Employer’s choice to ignore ERISA suit was ‘deliberate,’ so no relief from default judgment

Plaintiffs in this ERISA suit seeking delinquent payments to a multi-employer health and welfare fund may not have been “chivalrous” in seeking a default judgment while settlement negotiations were ongoing, but the Seventh Circuit refused to grant relief to an employer that could have protected itself “easily” by seeking relief under Rule 55(c), but instead chose to “march to the beat of its own drum” and ignore the suit until it was too late.

Delinquent payments and default. Several multi-employer health and welfare funds filed suit under ERISA seeking $70,000 in what they called delinquent contributions. The suit was filed on September 25, 2014, and Con-Tech, the allegedly delinquent employer, was served on October 14. It did not file an answer, and on November 5, the plaintiffs filed and served a motion for entry of default. Con-Tech again did not respond and, after a December 1 hearing (which Con-Tech did not attend) default was entered and the plaintiffs were given 14 days to prove damages.

Default judgment. At this point, Con-Tech could have asked the court to vacate the default under Rule 55(c) for “good cause.” However, it ignored the December 1 order. The plaintiffs then filed documents that the district court found sufficient to support judgment against Con-Tech for $70,000 in past-due contributions, $14,000 in interest, $7,000 in liquidated damages, and $7,000 in costs and attorneys’ fees. The judgment was entered on January 13, 2015.

Employer marched to its own drum. Meanwhile, Con-Tech filed an appearance on December 30, 2014, and filed a motion to extend the time to answer the complaint. It also filed a motion for stay in favor of arbitration. Given the entry of default, though, it should have filed a Rule 55(c) motion to vacate the default. Instead, it filed a motion for a stay in favor of arbitration.

Consequently, by the time the district court turned to the subject of damages, the complaint had not been answered, a default had been entered, no Rule 55(c) motion had been filed, and Con-Tech had not contested the plaintiffs’ evidentiary submissions about relief. Once the district court entered its judgment on January 13, the time for Con-Tech to seek relief for “good cause” under Rule 55(c) expired. On January 15, Con-Tech filed a Rule 60(b) motion, which requires a showing of “excusable neglect.” The employer argued that it had not ignored the suit but had instead been negotiating for a settlement with the plaintiffs’ attorneys. The district court judge replied that Con-Tech may not have ignored the plaintiffs’ demands, but it certainly ignored the litigation. Observing that it was impossible to handle a suit in which a litigant unilaterally decides to march to the beat of its own drum, the court denied the motion.

Spurn judicial process at your own risk. Affirming, the Seventh Circuit found that the district court did not abuse its discretion in holding the employer to the requirements of the rules of civil procedure. “Con- Tech could have filed an answer and asked the district court to stay the litigation while the parties negotiated. It was not free to keep silent and hope that the equivalent of a stay would be afforded retroactively.” The appeals court also noted that Con-Tech argued that it had “good cause”— the Rule 55(c) standard — for proceeding as it did, but that Rule was no longer relevant. “Con-Tech made a deliberate decision to disregard the pending suit. No district judge has to put up with that, or excuse it in retrospect,” said the appellate court.

Furthermore, while the employer thought the plaintiffs were not chivalrous in seeking a default judgment while settlement negotiations were ongoing, Con-Tech could have protected itself “easily,” the appeals court pointed out, and chose not to.

Con-Tech also asserted that, if it had filed an answer or any other substantive paper, it would have waived its right to arbitrate under the FAA. “Nonsense,” proclaimed the Seventh Circuit in response. While a litigant can’t try to prevail in court and then seek arbitration only as a fallback, “nothing prevents a defendant from filing an answer that demands arbitration and offers other reasons why plaintiffs should not receive judicial relief.”

SOURCE: Central Illinois Carpenters Health and Welfare Trust Fund v. Con-Tech Carpentry, LLC, (CA-7), No. 15-1269, November 24, 2015.

Visit our News Library to read more news stories.