Opinion
No. 01 Civ. 5195 (RLC).
July 28, 2004
GORLICK, KRAVITZ LISTHAUS, P.C., Attorney for Plaintiffs, New York, NY, Lawrence A. Kravitz, of Counsel.
COREN BRAUN, P.C., Attorney for Defendants, New York, New York, Steven M. Coren of Counsel.
OPINION
The plaintiffs, Mason Tenders District Council Welfare Fund, Pension Fund, Annuity Fund, Training Program Fund, New York State Laborers-Employers Cooperation and Education Trust Fund, New York Laborers Health and Safety Trust Fund and Building Contractors Association Industry Advancement Program, and John J. Virga, in his fiduciary capacity as Director, ("FUNDS"), and Anthony Silveri, as Business Manager of the Mason Tenders District Council of Greater New York ("UNION"), now move for a default judgment to be entered against the defendants, Van San Construction Corporation ("Van San"), and the president of Van San, Peter D'Agostino, in his individual capacity ordering the defendant corporation to cooperate with an audit of pertinent financial papers and to pay all outstanding funds owed plaintiffs under Employee Retirement Income Security Act, 29 U.S.C. § 1132(a)(3), 1145 ("ERISA") and section 301 of the Labor-Management Relations Act of 1947, 29 U.S.C. § 185 ("Taft-Hartley Act") and under the terms of two overlapping collective bargaining agreements ("CBA") entered into by the parties. The first CBA covered the years 1996 to 1999 ("1999 CBA"), while the second CBA covered 1996 to 2000 ("2000 CBA").
The defendant Van San is a general constructor principally based in New York City that performed, although was not limited to, demolition, excavation, and site-work. D'Agostino Aff. at ¶ 4. In or around April, 1999, Van San entered into a subcontract for work at Bellevue Hospital. It was estimated that the project would take approximately one month to complete. Id at ¶ 5. On or about Friday, May 14, 1999, with approximately one week remaining to complete its work, Van San was approached by representatives from Mason Tenders District Council ("Mason Tenders"). The Mason Tenders representatives demanded that Van San sign a CBA, threatening to "shut the job down on Monday" unless an agreement was signed by Van San. Id at ¶ 6. For reasons unclear to the defendants, two CBAs were signed (one covering 1996-1999, while the other covered 1996-2000). Despite defendant D'Agostino's stated desire to delay signing the CBAs until the following Monday, May 17th, D'Agostino signed both CBAs on May 14, 1999 at the union's insistence. Id at ¶ 7.
Plaintiffs seek, inter alia, recovery for fringe benefit contributions and unremitted dues checkoffs and Political Action Committee contributions deducted from wages paid to employees who authorized said deductions in writing. Elfenbein Aff. at ¶ 5. Defendants oppose motion for default judgment against Van San and move to dismiss the action against defendant D'Agostino in his individual capacity.
The basic issue before the court is whether defendants' failure to respond within a timely fashion as required under the Federal Rules of Civil Procedure governing service of process constitute excusable neglect as defined by Rule 55(c).
BACKGROUND
The plaintiffs commenced this action on June 11, 2001 by the filing of a summons and complaint. (Mem. in Supp. of Default J. at 1). Proofs of service were filed on July 6, 2001. Id at 2. The defendants failed to plead or otherwise defend against the complaint, and in accordance with the Fed.R.Civ.P. 55(a) defaults were entered against Van San and against D'Agostino, in his individual capacity. On June 25, 2003, plaintiffs moved for the entry of default judgments. Id. On July 14, 2003, the defendants filed a motion to set aside the default judgments against Van San and in his individual capacity under Fed.R.Civ.Pro. 55(c).
Plaintiffs seek an audit to verify the actual amount owed by the defendants under the relevant statutes and the CBAs. The defendants argue that the delinquency in filing their papers in a timely fashion resulted from a mistaken belief that a settlement was imminent, and that they should be allowed to argue their case on the merits. The defense claims that the benefits that they were required to pay under ERISA, Taft-Hartley, and the CBAs were in fact paid, however, those payments were paid out to the wrong fund. They have stated to the court a willingness to transfer funds owed to plaintiffs to the proper account. D'Agostino Aff. at ¶ 14.
Rule 55(c) Motion to Set Aside Default
Defendants request that the default judgments be set aside on the grounds that the plaintiffs and defendants were engaged in settlement negotiations and that the parties had agreed amongst themselves to extend the reply date established by the court. Id at ¶ 16. Fed.R.Civ.P. Rule 55(c) allows the defendants to have default judgments set aside, when their defaults are neither dilatory nor willful. Though generally, default judgments are disfavored, because of the strong preference for resolving matters on their merits, the Second Circuit has determined in a long line of cases that the district court is in the best position to evaluate the specific circumstances of a given case, including the credibility and good faith of the parties, to determine whether a default judgment should be entered. Enron Oil Corp. v. Diakuhara, 10 F.3d 90 (2d Cir. 1993); Powerserve International, Inc. v. Lavi, 239 3d 508 (2d Cir. 2001).
Whether to set aside a default is governed by the following three factors: (1) whether the default was willful; (2) whether setting aside the default would prejudice the non-defaulting party; and (3) whether there is a meritorious defense. See Enron, 10 F.3d at 96. ("Courts have an interest in expediting litigation [and] abuses of process may be prevented by enforcing those defaults that arise from egregious or deliberate conduct." Am. Alliance Ins. Co. Ltd. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996).) Ultimately the decision whether to set aside a default judgment is left to the sound discretion of the district court. Enron, 10 F.3d at 95.
In the present case the defaulting parties has not shown a sufficient reason for their failure to file a timely defense. At no time did the defendants request the court to extend the return date for defendants' response, nor was the court notified of any arrangement between the parties to extend the date and so order the agreed upon date. Plaintiffs submitted a proposed default judgment in June, 2003, which the defendants opposed on the grounds that the defaults were not willful, that in fact, the defendants believed that the case was on the verge of being settled and that it had a meritorious defense. Id.
The mere fact that the defendants believed the parties were nearing settlement does not excuse their obligation to respond to the complaint on or before the required deadline. The inordinate delay in moving to set aside the default further undermines the defendants' position. The default was entered in June, 2001, and, the defendants did not file the instant motion until July, 2003. Even though the parties were engaged in settlement negotiations and defendants believed that a settlement was imminent, they were required to file timely the necessary pleadings or petition for an extension, which they failed to do. The plaintiffs ultimately withdrew from settlement negotiations, as was their right, and plaintiffs' withdrawal from the settlement table does not excuse the defendants from the requirement to submit all papers within the deadline.
As to the underlying claim the defendant Van San has not presented a meritorious defense. It is conceded that benefits owed had not been paid to the proper funds. D'Agostino Aff. at ¶ 14. Accordingly, default judgment is entered against Van San. No case is made for defendant D'Agosotino's personal liability, therefore the default judgment is set aside against him and his case is considered on the merits.
Claim of Meritorious Defense
In Cement and Concrete Workers District Council Welfare Fund v. Lollo, 35 F.3d 29 (2d Cir. 1994) the Second Circuit used a five factor test to determine whether the signatory of a CBA intended to be bound personally by the contract: (1) the length of the contract, (2) the location of the liability provision in relation to the signature line, (3) the presence of the signatory's name in the agreement itself, (4) the nature of the negotiations leading to the contract, and (5) the signatory's role in the corporation. Id at 35.
In Lollo the contract at issue was a 55 page pre-printed single-spaced, form contract. Id. The personal liability provision appeared on the page preceding the signature page and was not distinguished from the other text in any way. Id. The president of the corporation was held personally liable because the provision attaching personal liability appeared prominently above the signature line and had been expressly negotiated by the parties. In contrast, the vice-president in Lollo, was not found to be responsible in his individual capacity. His name appeared handwritten beneath the vice president's signature and was not mentioned in the personal liability provision. Id. There were no negotiations prior to the signing of the contract regarding the personal liability provision, and the signatory was a vice-president of the company and one-third owner.
As compared to Lollo, there is strong evidence in this case favoring defendant's assertion that there is no legal basis for him to be personally liable. The 1999 contract was a 24 page, single-spaced form contract — significantly shorter than the 55-page contract in Lollo, but also single-spaced and boilerplate. The 42 page 2000 CBA was also a single-spaced form contract. The length of the contract is not determinative per se, but should be considered in conjunction with the fact that both contracts were set in single-spaced text and were form contracts.
Where the liability provision appears on the same page as the signatory line there is a presumption that the signatory had adequate notice of his personal liability. See id at 35. In both CBAs the personal liability provision is located solely in the "whereof clauses. In the 2000 agreement the personal liability provision appears three pages before the signature page, and in the 1999 CBA, the personal liability provision appears six pages before the signature page. Ex. C at 38; Ex. B at 16.
The current case is distinguished from Lollo because D'Agostino's name does not appear in the text of either agreement, nor in the personal liability provision, therefore no presumption exists that the defendant should have been on notice that his signature as a representative for Van San Construction would also bind him personally. D'Agostino Aff. at ¶ 8, 9. Without a separate signature line, the defendant presumed that his signature was being given in his official capacity. D'Agostino Aff. at ¶ 10; (Ex. B pg 22). Furthermore the parties did not negotiate defendant D'Agostino's personal liability in either the 2000 CBA or the 1999 CBA. Id; see Turtle v. Hughes, 1996 WL 384895 at *3 (SDNY).
In fact the text under his signature line reads "Company Officer Signature" in 1999 CBA; Text under 2000 CBA signature line reads, simply, "Signature." Ex. B at 22; Ex. C at 41.
While the four prior factors of the five-part test disfavor holding the defendant personally liable, the fifth prong weights in favor of finding defendant liable. Defendant D'Agostino is president and sole shareholder of Van San, Inc and occupies a significantly more important role in the corporation than the defendant in Lollo, who served as vice-president of the corporation and held one-third of the shares of the company. D'Agostino Aff. at ¶ 1. As president, D'Agostino is the highest-ranking official in the corporation, and as sole owner may contractually bind the corporation. In Mason Tenders District Council Welfare Fund v. Masucci, 1997 WL 334962 (S.D.N.Y) the court noted that the defendant's position as vice-president and his ownership of a third of the company supported a determination that he be held personally liable. Though D'Agostino clearly holds a more influential position in the corporation than the defendant in Masucci, the evidence considered in connection with the other four determining factors weighs against holding the defendant liable in his individual capacity. The Second Circuit held in Lollo that the signatory is liable where the provision expressly stated that signatory was signing in a dual capacity on behalf of himself and the employer and "unequivocally fixe[d] personal liability on the signatory line and [was] prominently displayed immediately above the signatory line." Lollo, 35 F.3d at 35.
The mere fact of D'Agostino's position as president of the corporation is not sufficient to hold him personally liable under the two CBAs. Lollo grounds its decision on the weight of all the factors, namely, (1) the defendant's official role in the corporation, (2) that the provision was expressly negotiated for, (3) the prominence of the provision in the contract, (4) that defendant's name appeared in the text of the contract and, (5) its proximity to the signature line. Without additional evidence establishing that defendant was or should have been aware that his signature personally bound him to either CBA, the court declines to hold the defendant D'Agostino personally liable.
Default judgment is entered against defendant Van San Corporation. Default against defendant D'Agostino is set aside and the claim against him is dismissed on the merits. Plaintiffs are to submit revised default judgment against Defendant Van San only by Friday, August 13, 2004. At which time the court will enter default judgment ordering Defendant Van San to transfer the funds owed to the proper account as requested by plaintiffs.