Opinion
CASE NO. C12-0101JLR
02-09-2014
EMPLOYEE PAINTERS' TRUST, et al., Plaintiffs, v. CASCADE COATINGS, et al., Defendants.
ORDER DENYING PLAINTIFFS'
MOTION FOR DEFAULT
JUDGMENT
I. INTRODUCTION
Before the court is Plaintiffs' motion for default judgment against Defendant Mark Schlatter pursuant to Federal Rule of Civil Procedure 55(b)(2). (Mot. (Dkt. # 68).) The court has considered the motion, Plaintiffs' supporting declarations (Read Decl. (Dkt. ## 68-1, 68-2), James Decl. (Dkt. # 68-3), Urban Decl. (Dkt. ## 68-5, 68-6)), and the applicable law, and DENIES Plaintiffs' motion WITHOUT PREJUDICE as stated below.
Plaintiffs include: the Employee Painters' Trust, the Western Washington Painters Defined Contribution Pension Trust, the District Counsel No. 5 Apprenticeship and Training Trust Fund, the Western Washington Painters Labor Management Cooperation Trust, the International Painters and Allied Trades Industry Pension Fund, and The International Union of Painters and Allied Trades District Counsel No. 5 (collectively "Plaintiffs").
II. BACKGROUND
A. Factual Background
This is an employer benefits contribution case governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. Among others, Plaintiffs have sued two "Cascade Coatings" entities: (1) Defendant Cascade Coatings, a partnership ("Cascade Partnership"), which is a partnership comprised of Defendants Walter James McLaughlin and Mark Stephen Schlatter (see Am. Compl. (Dkt. # 47) ¶ 4), and (2) Defendant Cascade Coatings, Mr. Schlatter's sole proprietorship ("Cascade Proprietorship") (see id. ¶ 5) (collectively "Cascade Coatings").
The dispute arises as a result of Cascade Coatings' alleged involvement as a subcontractor on the Seattle-Tacoma International Airport Modernization Project ("Airport Modernization Project"). A Project Labor Agreement ("PLA") governs work done on the Airport Modernization Project and requires contractors to adhere to collective bargaining agreements. (See Read Decl. Ex. A at 9.) In order to work on any part of the Airport Modernization Project, a contractor must sign a "Letter of Assent" agreeing to the terms and conditions of the PLA and collective bargaining agreements. (Id. Ex. A at 19.) The PLA and collective bargaining agreements require contractors to submit written reports and pay fringe benefit contributions to trusts benefitting local unionized construction workers. (See id. Ex. A at 11-12.)
Plaintiffs never make clear what part of the Airport Modernization Project Cascade Coatings worked on and whether this sub-project was covered by the Project Labor Agreement ("PLA"). (See 2d Am. Compl.) Although Plaintiffs refer to work on the "Port of Seattle Bus Maintenance Facility" in passing (see id. ¶ 16 ("Airport Modernization Project, aka Port of Seattle Bus Maintenance Facility")), and the audit report cites this same sub-project (see Read Decl. Ex. H), this sub-project is not described in the PLA as within the scope of the Airport Modernization Project. (See Read Decl. Ex. A at 6-7.) Furthermore, the record does not indicate that the Airport Modernization Project was expanded to include the Bus Maintenance Facility. (See Dkt.)
On September 12, 2011, a representative of Cascade Coatings allegedly executed a letter of assent agreeing to be bound by the terms of the PLA. (2d Am. Compl. ¶ 21.) Subsequently, Cascade Coatings submitted two monthly reports to the Employee Painters' Trust ("Painters' Trust") listing its employees who performed work covered by the PLA and the number of hours worked. (Read Decl. ¶ 24.) Cascade Coatings also paid fringe benefit contributions for these employees. (Id.) However, Cascade Coatings did not submit any subsequent reports or payments to the Trust. (See generally 2d Am. Compl.) Thereafter, Painters' Trust initiated this lawsuit because it believed Cascade Coatings to be in breach of its obligations to report and make contributions pursuant to the letter of assent, the PLA, underlying collective bargaining agreements, and ERISA. (Id.)
The record does not contain a copy of the letter of assent signed by Cascade Coatings. (See Dkt.)
There is a discrepancy in the record as to when these reports and payments were made. Mr. Read, who works as an administrator for the trusts, states in his declaration, "Mark Schlatter, under the trade name Cascade Coatings, submitted only two monthly reports to the Trust Funds, for the months of September and October 2011." (Read Decl. ¶ 24.) Conversely, Lindquist LLP, the firm who audited Cascade Coatings, states in its audit report, "[t]he Employer first and last reported to the Trust for hours worked in October 2011." (Read Decl. Ex. H at 146.)
B. Procedural Background
On January 18, 2012, Painters' Trust filed suit against Mr. Schlatter, his business partner Mr. McLaughlin, and their business partnership Cascade Partnership. (Compl. (Dkt. # 1) ¶ 4.) Painters' Trust did not originally sue Cascade Proprietorship. (See generally id.) Painters' Trust's complaint sought damages and injunctive relief for Defendants' alleged failure to make employee benefit contributions. (See Compl. ¶¶ 24-35.) On June 27, 2012, Painters' Trust filed an affidavit of proof of service, which attests to having served "Defendant Cascade Coatings" with a copy of the summons and complaint on April 17, 2012. (Aff. of Serv. (Dkt. # 8) at 1.) Later, in the joint status report filed on August 17, 2012, Painters' Trust implied that it had served Mr. Schlatter by stating, "[o]nly Walter James McLaughlin has not been served because he cannot be found." (See Joint Stat. Rep. (Dkt. 12) at 5.) There is no indication in the record that Mr. McLaughlin has ever been served. (See generally Dkt.)
After the Parties' joint status report, Plaintiffs amended their complaint twice. Initially, Painters' Trust amended its complaint on October 3, 2012. (Am. Compl. (Dkt. # 17).) The amended complaint named additional trust plaintiffs and additional defendants, including Cascade Proprietorship, the Port of Seattle, and various insurance companies. (Id. ¶ 5.) The amended complaint asserted bond claims against the new insurance company defendants and a common law unjust enrichment claim against the Port of Seattle. (See Am. Compl. ¶¶ 53-65.) Thereafter, Plaintiffs amended their first amended complaint on July 3, 2013. (See 2d Am. Compl.) Neither Mr. Schlatter, Cascade Proprietorship, nor Cascade Partnership has ever answered Plaintiffs' complaints. (See Dkt.)
Next, on August 27, 2013, Plaintiffs filed three motions for entry of default, one each against Mr. Schlatter, Cascade Proprietorship, and Cascade Partnership. (Dkt. ## 48-50.) The court denied these motions because Mr. Schlatter and Cascade Partnership were not properly served with Plaintiffs' first or second amended complaints. (See 9/30/13 Ord. (Dkt. # 51) at 9-10.) The court also ordered Plaintiffs to show cause why Cascade Proprietorship should not be dismissed for being an improperly named party in the suit. (Id.) In response to the court's show cause order, Plaintiffs filed notice of voluntary dismissal as to Cascade Proprietorship. (10/15/13 Not. (Dkt. # 53).)
Subsequently, on November 6, 2013, Plaintiffs filed a motion to dismiss many of their bond claims under Federal Rule of Civil Procedure 41(a)(2). (Mot. to Dismiss (Dkt. # 61).) Plaintiffs wished to dismiss these claims because they had settled with most insurance company defendants. The court granted this motion to dismiss on December 2, 2013. (12/2/13 Ord. (Dkt. # 67).)
Plaintiffs dismissed all of their bond claims except for those against Platte River Insurance Company. (See Mot. to Dismiss at 5-6.)
Buried within their motion to dismiss, Plaintiffs also mentioned their intention to dismiss Cascade Partnership and Mr. McLaughlin as defendants under Federal Rule of Civil Procedure 41(a)(1)(A)(i); however, Plaintiffs never provided formal notice to the court voluntarily dismissing the claims against these Defendants. (See, e.g., Mot. to Dismiss at 6 ("As to Coatings, a partnership [sic] and Walter James McLaughlin, these parties are being dismissed via FRCP 41(a)(1)(A)(i).").) Although Federal Rule of Civil Procedure 41(a)(1)(A)(i) allows plaintiffs to voluntarily dismiss an action without a court order, it requires "a notice of dismissal." Fed. R. Civ. P. 41(a)(1)(A)(i). Thus, Cascade Partnership and Mr. McLaughlin are still defendants.
While the federal rules do not explain what kind of notice is required under Federal Rule of Civil Procedure 41(a)(1)(A)(i), and notice in the form of a motion can be sufficient, the cases contemplate a formal motion inadvertently made under 41(a)(1)(A)(i), and not a single sentence tucked deep within some other motion as is the case here. See 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2363 (3d ed. 2013) ("The cases seem to make it clear that the notice is effective at the moment it is filed with the clerk . . . [and that] a notice in the form of a motion is sufficient . . . .") (citing Williams v. Clarke, 82 F.3d 270, 272 (8th Cir. 1996) (plaintiff's first motion to dismiss sought the permission of the court, but the court properly construed it as a notice of voluntary dismissal)).
Plaintiffs renewed their motion for default against Mr. Schlatter in early November. (See 11/6/13 Mot. for Def. (Dkt # 62).) This time, the court granted Plaintiffs' motion because they showed that Mr. Schlatter had been served with the summonses and complaints, and that he had never answered. (11/15/13 Ord. (Dkt. # 65); see generally Dkt.) The court has entered default only against Mr. Schlatter and not any other defendants. (See generally Dkt.)
Plaintiffs now seek a default judgment against Mr. Schlatter in accordance with Federal Rule of Civil Procedure 55(b). (See Mot.) Plaintiffs also ask the court to award damages against Mr. Schlatter for unpaid fringe benefit contributions, liquidated damages, interest, audit costs, and attorney's fees and costs. (Id. at 2.)
III. ANALYSIS
A. The Frow Rule Prohibits Default Judgment
As a threshold matter, it would be an abuse of discretion for this court to grant Plaintiffs' motion for default judgment because Plaintiffs allege the same claims against Mr. Schlatter and the non-defaulted jointly and severally liable co-defendants, Mr. McLaughlin and Cascade Partnership. Supreme Court and Ninth Circuit precedent prohibit default judgment where a default judgment against one defendant could be inconsistent with a judgment on the merits in favor of other defendants. See Frow v. De La Vega, 82 U.S. 552, 554 (1872); In re First T.D. & Inv., Inc., 253 F.3d 520, 532 (9th Cir. 2001).
Courts have discretion to enter default judgment as to fewer than all defendants. Fed. R. Civ. P. 54(b); Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 8 (1980). However, the general rule is that, "when one of several [jointly liable] defendants . . . defaults, judgment should not be entered against that defendant until the matter has been adjudicated with regard to all defendants, or all defendants have defaulted." 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2690 (3d ed. 2013) (citing Frow, 82 U.S. at 554). In setting out this rule, the Supreme Court warned against circumstances that could lead to logically inconsistent adjudications as to liability. Frow, 82 U.S. at 554 ("Such a state of things is unseemly and absurd, as well as unauthorized by law."). Thus, the rule focuses on whether a judgment on the merits in favor of some defendants could be inconsistent with a default judgment against a jointly liable defendant. Where Frow applies, it would be an abuse of discretion for the court to enter a default judgment against some but not all defendants prior to adjudicating the claims against the non-defaulted defendants. Gulf Coast Farms v. Midwest Elec. Imp., 740 F.2d 1499, 1511-12 (11th Cir. 1984).
Moreover, the Ninth Circuit has held that Frow is not limited to complaints asserting only joint liability, but extends to circumstances where the defendants have closely related defenses or are otherwise similarly situated. See First T.D., 253 F.3d at 532. In First T.D., the Ninth Circuit considered whether the trial court acted properly when it granted summary judgment in favor of 18 of 132 similarly situated investor-defendants on the question of whether defendants' interests were secured in a bankruptcy proceeding, but also granted a default judgment against 88 non-answering defendants. Id. at 525. The Court concluded that, because each individual defendant's transaction followed an identical pattern with almost identical legal documents, it would be inconsistent to allow recovery against defaulting defendants on a legal theory that had been rejected by the court as to the answering defendants. Id. at 532. Thus, in the Ninth Circuit, the similar nature of the claims, facts, and legal issues asserted in the complaint relative to each defendant is considered in addition to whether defendants are "jointly" liable.
Under Frow and First T.D., the court finds that it would be an abuse of discretion to grant Plaintiffs' motion for default against Mr. Schlatter when Plaintiffs allege the same claims against Cascade Partnership and Mr. McLaughlin, when Plaintiffs reference the same supporting facts, and when all three Defendants are jointly and severally liable. For instance, Plaintiffs' complaint states in relevant part:
Defendant Walter James McLaughlin ("McLaughlin") was and/or is a partner, officer and decision maker of [Cascade Partnership] . . . .(2d Am. Compl. ¶¶ 8-9, 27, 32, 46.)
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Defendant Mark Stephen Schlatter was and/or is a partner, officer, and decision maker of [Cascade Partnership] and the sole proprietor of [Cascade Proprietorship.]
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Defendants McLaughlin and Schlatter operated [Cascade Partnership] as a partnership.
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Defendant [Cascade Partnership] and/or [Cascade Proprietorship] breached the Labor Agreements by Failing to timely and properly submit reports and contributions to the Trusts.
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Defendants McLaughlin and/or Schlatter became personally bound, either as [Cascade Partnership's] partners and/or business officers or [Cascade Proprietorship's] sole proprietor and/or business officers, to the terms of the Labor Agreements collectively and or [sic] individually as the case may be.
Plaintiffs' complaint shows that any potential liability against Mr. Schlatter, Mr. McLaughlin, or Cascade Partnership is based on the same set of facts: signing the letter of assent and failing to submit reports and contributions to the trusts. The complaint also alleges the same breach of contract claim against the three Defendants, and alleges the same personal liability and breach of fiduciary duty claims against Mr. Schlatter and Mr. McLaughlin. (Id. ¶¶ 31-37, 45-52.) Mr. Schlatter and Mr. McLaughlin may also be personally liable for breaching the PLA because, as partners in Cascade Partnership, they are liable jointly and severally for all obligations of the partnership under Washington law. RCW 25.05.125. Based on these shared claims and facts, it is easy to imagine a situation where adjudication on the merits for Mr. McLaughlin or Cascade Partnership could be contrary to the default judgment against Mr. Schlatter. Although this situation is remote because Cascade Partnership has not answered Plaintiffs' complaints and Mr. McLaughlin has not been served, the potential is there. A default has not been entered against Cascade Partnership and Mr. McLaughlin, and they have not been properly dismissed from this case. Thus, the court finds that it is inappropriate to enter default judgment against Mr. Schlatter at this time. B. The Eitel Factors Weigh Against Granting Default Judgment
The court finds that the Eitel factors also weigh against granting default judgment. Courts may order default judgment after the entry of default pursuant to Federal Rule of Civil Procedure 55(b)(2), but entry of default judgment is left to the court's sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its discretion, the court considers seven factors (the "Eitel factors"): (1) the possibility of prejudice to the plaintiff if relief is denied; (2) the substantive merits of plaintiff's claims; (3) the sufficiency of the claims raised in the complaint; (4) the sum of money at stake; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy favoring decisions on the merits when reasonably possible. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
At the default judgment stage, the court presumes all well-pleaded factual allegations related to liability. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). The court, however, does not presume any factual allegations related to the amount of damages. Id. Thus, the plaintiff is required to prove all damages sought in the complaint, and the court must ensure that the amount of damages is reasonable and demonstrated by the evidence. Fed. R. Civ. P. 55(b); Fed. R. Civ. P. 8(b)(6); TeleVideo, 826 F.2d at 917-18. Also, "[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed. R. Civ. P. 54(c).
Default judgment is not warranted in this case. After weighing all of the Eitel factors, the court finds that the second, third, fourth, fifth, and seventh factors weigh against default judgment. Although the first and sixth factors favor default judgment, on balance, the factors do not support default judgment against Mr. Schlatter at this time.
1. Factors Weighing Against Default Judgment
The second, third, and fifth Eitel factors weigh against default judgment because Plaintiffs do not establish Mr. Schlatter's liability, and there could be a material factual dispute about whether he owes additional employer contributions. The second and third Eitel factors focus on the merits of the plaintiff's substantive claim and the sufficiency of the complaint. Eitel, 782 F.2d at 1471-72. Courts frequently examine these factors together, and the Ninth Circuit has suggested that they require a plaintiff to state a claim on which it may recover. Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978); accord PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d. 1172, 1175 (C.D. Cal. 2002). This requires establishing a prima facie case. Danning, 572 F.2d at 1388; see also Microsoft Corp. v. Lopez, No. C08-1743JCC, 2009 WL 959219, at *2 (W.D. Wash. Apr. 7, 2009).
Additionally, the fifth factor requires the court to consider whether there is any possibility of a material dispute as to the facts. Eitel, 782 F.2d at 1471-72. Although courts will accept as true all well-pleaded allegations regarding liability, necessary facts not contained in the pleadings and legally insufficient claims are not established by default. Danning, 572 F.2d at 1388. Thus, where pleadings are insufficient to establish liability, the possibility of a material factual dispute can also arise.
To show substantive merit, sufficient pleading, and no possibility of a material factual dispute, Plaintiffs must establish a prima facie case that Mr. Schlatter was required to pay fringe benefit contributions and that he breached these obligations. (See Read Decl. Ex. A at 11; 2d. Am. Compl. ¶¶ 32-33.) Plaintiffs' claim is for a violation of ERISA § 515, which requires "every employer who is obligated to make contributions to a multiemployer plan . . . [to] make [them] in accordance with the terms and conditions of such plan or agreement." 29 U.S.C. § 1145; see also 29 U.S.C. § 1132(a)(3) (establishing a trust's right to sue to enforce the terms of multiemployer plans). In order to successfully assert this claim, Plaintiffs must prove: (1) that they are multiemployer trusts; (2) that the PLA, letter of assent, and collective bargaining agreement obligated Mr. Schlatter to make employee benefit contributions; and (3) that Mr. Schlatter failed to make contribution payments. See Bd. of Trs. of the Sheet Metal Workers Health Care Plan of N. Cal. v. Gervasio Envtl. Sys., No. C03-04858, 2004 WL 1465719, at *2 (N.D. Cal. May 21, 2004) (stating the elements of a § 515 claim).
Although Plaintiffs' complaint and motion for default judgment contain some relevant facts, they do not establish a prima facie case against Mr. Schlatter. Plaintiffs' complaint and motion for default judgment establish: (1) that Plaintiffs are multiemployer trusts (Read Decl. ¶ 10); (2) that Mr. Schlatter signed a letter of assent obligating him to adhere to the PLA (2d. Am. Compl. ¶ 21); (3) that the PLA obligates Mr. Schlatter to pay employer contributions for employee work done on a PLA-covered project (Read Decl. Ex. A); (4) that Mr. Schlatter sent the trust administrators reports and contributions for two months ending in October 2011 (Mot. at 4); and (5) that Mr. Schlatter did not submit reports and contribution payments thereafter nor did he submit to an audit of his employment records (id.). These facts do not establish liability as to whether Mr. Schlatter owes additional employee contributions because they do not establish whether he was obligated to continue reporting to the trusts or obligated to pay contributions after October 2011. Despite Plaintiffs' bald assertion that "the Trusts have confirmed that [Cascade Partnership] and/or [Cascade Proprietorship] provided labor to the Project and have failed to fully or properly report labor and pay contributions to the Trusts" (2d Am. Compl. ¶ 34), the court cannot determine whether Mr. Schlatter is liable for unpaid contributions without any information in the record about the scope of Mr. Schlatter's project under the PLA, the number of his employees dedicated to the PLA project, the identity of these employees, and the number of months his employees worked on the project. These material facts are missing from the record, they are necessary to establish a prima facie case, and they could be disputed.
Plaintiffs' audit report, submitted with their motion for default, does not supply the missing facts. The audit report explains that to determine the alleged amount of Mr. Schlatter's unpaid employer contributions, auditors "compared the hours reported to the Trust to the hours listed in the Washington State Department of Labor and Industries audit report [and] . . . summarized the findings and calculated the liquidated damages and interest due to the Fund, as per the Trust Agreement." (Read Decl. Ex. H at 145.) However, the audit report does not explain how the auditors determined that the employees listed actually worked for Mr. Schlatter on the PLA project. (See Read Decl. Ex. H. at 148-49.) Because there is no connection between the employees listed and the PLA project, key factual information regarding liability is missing. Plaintiffs have not adequately pleaded their unpaid contribution claim and therefore the second, third, and fifth Eitel factors weigh against default.
The fourth Eitel factor, the sum of money at stake, also weighs against granting Plaintiffs' motion. In general, default judgment is disfavored if there are large sums of money involved. Eitel, 782 F.2d at 1472. This factor "balances the amount of money at stake in relation to the seriousness of the [d]efendant's conduct." PepsiCo, 238 F. Supp. 2d at 1175. Thus, when the amount of money is unreasonable in light of the potential loss caused by the defendant's actions, the factor weighs against default judgment. Truong Giang Corp. v. Twinstar Tea Corp., No. 06-CV-03594, 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007). Here, Plaintiffs ask for $19,345.51 in delinquent fringe benefits contributions, $2,396.12 in liquidated damages, at least $4,060.96 in interest, $1,403.00 in audit fees, and $49,711.04 in attorney's fees and costs. (See Mot. at 15.) This amounts to almost $77,000.00 in damages. Plaintiffs themselves characterize this amount as "a large sum of money." (Mot. at 12.) Although ERISA authorizes such an award (see 29 U.S.C. § 1132(g)(2)), and it is within the range awarded by other courts in ERISA unpaid contribution cases, the problems with the substantive merits of Plaintiffs' claims and the potential for material factual disputes renders such a large award unreasonable. See Eitel, 782 F.2d at 1472 (stating that a substantial judgment, considered in light of the parties' dispute as to material facts, supported the court's decision not to grant default judgment); accord Truong, 2007 WL 1545173, at *12 (finding that the factor weighed against default because the sum sought was unsupported by evidence in the record). Also, as addressed below, the court finds that the amount of attorney's fees requested is considerably inflated compared to what ERISA authorizes; this fact also weighs against the reasonableness of the damages sought. The court thus finds that the fourth Eitel factor weighs against default.
In other § 515 employer contribution cases, courts in this circuit have awarded default judgments for unpaid contributions, liquidated damages, interest, and attorneys fees in amounts ranging from $24,000.00 to almost $190,000.00. Compare Wine v. Winifred Elec. Inc., No. CV-09-638-PHX-DGC, 2009 WL 1942887, at *2 (D. Ariz. July 2, 2009), with Bd. of Trs. of V.A. Local No. 159 Health and Welfare Trust Fund v. RT/DT, Inc., No. C12-0511JSW, 2013 WL 2237871, at *10 (N.D. Cal. May 21, 2013).
The seventh Eitel factor, the policy favoring decisions on the merits, also weighs against granting Plaintiffs' motion. The seventh factor reflects the general principle that cases should be decided on their merits whenever reasonably possible. See Pena v. Seguros La Commercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985). This factor almost always weighs strongly against default judgment, although it is not dispositive. See, e.g., Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039, 1061 (N.D. Cal. 2010) (factor not dispositive where a defendant fails to appear or defend itself in the action and the other factors favor granting the motion); Phillip Morris USA, Inc., v. Castworld Prods., Inc., 219 F.R.D. 494, 501 (C.D. Cal. 2003) (noting "the mere existence of Fed. R. Civ. P. 55(b) indicates that [the seventh] Eitel factor is not alone dispositive"). Here, other factors favor not granting default judgment, and thus, the court finds that this factor weighs against granting Plaintiffs' motion.
2. Factors Favoring Default Judgment
Only two Eitel factors favor default judgment—the first and the sixth. The first Eitel factor is the possibility of prejudice to the plaintiff if relief is denied. On a motion for default judgment, "prejudice" exists where the plaintiff has no "recourse for recovery" other than default judgment. Philip Morris, 219 F.R.D. at 499. In evaluating this factor, the court must look at whether, if default judgment is denied, the plaintiff would be deprived of a remedy until such time as the defendant chooses to participate. See, e.g., Craigslist, 694 F. Supp. 2d. at 1061 ("[W]here a defendant's failure to appear makes a decision on the merits impracticable, if not impossible, entry of default judgment is warranted.").
Here, Plaintiffs are likely to be prejudiced because default judgment is their only recourse to recover from Mr. Schlatter. Plaintiffs have already spent a significant amount of time litigating this matter, Mr. Schlatter has not responded to any of their three complaints (see Dkt.), and Mr. Schlatter's counsel has withdrawn from the case (see 11/15/13 Ord. (Dkt. # 65).) It is doubtful that Mr. Schlatter will ever participate in the litigation, which makes a judgment on the merits impracticable. The court notes, however, that any prejudice to Plaintiffs is mitigated by the fact that the court is denying Plaintiffs' motion for default judgment without prejudice. Nevertheless, the first factor supports entry of default judgment.
The sixth factor, whether the entry of default is due to excusable neglect, also favors entry of default judgment. In other contexts, "excusable neglect" has been defined by its constituent parts. See Briones v. Riviera Hotel & Casino, 116 F.3d 379, 381 (1997). Neglect "has its normal, expected meaning, i.e., negligence, carelessness, inadvertent mistake." Id. Courts determine whether neglect is excusable using four factors based on equitable principles: "(1) danger of prejudice . . . , (2) the length of the delay and its potential impact on judicial proceedings, (3) the reason for the delay, including whether it was within the reasonable control of the movant, and (4) whether the movant acted in good faith." Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993). In the default judgment context, there is no excusable neglect where a defendant is "properly served with the Complaint, the notice of entry of default, [and] papers in support of the [default judgment] motion." Shanghai Automation Instrument Co., Ltd. v. Kuei, 194 F. Supp. 2d 995, 1005 (N.D. Cal. 2001). Further, "the possibility of excusable neglect is remote" where a defendant participated early in a case, but later stopped participating. PepsiCo, 238 F. Supp. 2d. at 1177.
There is no indication of excusable neglect in this case. The entry of default against Mr. Schlatter was due to his failure to respond to any of Plaintiffs' complaints despite pre-litigation contact and his counsel's appearance in the action. (See 11/15/13 Ord. (Dkt. # 64) at 2.) Mr. Schlatter was served with the second amended complaint on September 20, 2013 (see Cert. of Serv. (Dkt. # 52)), and he failed to timely answer this or any other complaint. (See generally Dkt.) Mr. Schlatter had notice and opportunity to appear in this litigation before Plaintiffs moved for default judgment; he did not do so. Thus, the court finds that there is no excusable neglect and this factor supports default.
On balance, the Eitel factors do not support default judgment at this time. Plaintiffs have failed to allege a prima facie case against Mr. Schlatter under ERISA § 515, there is a possibility of material factual disputes, and the amount of damages requested is unreasonable. These factors outweigh the possible prejudice to Plaintiffs' and outweigh the fact that Mr. Schlatter's default was not due to excusable neglect. Accordingly, the court DENIES Plaintiffs' motion for default judgment.
C. Plaintiffs Have Not Substantiated Their Damages Claims
While not an independent basis for denying Plaintiffs' motion, the court notes that Plaintiffs have not properly substantiated their damages as required by the Federal Rules of Civil Procedure and this court's Local Rules. See Fed. R. Civ. P. 55; Local Rules W.D. Wash. LCR 55(b)(2)(A). The court finds deficiencies in the amounts Plaintiffs claim for unpaid employer contributions, interest, liquidated damages, and attorney's fees.
Generally, default judgment is a two step process: first, the court determines that a default judgment should be entered; then, it determines the amount and character of the recovery that should be awarded. TeleVideo, 826 F.2d at 915. The court must ensure that the amount of damages is reasonable and demonstrated by the evidence, and the court may rely on the declarations submitted by the plaintiff or order a full evidentiary hearing to make its determination. Fed. R. Civ. P. 55(b); TeleVideo, 826 F.2d at 917-18; Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977); see also Fed. R. Civ. P. 8(b)(6) ("An allegation—other than one relating to the amount of damages—is admitted if a responsive pleading is required and the allegation is not denied."). Additionally, this court's Local Rules require Plaintiffs to provide:
a concise explanation of how all amounts were calculated, and shall support this explanation with evidence establishing the entitlement to and amount of the principal claim, and, if applicable, any liquidated damages, interest, attorney's fees, or other amounts sought. If the claim is based on a contract, plaintiff shall provide the court with a copy of the contract and cite the relevant provisions.Local Rules W.D. Wash. LCR 55(b)(2)(A). Here, Plaintiffs fail to provide the requisite evidence to establish their damages claims because they either: (1) do not demonstrate that they are legally entitled to the amounts requested or (2) do not provide a concise explanation of how the amounts were calculated.
1. Employer Contribution Amount
First, as discussed previously, Plaintiffs do not prove that Mr. Schlatter owes them unpaid employer contributions, let alone prove the amount of these contributions. Although Plaintiffs' audit report contains both a summary of the total unpaid employer contributions and unpaid employer contributions by employee, it does not contain any information demonstrating that these employees actually worked on the project covered by the PLA. (Read Decl. Ex. H. at 147-49.) Also, the audit does not give any information as to the rates the auditors used to determine the appropriate employer contribution levels for the various trusts. Without this information, the court cannot evaluate the reasonableness of the unpaid contribution damages amount because it cannot determine whether the amount was calculated using the proper rates. (Id.)
2. Interest and Liquidated Damages
Plaintiffs also do not provide adequate information to substantiate their liquidated damages or interest claims. ERISA states in relevant part, "the court shall award the plan . . . (B) interest on unpaid contributions, [and] (C) an amount equal to the greater of— (i) interest on the unpaid contributions, or (ii) liquidated damages provided for under the plan in an amount not in excess of 20 percent (or such higher percentage as may be permitted under Federal or State law) of the [unpaid employer contributions] . . . ." 29 U.S.C. §§ 1132(g)(2)(B)-(C). The statute awards both interest and liquidated damages to parties who obtain judgments in favor of trusts. See Plumbers & Pipefitters Nat. Pension Fund v. Eldridge, 232 Fed. App'x 680, 683 (9th Cir. 2007).
Here, most of the underlying trust agreements state that interest on unpaid employer contributions is 12 percent per annum. (See Read Decl. ¶ 25.) However, one trust agreement states that interest should be calculated at the rate established under 26 U.S.C. § 6621 for the underpayment of taxes. (Id.) This code provision sets interest at the sum of the federal short-term rate plus three percentage points. 26 U.S.C. § 6621(a)(2). Plaintiffs do not state the interest rate they used for this rate calculation; they merely provide a total interest amount for the combined underpayments to the trusts, and therefore, the court does not have enough information to determine whether interest is reasonable and calculated using the proper rates.
Plaintiffs also ask the court to increase the interest award by $4.92/day but do not provide any information as to how they arrived at this per diem amount. (Mot. at 15 n. 3.)
Additionally, ERISA awards liquidated damages in the amount that is equal to the greater of either interest or liquidated damages designated by the trust agreement. Here, Plaintiffs improperly ask for liquidated damages in the amount designated by the trust agreements, when the statute requires liquidated damages equal to the interest, because it is the greater number. 29 U.S.C. § 1132(g)(2)(C); see Morarty ex rel. Local Union No. 727 v. SVEC, 429 F.3d 710, 721 (7th Cir. 2005) (upholding a double interest award); accord Board of Tr. of Laborers Health and Welfare Trust Fund for N. Cal. v. Shade Const. and Eng'g, No. 06-6830 PJH, 2007 WL 3071003, at *6 (N.D. Cal. Oct. 19, 2007) (awarding double interest under 29 U.S.C §§ 1132(g)(2)(B)-(C)).
3. Attorney's Fees
Finally, Plaintiffs miscalculate their requested attorney's fees and costs. Although ERISA requires courts to award attorney's fees and costs when a trust obtains a judgment against a defendant on an employer contribution claim, the attorney's fees and costs awarded are limited to those incurred from obtaining that specific judgment. 29 U.S.C. § 1132(g)(2)(D). ERISA states, "In any action under this subchapter . . . to enforce section 1145 of this title in which a judgment in favor of the plan is awarded, the court shall award the plan . . . reasonable attorney's fees and costs of the action, to be paid by the defendant." Id. If the court granted default judgment in favor of Plaintiffs and against Mr. Schlatter, Plaintiffs would be entitled to reasonable attorney's fees associated with the judgment on their § 1145 claim. However, Plaintiffs would not be entitled to attorney's fees for their claims against other defendants not brought under ERISA to enforce § 1145. Specifically, Plaintiffs are not entitled to attorney's fees under § 1132(g)(2)(D) for their state law bond claims against insurance company defendants or for their common law unjust enrichment claim against the Port of Seattle. Thus, Plaintiffs overstate the amount of attorney's fees and costs they should be awarded because they improperly seek attorney's fees and costs for the entire cost of pursuing this litigation, not just for those fees and costs incurred from pursuing their § 1145 claim against Mr. Schlatter.
Numerous entries in the Plaintiffs' attorneys' declarations and supporting documents suggest that they are seeking attorney's fees equal to the total cost of the litigation. (See, e.g., James Decl. at 8 ("Telephone call to Yuser [sic] regarding Bond Claims; telephone call to Washington Attorney regarding Bond Claims; meeting with Gia regarding bond claims . . . Research RCW 18.27.040 regarding Proceeding against Bond In Federal Court"); Urban Decl. Ex. A. at 4 ("Review RCW bond provisions related to Trust bond claim.").)
IV. CONCLUSION
For the foregoing reasons, the court DENIES Plaintiffs' motion for default judgment against Mr. Schlatter (Dkt. # 68) WITHOUT PREJUDICE. If Plaintiffs wish to re-file for default judgment against Mr. Schlatter they must correct the deficiencies identified in this order and so move within 60 days of the date of this order.
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JAMES L. ROBART
United States District Judge