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Johnson v. Allied Excavating, Inc.

United States District Court, D. Minnesota

March 30, 2017

GLEN JOHNSON, TIMOTHY GILLEN, KYLE JONES, STEVEN HALL, CLAYTON JOHNSON, MARK HUBBARD, STEVE PIPER, and BILL PATT, as Trustees of the Operating Engineers Local #49 Health and Welfare Fund; MICHAEL R. FANNING, as a Fiduciary of the Central Pension Fund of the International Union of Operating Engineers and Participating Employers; JOSEPH RYAN, BRUCE CARLSON, GLEN JOHNSON, FRANK FRATTALONE, LEE HILLER, TONY PHILLIPI, GREG WAFFENSMITH, and MARK RYAN, as Trustees of the Local #49 International Union of Operating Engineers and Associated General Contractors of Minnesota Apprenticeship and Training Program; THE OPERATING ENGINEERS LOCAL #49 HEALTH AND WELFARE FUND; THE CENTRAL PENSION FUND OF THE INTERNATIONAL UNION OF OPERATING ENGINEERS AND PARTICIPATING EMPLOYERS; and THE LOCAL #49 INTERNATIONAL UNION OF OPERATING ENGINEERS AND ASSOCIATED GENERAL CONTRACTORS OF MINNESOTA APPRENTICESHIP AND TRAINING PROGRAM, Plaintiffs,
v.
ALLIED EXCAVATING, INC. and JEFFREY JEWISON, Defendants.

          Christy E. Lawrie, McGRANN SHEA CARNIVAL STRAUGHN & LAMB, CHTD, for plaintiffs.

          Susan E. Tegt, LARKIN HOFFMAN DALY & LINDGREN, LTD, for defendants.

          MEMORANDUM OPINION AND ORDER SETTING ASIDE ENTRY OF DEFAULT

          JOHN R. TUNHEIM Chief Judge

         Plaintiffs are three multi-employer jointly-trusteed fringe benefit plans and their fiduciaries and trustees (collectively the “Funds”). Defendant Allied Excavating, Inc. (“Allied”) is an employer who executed a collective bargaining agreement (“CBA”) with the Associated General Contractors of Minnesota, Highway, Railroad, and Heavy Construction Division and the International Union of Operating Engineers, Local No. 49 (collectively, the “Union”).[1] Defendant Jeffrey Jewison (“Mr. Jewison”) is one of Allied's corporate officers.[2] The Funds served the summons and complaint on Defendants on August 10, 2015. On September 2, 2015, after Defendants failed to respond to the action, the Clerk of Court granted the Funds' application for entry of default pursuant to Fed.R.Civ.P. 55(a). The Funds now move, pursuant to Fed.R.Civ.P. 55(b)(2), for entry of default judgment in the amount of $141, 481.55 against Allied and $75, 569.85 against Mr. Jewison. Defendants move for the Clerk's entry of default to be set aside pursuant to Fed.R.Civ.P. 55(c).

         The Court finds that there is good cause to set aside the default, given that Defendants' delay was excusable, they have a potentially meritorious defense, and any resulting likelihood of prejudice to the Funds is low. Therefore, the Court will grant Defendants' motion to set aside the entry of default and will deny as moot the Funds' motion for entry of judgment.

         BACKGROUND

         Defendants have had a contractual relationship with the Union going back to at least 2002. On August 29, 2011, Allied's CEO Pamela Jewison (“Ms. Jewison”) executed a CBA with the Union effective May 1, 2011, to April 30, 2014. (Decl. of Michael Streater (“Streater Decl.”), Ex. N (“First CBA”), Feb. 22, 2017, Docket No. 42; Aff. of Mike Streater (“Streater Aff.”), Ex. B at 49, Dec. 16, 2015, Docket No. 13.) On January 7, 2015, Ms. Jewison executed a subsequent CBA with the Union effective through April 30, 2017.[3] (Streater Aff., Ex. A (“Second CBA”); id., Ex. B at 50.) At all relevant times, the applicable CBA required Allied to make monthly contributions to the Funds on behalf of employees for hours worked on tasks covered by the CBA. (First CBA at 15-17; Second CBA at 15-17.)

         In addition, prior to the execution of the relevant CBAs, on March 16, 2002, [4]Mr. Jewison (then CEO of Allied) executed the Operating Engineers Local #49 Health and Welfare Fund Participating Agreement (“Welfare Participating Agreement”). (Streater Aff., Ex. C.) The Welfare Participating Agreement, which complements the CBA in force at any given time, specifically obligates Allied to make contributions to the Operating Engineers Local #49 Health and Welfare Fund (the “Health & Welfare Fund”) as specified in the applicable CBA, and it also purports to bind in an individual capacity any corporate officer signing on behalf of an employer. (Id.) The Welfare Participating Agreement is “in effect for the period stipulated in [the CBA applicable at the time of execution] and any renewal or extension thereof.” (Id.)

         The CBA gives the Funds the right to examine Allied's payroll and employment records at any reasonable time in order to determine if the company is in compliance with its fringe benefit obligations. (Second CBA at 16; First CBA at 16.) Pursuant to this authority, in February 2015, the Funds selected Allied for an audit and requested access to Allied's records going back to January 1, 2014. (Streater Decl. ¶ 2; id., Ex. F.) After numerous unanswered requests over many months, (id. ¶¶ 2-7), on August 7, 2015, the Funds filed this lawsuit pursuant to 29 U.S.C. § 1145.[5] The Funds originally sought injunctive relief requiring Allied to provide the requested documents. The Funds also seek to collect any unpaid contributions as well as attorney fees and damages as permitted under the terms of the CBA and by statute.[6] Defendants were personally served with process on August 10, 2015. (Summons Returned Executed on Jeffrey Jewison, Aug. 12, 2015, Docket No. 4; Summons Returned Executed on Allied Excavating, Inc., Aug. 12, 2015, Docket No. 5.)

         Defendants did not respond to the complaint in the time required under law, and on September 1, 2015, the Funds applied for entry of default under Fed.R.Civ.P. 55(a). (Appl. for Entry of Default, Sept. 1, 2015, Docket No. 6.) The Clerk entered default the following day. (Clerk's Entry of Default, Sept. 2, 2015, Docket No. 9.) Though they made no formal appearance in Court, shortly after the lawsuit was filed, Defendants communicated directly with the Funds regarding the document requests. (Decl. of Melissa Urban-Brown (“Urban-Brown Decl.”) ¶ 3, Feb. 22, 2017, Docket No. 44.) Eventually, on September 16, 2015, Defendants provided the auditor access to selected documents. (Streater Decl. ¶ 11.) After additional requests, Allied provided more records between January 25 and April 18, 2016. (Streater Decl. ¶¶ 12-14; Decl. of Christy E. Lawrie (“Lawrie Decl.”) ¶¶ 4-7, Feb. 22, 2017, Docket No. 45.)

         Based on the documents Defendants provided, in April 2016 the Funds' auditor completed an audit invoice. (Aff. of Michael Streater ¶ 6, July 18, 2016, Docket No. 23.) The auditor concluded that Defendants owed $158, 462.54 in delinquent contributions, of which $76, 583.38 was owing to the Health & Welfare Fund (and thus, Mr. Jewison would be personally responsible for this amount). (Id.) In addition, the auditor determined the Funds were entitled to $23, 769.38 in liquidated damages, $11, 487.51 of which was due to the Health & Welfare Fund. (Id. ¶ 7.) The auditor sent a copy of the audit invoice to Allied on May 2, 2016. (Streater Decl. ¶ 18.) On July 18, 2016, the Funds filed the instant motion for entry of judgment against Defendants based on the auditor's calculations.

         Defendants finally retained counsel in August 2016, (see Lawrie Decl. ¶ 11); the following month, Defendants provided additional documentation to the Funds, (id. ¶ 13). As a result of this new information, the Funds revised their audit, removing 2, 865 hours of work. (Streater Decl. ¶ 23.) This reduced the total delinquent contributions by $47, 000. (Id.)

         On February 15, 2017, shortly before the scheduled hearing on the Funds' motion for entry of judgment, Defendants filed a motion to set aside the default pursuant to Fed.R.Civ.P. 55(c). Defendants argue there is good cause to set aside the default because their delay in responding to the lawsuit was excusable, the Funds will not be prejudiced if the default is set aside, and they have three meritorious defenses. First, Defendants argue that the Welfare Participating Agreement did not effectively bind Mr. Jewison in his personal capacity. Second, they assert that the CBA between Allied and the Union was orally terminated in March 2015, based on conversations the Jewisons had with Doug Zila, a former Business Representative for the Union. (See Decl. of Pamela Jewison in Supp. of Defs.' Mot. to Set Aside Entry of Default (“Decl. of Pamela Jewison”), Ex. B, Feb. 15, 2017, Docket No. 36.) And third, they claim the revised audit is overstated because it includes hours worked that are not covered by the CBA.

         ANALYSIS

         I. MOTION TO SET ASIDE THE DEFAULT

[Fed. R. Civ. P.] 55(c) provides that the district court may set aside an entry of default “[f]or good cause shown, ” and may set aside a default judgment “in accordance with Rule 60(b).” Although the same factors are typically relevant in deciding whether to set aside entries of default [for good cause] and default judgments [under Fed.R.Civ.P. 60(b)], “[m]ost decisions . . . hold that relief from a default judgment requires a stronger showing of excuse than relief from a mere default order.” Conn. Nat'l Mortg. Co. v. Brandstatter, 897 F.2d 883, 885 (7th Cir. 1990); accord Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190, 193-94 (6th Cir. 1986); Meehan v. Snow, 652 F.2d 274, 276-77 (2d Cir. 1981). This is a sound distinction. There is a “judicial preference for adjudication on the merits, ” Oberstar v. FDIC, 987 F.2d 494, 504 (8th Cir. 1993), and it is likely that a party who promptly attacks an entry of default, rather than waiting for grant of a default judgment, was guilty of an oversight and wishes to defend the case on the merits.

Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 783-84 (8th Cir. 1998).

         Whether to set aside entry of default is “committed to the district court's discretion.” Id. at 785. In determining whether to set aside an entry of default under the relatively “lenient” good cause standard, the Court weighs “whether the conduct of the defaulting party was blameworthy or culpable, whether the defaulting party has a meritorious defense, and whether the other party would be prejudiced if the default were excused.” Id. at 784.

         A. Blameworthiness or Culpability

         Whether a defaulting party's conduct is excusable is the primary factor relevant to whether there is good cause to set aside a clerk's entry of default. See Id. (“[W]e focus heavily on the blameworthiness of the defaulting party.”).

Whether the conduct of the moving party is excusable is an equitable determination that considers all germane circumstances surrounding the party's omission. [Johnson, 140 F.3d at 784 (quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993)).] Conduct that has been held excusable includes “late filings caused by inadvertence, mistake or carelessness.” Pioneer, 507 U.S. at 395. A court will rarely excuse an intentional delay or disregard for deadlines and procedural rules. Johnson, 140 F.3d at 784.

SICK, Inc. v. Motion Control Corp., No. 01-1496, 2002 WL 832609, at *2 (D. Minn. Apr. 30, 2002).

         Defendants argue they mistakenly believed that their cooperation with the Funds' efforts to obtain Allied's records in order to complete the audit was a sufficient response to the complaint. They assert that even after the entry of default in September 2015, they were in contact with Doug Zila - then a Business Representative for the Union - and their belief that they were complying with the audit requirements was based on Zila's representations to them. Furthermore, Defendants argue that once they did retain counsel, their counsel worked diligently with the Funds' counsel to move forward in the case, and both sides had to cancel and reschedule meetings for legitimate reasons, which led to some additional excusable delay.

         Delay based on a mere belief that cooperation with an audit is a sufficient response to a federal lawsuit, without more, may not amount to excusable conduct. Cf. Bd. of Trs. of IBEW Local Union No. 100 Pension Tr. Fund v. Elijah Elec., Inc., No. 1:06-1860, 2008 WL 4490023, at *3-4 (E.D. Cal. Sept. 29, 2008) (setting aside entry of default in a similar context when the defendant argued that the delay was excusable because the defendant was actively engaged in the plaintiffs' audit process, but also finding it relevant, for the purpose of determining blameworthiness, that unlike in the case at hand, the defendant's attorney had abandoned him and the defendant had not received notice of events in the litigation because the court did not have his address). However, unlike in Elijah, the facts before the Court indicate not only that Defendants mistakenly believed that cooperation with the audit was sufficient, but also that they held this belief because of representations made by a Union employee. Defendants maintain that Zila assured Defendants that their cooperation with the documents was sufficient. The Court finds that Defendants' reliance on a statement from a representative of the Union provides a colorable explanation for Defendants' mistaken belief that they need not respond in some other way in court, and this fact makes Defendants' delay excusable.

         The Court notes that Defendants' delay was not as brief as in some cases in which a default has been set aside. See, e.g., Johnson, 140 F.3d at 783-84 (setting aside entry of default when the delay was “relatively brief, ” given that the defendant filed an answer to the complaint one day after the entry of default and moved for the default to be set aside less than two months later). But length of delay alone is not dispositive on the question of culpability. There is no evidence that Defendants acted in bad faith or intended the delay in order, for example, to take advantage of the Funds or manipulate the legal process. See, e.g., Grant v. City of Blytheville, 841 F.3d 767, 772-73 (8th Cir. 2016) (finding a district court did not abuse its discretion in setting aside the entry of default when the court “perceive[d] no bad faith or intentional effort to delay” by the defaulting party); Johnson, 140 F.3d at 784-85 (setting aside entry of default when the defaulting party continuously acted in good faith, among other reasons); Iowa State Univ. Research Found., Inc. v. Greater Continents Inc., 208 F.R.D. 602, 604 (S.D. Iowa 2002) (finding the defaulting ...


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