Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-00610/USCOURTS-cand-3_07-cv-00610-4/pdf.json

Parties Involved:
Elaine L. Chao
Plaintiff
Zoltrix Inc.
Defendant
Zoltrix Inc. 401(k) Profit Sharing Plan
Defendant

Document Text:

United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ELAINE L. CHAO, Secretary of Labor,

UNITED STATES DEPARTMENT OF

LABOR,

Plaintiff,

 v.

ZOLTRIX INC., a suspended California

corporation and Plan Administrator, and

ZOLTRIX INC. 401(k) PROFIT SHARING

PLAN, an employee benefit plan,

Defendants. /

No. C 07-00610 WHA

ORDER GRANTING

PLAINTIFF’S MOTION FOR

DEFAULT JUDGMENT

AGAINST DEFENDANT

ZOLTRIX, INC.

INTRODUCTION

In this ERISA enforcement action, plaintiff has moved for a default judgment against

defendant Zoltrix, Inc., a suspended California corporation, who has never appeared in this

action. In 1993, Zoltrix established an employee-benefit plan within the meaning of ERISA

Section 3(3), 29 U.S.C. 1002(3). Plaintiff asserts the plan violates ERISA Sections 402(a),

402(b)(4), and 403(a), 29 U.S.C. 1102(a), 1102(b)(4), and 1103(a). Pursuant to ERISA

Section 502(a)(5), 29 U.S.C. 1132(a)(5), plaintiff has standing as Secretary of the United States

Department of Labor to bring a civil action to enforce any provision of Title I of ERISA. 

Review of the Eitel factors favors entry of default judgment. Accordingly, plaintiff’s motion is

GRANTED.

Case 3:07-cv-00610-WHA Document 31 Filed 10/11/07 Page 1 of 7
United States District Court

For the Northern District of California

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STATEMENT

This action was commenced on January 30, 2007. Plaintiff filed a first amended

complaint on April 16, 2007, which contains the following allegations. In 1993, Zoltrix

established the Zoltrix, Inc. 401(k) Retirement Profit Sharing Plan, an employee-benefit plan

within the meaning of ERISA Section 3(3), 29 U.S.C. 1002(3). Zoltrix assumed responsibility

for the plan as sponsor, administrator, and named fiduciary (Amd. Comp. ¶ 4–5). In 2001,

Zoltrix ceased operations and abandoned the plan (Amd. Comp. ¶ 9). Since Zoltrix ceased

operations, participants and beneficiaries of the plan have been unable to access their accounts

(Amd. Comp. ¶ 10). As of June, 30, 2005, the plan held assets of $60,989.77 (Amd. Comp.

¶¶ 13–14).

Plaintiff alleges that the plan violates ERISA Section 402(a), 29 U.S.C. 1102(a), because

Zoltrix failed to appoint a successor named fiduciary to control and manage the operation and

administration of the plan. Plaintiff also alleges that the plan violates ERISA Section 403(a),

29 U.S.C. 1103(a), because Zoltrix failed to appoint a trustee with exclusive authority and

discretion to manage and control the plan’s assets. Lastly, plaintiff alleges that the plan violates

ERISA Section 402(b)(4), 29 U.S.C. 1102(b)(4), which provides that every employee-benefit

plan shall specify the basis on which payments are made to and from the plan.

In an order dated May 15, 2007, the Court granted plaintiff’s motion to serve process on

Zoltrix upon the California Secretary of State. On May 16, plaintiff properly served the

summons and first amended complaint. Pursuant to FRCP 12(a)(1), Zoltrix’s answer to the

first amended complaint was due on June 5. Zoltrix has failed to file an answer or otherwise

defend this action. At plaintiff’s request, on July 6, the Clerk entered default against Zoltrix. 

Plaintiff now moves for a default judgment. Pursuant to ERISA Section 502(a)(5), 29 U.S.C.

1132(a)(5), plaintiff asks that Zoltrix be removed as fiduciary and requests that Larry M.

Lefoldt be appointed independent fiduciary of the plan.

ANALYSIS

Under FRCP 55(b)(2), a party can apply to the court for entry of judgment by default. 

Default judgments are generally disfavored. “Cases should be decided upon their merits

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United States District Court

For the Northern District of California

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whenever reasonably possible.” Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir.1986) (citation

omitted). Whether to grant the application is within the discretion of the trial court. Draper v.

Coombs, 792 F.2d 915, 924 (9th Cir. 1986). In the Ninth Circuit, a court is to consider the

following factors in exercising this discretion: 

(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, 782 F.2d at 1471–72. These factors favor entry of default judgment in this action.

1. MERITS AND SUFFICIENCY OF COMPLAINT.

After entry of default, 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). Thus, there can be no dispute as to the material facts. Consequently,

this order finds that Eitel factors two, three and five weigh in favor of entry of default judgment.

Plaintiff alleges that the plan violates ERISA Section 402(a), 29 U.S.C. 1102(a), because

Zoltrix failed to select a successor named fiduciary to control and manage the operation and

administration of the plan. 

Pursuant to ERISA Section 402(a)(2), 29 U.S.C. 1102(a)(2), a “named fiduciary” means:

[A] fiduciary who is named in the plan instrument, or who,

pursuant to a procedure specified in the plan, is identified as a

fiduciary (A) by a person who is an employer or employee

organization with respect to the plan or (B) by such an employer

and such an employee organization acting jointly.

Under ERISA Section 402(a)(1), 29 U.S.C. 1102(a)(1):

Every employee benefit plan shall be established and maintained

pursuant to a written instrument. Such instrument shall provide

for one or more named fiduciaries who jointly or severally shall

have authority to control and manage the operation and

administration of the plan.

The well-pleaded facts establish that defendant was the sponsoring employer and

administrator of the plan. This order finds defendant failed to appoint a successor named

fiduciary when it ceased operations in 2001. Accordingly, the plan exists in violation of ERISA

Section 402(a)(1), 29 U.S.C. 1102(a)(1).

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Plaintiff also alleges that the plan violates ERISA Section 403(a), 29 U.S.C. 1103(a),

because Zoltrix failed to appoint a trustee with exclusive authority and discretion to manage and

control the plan’s assets.

Under ERISA Section 403(a), 29 U.S.C. 1103(a):

[A]ll 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 . . . . 

The well-pleaded facts establish that the plan has had no trustee since defendant ceased

operations in 2001. Accordingly, this order finds the plan exists in violation of ERISA Section

403(a), 29 U.S.C. 1103(a).

Lastly, plaintiff alleges that the plan violates ERISA Section 402(b)(4), 29 U.S.C.

1102(b)(4), which provides that every employee-benefit plan shall specify the basis on which

payments are made to and from the plan. This order finds that because the basis upon which

payments are made to and from the plan are not and cannot be specified without a trustee,

the plan exists in violation of ERISA Section 402(b)(4), 29 U.S.C. 1102(b)(4). 

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

Secretary of the United States 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 redress such violation or enforce any provision of Title I of ERISA. Appropriate equitable

relief includes the appointment of independent plan investment managers, administrators or

fiduciaries to carry out the proper administration and management of benefit plans. Donovan v.

Mazzola, 716 F.2d 1226, 1237–1239 (9th Cir. 1983). Plaintiff’s complaint, therefore, has merit

and is sufficient. 

2. REMAINING FACTORS.

This order finds that the remaining Eitel factors likewise favor entry of default

judgment. If the motion is denied, the participants and beneficiaries of the plan would not be

able to gain access to their individuals accounts; the possibility of prejudice to the plaintiff is

great. 

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United States District Court

For the Northern District of California

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In general, the fact that a large sum of money is at stake 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). Here, as of June, 30, 2005, the plan held assets of $60,989.77. 

That amount pales beside the three million dollars at stake in Eitel. 

Moreover, defendant ceased operations many years ago and failed to appear in

this action. It is highly improbable that the default was the result of excusable neglect. 

Although federal policy may favor decisions on the merits, FRCP 55(b) permits entry of default

judgment in situations, such as this, where defendant has failed to plead or otherwise defend.

3. FEES AND COSTS OF INDEPENDENT FIDUCIARY.

Plaintiff requests that Larry M. Lefoldt of Lefoldt & Co., P.A., 690 Towne Center

Boulevard, Ridgeland, Mississippi, 39157, be appointed as an independent fiduciary to the plan. 

Plaintiff also asks the Court to authorize payment to Mr. Lefoldt of $2,971.25 in fees and

expenses, payable from the assets of the plan. Plaintiff has failed to justify Mr. Lefoldt’s fees or

explain why payment of such an amount is reasonable. This order directs plaintiff to file and

serve a detailed declaration of all expenses and costs sought to be recovered by Mr. Lefoldt for

services rendered as independent fiduciary of the plan. Until such time, this Court will not

allow payment of the specific amount requested by plaintiff.

CONCLUSION

For the foregoing reasons, subject to plaintiff filing and serving the declaration

described above, plaintiff’s motion for default judgment against defendant Zoltrix is GRANTED.

IT IS HEREBY ORDERED:

1. Plaintiff’s motion for default judgment against defendant Zoltrix is

GRANTED;

2. Defendant Zoltrix is removed as fiduciary to the plan; 

3. Larry M. Lefoldt of Lefoldt & Co., P.A., 690 Towne Center

Boulevard, Ridgeland, Mississippi, 39157, is appointed as Independent Fiduciary

of the plan;

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For the Northern District of California

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4. The Independent Fiduciary shall collect, marshal, pay out and

administer all of the plan’s assets held in fifteen individual participant accounts

by John Hancock Life Insurance Company, and take 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;

5. Pursuant to the procedures outlined in the Employee Benefits

Security Administration’s Field Assistance Bulletin 2004-02, the Independent

Fiduciary shall exercise reasonable care and diligence to identify and locate each

plan participant and beneficiary who is eligible to receive a distribution under the

terms of the plan;

6. The Independent Fiduciary shall have all the rights, duties,

discretion and responsibilities of a trustee, fiduciary and Plan Administrator under

ERISA, including filing a final Form 5500;

7. The Independent Fiduciary may delegate or assign fiduciary duties

as appropriate and allowed under the law;

8. The Independent Fiduciary may retain such assistance as he may

require including attorneys, accountants, actuaries and other service providers;

9. The Independent Fiduciary shall receive reasonable fees and

expenses, not to exceed $2,971.25, from the assets of the plan for services

rendered in compliance with this order;

10 The Independent Fiduciary shall have full access to all data,

information and calculations in the plan’s possession and under its control,

including information and records maintained by the plan’s custodial trustee or

service provider;

11. The Independent Fiduciary is authorized to give instructions

respecting the disposition of assets of the plan; and 

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12. The Independent Fiduciary is directed to comply with all

applicable rules and laws. 

IT IS SO ORDERED.

Dated: October 11, 2007. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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