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Acosta v. CMSH Electrical

United States District Court, E.D. California

February 20, 2018

CMSH ELECTRICAL, et al., Defendants.



         Before the court is plaintiff's motion for default judgment. (ECF No. 7.) Defendant has failed to file an opposition to this motion in accordance with Local Rule 230(c). Accordingly, the hearing on the motion set for January 24, 2018 was vacated.

         The record reflects that defendant was properly served with process on November 16, 2017 and default was entered December 11, 2017. Plaintiff thereafter filed an application for default judgment, seeking injunctive relief. The undersigned has fully considered the briefs and record in this case and, for the reasons stated below, will recommend that plaintiff's motion for default judgment be granted.

         I. Background

         In this action, plaintiff, the U.S. Secretary of Labor, avers that defendant CMSH Electrical (“CMSH”) is the Plan Administrator for an employee pension benefit plan (“Plan”) as defined under the Employee Retirement Income Security Act of 1974 (“ERISA”). (ECF No. 1, “Compl., ”

         ¶¶ 3-4.) Plaintiff avers that CMSH's powers were suspended by the California Franchise Tax Board in 2015. (Compl., ¶ 9.) The plan's sole officer, Etsel Jack Baker, was convicted of felony theft and embezzlement after transferring Plan assets into a personal account, and is currently incarcerated. (Compl., ¶ 10.) The Plan's asset custodian, Merrill Lynch, “will not authorize distributions of the remaining Plan assets to the Plan's participants and beneficiaries without direction from a properly appointed fiduciary or a court-appointed fiduciary.” (Compl., ¶ 13.)

         As of March 31, 2015, plaintiff alleges, the Plan had five participants other than Mr. Baker and $0.00 in Plan assets. (Compl., ¶ 14.) At the time Mr. Baker embezzled the funds, the Plan was bonded by Traveler's Insurance. (Id.) Traveler's Insurance has indicated that it will pay bond proceeds to the Plan, restoring $272, 003.00 for the five participants, but at this time there is no fiduciary available to receive the funds on behalf of the Plan. (Id.)

         Plaintiff seeks relief pursuant to ERISA §§ 502(a)(2) and 502(a)(5), 29 U.S.C. §§ 1132(a)(2) and 1132(a)(5). Plaintiff seeks only injunctive, not monetary, relief, and requests the court to remove CMSH as Plan Administrator and to appoint Metro Benefits, Inc. as an independent fiduciary with authority to administer the Plan. (See ECF No. 7-4.)

         II. Legal Standards

         Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend against the action. See Fed.R.Civ.P. 55(a). However, “[a] defendant's default does not automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies within the district court's sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this determination, the court considers the following factors:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action[, ] (5) the possibility of a dispute concerning material facts[, ] (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily disfavored. Id. at 1472.

         As a general rule, once default is entered, well-pleaded factual allegations in the operative complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). In addition, although well-pleaded allegations in the complaint are admitted by a defendant's failure to respond, “necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (stating that a defendant does not admit facts that are not well-pled or conclusions of law); Abney v. Alameida, 334 F.Supp.2d 1221, 1235 (S.D. Cal. 2004) (“[A] default judgment may not be entered on a legally insufficient claim”). A party's default does not establish the amount of damages. Geddes, 559 F.2d at 560.

         III. ...

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