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Trustees of the Leather Goods, Handbags, and Novelty Workers' Union Local 1 Joint Retirement Fund v. New York Sewing Machine, Inc.

United States District Court, E.D. New York

September 19, 2019

TRUSTEES OF THE LEATHER GOODS, HANDBAGS, AND NOVELTY WORKERS' UNION LOCAL 1 JOINT RETIREMENT FUND, Plaintiff,
v.
NEW YORK SEWING MACHINE, INC.; JOHN AND JANE DOES (1-10); and XYZ CORPORATION (1-10), Defendants.

          REPORT & RECOMMENDATION

          LOIS BLOOM, UNITED STATES MAGISTRATE JUDGE.

         Plaintiff, the Trustees of the Leather Goods, Handbags, and Novelty Workers' Union Local 1 Joint Retirement Fund (the “Fund”), brings this civil action against defendants New York Sewing Machine, Inc. (“New York Sewing”), John and Jane Does (1-10), and XYZ Corporations (1-10)[1]under the Employee Retirement Income Security Act (“ERISA”) as amended to recover withdrawal liability arising out of a mass withdrawal termination of the Fund. Complaint (“Compl.”) ¶ 1, ECF No. 1. Pursuant to Rule 55(b)(2) of the Federal Rules of Civil Procedure, plaintiff moves for entry of a default judgment solely against defendant New York Sewing for a total amount of $949, 972.79, including withdrawal liability, accrued interest, liquidated damages, attorneys' fees, and costs. Mot. Default J. 1, ECF No. 8. The Honorable Margo K. Brodie referred plaintiff's default judgment motion to me for a Report and Recommendation in accordance with 28 U.S.C. § 636(b). Electronic Order 5/3/2019; Electronic Order 6/25/2019. For the reasons set forth below, it is respectfully recommended that plaintiff's motion for a default judgment should be granted in part and denied in part, and that plaintiff should be awarded $782, 948 in outstanding withdrawal liability, $4, 765 in fees, $70, 658.38 in interest accrued through April 30, 2019, plus pre-judgment interest at a rate of $64.35 per day, as well as liquidated damages in an amount equal to the final interest calculation. To the extent that plaintiff wishes to supplement the record as described in Sections II. D and E, plaintiff shall file any additional information to further support the requested fees and costs within fourteen (14) days of this Report and Recommendation.

         BACKGROUND

         ERISA is a comprehensive statutory regime that regulates employee retirement plans, Trs. of Local 138 Pension Tr. Fund v. F.W. Honerkamp Co. Inc., 692 F.3d 127, 128-29 (2d Cir. 2012) (citing ERISA § 2 et seq., 29 U.S.C. § 1001 et seq.), including the retirement plan at issue in this case. ERISA was designed, inter alia, to “ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds have been accumulated in the plans.” Id. at 129. Multiemployer pension plans are one type of plan regulated by ERISA where several employers “pool contributions into a single fund that pays benefits to covered retirees… for one or more contributing employers.” Id. To address risks related to widespread employer withdrawals from these multiemployer plans, Congress passed the Multiemployer Pension Plan Amendments Act of 1980 (the “MPPAA”), which amended ERISA to “force withdrawing employers to internalize the costs associated with their withdrawal” and to “require[e] an employer that withdraws from a multiemployer plan to pay its ‘proportionate share of the pension plan's unfunded vested benefits,' known as ‘withdrawal liability.'” UFCW Local 174 Pension Fund v. 5600 Mkt. Corp., No. 17-CV-5789 (CBA)(CLP), 2018 WL 4403394, at *5 (E.D.N.Y. Aug. 16, 2018), report and recommendation adopted as modified, 2018 WL 4388452 (E.D.N.Y. Sept. 14, 2018) (citations omitted); see also Trs. of Local 138 Pension Tr. Fund, 692 F.3d at 129-30. A plan may experience a “mass withdrawal” resulting in mass withdrawal liability. A mass withdrawal means: “‘(1) [t]he withdrawal of every employer from the plan, (2) [t]he cessation of the obligation of all employers to contribute under the plan, or (3) [t]he withdrawal of substantially all employers pursuant to an agreement or arrangement to withdraw.'” UFCW Local 174 Pension Fund, 2018 WL 4403394, at *2 n.5 (quoting 29 C.F.R. § 4001.2). Mass. withdrawal liability is “simply an extension of withdrawal liability, ” but entails additional procedures and a modified method for calculating an employer's liability. Id. at *6.

         Here, the Fund is a multiemployer benefit plan within the meaning of ERISA that is administered in Mineola, New York, within the Eastern District of New York. Compl. ¶¶ 5-6.[2]The Leather Goods, Handbags, and Novelty Workers' Union Local 1 and New York Sewing, a for-profit corporation with its principal place of business in North Bergen, New Jersey, were parties to a collective bargaining agreement (the “CBA”), under which plaintiff was a third-party beneficiary and which required New York Sewing to remit contributions to the Fund on behalf of employees covered by the CBA. Compl. ¶¶ 12, 8. As of December 31, 2013, the Fund experienced a mass withdrawal termination within the meaning of ERISA and its accompanying regulations. Compl. ¶ 13 (citing 29 U.S.C. § 1341A(a)(2) and 29 C.F.R. § 4001.2). As a result, New York Sewing and all contributing employers ceased to have an obligation to contribute to the Fund and became obligated to pay withdrawal liability. Compl. ¶ 14 (citing 29 U.S.C. § 1383(a) and 29 C.F.R. §§ 4219.11, 4219.12).

         By certified letters dated May 28, 2014, and January 29, 2016, the Fund notified New York Sewing of its withdrawal liability obligations, providing the Fund's calculations and a quarterly payment schedule. Compl. ¶¶ 15-16; see also Compl. Ex. A, ECF No. 1-1; Compl. Ex. B, ECF No. 1-2. Having not received the quarterly payments that were due, the Fund notified New York Sewing, by certified letter dated December 7, 2018, that defendant was in default of its withdrawal liability obligations and offered defendant an opportunity to cure the default. Compl. ¶¶ 17-18; see also Compl. Ex. C, ECF No. 1-3. Having still not received payment, the Fund notified New York Sewing, by certified letter dated February 22, 2019, that it remained in default and demanded immediate payment of the outstanding withdrawal liability amount plus accrued interest. Compl. ¶ 19; see also Compl. Ex. D, ECF No. 1-4. New York Sewing did not remit the withdrawal liability assessed by the Fund and failed to initiate arbitration proceedings to contest its liability. Compl. ¶¶ 20-21.

         PROCEDURAL HISTORY

         Plaintiff commenced this action on March 26, 2019, ECF No. 1, and served the summons and complaint on New York Sewing the next day. Aff. of Service, ECF No. 5. After New York Sewing failed to appear or otherwise defend this action, plaintiff requested a certificate of default, which was entered by the Clerk of Court on April 24, 2019. Request for Certificate of Default, ECF No. 6; Certificate of Default, ECF No. 7; see also Fed.R.Civ.P. 55(a). Plaintiff filed the instant motion for a default judgment on April 30, 2019, and simultaneously filed proof of service of the motion and all supporting papers upon New York Sewing's last known business address pursuant to Local Civil Rule 55.2. Certificate of Service, ECF No. 8-15.[3] Despite proper service of the summons and complaint, [4] defendant has failed to plead or otherwise defend this action.

         DISCUSSION

         To obtain a default judgment under Rule 55 of the Federal Rules of Civil Procedure, a party must complete a two-step process. Rodriguez v. Almighty Cleaning, Inc., 784 F.Supp.2d 114, 123 (E.D.N.Y. 2011). First, “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Second, after the Clerk's entry of default, the movant “may then make an application for entry of default judgment, pursuant to Fed.R.Civ.P. 55(b).” Rodriguez, 784 F.Supp.2d at 123. If the defendant fails to appear, or move to set aside the default under Rule 55(c), the Court may enter a default judgment. Rose v. Chin, No. 09-CV-4645 (NGG)(LB), 2010 WL 3909350, at *1 (E.D.N.Y. Oct. 1, 2010).

         The Second Circuit has an “oft-stated preference for resolving disputes on the merits, ” making default judgments “generally disfavored.” Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95-96 (2d Cir. 1993). “Accordingly, just because a party is in default, the plaintiff is not entitled to a default judgment as a matter of right.” Mktg. Devs., Ltd. v. Genesis Imp. & Exp., Inc., No. 08-CV-3168 (CBA)(CLP), 2009 WL 4929419, at *2 (E.D.N.Y. Dec. 21, 2009) (citation omitted). Although all well-pleaded allegations in the complaint are deemed admitted on a motion for default judgment, the Court nonetheless retains a “responsibility to ensure that the factual allegations, accepted as true, provide a proper basis for liability and relief.” Rolls-Royce PLC v. Rolls-Royce USA, Inc., 688 F.Supp.2d 150, 153 (E.D.N.Y. 2010) (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)). If the unchallenged allegations establish defendant's liability, the Court then determines the amount of damages due. See Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999).

         I. Liability

         An employer's withdrawal liability is subject to regulations issued by the Pension Benefit Guaranty Corporation (“PBGC”), the agency charged with implementing ERISA's withdrawal-liability provisions. Trs. of Local 138 Pension Tr. Fund, 692 F.3d at 134-35; see also 29 U.S.C. § 1399(c)(1)(D)(ii). When a multiemployer plan experiences a mass withdrawal, the plan sponsor must notify withdrawing employers that a mass withdrawal has occurred, determine the initial withdrawal liability of each withdrawing employer without regard to the occurrence of a mass withdrawal, notify the employer of the amount of the initial withdrawal liability, and attempt to collect the initial withdrawal liability from the employer. 29 U.S.C. § 1382; 29 C.F.R. § 4219.11(a); 29 C.F.R. § 4219.16(a); 29 C.F.R. § 4219.2(b).[5] In addition, the plan sponsor must determine each employer's “mass withdrawal liability, ” which includes both redetermination liability and reallocation liability. 29 C.F.R. § 4219.2(b); 29 C.F.R. § 4219.11(b).[6] The plan sponsor must also provide notice of such liability, a payment schedule, and a payment demand. 29 C.F.R. § 4219.16(b)-(c).[7] If an employer defaults on any payment and the failure to pay is not cured within sixty (60) days after notice of such failure, a plan sponsor may demand immediate payment of the outstanding amount of an employer's withdrawal liability, plus accrued interest. 29 U.S.C. § 1399(c)(5); 29 C.F.R. § 4219.31. Interest is charged “at rates based on prevailing market rates for comparable obligations, in accordance with regulations prescribed by the corporation.” 29 U.S.C. § 1399(c)(6).

         An employer may request review of the plan sponsor's withdrawal liability determination; however, any dispute regarding the liability determination must be resolved through arbitration. Trs. of the Local 813 Pension Tr. Fund v. Frank Miceli Jr. Contracting, Inc., No. 13-CV-0198 (MKB)(JO), 2016 WL 5879612, at *2 (E.D.N.Y. Mar. 9, 2016), report and recommendation adopted, 2016 WL 1275041 (E.D.N.Y. Mar. 31, 2016) (citing 29 U.S.C. §§ 1399(b)(2)(A), 1401(a)(1)); see also 29 C.F.R. § 4219.16(g). If the employer fails to initiate arbitration within the statutorily prescribed timeframe, then the plan's withdrawal liability determination becomes “final and binding.” Id. The plan is not required to supply the Court with underlying calculations to support a finding of withdrawal liability if the defendant employer does not initiate arbitration. Id. (collecting cases); see also Vacca v. Bridge Chrysler Jeep Dodge, Inc., No. 06-CV-3543 (ERK)(AKT), 2008 WL 4426875, at *7 (E.D.N.Y. Sept. 4, 2008) (“It is well-established that when a defendant fails to initiate arbitration under ERISA's provisions, the defendant's withdrawal liability becomes fixed and all defenses to that withdrawal liability are waived.”). If the parties do not initiate arbitration, the plan sponsor may bring an action in federal court to collect the amounts demanded, which are “due and owing on the schedule set forth by the plan sponsor.” 29 U.S.C. § 1401(b)(1).

         To prevail on a withdrawal liability payment claim, the plan sponsor generally “must show only that it complied with statutory procedural requirements. Thus, [t]he plan sponsor must: (1) determine that an employer has partially or completely withdrawn from a multiemployer plan; (2) determine the amount of the employer's withdrawal liability; (3) notify the employer of the amount of liability and the payment schedule; and (4) demand payment according to the schedule.” Div. 1181 Amalgamated Transit Union-N.Y. Emps. Pension Fund v. D & A Bus Co., Inc., 270 F.Supp.3d 593, 608-09 (E.D.N.Y. 2017) (internal citations and quotations marks omitted).

         Here, the Fund notified New York Sewing that the Fund experienced a mass withdrawal as of December 31, 2013, when all contributing employers ceased to have an obligation to make contributions to the Fund, and as a result, New York Sewing was subject to mass withdrawal liability under ERISA. Compl. Ex A. By letters dated May 28, 2014, and January 29, 2016, the Fund notified New York Sewing of its initial withdrawal liability, redetermination liability, and reallocation liability, and demanded payment according to corresponding payment schedules. Compl. Ex. A, Ex. B. The Fund repeatedly warned New York Sewing of the consequences of defaulting on its payments and potential liability for interest and penalties under ERISA. Compl. Ex. A, Ex. B, Ex. C, Ex. D. Nonetheless, New York Sewing failed to make any of its quarterly payments for its withdrawal liability. Compl. ¶ 17; see also Leventis Decl. ¶ 11, ECF No. 8-7. On December 7, 2018, the Fund notified New York Sewing of its failure to make payments according to the schedule and warned that, if the failure was not cured within sixty (60) days, the Fund would be entitled to the full withdrawal liability amount plus potential penalties. Compl. Ex. C. After New York Sewing did not make the required payments, the Fund notified New York Sewing on February 22, 2019, that it was in default, the Fund had elected to accelerate the outstanding withdrawal liability, and accordingly the Fund demanded immediate payment plus accrued interest. Compl. Ex D. Further, New York Sewing failed to initiate arbitration proceedings to contest its liability. Compl. ¶ 22. As plan fiduciaries, the Trustees are entitled to bring this federal action to collect the withdrawal liability. Compl. ¶ 7; 29 U.S.C. §§ 1451(a)(1), 1451(b).

         Based on the foregoing, plaintiff has alleged sufficient facts to establish defendant New York Sewing's liability. Moreover, because New York Sewing did not initiate arbitration proceedings to dispute its withdrawal liability or the Fund's liability calculations, and the deadline to do so has long since expired, see 29 U.S.C. § 1401(a)(1), 29 C.F.R. § 4219.16(g), the plan's withdrawal liability determination is final and binding.

         II. Damages

         “[I]t is well established that [w]hile a party's default is deemed to constitute a concession of all well pleaded allegations of liability, it is not considered an admission of damages.” Cement & Concrete Workers Dist. Council Welfare Fund v. Metro Found. Contractors, Inc., 699 F.3d 230, 234 (2d Cir. 2012) (citation and internal quotations marks omitted); see also Credit Lyonnais Sec. (USA), Inc., 183 F.3d at 155 (“Even when a default judgment is warranted based on a party's failure to defend, the allegations in the complaint with respect to the amount of the damages are not deemed true.”). On a motion for a default judgment, the Court must “conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Credit Lyonnais Secs. (USA), Inc., 183 F.3d at 155 (citation omitted). While the Court must ensure there is an evidentiary basis for the damages requested, the Court has discretion in deciding whether to make a determination based on evidence presented at a hearing or based on review of documentary evidence alone without a hearing. Metro Found. Contractors Inc., 699 F.3d at 234; United Food & Commercial Workers Local 348 Pension Fund v. Franklin Poly Corp., No. 12-CV-5837 (MKB)(VMS), 2013 WL 4525658, at *6 (E.D.N.Y. Aug. 27, 2013).

         Under ERISA, when a judgment in favor of the plan is awarded to compel payment of fund contributions, the Court must award the unpaid contributions, as well as interest on the unpaid contributions, “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 of the [unpaid contributions], ” and reasonable attorneys' fees and costs. 32BJ N. Pension Fund v. Nutrition Mgmt. Servs. Co., No. 18-0857-CV(L), 2019 WL 3917567, at *4 (2d Cir. Aug. 20, 2019) (quoting 29 U.S.C. § 1132(g)(2)).[8]

         Here, plaintiff requests a total amount of $949, 972.79, which includes: (1) $782, 948 for outstanding withdrawal liability; (2) $78, 998.43 for interest accrued; (3) $78, 998.43 for liquidated damages; (4) $8, 443.75 for attorneys' fees; and (5) $584.18 for costs. Pl.'s Mem. Law Supp. Mot. Default J. 2, ECF No. 8-1. As proof of damages, plaintiff provides:

i) The declaration of George Leventis, Executive Director of the Fund, Leventis Decl., ECF No. 8-7, which appends copies of:
a. the May 28, 2014, demand letter, which provides the Fund's calculation of defendant's initial withdrawal liability and redetermination liability, Leventis Decl. Ex. 1, ECF No. 8-8;
b. the January 29, 2016, demand letter, which provides the Fund's calculation of defendant's reallocation liability and total outstanding withdrawal liability, Leventis Decl. Ex. 2, ECF No. 8-9;
c. the December 7, 2018, letter, notifying defendant of its missed payments and the 60-day window to cure its default, Leventis Decl. Ex. 3, ECF No. 8-10; d. the February 22, 2019, letter, notifying defendant of its default and the Fund's demand ...

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