the availability of
prejudgment interest on those amounts "exists to make plaintiffs
whole and to preclude defendants from garnering unjust
Nat'l Sec. Sys.,
700 F.3d 65,
(3d Cir. 2012); Anthuis v. Colt Indus. Operating Corp.,
(3d Cir. 1992)
(providing that "in the district
court's discretion, prejudgment interest may be awarded for a
denial of pension benefits").
the funds into the Plan,
When the Firm failed to deposit
it deprived the participants of the
interest on their investment.
In order to place the Plan and
its participants in the same position that they would have been
in, but for the breaches, the Firm must also remit interest on
the withheld funds.
The Secretary suggests that the appropriate interest
rate is the rate that the IRS charges taxpayers who underpay
See 26 U.S.C. § 6621; McLaughlin v. Cohen,
(applying the IRS rate from
Section 6621 and noting that "the interest rate allowable in
ERISA cases is like other elements of an equitable recovery,
subject to the discretion of the Court")
The Court concludes that the IRS rate is
Among the Court's equitable powers is the power to
Indeed, removal of
fiduciaries is regularly recognized as an appropriate remedy
upon findings of imprudence, divided loyalties and prohibited
Reich v. Lancaster, 55 F.3d 1034, 1054 (5th Cir.
1995); Donovan v. Mazzola, 716 F.2d 1226, 1238-39 (9th Cir.
1994); Beck v. Levering, 947 F.2d 693, 641 (2nd Cir. 1991).
With the Firm's removal, a new Plan fiduciary must be installed.
This is an expense that would not have accrued but for the
Therefore, it is just that it pay the costs
associated with the fiduciary in order to make the Plan whole.
See Chao v. Malkani, 216 F. Supp. 2d 505, 518-19 (D. Md. 2002),
aff'd, 452 F.3d 290
(4th Cir. 2006)
(ordering the defendants to
pay the costs associated with an independent trustee); see also
Mazzola, 716 F.2d at 1238 (affirming the district court's
decision to appoint an investment manager) .
Finally, the broad authority granted the Court to
provide relief under ERISA permits it to bar serious ERISA
violators from serving as fiduciaries or service providers to
Serious misconduct is grounds for a
permanent injunction without a showing of future harm.
Lancaster, 55 F.3d at 1054; Beck, 947 F.2d at 641.
The Firm has
failed to fulfill its duties as an ERISA fiduciary and has used
Plan assets for its own benefit. In that the Firm cannot be
entrusted managing ERISA-covered plans or their assets,
permanent injunction barring the Firm as a fiduciary is
For the reasons set forth above, the Court will grant
the Secretary's motion for default judgement, entering judgment
in his favor and against the Firm, and award the remedies
An appropriate order entering judgment follows.
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