Southern Electrical Health Fund v. Bedrock Services

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0710n.06
Filed: August 16, 2005
Nos. 03-6150, 04-5147
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
SOUTHERN ELECTRICAL HEALTH )
FUND; CAROLINAS ELECTRICAL )
WORKERS RETIREMENT FUND; )
NATIONAL ELECTRICAL BENEFIT ) ON APPEAL FROM THE UNITED
FUND; CAROLINAS ELECTRICAL ) STATES DISTRICT COURT FOR THE
WORKERS JOINT APPRENTICESHIP ) MIDDLE DISTRICT OF TENNESSEE
& TRAINING FUND; )
INTERNATIONAL BROTHERHOOD )
OF ELECTRICAL WORKERS LOCAL )
NO. 238; NATIONAL LABOR )
MANAGEMENT COOPERATION )
COMMITTEE; BOARD 63 )
COLLECTION ACCOUNT TRUST, )
)
Plaintiffs-Appellees; )
)
v. )
)
BEDROCK SERVICES, )
)
Defendant-Appellant. )
Before: MOORE and GIBBONS, Circuit Judges; MILLS, District Judge.*
JULIA SMITH GIBBONS, Circuit Judge. Plaintiffs-appellees, several benefit funds that
are subject to the Employee Retirement Income Security Act (ERISA) joined by other organizations
– a local union, a labor-management committee, and a collection account trust – filed their complaint
*
The Honorable Richard Mills, United States District Judge for the Central District of Illinois,
sitting by designation.
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in the Middle District of Tennessee on March 27, 2002, under ERISA, 29 U.S.C. § 1145. The
appellees alleged that defendant-appellant, Bedrock Services, a relatively small company that
provides electrical services in North Carolina, was a party to a pre-hire collective bargaining
agreement which imposed an obligation to pay contributions to the appellee funds on behalf of
covered employees, as well as to deduct union dues and assessments from those employees’
paychecks. The suit alleged that appellant was delinquent in its contributions to appellees and
sought an injunction against appellant, requiring Bedrock Services and its owner, Steve Wood, to
submit payroll records and payments as required by the collective bargaining agreement. Appellant
did not respond to the complaint and appellees moved for and were granted an entry of default as
well as a temporary injunction. Appellant thereafter attempted to end its association with the union
but was informed that its effort was an improper contract termination and that Bedrock Services was
still bound to the collective bargaining agreement. A show cause hearing was scheduled and
postponed until December 20, 2002.
On December 13, 2002, appellant filed a motion to set aside the entry of default and to
transfer venue. Appellant also filed a separate action in the Western District of North Carolina
against the union to have the collective bargaining agreement declared null and void. Appellees
opposed appellant’s motions and filed a motion for a permanent injunction. The district court denied
appellant’s motions to set aside the entry of default and transfer venue and granted appellees’ motion
for a permanent injunction. For the reasons set forth below, we affirm the district court.
I.
Plaintiff-appellees, multi-employer trust funds, a labor union, a labor-management
committee, and a collection account trust, filed this suit on March 27, 2002, seeking equitable and
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legal relief under ERISA, 29 U.S.C. § 1145, against defendant-appellant, Bedrock Services.
Appellees sought unpaid trust fund contributions and other dues and assessments required under a
pre-hire collective bargaining agreement. Appellees requested a permanent injunction to prevent
appellant from violating ERISA, the pre-hire collective bargaining agreement, and the agreements
requiring fund contributions, as well as a judgment against appellant for all delinquent contributions,
the greater of twenty percent or double interest, liquidated damages, fees, costs, and any other relief
deemed appropriate by the court. Wood admits that on June 15, 2001, he “became a signatory to
a multi-employer collective bargaining agreement, which required him to make trust fund
contributions and other dues and assessments on behalf of his firm’s bargaining unit employees.”
He further admits that he became delinquent in making those payments in early 2002, which led the
appellees to file suit. Thereafter, Wood allegedly notified appellees that Bedrock Services was
repudiating the collective bargaining agreement.
Bedrock was served on April 1, 2002. In lieu of responding to the complaint, Wood spoke
with a local union representative in North Carolina who told Wood that the law suit would “go
away” if the delinquent reports and contributions were submitted. There is a dispute about whether
or not the payments were submitted. In any event, appellees requested an entry of default pursuant
to Fed. R. Civ. P. 55(a), which the clerk entered on May 30, 2002. Appellees also moved for a
temporary injunction against appellant requiring the submission of contribution reports in order to
calculate the amount of money owed to appellees. The temporary injunction was granted on June
5, 2002. The magistrate judge also entered an order stating that “[i]t is clear that the defendant does
not intend to enter an appearance in this case or defend this action . . . the defendant has not
otherwise filed anything in this case or otherwise communicated with the [c]ourt.”
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Appellees subsequently moved for an order to show cause why appellant should not be held
in contempt for not complying with the temporary injunction. The motion was granted and appellant
was ordered to appear before the court on November 18, 2002, through Wood, to show cause why
appellant should not be held in contempt. The hearing was rescheduled for December 20, 2002, at
the request of the appellees. On December 13, 2002, appellant moved to postpone the show cause
hearing to a later date, which the court granted. Appellant then filed a motion to set aside the prior
entry of default and to transfer venue to the Western District of North Carolina. Appellant
simultaneously filed a complaint against Local 238 in the United States District Court for the
Western District of North Carolina. Appellees opposed appellant’s motion to set aside default and
transfer venue and filed a motion for a permanent injunction on January 23, 2003.
After analyzing the three factors used to determine whether to set aside an entry of default,
the district court denied appellant’s motion to set aside the entry of default. Likewise, the district
court denied appellant’s motion to transfer. The district court then granted appellees’ motion for a
permanent injunction. Appellant now appeals the district court’s denial of the motion to set aside
entry of default, the motion to transfer the case, and the grant of the permanent injunction.
Additionally, the district court awarded attorney fees to the appellees in the amount of $3,930.00.
Appellant also appeals that decision, and the two appeals have been consolidated. On October 1,
2004, the district court entered an order requesting remand of the attorney fees decision without
further proceedings in this court so that the award of attorney fees could be vacated and the issue
held in abeyance until final judgment is entered.
Wood filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the
Western District of North Carolina on January 24, 2005. As a result of the bankruptcy petition, this
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court entered an order dismissing the appeal on March 2, 2005, subject to a motion to reopen the
case at a later time, if appropriate. On June 30, 2005, the bankruptcy court entered an order granting
appellees’ motion for relief from the automatic stay “to the extent that the action pending before the
United States Court of Appeals for the Sixth Circuit . . . may proceed to conclusion.” Appellees
filed a motion to reopen the case on July 12, 2005. This court granted that motion on July 27, 2005.1
II.
A.
A district court’s decision to deny a motion to set aside a default judgment is reviewed for
an abuse of discretion. O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 352 (6th Cir. 2003);
Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 794 (6th Cir. 2002). A default may be set
aside “[f]or good cause shown.” Fed. R. Civ. P. 55(c); O.J. Distr., Inc., 340 F.3d at 352-53; United
Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 843-44 (6th Cir. 1983). Appellant argues
that district court did not properly apply the factors for setting aside an entry of default. Those
criteria are: (i) whether the plaintiff will be prejudiced from reopening the case; (ii) whether the
defendant has a meritorious defense; and (iii) whether the defendant’s culpable conduct led to the
default. Berthelsen v. Kane, 907 F.2d 617, 620 (6th Cir. 1990); United Coin Meter Co., 705 F.2d
at 845. The district court considered each of the factors in detail and concluded that “[appellant’s]
culpable conduct did lead to the default, [appellant] has not asserted a meritorious defense, and that
1
In its response to appellees’ motion to reopen, appellant argues that the debts at issue in this case
are dischargeable under the Bankruptcy Code and that contempt proceedings in the district court are
implicated in this appeal. Appellant’s arguments are unpersuasive; this case is not moot simply
because the debt may be discharged, nor does the district court case affect this appeal.
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[appellees] have shown prejudice if the default is set aside.” Consequently, the district court denied
appellant’s motion to set aside entry of default.
The court first addressed whether appellant’s culpable conduct led to the default, noting that
mere carelessness is not enough; rather, there must be “either an intent to thwart judicial proceedings
or a reckless disregard for the effect of its conduct on those proceedings.” Shepard Claims Serv.,
Inc. v. William Darrah & Assocs., 796 F.2d 190, 194 (6th Cir. 1986). The district court concluded
that appellant’s “actions clearly constituted reckless disregard for the effect of its conduct on these
proceedings.” Appellant argues that his conduct cannot be labeled culpable because the business
manager for the labor union involved told him not to worry about the lawsuit. However, appellant
was served with a complaint, a motion for entry of default, the entry of default, the motion for
temporary injunction, the grant of the temporary injunction, and the motion for a show cause
hearing. Defendant ignored documents from the court for over eight months, and the district court
correctly concluded that appellant’s “own arrogance and culpable conduct led to the entry of
default.”
Second, the court determined whether appellant had a meritorious defense. The court noted
that in order to establish a meritorious defense the appellant must simply advance a defense “good
at law,” not necessarily one that will likely succeed. United Coin Meter Co., 705 F.2d at 845. The
court recognized that the key to the meritorious defense inquiry is the determination of “whether
there is some possibility that the outcome of the suit after a full trial will be contrary to the result
achieved by the default.” INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 399
(6th Cir. 1987) (internal quotation marks and citation omitted).
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Appellant contends that the case would have been treated differently under Fourth Circuit
precedent and that appellees engaged in forum shopping by filing their complaint in the Middle
District of Tennessee. Appellant appears to be correct in the assertion that a construction industry
employer may unilaterally repudiate a pre-hire collective bargaining agreement under Fourth Circuit
law but cannot do so under Sixth Circuit law. See John Deklewa & Sons, Inc., 282 N.L.R.B. 1375
(1987) (holding that pre-hire agreements may not be repudiated by an employer without violating
section 8(a)(5) of the National Labor Relations Act); Ky. State Dist. Council of Carpenters, AFL-
CIO v. Wehr Constructors, Inc., No. 92-5931, 1993 WL 288277, at *9 (6th Cir. July 28, 1993)
(positively citing Deklewa); Indus. TurnAround Corp. v. NLRB, 115 F.3d 248, 254 (4th Cir. 1997)
(holding that the Fourth Circuit is “precluded from adopting Deklewa as the law of the Circuit
because it stands in conflict with Clark v. Ryan, 818 F.2d 1102 (4th Cir. 1987), a prior panel opinion
of this court”). Appellant argues that he should be able to assert this defense in a Fourth Circuit
court. In other words, appellant argues that his meritorious defense is incorrect venue. Appellees
contend that by his very argument, appellant concedes that he has no meritorious defense in the
Sixth Circuit and, furthermore, if appellant made the claim in the Sixth Circuit, it would be
dismissed for failure to exhaust the contractual procedure for dispute resolution. See United Ass’n,
Local No. 577 v. Ross Bros. Constr. Co., 191 F.3d 714, 717 (6th Cir. 1999) (holding that “if a party
fails to pursue contractual grievance remedies, the party waives the right to have its grievance settled
in federal court”).
Appellant also asserts that appellees engaged in forum shopping by filing the complaint in
the Middle District of Tennessee. As the district court notes, “using [appellant’s] own reasoning,
it would also appear that by filing a complaint after the fact in the Western District of North Carolina
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in order to assert its defense, [appellant] is ‘forum shopping’ itself.” Appellees were entitled to
bring suit in the Middle District of Tennessee because the plan is partially administered there. See
29 U.S.C. § 1132(e)(2) (stating that an ERISA action “may be brought in the district where the plan
is administered”). The district court correctly concluded that “[t]he fact that the Western District
of North Carolina might be more favorable to [appellant] does not mean that [appellant] has a
meritorious defense in this [c]ourt, nor does forum shopping for a defense constitute the ‘good
cause’ required to set aside entry of default.”
Third, the district court addressed prejudice to the appellees in setting aside the entry of
default. The setting aside of a default must “result in tangible harm such as loss of evidence,
increased difficulties of discovery, or greater opportunity for fraud or collusion” in order to be
deemed prejudicial. Thompson v. Am. Home Assurance Co., 95 F.3d 429, 433-34 (6th Cir. 1996).
In the order granting the temporary injunction, the court stated, “[i]ssuance of the injunction will
likely save the [appellees] from irreparable injury . . . [because] absent the payment of contributions,
employees of the [appellant] may lose health, pension and other benefits.” Appellant argues that its
failure to answer, appear before the court, or comply with the court’s order granting the temporary
injunction did not result in any tangible harm. This assertion is false. As the district court stated,
“[appellant’s] course of action in this case has been to obfuscate, delay, and frustrate [appellees’]
attempts at discovery.” Whether intentional or not, appellant’s eight month delay in responding to
the allegations in the suit undoubtedly resulted in tangible harm to the appellees.
The district court considered each of the factors articulated in United Coin at length and there
was no abuse of discretion in its conclusion that the entry of default should not be set aside.
Appellant’s culpable conduct led to the default entry, appellant does not have a meritorious defense,
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and appellees would be prejudiced if the entry of default was set aside. Therefore the district court
did not abuse its discretion in finding that Bedrock Services failed to satisfy the criteria for setting
aside a default. Because we affirm the district court’s decision declining to set aside the entry of
default, we do not address appellant’s improper venue argument.
B.
In reviewing a district court’s decision to grant or deny a motion for a permanent injunction,
several different standards of review are used; factual findings are reviewed for clear error, legal
conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an abuse of
discretion. Sec’y of Labor v. 3Re.com, Inc., 317 F.3d 534, 537 (6th Cir. 2003) (quoting S. Cent.
Power Co. v. Int’l Bhd. of Elec. Workers, Local 2359, 186 F.3d 733, 737 (6th Cir. 1999)).
Appellant’s brief devotes three sentences to its argument that the district court erred in entering a
permanent injunction in this case and does not cite any law to support its argument. Appellant did
not assert that the district court applied the wrong legal standard or relied on clearly erroneous
factual findings. See Waste Mgmt., Inc. v. Nashville & Davidson County, 130 F.3d 731, 735 (6th
Cir. 1997) (stating that “[a]n abuse of discretion exists when the district court applies the wrong
legal standard, misapplies the correct legal standard, or relies on clearly erroneous findings of fact”
(quoting First Tech. Safety Sys., Inc., v. Depinet, 11 F.3d 641, 647 (6th Cir. 1993))). Because
appellant does not present an issue regarding the merits of the decision by the district court to
convert the temporary injunction into a permanent injunction, we do not address this issue.
We note, however, that the district court mistakenly cited the four-prong test for a temporary
injunction in granting the permanent injunction. As appellant’s counsel conceded at oral argument,
the error was harmless and the permanent injunction was properly granted if the refusal to set aside
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the entry of default was correct and venue was found to be proper in the Middle District of
Tennessee. Based on the foregoing, we hold that the permanent injunction was proper despite the
district court’s reference to an incorrect test.
C.
The standard of review on appeal in an attorney fees case is abuse of discretion. Riddle v.
Egensperger, 266 F.3d 542, 547 (6th Cir. 2001). ERISA is clear that attorney fees are mandatory
where there is a decision enforcing contribution obligations. 29 U.S.C. § 1132(g)(2)(D).2 Appellant
does not challenge the amount of the fee award, but rather whether attorney fees should have been
awarded at all. We do not address this issue in light of the district court’s request to remand the
attorney fees decision.
III.
For the foregoing reasons, the attorney fees issue is remanded and the district court’s denial
of the motion to set aside the entry of default and the grant of the permanent injunction are affirmed.
2
The relevant statutory language provides that “[i]n any action under this subchapter by a
fiduciary for or on behalf of a plan to enforce section 1145 of this title in which a judgment in favor
of the plan is awarded, the court shall award the plan . . . (D) reasonable attorney’s fees and costs
of the action, to be paid by the defendant.” 29 U.S.C. § 1132(g)(2). Section 1145 mandates that
employers party to multiemployer plans make contributions “in accordance with the terms and
conditions of such plan or such agreement.” 29 U.S.C. § 1145.
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