Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_14-cv-05549/USCOURTS-cand-4_14-cv-05549-5/pdf.json

Parties Involved:
Bar-K 401(k) Plan
Defendant
Bar-K, Inc.
Defendant
Bruce Horwitz
Defendant
Walter Ng
Defendant
Thomas E. Perez
Plaintiff
United States Department of Labor
Plaintiff

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

THOMAS E. PEREZ, et al.,

Plaintiffs,

v.

BAR-K, INC., et al.,

Defendants.

Case No. 14-cv-05549-JSW (JSC)

REPORT AND RECOMMENDATION 

RE: MOTION FOR DEFAULT 

JUDGMENT

Re: Dkt. No. 22

Plaintiff Thomas E. Perez, Secretary of Labor, United States Department of Labor 

(“Plaintiff”) brings this action against Bar-K, Inc. (the “Company”), the Bar-K 401(k) Plan (the 

“Plan”) and individual defendants Bruce Horwitz and Walter Ng, two fiduciaries of the Plan, 

(collectively, “Defendants”) alleging violations of the Employee Retirement Income Security Act 

(“ERISA”), 29 U.S.C. §§ 1001-1191c.1 Plaintiff alleges that Defendants breached their fiduciary 

duties to plan members by making imprudent investments, prohibited extensions of credit, 

improper diversion of participant loan repayments, prohibited payments to themselves, and failing 

to appoint a trustee to the Plan.

Presently before the Court is Plaintiff’s unopposed Motion for Default Judgment against 

Defendant Bar-K, Inc. (the “Company”). (Dkt. No. 22.) Plaintiff seeks judgment from the Court 

holding the Company liable for a number of ERISA violations and seeking equitable relief in the 

form of removal of the Company from its position as Plan Administrator and named fiduciary of 

the Plan and appointment of an independent fiduciary to the Plan. The Motion was referred to the 

 

1

The Plan is named as a defendant pursuant to Federal Rule of Civil Procedure 19 to ensure that 

the Court can grant full relief, but none of the claims are alleged against the Plan. (See Dkt. No. 

22 at 3 n.1; see generally Dkt. No. 1.)

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undersigned magistrate judge for a report and recommendation. (Dkt. No. 23.) Having considered 

Plaintiff’s submission, and having had the benefit of oral argument on June 4, 2015, the Court 

RECOMMENDS that the motion be GRANTED.

BACKGROUND

A. Factual Background

The following facts are taken from the complaint and the declaration of Department of 

Labor Supervisory Investigator Robert Paine, filed in support of Plaintiff’s motion for default 

judgment. (Dkt. Nos. 1, 22-1.)

1. The Parties

The Plan is an employee benefit plan within the meaning of Section 3(3) of ERISA, 29 

U.S.C. § 1002(3) and is subject to the provisions of Title I of ERISA pursuant to ERISA Section 

4(a), 29 U.S.C. § 1003(a). (Dkt. No. 1 ¶ 4.) The Company established the Plan effective August 1, 

1996, to provide benefits to its employees upon retirement, death, or disability. (Id. ¶ 8.) The 

Plan was restated under the current Adoption Agreement effective January 1, 2009. (Dkt. No. 22-

1 ¶ 6(b).)

The Company is a California corporation. (Dkt. No. 1 ¶ 5.) The Company is the Plan 

Sponsor, Plan Administrator, a fiduciary of the Plan that exercised discretionary authority and 

control with respect to the management and disposition of the plan and its assets within the 

meaning of ERISA Section 3(21)(A)(i), (iii), 29 U.S.C. § 1002(21)(A)(i), (iii), and a party in 

interest to the Plan within the meaning of ERISA Section 3(14)(A), (C), 29 U.S.C. § 1002(14)(A), 

(C). Defendants Ng and Horwitz were also fiduciaries of the Plan and parties in interest to the 

Plan within the meaning of ERISA. (Dkt. No. 1 ¶¶ 6-7.)

2. Conduct Involving RE Loans LLC

Beginning on or around December 1, 2002 until on or around June 30, 2008, the Plan 

invested in RE Loans LLC. (Id. ¶ 10.) The Plan invested a total of $912,654.71 in RE Loans 

LLC. (Dkt. No. 22-1 ¶ 6(d).) The Plan continued to invest in RE Loans LLC even after the 

manager of RE Loans LLC informed investors in 2007 that one-quarter of its loans were in 

default. (Id.) Beginning in January 2008, Ng began diverting the Plan’s investments in RE Loans 

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LLC to other accounts to conceal the investments. (Id.) By continuing to invest Plan assets in RE 

Loans LLC, Defendants failed to act with the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent person acting in a like capacity and familiar with such 

matters would use in the conduct of an enterprise of a like character and with like aims in violation 

of ERISA Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B). (Dkt. No. 1 ¶ 11.)

Since on or around November 1, 2007, RE Loans LLC has been a party in interest to the 

Plan within the meaning of ERISA Section 3(14)(G), 29 U.S.C. § 1002(14)(G), as an entity with at 

least fifty percent of the voting power held by Ng, a fiduciary to the Plan. (Dkt. No. 1 ¶ 14.) 

Between on or around November 1, 2007 and June 30, 2008, the Plan lent money to RE Loans 

LLC in exchange for promissory notes. (Id. ¶ 15.) By lending money to RE Loans LLC, Ng and 

the Company breached their fiduciary duties to the Plan in violation of ERISA Section 

404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B), and caused the Plan to engage in transactions which they 

knew or should have known constituted a direct or indirect lending of money or other extension of 

credit between the Plan and a party in interest in violation of ERISA Section 406(a)(1)(B), 29 

U.S.C. § 1106(a)(1)(B). (Id. ¶ 16.) 

From on or around December 1, 2002 until November 1, 2007, RE Loans LLC was a Plan 

asset within the meaning of 29 C.F.R. § 2510.3-101, and the Company collected fees for providing 

services to RE Loans LLC, a party in interest to the Plan. (Dkt. No. 1 ¶¶ 28-29.) By collecting 

these fees, the Company dealt with assets of the Plan in its own interest in violation of ERISA 

Section 406(b)(1), 29 U.S.C. § 1106(b)(1). (Id. ¶ 30.) Defendants Ng and Horwitz, as managers 

of B-4 Partners LLC, collected fees as investment manager of RE Loans LLC, but were also 

fiduciaries to the Plan from December 1, 2002 until November 1, 2007. (Id. ¶¶ 35-36.) By 

collecting fees from a Plan asset, Ng and Horwitz dealt with Plan assets in their own interests in 

violation of Section 406(a)(1)(B), 29 U.S.C. § 1106(a)(1)(B). (Id. ¶ 37.) The Company is liable 

for these violations of Ng and Horwitz because it participated knowingly in these breaches of 

fiduciary duty and/or had knowledge of the breaches of a co-fiduciary and failed to take 

reasonable efforts to remedy the breaches in violation of ERISA Section 405(a), 29 U.S.C. 

§ 1105(a). (Id. ¶ 38.) RE Loans LLC filed for bankruptcy in September of 2011, and to date the 

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Plan has not recovered any of its investment in RE Loans LLC. (Dkt. No. 22-1 ¶ 6(f).)

3. Conduct Involving Mortgage Fund 08 LLC

From on or around July 1, 2008 until May 31, 2009, the Plan invested in Mortgage Fund 

08 LLC (“MF08 LLC”). (Dkt. No. 1 ¶ 24.) MF08 LLC’s mortgage pool was managed by the 

same individuals who managed RE Loans LLC. (Dkt. No. 22-1 ¶ 6(g).) The offering 

memorandum for MF08 LLC’s mortgage pool stated that it may purchase loans from RE Loans 

LLC, which had a substantial percentage of defaulting loans in its portfolio. (Id.) In total, the 

Plan invested $75,166.30 in MF08 LLC. (Id.) MF08 LLC was placed into involuntary 

bankruptcy in September of 2011, and to date the Plan has not recovered any of its investment into 

MF08 LLC. (Id. ¶ 6(f).) In making these investments, Ng and the Company failed to act with 

reasonable care in violation of ERISA Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).

4. Other Improper Conduct

The Plan has a participant loan program, whereby Plan participants can take out loans from 

their Plan accounts. (Dkt. No. 1 ¶ 19.) When participant loans are repaid, Plan documents require 

repayments be placed in a segregated account. (Id.) Since on or around September 30, 2008, 

Defendants diverted participant loan repayments instead of placing those repayments in the 

segregated account as the Plan requires. (Id. ¶ 20.) In doing so, Defendants Ng and the Company 

failed to act solely in the interest of the Plan’s participants and beneficiaries in violation of ERISA

Section 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A); failed to act with reasonable care, skill, 

prudence and diligence under the circumstances in violation of ERISA Section 404(a)(1)(B), 29 

U.S.C. § 1104(a)(1)(B); and failed to act in accordance with the documents and instruments 

governing the Plan in violation of ERISA Section 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D). (Dkt. 

No. 1 ¶ 21.)

Plan documents gave the company authority to remove and appoint trustees to the Plan. 

(Id. ¶ 42.) The Plan’s trustee resigned effective August 29, 2010, and the Company has not 

appointed a trustee since that time. (Id. ¶¶ 41-42.) The Company’s failure to appoint a trustee is a 

failure to hold the assets of the Plan in a trust in violation of ERISA Section 403(a), 29 U.S.C. 

§ 1103(a).

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* * *

As a direct and proximate result of each of these breaches of fiduciary duty, the Plan has 

suffered losses, including lost-opportunity income, for which Defendants are jointly and severally 

liable pursuant to ERISA Section 409, 29 U.S.C. § 1109. (Dkt. No. 1 ¶¶ 12, 17, 22, 32, 39, 45.) 

According to the Paine Declaration, the Plan has suffered $1,310,252.31 in losses, including lostopportunity costs calculated in accordance with IRC Section 6621(a)(2), 26 U.S.C. § 6621(a)(2) 

and including pre-judgment interest. (See Dkt. No. 22 at 9 & n.2.)

In the complaint, Plaintiff seeks an order requiring Defendants to restore to the Plan any 

losses resulting from their fiduciary duties and to correct the prohibited transactions, including 

reimbursing the Plan for all improper fees collected during the relevant time period; a full 

accounting of the Plan; an order permanently enjoining Defendants from violating Title I of 

ERISA; an order removing the Company as fiduciary to the Plan and permanently enjoining Ng 

and Horwitz from serving as fiduciary to any ERISA-covered employee benefit plan; appointment 

of an independent fiduciary with full discretionary authority to administer the Plan and requiring 

Defendants to pay costs associated with that independent fiduciary; an order requiring Defendants 

to cooperate with the independent fiduciary; and an award of costs of this action to Plaintiff. (Dkt. 

No. 1 at 8.)

B. Procedural History

On March 13, 2009, the Employee Benefits Security Administration, a division of the 

Department of Labor, received notice of a state investigation into investments in real estate loans, 

and also learned that the Plan was among the investors. (Dkt. No. 22-1 ¶ 5.) The Employee 

Benefits Security Administration opened a formal investigation into the Plan on April 16, 2009. 

(Id. ¶ 6.) On December 19, 2014, Plaintiff initiated this enforcement action pursuant to Title I of 

ERISA, which authorizes Plaintiff to file and prosecute claims against fiduciaries and others who 

commit violations of ERISA. See ERISA Section 502(a)(2), (5), 29 U.S.C. § 1132(a)(2), (5).

In January of 2015, after Ng and Horwitz waived service of process, the Court entered 

consent judgments against them. (Dkt. Nos. 13, 14.) Judgment was entered against Ng in the 

amount of $1,310,252.16, including lost-opportunity costs and pre-judgment interest calculated at 

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the rate set forth in 26 U.S.C. § 6621. The consent judgment holds Ng jointly and severally liable 

for the Plan’s losses. Judgment was entered against Horwitz in the amount of $30,718.72 in losses 

and lost-opportunity costs with interest to accrue at the Section 6621 statutory rate if not paid to 

the Plan within 10 days. Both consent judgments permanently enjoin Ng and Horwitz from 

serving as fiduciary to any ERISA-covered employee benefit plan, and ordered the individual 

defendants to cooperate with an independent fiduciary. Ng’s consent judgment requires him to 

bear the costs of appointing the independent fiduciary.

Plaintiff served the Company on February 5, 2015. (Dkt. No. 17.) The Company failed to 

answer or otherwise respond to the complaint within the time prescribed by the Federal Rules of 

Civil Procedure. In fact, to date, the Company still has not answered or otherwise appeared to 

defend itself in this action. On March 10, 2015, Plaintiff requested that the Clerk enter the 

Company’s default. (Dkt. No. 18.) The Clerk entered default against the Company on March 12, 

2015. (Dkt. No. 21.) 

Presently before the Court is Plaintiff’s Motion for Default Judgment. Pursuant to ERISA 

Section 502(a)(5), 29 U.S.C. § 1132(a)(5), Plaintiff asks that the Company be removed as 

fiduciary and requests that an independent fiduciary be appointed to manage and administer the 

Plan.

DISCUSSION

A. Jurisdiction and Service of Process

Courts have an affirmative duty to examine their own jurisdiction—both subject matter 

and personal jurisdiction—when entry of default judgment is sought against a party in default. In 

re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Here, the Court has subject matter jurisdiction 

pursuant to 29 U.S.C. § 1132(e). Personal jurisdiction arises from service upon the Company in 

California. (See Dkt. No. 17.) See Burnham v. Sup. Ct., 495 U.S. 604, 620-21 (1990).

The Court must also assess whether the defendant against whom default judgment is 

sought was properly served with notice of the action. See Solis v. Cardiografix, No. 5:12-cv01485 EJD, 2012 WL 3638548, at *2 (N.D. Cal. Aug. 22, 2012). Plaintiff served the summons 

and complaint on Company by serving its president, Kelly Ng, who is also the registered agent for 

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service of process for the Company. (Dkt. No. 17; Dkt. No. 18-1 ¶¶ 5-6.) This constitutes proper 

service on the Company. See Fed. R. Civ. P. 4(e)(1) (providing for service “pursuant to the law of 

the state in which the district court is located”); Cal. Code Civ. P § 416.10(a), (b) (a summons and 

complaint may be served on a corporation by delivering a copy of the documents to the “person 

designated as “agent for the service of process” or “president or other head of the corporation”).

B. Default Judgment

1. Legal Standard

After entry of default, a court may grant default judgment on the merits of the 

case. See Fed. R. Civ. P. 55. “The district court’s decision whether to enter a default judgment is a 

discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Courts consider the 

following factors in determining whether to enter default judgment:

(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). Upon entry of default, the factual 

allegations of the complaint related to liability are deemed to have been admitted by the nondefaulting party. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). 

Allegations regarding damages, however, are not deemed admitted; to that end, the Court has the 

discretion to consider competent evidence and other papers submitted with a motion 

for default judgment to determine damages. Shanghai Automation Instrument Co., Ltd. v. 

Kuei, 194 F. Supp. 2d 995, 1000, 1010 (N.D. Cal. 2001) (citing TeleVideo Sys., Inc., 826 F.2d at 

917).

The majority of the Eitel factors support default judgment in this case.

2. Application

a. Possibility of Prejudice

The first Eitel factor considers whether the plaintiff will suffer prejudice if a default 

judgment is not entered. Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039, 1054 (N.D. 

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Cal. 2010). Here, prejudice will flow from the denial of default judgment because absent relief, 

Plaintiff would be without recourse to enjoin the challenged conduct and enforce compliance with 

ERISA. See, e.g., Solis v. Innovative Steel Sys., Inc., No. CIV S-12-0276 GEB CKO, 2012 WL 

1552791, at *3 (E.D. Cal. Apr. 27, 2012) (finding prejudice to the Secretary of Labor if default 

judgment were not entered on breach of fiduciary duties ERISA claims). Moreover, plan 

participants and beneficiaries also would be prejudiced if default judgment was not entered as they 

would continue to be unable to recoup lost Plan assets. See, e.g., Cardiografix, 2012 WL 

3638548, at *3 (“[F]ailure to enter default judgment in favor of Plaintiff would result in prejudice 

to the plan participants, who have been denied the proper operation of their employee benefit 

plan.”); Chao v. Zoltrix, Inc., No. C 07-00610 WHA, 2007 WL 2990429, at *3 (N.D. Cal. Oct. 11, 

2007) (finding prejudice to the participants and beneficiaries of the plan if the Secretary of Labor 

was not granted default judgment); Innovative Steel Sys., Inc., 2012 WL 1552791, at *3 (finding 

prejudice to plan participants if the Secretary of Labor was not granted default judgment). Thus, 

this favor weighs in favor of default judgment.

b. Merits of the Substantive Claim and Sufficiency of the Complaint

The Court considers the next two factors—the merits of Plaintiff’s substantive claims and 

the sufficient of the complaint—together because of the relatedness of the two inquiries. In 

particular, the Court must determine whether the allegations in the complaint are sufficient to state 

a claim that supports the relief sought. See Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 

1978); PepsiCo, Inc. v. Cal. Sec. Cans., 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). As 

discussed above, after entry of default, the well-pleaded allegations in the complaint regarding 

liability are taken as true, except as to the amount of damages. Fair Housing of Marin v. Combs, 

285 F.3d 899, 906 (9th Cir. 2002). 

Plaintiff alleges that the Company is the Plan Sponsor and Plan Administrator, and 

therefore a fiduciary of the Plan within the meaning of ERISA Section 3(21)(A)(i), 29 U.S.C. 

§ 1002(21)(A)(i), (ii). Plaintiff alleges the following violations of ERISA:

(1) the Company, acting in its fiduciary capacity, made imprudent investments in RE 

Loans LLC after October 2007 that constituted a breach of the Company’s fiduciary duties to Plan 

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participants and beneficiaries by failing to act with the care, skill, prudence, and diligence under 

the circumstances then prevailing that a prudent person acting in a like capacity and familiar with 

such matters would use in the conduct of an enterprise of a like character and with like aims under 

ERISA Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B);

(2) the Company, acting in its fiduciary capacity, failed to act with the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent person acting in a 

like capacity and familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims under ERISA Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B) and 

caused the Plan to engage in transactions which they knew or should have known constituted a 

direct or indirect lending or money or other extension of credit between the Plan and a party in 

interest in violation of ERISA Section 406(a)(1)(B), 29 U.S.C. § 1106(a)(1)(B) by lending money 

to RE Loans LLC, a party in interest to the Plan due to more than fifty percent voting power held 

by a Plan fiduciary, between November 1, 2007 and June 30, 2008;

(3) the Company, acting in its fiduciary capacity, diverted participant loan repayments 

instead of placing those repayments in a segregated account as Plan documents require, and in 

doing so failed to act solely in the interest of Plan participants and beneficiaries of the Plan and for 

the exclusive purpose of providing benefits to participants and their beneficiaries and defraying 

reasonable expenses of Plan administration in violation of ERISA Section 404(a)(1)(A), 29 U.S.C. 

§ 1104(a)(1)(B); failed to act with the care, skill, prudence, and diligence under the circumstances 

then prevailing that a prudent person acting in a like capacity and familiar with such matters would 

use in the conduct of an enterprise of a like character and with like aims under ERISA Section 

404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B); and failed to act in accordance with the documents and 

instruments governing the Plan in violation of ERISA Section 404(a)(1)(D), 29 U.S.C. 

§ 1104(a)(1)(D);

(4) the Company, acting in its fiduciary capacity, made imprudent investments in 

Mortgage Fund 08 LLC from July 1, 2008 to May 31, 2009, that constituted a breach of the 

Company’s fiduciary duties to Plan participants and beneficiaries by failing to act with the care, 

skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting 

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in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims under ERISA Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B)

(5) the Company, acting in its fiduciary capacity, collected fees for providing services to 

RE Loans LLC, which was a party in interest to the Plan and Plan asset pursuant to 29 C.F.R. 

§ 2510.3-101, and in doing so dealt with Plan assets in the Company’s own interest in violation of 

ERISA Section 406(b)(1), 29 U.S.C. § 1106(b)(1);

(6) Ng and Horwitz, acting in their fiduciary capacities, managed B-4 Partners LLC, which 

collected fees as investment manager of RE Loans LLC and therefore Ng and Horwitz dealt with 

Plan assets in their own interests in violation of ERISA Section 406(b)(1), 29 U.S.C. § 1106(b)(1), 

and the Company knowingly participated in those breaches or had actual or constructive 

knowledge of such breaches by co-fiduciaries and failed to take reasonable efforts to remedy such 

breaches in violation of ERISA Section 405(a), 29 U.S.C. § 1105(a); 

(7) the Company failed to appoint a trustee with authority and discretion to manage and 

control the plan’s assets after the trustee resigned effective August 29, 2010 in violation of ERISA 

Section 403(a), 29 U.S.C. § 1103(a), which provides that “all assets of an employee benefit plan 

shall be held in trust by one or more trustees . . . the trustee or trustees shall have exclusive 

authority and discretion to manage and control the assets of the plan[.]” 

These factual allegations, taken as true, show that the Company abandoned its 

responsibilities as fiduciary to the Plan and instead placed its own interests above that of the Plan 

participants. The merits of the claims are even stronger when considering the declaration of 

Employee Benefits Security Administration investigator Paine, who avers more specific facts 

about where the Plan assets went during the relevant time period—particular about why the 

investments in RE Loans LLC and Mortgage Fund 08 LLC were imprudent: that is, because the 

investments were made with full knowledge that the mortgage pools contained a substantial 

portion of loans in default. (Dkt. No. 22-1 ¶ 6(e), (g).)

Pursuant to ERISA Section 502(a)(5), 29 U.S.C. § 1132(a)(5), Plaintiff has standing as 

Secretary of the U.S. Department of Labor to bring a civil action to enjoin any practice that 

violates any provision of Title I of ERISA, and to obtain other appropriate equitable relief to 

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redress such violation or enforce any provision of Title I of ERISA. Appropriate equitable relief 

includes the appointment of an independent fiduciary to carry out the proper administration and 

management of a benefit plan. Donovan v. Mazzola, 716 F.2d 1226, 1237-39 (9th Cir. 1983).

Plaintiff’s complaint, therefore, has merit and is sufficiently pleaded. These factors therefore 

weigh in favor of entry of default judgment as for all seven alleged ERISA violations.

c. Amount of Money at Stake

The fourth Eitel factors considers “the amount of money at stake in relation to the 

seriousness of Defendants’ conduct.” PepsiCo, Inc., 238 F. Supp. 2d at 1176. “When the money 

at stake in the litigation is substantial or unreasonable, default judgment is discouraged.” Bd. of 

Trs. v. Core Concrete Constr., Inc., 11-2532 LB, 2012 WL 380304, at *4 (N.D. Cal. Jan. 17, 

2012) (citation omitted). However, when “the sum of money at stake is tailored to the specific 

misconduct of the defendant, default judgment may be appropriate.” Id. (citations omitted). 

In the complaint, Plaintiff seeks to hold the Company jointly and severally liable for all 

losses stemming from the above-described breaches of fiduciary duty, requiring the Company to 

restore losses to the Plan. (See Dkt. No. 1 at 8.) The Paine Declaration indicates that the Plans 

losses from the breaches totals $1,310,252.16. (See Dkt. No. 22-1 ¶ 7.) Although the motion for 

default does not make clear whether Plaintiff is seeking an order requiring the Company to restore 

the full amount of the losses, (see Dkt. No. 22 at 3), at oral argument Plaintiff clarified that it does 

seek such relief. The Paine Declaration and accompanying exhibits indicate why that amount was 

reached and connects it clearly and logically to each breach of fiduciary duty alleged. (See Dkt. 

Nos. 22-1, 22-2, 22-3, 22-4, 22-5.) On the other hand, the amount is large, which is a factor 

disfavoring default judgment. See Eitel, 782 F.2d at 1472 (stating that the fact that three million 

dollars was at stake, when considered in light of the parties’ dispute as to material facts, supported 

decision not to enter default judgment); see also Zoltrix, 2007 WL 2990429, at *3 (stating that the 

Plan assets of $60,989.77 “pales beside the three million dollars at stake in Eitel” and entering 

default judgment). The amount of Plan assets at stake here is more than that at issue in Zoltrix, but 

less than half of the amount at issue in Eitel; falling somewhere in the middle, the factor may not 

weigh for or against default. 

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The only other sum of money involved is Plaintiff’s request that any independent fiduciary 

appointed by the court be authorized to receive $13,000 in fees and expenses payable from the 

assets of the Plan. (Dkt. No. 22 at 4.) This amount is certainly higher than the fee and cost 

amount generally awarded for operation of an independent fiduciary. Cf. Innovative Steel Sys., 

Inc., 2012 WL 1552791, at *5 (awarding $1,500 in fees and costs payable from plan assets of fund 

the independent fiduciary chosen to manage and administer the plan); Solis v. Vigilance, Inc., No. 

C 08-05083 JW, 2009 WL 2031767, at *3 (N.D. Cal. July 9, 2009) (awarding $3,500 in fees and 

expenses payable from plan assets to fund the independent fiduciary chosen to manage and 

administer the plan); Zoltrix, 2007 WL 2990429, at *3 (seeking $2,971.25 in fees and expenses 

payable from plan assets to fund the independent fiduciary chosen to manage and administer the 

plan). However, the amount is not sought from the Company itself, but rather from Plan assets, so 

Defendant is not facing this amount as a financial loss, which weighs in favor of entry of default 

judgment. See, e.g., Innovative Steel Sys., Inc., 2012 WL 1552791, at *4 (where plaintiff did not 

seek monetary damages but only injunctive relief, finding the request for $1,500 in Plan assets—

not company money—to fund the independent fiduciary a reasonable amount of money at stake 

that weighed in favor of granting default judgment).

d. Possibility of a Dispute Concerning Material Facts

The fifth factor under Eitel “considers the possibility of dispute as to any material facts in 

the case.” PepsiCo, Inc., 238 F. Supp. 2d at 1177. The Company has not appeared in this action, 

let alone contested any of Plaintiff’s alleged material facts, and “[t]he general rule of law is that 

upon default the factual allegations of the complaint, except those relating to damages, will be 

taken as true.” Televideo Sys., Inc., 826 F.2d at 917-18. As outlined above, Plaintiff has provided 

the Court with well-pleaded allegations supporting its claims. Accordingly, no genuine dispute of 

material facts would preclude entry of default judgment.

e. Whether the Company’s Default was the Product of Excusable Neglect

Upon review of the record, the Court concludes that the Company’s default was not the 

result of excusable neglect. See PepsiCo, Inc., 238 F. Supp. 2d at 1177. The Company was 

properly served with process. (Dkt. No. 17.) Other Plan co-fiduciaries were served and appeared 

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in this action and resolved the matter by entered into consent judgments with Plaintiff. (Dkt. Nos. 

13-14.) Nevertheless, the Company still has not appeared or otherwise defended itself in this 

action. The record suggests that the Company has chosen not to defend itself, not that the default 

resulted from any excusable neglect. This Eitel factor therefore favors the entry of default 

judgment.

f. Public Policy Favoring Decision on the Merits

“Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782 

F.2d at 1472. “However, the mere existence of [Federal Rule of Civil Procedure] 55(b) indicates 

that this preference, standing alone, is not dispositive.” PepsiCo, Inc., 285 F. Supp. 2d at 1177. 

The Company’s failure to answer the complaint precludes a decision on the merits. Although 

cognizant of the policy in favor of decision on the merits, this factor alone does not, by itself, 

preclude entry of default judgment against the Company. See id.

* * *

A majority of the Eitel factors support entry of default judgment against the Company. 

The Court therefore concludes that Plaintiff is entitled to the entry of default judgment against the 

Company with respect to all ERISA violations alleged in the complaint and will make a 

recommendation to that effect.

B. Relief Sought

In its motion for default judgment, Plaintiff requests primarily injunctive relief, including 

an order requiring the Company to restore the lost assets to the fund, removal of the Company 

from its position as Plan Administrator and named fiduciary of the Plan and appointment of an 

independent fiduciary with discretionary authority to administer the Plan to effective its 

termination and distribution of the Plan assets to the participants and beneficiaries. The relief 

sought was requested in the complaint. (Dkt. No. 1 at 8.) 

Moreover, Plaintiff has submitted sufficient evidence to justify the relief sought. With 

respect to the loss amount, the Paine Declaration adequately addresses how Plaintiff calculated the 

loss amount. (See generally Dkt. No. 22-1.) But even in the Paine Declaration’s absence, Ng 

agreed to restore that amount pursuant to his consent judgment (see Dkt. No. 13), and taking the 

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complaint allegations as true, the Company is therefore liable for the restoration of the same 

amount as Ng’s co-fiduciary pursuant to ERISA Section 405, 29 U.S.C. § 1105(a).

In addition, the Court finds that the injunctive relief that Plaintiff proposes is appropriate 

pursuant to 29 U.S.C. §§1332(a)(5) and 1109(a),2and because the Company’s breaches of 

fiduciary duties and abandonment of the Plan has caused and will continue to cause irreparable 

harm.

Plaintiff requests that Receivership Management, Inc., 783 Old Hickory Blvd., Suite 255, 

Brentwood, TN 27027, be appointed as an independent fiduciary to the Plan. The declaration 

submitted by Robert Paine, an investigator for the United States Department of Labor, Employee 

Benefits Security Administration division, states that Mr. Paine consulted with several prospective 

independent fiduciaries regarding the process of maintaining the Plan given its current status, the 

ongoing bankruptcy proceedings facing RE Loans LLC and Mortgage Fund 08 LLC, the need to 

locate Plan participants, and file an annual Internal Revenue Service Form 5500 on behalf of the 

Plan. (Dkt. No. 22-1 ¶ 9.) Mr. Paine received fee proposals from these prospective fiduciaries. 

(Id.) After reviewing and comparing the fee proposals, combined with his knowledge of other 

independent fiduciaries appointed to do similar work on ERISA-covered plans that the Employee 

Benefits Security Administration’s San Francisco Regional Office investigates, Mr. Paine 

concluded that Receivership Management’s $13,000 fee proposal is reasonable and consistent with 

the market for the required work. (Id. ¶ 10.) The Court credits Mr. Paine’s conclusion that 

Receivership Management’s proposal is reasonable such that it should be the chosen independent 

fiduciary.

Lastly, Plaintiff asks the Court to authorize payment to Receivership Management of up to 

$13,000 from assets of the Plan for the first two years and an additional $1,100 in Plan assets for 

each year thereafter. As stated above, Mr. Paine avers that this amount is reasonable based on his 

review of fee proposals from various independent fiduciaries. (Dkt. No. 22-1 ¶¶ 9-10.) This

 

2

ERISA Section 409(a), 29 U.S.C. § 1109(a) provides, in pertinent part, that “[a]ny person who is 

a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties 

imposed upon fiduciaries by this subchapter . . . shall be subject to such other equitable or 

remedial relief as the court may deem appropriate, including removal of such fiduciary.”

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amount is much higher than the plan assets generally awarded to fund independent fiduciaries. 

See, e.g., Innovative Steel Sys., Inc., 2012 WL 1552791, at *5 ($1,500); Vigilance, Inc., 2009 WL 

2031767, at *3 ($3,500); Zoltrix, 2007 WL 2990429, at *3 ($2,971.25). At oral argument Plaintiff 

explained that the independent fiduciary’s responsibilities in this case are more complex than the 

average case given that it will be tasked with tracking multiple bankruptcy proceedings in order to 

track the Plan’s assets invested in RE Loans LLC and Mortgage Fund 08 LLC. In addition, 

counsel indicated that while other companies’ proposals were in a similar dollar range, only 

Receivership Management’s proposal capped its maximum costs. Under these circumstances, the 

Court concludes that the $13,000 in Plan assets requested to fund the independent fiduciary is 

reasonable.

CONCLUSION

For the reasons described above, subject to Plaintiff filing and serving the declaration 

described above, the Court RECOMMENDS that:

1. Plaintiff’s motion for default judgment (Dkt. No. 22) be granted.

2. Defendant Bar-K, Inc. (the “Company”) be removed as a fiduciary to the 

Innovative Steel Systems, Inc. 401(k) Plan (the “Plan”).

3. The Company is permanently enjoined from violating the provisions of ERISA.

4. As the Company is jointly and severally liable for causing the Plan losses of 

$1,310,252.16, including pre-judgment lost-opportunity costs as calculated through June 30, 2014, 

judgment shall be entered against the Company in that amount.

5. Receivership Management, Inc., 783 Old Hickory Blvd., Suite 255, Brentwood, TN 

27027 (Phone: (615) 370-0051) as the Independent Fiduciary to the Plan who:

(a) will be responsible for collecting, marshaling, paying out, and administering 

all of the Plan’s assets and taking further action with respect to the Plan as appropriate, including 

terminating the Plan when all of its assets are distributed to all eligible participants and 

beneficiaries;

(b) pursuant to the procedures outlined in the Employee Benefits Security 

Administration’s Field Assistance Bulletin 2014-01, must exercise reasonable care and diligence 

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to identify and locate each Plan participant and beneficiary who is eligible to receive a distribution 

under the terms of the Plan;

(c) shall have all the rights, duties, discretion, and responsibilities of a trustee, 

fiduciary, and Plan Administrator under ERISA, including filing an annual Internal Revenue 

Service Form 5500;

(d) shall be authorized to delegate or assign fiduciary duties as appropriate and 

allowed under the law and may retain such assistance as it may require, including attorneys, 

accountants, actuaries, and other service providers;

(e) shall be authorized to receive up to $13,000 from the assets of the Plan to 

operate the Plan for two years from the date it is appointed by the Court, and an additional $1,100 

from the assets of the Plan to operate the Plan for each year thereafter;

(f) shall be authorized to have full access to all data, information, and calculations 

to the Plan’s possession and under its control, including information and records maintained by the 

Plan’s custodial trustee or service provider;

(g) shall have the authority to give instructions respecting the disposition of assets 

of the Plan;

(h) shall comply with all applicable rules and laws; and

(i) shall cooperate with all reasonable requests for information the Secretary may 

have.

Plaintiff shall serve a copy of this report and recommendation on the Company within 

three business days from the filing and date of this report and recommendation and shall file a 

proof of service with the Court.

Any party may file objections to this report and recommendation with the district court 

judge within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. 

P. 72(b); Civ. L.R. 72-3. Failure to file objections within the specified time may waive the right to 

appeal the District Court’s ultimate Order.

IT IS SO ORDERED.

Dated: June 4, 2015

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________________________

JACQUELINE SCOTT CORLEY

United States Magistrate Judge

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