Opinion
00 Civ. 1343 (RWS)
October 17, 2000
RAAB, STURM GOLDMAN, Attorney for Plaintiff, New York, NY, By: MICHAEL GEFFNER, ESQ., Of Counsel.
HITE CASEY, Attorney for Defendants, Albany, NY, By: MEREDITH H. SAVITT, ESQ., Of Counsel.
OPINION
Defendant Impact Real Estate Management, Inc. ("Impact") has moved for an order setting aside the judgment of default entered against it on May 2, 2000, pursuant to Federal Rule of Civil Procedure 60(b), staying enforcement of the judgment pending resolution of this motion, and for permission to file a motion to dismiss the complaint.
For the reasons set forth below, the motion to vacate is granted, the motion for a stay is denied as moot, and the motion for permission to file a motion to dismiss is granted.
The Parties
The Funds are a collection of employee benefits funds under the Employee Retirement Income Security Act ("ERISA"), and established and maintained pursuant to various collective bargaining agreements.
Impact is a real estate management company which at all relevant times operated the premises known as the Greenhouse Condominium, and at all relevant times until January 14, 2000 operated the premises known as Hunter Gardens, both located within the City and State of New York.
Facts and Prior Proceedings
The following facts are drawn from the affidavits and other submissions by the parties and are undisputed unless otherwise indicated.
The Funds receive contributions from employers who are parties to collective bargaining agreements with Local 32B-32J, Service Employees International Union, AFL-CIO (the "Union"), to invest and maintain those monies, and to distribute health and insurance benefits and annuity payments to eligible employees. The Union represents the maintenance employees (the "Union employees") at the Greenhouse Condominium and Hunter Gardens.
This is a suit brought to recover delinquent employer contributions owed to the employee benefit plans administered by the Funds, pursuant to the ERISA, 29 U.S.C. § 1132 and 1145, and Section 301 of the Labor-Management Relations Act of 1947, 29 U.S.C. § 185. The complaint alleges that payments due for the Union employees have been delinquent since July, 1996.
The summons and complaint in this action were served on Gregory Cohen ("Cohen"), Vice-President of Impact, at Impact's offices on March 7, 2000. Impact's answer was due March 27, 2000.
Cohen, who has been Vice-President of Impact for four years, understood when he received the summons and complaint in March 2000 that they concerned a law suit. Upon receipt of these papers, however, Cohen filed them away in the "building file." He did not notify Andrew Posner ("Posner"), the President of Impact, or take any other action. Although the summons and complaint caption identified "Impact Real Estate Management, Inc." as the defendant, and the complaint references Impact as the defendant, Cohen maintains that he did not understand that the suit was directed at Impact. Rather, he asserts that he assumed the papers were directed at the building owners.
The Funds allege that they sent a letter addressed to Cohen on March 31, 2000, advising him that Impact was in default and that, absent a response, the Funds would be submitting default judgment papers shortly. Although a copy of this letter was submitted, there is no proof of its receipt. Cohen maintains that he did not receive it.
Approximately two weeks later, the Funds submitted default papers to this Court, and this Court entered a default judgement against Impact on May 2, 2000, in the amount of $94,382.59, with interest in the amount of $10,837.12, liquidated damages in the amount of $18,876.51, attorney's fees in the amount of $1,025.00, and costs and disbursements in the amount of $185.00, amounting to a total of $125,306.22.
On June 5, 2000, a restraining notice was served on the Chase Manhattan Bank (the "Bank") in New Hyde Park, New York, at which Impact maintains an account (the "Account"). Shortly thereafter, the Bank froze the Account. On June 8, 2000, Posner attempted to cash a check against the Account and was told by a Bank officer that the account had been frozen pursuant to the default judgment. The Bank officer gave Posner the telephone number of Dana Van Hee ("Van Hee"), Impact's attorney. Posner then contacted Cohen, who told Posner that some two months earlier he had received certain papers, which papers ultimately turned out to be the complaint and summons in this action. Posner and Cohen then attempted to contact Van Hee by phone. Eventually, Posner, Van Hee, and Mike Geffner, counsel for the Funds, had a telephone conversation in which they discussed the situation but were unable to resolve it.
The instant motion was filed on June 27, 2000, and submissions were received through July 12, 2000, at which time the matter was deemed fully submitted.
Discussion I . The Standard Under Rule 60(b)(1)
Rule 60(b)(1) provides that a court may relieve a party from a final judgment for "mistake, inadvertence, surprise, or excusable neglect." Fed.R.Civ.P. 60(b)(1). The Second Circuit has held that "[m]otions under rule 60(b) are addressed to the sound discretion of the district court and are generally granted only upon a showing of exceptional circumstances." Mendell v. Gollust, 909 F.2d 724, 731 (2d Cir. 1990); accord Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986);Petersen v. Valenzano, 803 F. Supp. 875, 877 (S.D.N.Y. 1992).
Impact also cites to Rule 60(b)(6) as a basis for its motion. However, the Second Circuit has held that "Rule 60(b)(1) and 60(b)(6) are mutually exclusive, so that any conduct which generally falls under the former cannot stand as a ground for relief under the latter." United States v. Cirami, 535 F.2d 736, 740 (2d Cir. 1976) (Quoting United States v. Erdoss, 440 F.2d 1221, 1223 (2d Cir.)). Since Impact seeks to vacate the default judgment based on excusable neglect, which is a ground for relief under Rule 60(b)(1), Rule 60(b)(6) is inapplicable.
In exercising its discretion on a motion to vacate a default judgment, the district court is to consider: (1) whether the default was willful; (2) whether the moving party has presented a meritorious defense; and (3) whether the opposing party would be prejudiced if the motion were granted. See Brock v. Unique Racquetball Health Clubs, Inc., 786 F.2d 61, 64 (2d Cir. 1986); Davis v. Musler, 713 F.2d 907, 915 (2d Cir. 1983);United States v. Forma, 784 F. Supp. 1132, 1140 (S.D.N.Y. 1992).
All doubts are to be resolved in favor of the party seeking relief from judgment in order to facilitate resolution of disputes on their merits.See Sony Corp. v. S.W.I. Trading, Inc., 104 F.R.D. 535, 539-40 (S.D.N Y 1985); Jackson v. Beech, 636 F.2d 831, 836 (D.C. Cir. 1980). However, when the adversary process has been halted because of an essentially unresponsive party, default judgment is appropriate to protect the non-defaulting party from interminable delay and continued uncertainty as to his rights. See Sony Corp., 104 F.R.D. at 540 (citations and internal quotations omitted).
II. Vacatur Is Warranted Here A. Impact's Default Was Not Willful
Cohen is the Vice President of Impact, a position which he has held for four years. Cohen understood that the papers with which he was served in March, 2000, concerned a law suit. Rather than taking any action regarding these papers, however, he simply filed them away. Even crediting his assertion that he would have brought it to Posner's attention if he thought otherwise, his actions were careless and negligent.
The Second Circuit "excusable neglect" is to be construed generously in the context of a Rule 60(b) motion. See American Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 58 (2d Cir. 1996). Thus, in determining whether a defendant's conduct was "willful," the court is to look for bad faith, or at least something more than mere negligence."Id. at 60. A strategic decision to default would of course be willful.See id. Negligence, however, does not equal willfulness, although where the defendant has been grossly negligent this weighs against obtaining relief from a default judgment. See id. at 61.
The evidence does not warrant a finding that Impact made a strategic decision to default, especially in light of the principle that all doubts are to be resolved in favor of those seeking relief under Rule 60(b).See Davis, 713 F.2d at 915; Bicicletas Windsor, S.A. v. Bicycle Corp. of America, 783 F. Supp. 781, 788 (S.D.N.Y. 1992). There is little doubt, however, that Cohen was grossly negligent. This weighs against affording Impact the relief sought, although the fact that Posner sought to rectify the situation as soon as he learned of it mitigates this factor somewhat.
B . Impact Has Raised A Meritorious Defense
The Funds seek to hold Impact liable for contributions owed to the employee benefit plans for the Union employees at the Greenhouse Condominium and Hunter Gardens, pursuant to ERISA. Under ERISA:
Every employer who is obligated to make contributions to a multi-employer plan under the terms of the plan or under the terms of a collectively-bargained agreement, shall to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement.29 U.S.C. § 1145.
An "employer" is:
any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.29 U.S.C. § 1002 (5).
Although this definition of "employer" does not apply of its own force to the term "employer" as used in 29 U.S.C. § 1145, the Second Circuit has adopted this definition in the context of multi-employer plans such as the one at issue here. See Trustees of the Building Service 32B-32J Pension v. Zar Realty Management Corp., No. 97 Civ. 6446, 1999 WL 791682, at *2 (S.D.N.Y. Sept. 30, 1999) (citing Korea Shipping Corp. v. New York Shipping Ass'n ILA Pension Trust Fund, 880 F.2d 1531, 1537 (2d Cir. 1989)
Impact's primary defense is its contention that it is not liable for the contributions owed to the Funds because it acted in a merely administrative capacity with respect to the two properties at issue and is not the employer of the Union employees within the meaning of ERISA. According to Impact, the employers of the Union employees are the building owners of, respectively, the Greenhouse Condominium and Hunter Gardens.
Also, although the complaint alleges that Impact is a party to a collective bargaining agreement with Local 32B-32J, Posner represents in a sworn affidavit that Impact is not a party to any collective bargaining agreement, and the Funds do not contradict that representation in their submissions on the instant motion. In addition, Impact has provided copies of its management agreements with the Greenhouse Condominium and Hunter Gardens, respectively, which provide that the services to be rendered by Impact include supervising all necessary employees "who, in each instance, shall be the Owner's and not the Agent's employees." These agreements also provide generally that expenses incurred in connection with the property are the responsibility of the building owner. Finally, Posner represents that in the case of Hunter Gardens Impact did not have the authority to issue checks, while in the case of the Greenhouse Condominium, although Impact has the authority to issue checks, the account upon which checks are drawn is in the name of Greenhouse Condominium.
Neither party has provided the Court with a copy of the collective bargaining agreement.
The Funds contend that Impact falls within ERISA's definition of an employer because Impact hired the Union employees, fired and/or disciplined them, directed their work activities, issued their paychecks, and "handled" the payment of their benefit contributions. The two union representatives assigned to these properties dealt solely with Posner regarding these matters.
A defendant seeking to vacate a default judgment is not required to establish conclusively the validity of the defense(s) asserted. See Davis, 713 F.2d at 915 (citations omitted). Rather, the defendant must articulate a defense with a degree of specificity which directly relates that defense to the allegations set forth in the plaintiff's pleadings and raises a serious question as to the validity of those allegations.See Salomon v. 1498 Third Realty Corp., 148 F.R.D. 127, 130 (S.D.N Y 1993) (citing Davis, 713 F.2d at 916). The showing must be sufficient to warrant further briefing and consideration. See Davis, 713 F.3d at 916.
Impact does engage in certain actions which are typical of employers, namely, hiring, firing, and supervising employees. Impact also "handled" payments to the employee benefit funds. It cannot be determined based on the current record and briefing, however, whether Impact is the employer under ERISA or, rather, whether it was acting merely as an administrative intermediary between the Funds and/or the Union, on the one hand, and the building owners, on the owner.
The cases cited by the Funds as authority for concluding that Impact is the employer are instructive, but not entirely on point, as they involved situations in which the relevant entity was empowered to negotiate agreements pertaining to the benefit plans and/or were parties to those agreements. See Korea Shipping, 880 F.2d at 1538-39 (shippers who were parties to agreement that created employee benefit fund were obligated to make contributions, rather than employer association which acted as mere "conduit" in collecting shipper monies and transferring them to benefit fund); Local 217 Hotel Restaurant Employees Union v. MHM, Inc., 805 F. Supp. 93, 113-14 (D. Conn. 1991) (hotel management firm that negotiated benefit plan with insurance carriers on behalf of hotel was employer under ERISA obligated to make payments under COBRA). This circumstance was also considered to be key in another case in this district concerning a claim by the Funds for unpaid contributions. See Zar Realty, 1999 WL 791682, at *2 ("most important" factor in concluding that employer association was employer under ERISA was that association was empowered to enter into collective bargaining agreement on behalf of corporate owners of buildings, which agreement called for contributions to employee benefit plans).
This does not mean that there is necessarily a per se rule that in order for an entity to be deemed to "act indirectly in the interest of the employer," 29 U.S.C. § 1145, it must negotiate for or be a party to the agreement pertaining to the benefit plans. It does mean, however, that Impact has raised a defense which presents a serious question in relation to the Funds' allegations and which warrants further briefing and consideration. The management agreements between Impact and the building owners also support its defense. Therefore, the "meritorious defense" factor weighs strongly in favor of vacating the default judgment.
Finally, Impact also contends that it is not liable on a breach of contract theory because it is not a party to a collective bargaining agreement with the Union. The Funds have not addressed this argument. Impact's representation that it is not a collective bargaining agreement with the Union certainly appears to raise a meritorious defense. This also weighs in favor of granting vacatur of the judgment. C. Prejudice
Impact also contends that the Funds failed to name a necessary party as required by Federal Rule of Civil Procedure 19. Although cast as a Rule 19 defense, however, the substance of Impact's argument is simply a reiteration of its position that it is not liable in any degree for the monies sought. Impact fails to address the requirements of Rule 19, pursuant to which require the court to determine, first, whether the absent party is a "necessary party" under Rule 19(a), and second, if the party is to be joined if feasible but cannot be joined, whether, under Rule 19(b), the absent party is "indispensable" and the action should "in equity and good conscience" be dismissed. See Associated Dry Goods Corp. v. Towers Fin. Corp., 920 F.2d 1121, 1123 (2d Cir. 1990). Therefore, this defense does not support vacating the default judgment.
The Funds contend that if the default judgment is vacated they will be prejudiced because, first, Impact will be able to transfer its monetary assets elsewhere, thus prejudicing the Funds' ability to enforce a later judgment, and second, the Funds will "have to start over" in their efforts to collect the unpaid benefit contributions, thus further jeopardizing the coverage of the affected employees.
With respect to the first contention, there is no basis in the record for assuming that Impact will seek to evade a judgment by transferring its assets in such a way as to make them unavailable for a judgment. With respect to the second contention, while reopening the judgment will certainly cause a delay, it is not accurate that the Funds will have to "start over." Rather, they will be forced to continue to pursue this litigation on the merits. Generally speaking, mere delay caused by reopening a judgment does not itself constitute prejudice. Rather, it must be shown that delay will "result in the loss of evidence, create increased difficulties of discovery, or provide greater opportunity for fraud and collusion." Davis, 713 F.2d at 916 (citations omitted). No such showing has been made here.
Finally, although the Funds state that the Greenhouse Condominium and Hunter Garden employees' benefits will be jeopardized, which is certainly a very serious consideration, no specific support for this proposition is offered. According to the complaint, the payments have been delinquent since 1996. While the status of these employees' benefits is not entirely clear from the Funds' papers, there is no allegation that their benefits have ceased due to the delinquency. Presumably the shortfall is being made up from the corpus of the Funds as a whole. While this is an unfortunate situation, the assertion of prejudice raised by the Funds is too generalized to justifying denying Impact's motion.
In sum, weighing all three factors, Impact has made a sufficient showing to vacate the default judgment.
III. Permission To File A Motion To Dismiss
Impact also seeks permission to file a motion to dismiss the complaint. As the default judgment will be vacated, Impact is directed to file responsive papers. These papers may include a motion to dismiss.
Conclusion
Therefore, for the reasons set forth above, the motion to vacate the default judgment is granted, and the motion for a stay of enforcement of the judgment is denied as moot. Impact is directed to serve and file an answer or other responsive papers within twenty (20) days of the date of this opinion.
It is so ordered.