WALSH v. GREAT ATLANTIC GRAPHICS, INC. et al

Filing 13

MEMORANDUM. SIGNED BY HONORABLE BERLE M. SCHILLER ON 9/19/22. 9/19/22 ENTERED AND COPIES E-MAILED.(amas)

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MARTIN J. WALSH,
SECRETARY OF LABOR, UNITED
STATES DEPARTMENT OF LABOR
Plaintiff,

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v.
GREAT ATLANTIC GRAPHICS, INC.,
FREDERICK DUFFY, JR., VINCENT
GIARROCCO, GREAT ATLANTIC
GRAPHICS, INC. PROFIT SHARING
401(K) PLAN, AND GREAT ATLANTIC
GRAPHICS, INC. EMPLOYEE
BENEFIT PLAN,
Defendants.

CIVIL ACTION
No. 21-3280

MEMORANDUM
Schiller, J.

September 19, 2022

Plaintiff, Martin J. Walsh, the Secretary of Labor (the “Secretary”), asserts claims under
ERISA against Defendants Great Atlantic Graphics, Inc. (the “Company”), Frederick Duffy, Jr.,
Vincent Giarrocco, Great Atlantic Graphics, Inc. Profit Sharing 401(k) Plan (the “401(k) Plan”),
and Great Atlantic Graphics, Inc. Employee Benefit Plan (the “Health Plan”) (collectively,
“Defendants”) for breach of their fiduciary duties and engaging in prohibited transactions in
connection with their administration of 401(k) and health plans for Great Atlantic Graphics, Inc.’s
former employees. Defendants waived service but have since failed to timely appear or otherwise
respond to the Complaint. The Secretary subsequently requested and obtained an entry of default
against the Defendants. Plaintiff now moves for a default judgment against all Defendants. For the
reasons that follow, the Secretary’s Motion will be granted.

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I.

BACKGROUND
In 1981, the Company established a 401(k) Plan, which allowed employees to make

contributions via payroll deductions. (Compl., ECF 1, ¶ 9.) The Company also operated a selfinsured Health Plan funded by employer contributions and contributions from employee payroll
deductions. (Id. ¶ 14.) Both the 401(k) Plan and the Health Plan are employee benefit plans within
the meaning of ERISA section 3(3) (Id. ¶ 5.) The Company was the Sponsor of both the 401(k)
Plan and Health Plan and was named as Plan Administrator in the Plan documents. (Id. ¶ 6.) The
Company exercised discretionary authority and discretionary control with respect to management
of both Plans, and it is not disputed that it is a fiduciary of the Plans within the meaning of ERISA
section 3(21). (Id.)
Duffy was the Company’s “sole owner, President, and a member of the Board of
Directors . . . .” (Id. ¶ 7.) Giarrocco was its “Treasurer, Controller, and a member of the Board of
Directors . . . .” (Id. ¶ 8.) Both Duffy and Giarrocco exercised discretionary authority and
discretionary control over both Plans and it is not disputed that they are the Plans’ fiduciaries
within the meaning of ERISA section 3(21). (Id. ¶¶ 7-8.)
In 2018, the Company entered Chapter 7 Bankruptcy and ceased operation. (Id. ¶¶ 10, 12.)
At that time, the former employees who participated in the 401(k) Plan were entitled to
distributions. (Id. ¶ 11). However, Duffy and Giarrocco did not begin termination of the 401(k)
Plan or distribution of the assets until May 10, 2021. (Id. ¶ 12). When the Complaint was filed, the
401(k) plan’s nineteen participants still had not received distributions from its $3,062,276.00 in
assets as of October 31, 2019. (Id. ¶¶ 12-13.)
The Health Plan offered medical benefits through an agreement between the Company and
QCC Insurance Company d/b/a Independence Administrators (“IA”). “Under the agreement with

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IA, the Company agreed to forward insurance premiums to IA” to pay medical claims filed by the
Health Plan’s participants. (Id. ¶ 16.) Duffy and Giarrocco had authority to transfer funds to and
from the relevant accounts and were signatories on checks sent on the Company’s behalf to IA.
(Id. ¶ 17.) The Complaint alleges that from at least January 1, 2016 through December 31, 2017,
when the Health Plan had fifty-five participants, the Company, Duffy, and Giarrocco withheld at
least $228,233.90 in intended Health Plan contributions from employees’ paychecks, but did not
forward those funds to IA; instead, they placed these funds in general accounts associated with the
business and used it for other purposes (Id. ¶¶ 15, 18-19.) IA demanded payment in November
2017, but the Company did not comply. (Id. ¶ 21.) Because of this, IA retracted coverage for 1,340
claims incurred in 2016 and 2017, totaling approximately $463,494.02, which the participants and
beneficiaries of the Health Plan were thus billed for instead. (Id. ¶¶ 22, 24.)
The Secretary filed its Complaint on July 22, 2021. (ECF 1.) Defendants waived service
on August 22, 2021. (ECF 3-7.) On November 12, 2021, pursuant to an Order from Judge Tucker
(ECF 8), the Secretary informed the Court that it had “engaged in discussion with Defendants and
their representative on multiple occasions, and they have indicated that they will not be entering
appearances or mounting any defense in this matter.” (ECF 9.) The Secretary requested a default
on December 17, 2021 (ECF 10) and a default was entered on March 2, 2022. This case was
reassigned from Judge Tucker to Judge Schiller on June 29, 2022. (ECF 11.) On August 3, the
Secretary moved for a default judgment, seeking, among other relief, to: (1) remove Defendants
as fiduciaries of the Plans; (2) authorize the Secretary to appoint an independent fiduciary of the
Plans; and (3) enjoin Defendants from serving as fiduciaries of ERISA-covered plans in the future.
(ECF 12.)

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II.

STANDARD OF REVIEW
After a default is entered, Fed. R. Civ. P. 55(b)(2) allows a district court to enter a default

judgment against a properly served defendant who fails to a file a timely responsive pleading.
Anchorage Assocs. v. V.I. Bd. of Tax Revenue, 922 F.2d 168, 177 n.9 (3d Cir. 1990). An entry of
default, however, does not automatically entitle the non-defaulting party to a default judgment.
Hritz v. Woma Corp., 732 F.2d 1178, 1180-81 (3d Cir. 1984). Rather, the decision to enter a default
judgment is “left primarily to the discretion of the district court.” Id. at 1181.
III.

DISCUSSION
A. Default Judgment
“Three factors control whether a default judgment should be granted: (1) prejudice to the

plaintiff if default is denied, (2) whether the defendant appears to have a litigable defense, and (3)
whether defendant’s delay is due to culpable conduct.” Chamberlain v. Giampapa, 210 F.3d 154,
164 (3d Cir. 2000); United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir.
1984). “However, when a defendant has failed to appear or respond in any fashion to the complaint,
this analysis is necessarily one-sided; entry of default judgment is typically appropriate in such
circumstances at least until the defendant comes forward with a motion to set aside the default
judgment pursuant to Rule 55(c).” Mount Nittany Med. Ctr. v. Nittany Urgent Care, P.C., No. 11622, 2011 WL 5869812, at *1 (M.D. Pa. Nov. 22, 2011) (citing Anchorage Assocs., 922 F.2d at
177 n.9).
All three factors weigh in favor of granting a default judgment against Defendants. First, a
plaintiff will be prejudiced absent a default judgment when a defendant fails to respond to the
plaintiff’s claims because the “plaintiff will be left with no other means to vindicate his or her
claims.” United States v. Vo, No. 15-6327, 2016 WL 475313, at *3 (D.N.J. Feb. 8, 2016). Here,

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Defendants did not timely respond to the Secretary’s claims. They have also since made clear to
the Secretary “that they will not be entering appearances or mounting any defense in this matter.”
(ECF 9.) Absent a default judgment, Defendants’ refusal to engage portends an indefinite delay.
See Vo, 2016 WL 475313, at *3.
Second, “[a] claim, or defense, will be deemed meritorious when the allegations of the
pleadings, if established at trial, would support recovery by plaintiff or would constitute a complete
defense.” Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 869-70 (3d Cir. 1984). Here, the
Court is unable to consider whether Defendants have any litigable, meritorious defenses because
they never answered or responded to the Complaint or otherwise participated in this litigation. See
Vo, 2016 WL 475313, at *3; United States v. Fridman, No. 21-12090, 2022 WL 1541549, at *3
(D.N.J. May 16, 2022).
Third, a defendant’s “failure to answer or otherwise respond to the Complaint, without
providing any reasonable explanation, permits the Court to draw an inference of culpability on the
its part.” United States v. Cruz, No. 20-3903, 2021 WL 1884862, at *2 (D.N.J. May 11, 2021); see
also Crocs, Inc. v. Dr Leonard Healthcare Corp., No. 21-13583, at *4 (D.N.J. Aug. 30, 2022).
Here, Defendants have not answered or responded to the Complaint and, in fact, have informed
the Secretary that they do not intend to do so. The Court therefore infers culpability on their part.
See Local Union No. 98 Int’l Bhd. of Elec. Workers v. Chester Cnty. Elec., Inc., No. 12-3440, 2013
WL 5567446, at *2 (E.D. Pa. Oct. 9, 2013) (“[W]hile Defendant[s have] failed to engage in this
litigation, the docket indicates that [they were] properly served. Therefore, the fault rests with
Defendant[s] for [their] failure to participate in this litigation.”).
The Court will enter default judgment accordingly.

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B. Relief Requested
“A federal court enforcing fiduciary obligations under ERISA is . . . given broad equitable
powers to implement its remedial decrees.” Delgrosso v. Spang & Co., 769 F.2d 928, 937 (3d Cir.
1985). ERISA section 502(a)(5) 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)(A). The
Secretary may also “obtain other appropriate equitable relief” to redress violations of the statute.
Id. § 1132(a)(5)(B); cf. id. § 1132(a)(3)(B) (permitting participants, beneficiaries, or fiduciaries to
sue “to obtain other appropriate equitable relief”). The Supreme Court and the Third Circuit
analyze section 502(a)(5) claims similarly to section 502(a)(3) claims due to the identical language
of the statute. See Mertens v. Hewitt Assocs., 508 U.S. 248, 260 (1993) (holding “language used
in one portion of a statute (§ 502(a)(3)) should be deemed to have the same meaning as the same
language used elsewhere in the statute (§ 502(a)(5))”); Nat’l Sec. Sys. Inc. v. Iola, 700 F.3d 65, 88
(3d Cir. 2012) (“First, because § 502(a)(5) mirrors § 502(a)(3), we relied heavily on the dicta in
Mertens addressing the scope of § 502(a)(3).”).
The Secretary’s Motion seeks: (1) imposition of a $338,452.63 surcharge on Defendants,
jointly and severally, to compensate the Health Plan’s participants and beneficiaries for their
medical expenses and other losses resulting from Defendants’ fiduciary misconduct; 1 (2) authority
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to appoint an independent fiduciary to manage and administer the 401(k) and Health Plans,
including by asserting claims on behalf of the Plans and distributing benefits to the Plans’
participants and beneficiaries; (3) an order compelling Defendants’ cooperation with the
independent fiduciary’s efforts to administer the Plan by providing the independent fiduciary with
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The Secretary filed a Declaration from U.S. Department of Labor Investigator Brannon
Ottley [Ottley Decl.] to support its Motion. (ECF 12, Ex. A.) According to Ottley, as of August 1,
2022, the unpaid Health Plan claims total approximately $338,452.63.

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all records related to the Plans; (4) removal of Duffy, Giarrocco, and the Company as fiduciaries
of the Plans; (5) to enjoin Duffy, Giarrocco, and the Company from serving as trustee, fiduciary,
advisor, or administrator to any employee benefit plan covered by ERISA in the future; and (6) to
enjoin Duffy, Giarrocco, and the Company from future violations of Title I of ERISA.
1. Surcharge
In CIGNA Corporation v. Amara, the Supreme Court interpreted the “other appropriate
equitable relief” language of ERISA section 503(a)(3) to authorize district courts to issue the
equitable remedy of surcharge. 563 U.S. 421, 439, 443-44 (2011). Surcharge is an equitable
remedy—even though it is in the form of monetary relief—for breaches of trust “committed by a
fiduciary encompassing any violation of a duty imposed upon that fiduciary.” Id. at 441-42. To
impose a surcharge on Defendants under section 502(a)(3), the Secretary must make out a showing
of “actual harm” and causation. Id. at 444. It follows that the same showing should allow a
surcharge to be imposed as equitable relief under ERISA section 502(a)(5). See Mertens, 508 U.S.
at 260; Iola, 700 F.3d at 88.
Actual harm may consist of detrimental reliance or the loss of an ERISA-protected or
common-law trust right. Id.; see also Cunningham v. Wawa, Inc., 387 F. Supp. 3d 529, 541-42
(E.D. Pa. 2019) (“Plaintiffs need not show . . . detrimental reliance to seek reformation and
surcharge under § 502(a)(3).”). ERISA Section 404(a) incorporates the fiduciary standards of trust
law. Sec’y of Labor v. Doyle, 675 F.3d 187, 202 (3d Cir. 2012). “[L]ying is inconsistent with the
duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA.” Varity Corp.
v. Howe, 516 U.S. 489, 506 (1996) (citation and internal quotation omitted). The duties of an
ERISA fiduciary include the common law duty of loyalty. Cent. States, Se. & Sw. Areas Pension
Fund v. Cent. Transp., Inc., 472 U.S. 559, 570-71 (1985). The Third Circuit has said that in some

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circumstances an ERISA fiduciary has an affirmative obligation to disclose material information
even absent a plan beneficiary’s request. Glaziers & Glassworkers Union Loc. 252 Annuity Fund
v. Newbridge Sec., Inc., 93 F.3d 1171, 1181 (3d Cir. 1996); see also Bixler v. Cent. Pa. Teamsters
Health & Welfare Fund, 12 F.3d 1292, 1300 (3d Cir. 1993). A paradigmatic situation where
disclosure may be required is when a beneficiary would have no reason to suspect he should make
an inquiry because he is engaged in something that “appear[s] to be a routine matter.” Glaziers, 93
F.3d at 1181.
Here, the Secretary has shown it is appropriate to impose an equitable surcharge in the
amount of medical benefits that the Health Plan did not cover when its participants received
medical services despite their mistaken belief that it would. Labor Department Inspector Ottley
states that Great Atlantic, Duffy, and Giarrocco failed to inform the participants that they had not
forwarded at least $228,233.90 in premium payments to IA. (Ottley Decl. ¶ 3(i).) As a result, IA
retracted 1,340 claims made between April 12, 2016 and October 31, 2017, foisting the cost onto
the Health Plan’s unwitting participants. (Id. ¶ 3(j).) The Company’s Health Plan participants
reasonably expected it to pay for their medical care, a routine activity that implicates a fiduciary’s
duty to affirmatively disclose. The loss of coverage was material information and the duties of
loyalty and disclosure imposed an affirmative obligation on the Health Plan’s fiduciaries—
Defendants—to disclose it to the participants. Defendants’ failure to do so constitutes the actual
harm CIGNA requires. 563 U.S. at 444; see also Glaziers, 90 F.3d at 1181.
To find otherwise would create an unworkable scenario where plan participants would have
to inquire repeatedly whether fiduciaries made timely premium payments to the insurance
company before seeking any medical treatment—and the fiduciaries would need to respond to
voluminous inquiries.

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The essence of a fiduciary relationship is utmost loyalty and diligent care. Congress did
not intend for ERISA to require beneficiaries to exercise greater diligence than their fiduciaries.
See Varity Corp., 516 U.S. at 507 (finding Congress intended for ERISA’s fiduciary standards to
protect individuals harmed by a breach). “[T]he fundamental purpose of [ERISA] is the
‘enforcement of strict fiduciary standards of care in the administration of all aspects of pension
plans and promotion of the best interests of participants and beneficiaries.’” Bixler, 12 F.3d at 1298
(quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 158 (1985) (Brennan, J., concurring)).
Therefore, the Court will impose a surcharge of $338,452.63 on Duffy, Giarrocco, and the
Company, jointly and severally.
2. Fiduciary Removal and Appointment of an Independent Fiduciary
A court’s equitable power also includes the authority to remove fiduciaries who breach
their fiduciary obligations. Perez v. Kwasny, No. 14-4286, 2016 WL 558721, at *3 (E.D. Pa. Feb.
9, 2016); see also 29 U.S.C. § 1009(a) (authorizing “equitable or remedial relief as the court may
deem appropriate” for breach of fiduciary duty including “removal” of a fiduciary). Given
Defendants’ failure to comply with their fiduciary duties, the Court will order the removal of the
Company, Duffy, and Giarrocco as Plan fiduciaries and authorize the Secretary to appoint an
independent fiduciary. See Walsh v. Satori Grp., Inc., No. 20-3906, 2021 WL 2072237, at *8 (E.D.
Pa. May 24, 2021) (removing fiduciaries for breach of fiduciary duties and granting request for
appointment of an independent fiduciary).
Defendants shall be responsible for all costs and fees associated with the independent
fiduciary. See Kwasny, 2016 WL 558721, at *3 (finding it “just” that defendants “pay the costs
associated with” appointing a fiduciary because “[t]his is an expense that would not have accrued
but for the [defendants’] breaches”). In addition, Defendants will be required to provide the

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independent fiduciary with all records and other material relevant to Plan administration. See
Walsh, 2021 WL 2072237, at *9.
3. Injunction
A court may also “bar serious ERISA violators from serving as fiduciaries or service
providers to ERISA-covered plans” in the future. Kwasny, 2016 WL 558721, at *4. “Great
Atlantic, Duffy, and Giarrocco retained and commingled . . . Health Plan assets within the
Company’s general banking accounts so these amounts could be used for purposes not related to
the Health Plan.” (Compl., ¶ 18.) Based on the uncontested allegations in the Complaint, the
Company, Duffy, and Giarrocco failed to fulfill their fiduciary duties and “used Plan assets for
[their] own benefit. In that [they] cannot be entrusted managing ERISA-covered plans or their
assets, a permanent injunction barring” them from serving as fiduciaries in the future is justified.
Kwasny, 2016 WL 558721, at *4.
IV.

CONCLUSION
For the reasons stated above, the Court grants the Secretary’s Motion for a default

judgment, judgment will be entered in his favor and against Defendants, and the Court will enter
an Order awarding the relief the Secretary seeks.
An Order consistent with this Memorandum will be docketed separately.

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