Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-04209/USCOURTS-cand-3_05-cv-04209-5/pdf.json

Parties Involved:
John Bonilla
Plaintiff
Essayons, Inc.
Defendant
Terry E. Smith
Defendant
Ken Walters
Plaintiff

Document Text:

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1

It is unclear to us whether the proper spelling for the entity defendant is “Essayons” or

“Essayon’s.” Plaintiffs’ papers refer to Essayons, as does the California Secretary of State’s

website. However, at least some of the documents attached to plaintiffs’ Motion and signed by

defendant(s) use “Essayon’s.” We use “Essayons,” the spelling consistent with the information

reflected on the Secretary of State’s website. 

1

U

nite

d

States District C

o

u

rt

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

Ken Walters and John Bonilla as

Trustees of the Operating Engineers

Health and Welfare Trust Fund, et al,

 Plaintiffs,

 v.

Terry E. Smith, an individual, Terry

E. Smith, individually and dba

Essayons, Inc., Essayons Inc., a

California corporation,

 Defendants.

_____________________________/

No. C-05-4209 WDB

ORDER FOR REASSIGNMENT AND

REPORT AND

RECOMMENDATION RE MOTION

FOR DEFAULT JUDGMENT

Plaintiffs are various fringe benefit trust funds established for the benefit of

members of the Operating Engineers Local Union No. 3, and the trustees of those

fringe benefit trust funds. See, Complaint, filed October 18, 2005. Defendant,

Essayons Inc., is a corporation and is bound by a collective bargaining agreement

and various trust agreements to make timely contributions to plaintiff trust funds

for covered work performed by Essayons’ employees.1 Declaration of Wayne

McBride in Support of Plaintiffs’ Motion for Default Judgment, filed on May 19,

Case 3:05-cv-04209-WHA Document 41 Filed 09/08/06 Page 1 of 18
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2

2006, (“McBride Decl.”) at ¶4 and Ex. A-D. Defendant Terry E. Smith is an

individual and CEO and President of Essayons. McBride Decl., at Ex. C and D;

Plaintiffs’ Response for Supplemental Information re Motion for Default

Judgment, filed July 21, 2006 (“Supp. Brief”) at 3; Clerk’s Notice re Supplemental

Submission by Plaintiffs at Hearing, filed September 1, 2006. 

On October 18, 2005, plaintiffs filed a complaint against Essayons and

Terry Smith seeking to collect unpaid contributions due to multi-employer benefit

plans pursuant to the governing collective bargaining agreement. See, Complaint

for Breach of Contract, Damages, Breach of Fiduciary Duty and Audit. Plaintiffs

also ask the Court to compel defendants to comply with an audit as required by the

collective bargaining agreement. Id.

Plaintiffs served defendants with a copy of the Complaint. Summons and

Proofs of Service, filed on February 1, 2006. Defendants have not filed a response

to the Complaint.

In response to plaintiffs’ application for entry of default, the Clerk of the

Court entered default as to Essayons, Inc., and Terry E. Smith on February 10,

2006. 

On May 19, 2006, plaintiffs filed and served their motion for default

judgment. See, Motion for Default Judgment and Proof of Service (“Motion”). 

On June 14, 2006, this Court invited plaintiffs to submit supplemental

briefing in connection with several issues presented by their Motion. See, Order

for Supplemental Information re Motion for Default Judgment. On June 30, 2006,

plaintiffs asked for additional time in which to respond to the Court’s invitation.

On July 21, 2006, plaintiffs filed their supplemental submissions. Although

plaintiffs served defendants with the Court’s June 14th Order and with plaintiffs’

July 21st submission, defendants filed no response. Certificates of Service, filed

Case 3:05-cv-04209-WHA Document 41 Filed 09/08/06 Page 2 of 18
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2We note that there are multiple errors in plaintiffs’ math. E.g., Motion at 6-7 and

compare McBride Decl., at ¶13 with Supp. Brief at 5:12. We arrived at this sum by totaling the

following amounts: (1) unpaid contributions ($102,402.35), liquidated damages ($14,933.89)

and interest ($22,443.44) for the first period, (2) unpaid contributions ($47,709.46), liquidated

damages ($40,677.90) and interest ($16,370.80) for the second period, and (3) attorneys fees

incurred through July 20th ($3,937.50), costs ($235.00), and 1 hour of fees for appearing at the

hearing ($225.00). See, McBride Decl., at ¶¶13-15 and Harlan Decl., at ¶¶4-7; Supplemental

Declaration of Bruce A. Harland in Support of Plaintiffs’ Motion for Default Judgment, filed

July 21, 2006, (“Supp. Harland Decl.”) at ¶3-5.

3

June 15, 2006, June 30, 2006, July 19, 2006; Supp. Brief and supporting

declarations, filed July 21, 2006.

On August 30, 2006, this Court conducted a hearing in connection with

plaintiffs’ Motion. No appearance was made on defendants’ behalf.

In their Motion, plaintiffs seek a judgment against Essayons (as an entity)

and Terry Smith, individually, in the amount $248,935.34 to recover unpaid

contributions, liquidated damages, interest, attorneys’ fees and costs.2 McBride

Decl., at ¶¶13-14; Harlan Decl., at ¶¶4-7; Supp. Brief at 4-5. Plaintiffs also seek

an order compelling defendants to submit to an audit of defendants’ payroll

records, and to pay all additional amounts deemed owing by the auditor. 

Complaint at 6; Supp. Brief at 2-3.

Because defendants have not appeared in this action, this Court has not

secured consent as required by 28 U.S.C. §636(c). Accordingly, we make the

following Report and Recommendation and ORDER the Clerk of the Court to

randomly reassign this action to a District Judge.

I. Entitlement to Entry of Default Judgment

Plaintiffs seek entry of judgment by default against the entity Essayons,

Inc., as well as against Terry E. Smith, individually.

Plaintiffs served defendants with their motion for default judgment. See,

Proof of Service, attached to Motion, filed on May 19, 2006. 

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3Plaintiffs seek to hold both defendants liable as “fiduciaries.” Complaint at 5. We note

that it is not clear that defendants can be considered fiduciaries. Plaintiffs contend that

defendants are fiduciaries because they exercised control over “plan assets.” Complaint at 5-6.

Ninth Circuit case law indicates, however, that employer contributions do not become “plan

assets” until they are paid over to the Trust. Cline v. Industrial Maintenance Engineering &

Contracting Co, 200 F.3d 1223, 1234 (9th Cir. 2000).

Some courts hold that the parties can render employer contributions “plan assets” from

4

Essayons Inc., has failed to respond to the Complaint or otherwise to appear

in the proceedings, and the Clerk of the Court entered default as to this defendant.

Plaintiffs also claim that Mr. Smith is liable as an “employer” -- contending

that he and the business are one and the same. Complaint at 2. In support of this

contention plaintiffs submitted various records from the California Contractors

State License Board. See, Transcript August 30, 2006 hearing. These records

support findings that Essayons and Mr. Smith both hold contractors’ licenses to

perform the same type of work (“general engineering contractor” and “hazardous

substances removal”), that Mr. Smith’s license is currently “inactive,” that Mr.

Smith is one of only two personnel currently listed under Essayons’ license, and

that Mr. Smith is the President, CEO and “Responsible Managing Officer” of

Essayons. See, Clerk’s Notice re Supplemental Submission by Plaintiffs at

Hearing, filed September 1, 2006. 

Mr. Smith has failed to respond to the Complaint or otherwise to appear in

the proceedings, and the Clerk of the Court entered default as to Mr. Smith. By

not responding to the Complaint, Terry Smith has conceded that plaintiffs’

allegations are true and thus admits that he is an “employer” under ERISA. 

Moreover, plaintiffs have presented evidence that could support an inference that

Mr. Smith is operating his contracting business under Essayons’ license.

Plaintiffs also seek to hold Mr. Smith personally liable as a “fiduciary.” 

Complaint, at 5. Because we recommend that the District Court deem admitted the

allegation that Mr. Smith is an “employer” within ERISA, we need not address

additional avenues for imposing personal liability.3

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the moment due as a matter of contract. Trustees of the So. Cal. Pipe Trades Health and Welfare

Trust Fund v. Temecula Mechanical, Inc., 2006 WL 1991749 (C.D. Cal.); Trustees of the Nat’l

Elevator Indus. Pension v. Lutyk, 140 F.Supp.2d 407 (E.D. PA 2001). Even if the Ninth Circuit

were to accept this view, plaintiffs have pointed to no language in the governing agreements that

supports such a finding.

Additionally, even if the governing agreements did render employer contributions “plan

assets” from the moment due, plaintiffs have not presented authority for the position that a mere

delinquency in payment by an employer amounts to “exercising . . . control” over plan assets for

purposes of 29 U.S.C. §1002(21)(a) (defining plan fiduciary). See, Chicago Dist. Council of

Carpenters Pension Fund v. Angulo, 150 F.Supp.2d 976 (N.D. Ill. 2001), (“[t]his Court cannot

credit the notion that every delinquent employer’s nonpayment of a contribution equates to its

exercising its control over the ‘disposition’ of a plan’s assets, so as to impose fiduciary liability

by reason of the nonpayment.”); Lutyk, 140 F.Supp.2d 407 (“there is no general rule conferring

fiduciary status merely on the basis of delinquent employer contributions”). 

5

Given defendants’ complete failure to appear and the significant risk of

prejudice to the employee beneficiaries of the fringe benefit trusts when an

employer fails to make the required contributions, the sufficiency of plaintiffs’

complaint, and the apparent merit of plaintiffs’ substantive claims, we

RECOMMEND that the District Judge to whom this case is reassigned find that

plaintiffs are entitled to judgment by default against Essayons Inc., and Terry E.

Smith, individually. See, F.R.C.P. 55(b); Eitel v. McCool, 782 F.2d 1470 (9th Cir.

1986).

II. Specific Items of Relief Sought by Plaintiffs

Section 1132(g)(2) of ERISA provides that in an action for delinquent

contributions 

in which a judgment in favor of the plan is awarded the court shall

award the plan --

(A) the unpaid contributions,

(B) interest on the unpaid contributions,

(C) an amount equal to . . . (ii) liquidated damages provided for under the

plan in an amount not in excess of 20 percent . . . of the amount

determined by the court under subparagraph (A),

(D) reasonable attorneys’ fees and costs of the action . . ., and

(E) such other legal or equitable relief as the court deems appropriate.

For purposes of this paragraph, interest on unpaid contributions shall

be determined by using the rate provided under the plan . . ..

29 U.S.C. §1132(g)(2) emphasis added. 

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4Plaintiffs originally also sought relief under an agreement referred to as the “Materials

Agreement,” including contributions, liquidated damages and interest for the period January

2004 to June 2005. They have now withdrawn this portion of their request. See, Supp. Brief

at 3-4.

6

A. Unpaid contributions

Plaintiffs seek unpaid contributions owing pursuant to the governing

collective bargaining and trust agreements for work performed during two periods:

(1) January 1, 1998, through June 30, 2000, and (2) October 2001, through

August 2005.4 McBride Decl., at 4-5; Supp. Brief at 3-4. 

Unpaid contributions pertaining to these periods relate to work performed

under the Independent Northern California Construction Agreement (“Independent

Agreement” ). McBride at ¶¶4 and 13-14. The Independent Agreement

incorporates by reference the Master Agreement which incorporates applicable

Trust Agreements. McBride Decl., at ¶4, Ex. C. By becoming signatories to the

Independent Agreement employers agree to be bound by the terms of the Trust

Agreements. Id. The collective bargaining agreement and Trust Agreements

govern employer contributions to the various employee fringe benefit trust funds

and obligate employers to pay specified amounts into employee benefit funds on

behalf of their employees who perform covered work. Id. Defendants became

signatories to the Independent Agreement on May 1, 1997. McBride Decl., at Ex.

C. 

Defendants have not invoked the procedures that would release them from

their obligations under these agreements. See, Transcript August 30, 2006,

hearing. Accordingly, Essayons and Mr. Smith are obligated to pay contributions

for covered work performed by Essayons’ employees pursuant to the Independent

Agreement for the periods January 1, 1998, through June 30, 2000, and October

2001 through August 2005. Id.

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5

$102, 402.35 (for first period) + $47,709.46 (for second period)

7

Plaintiffs seek unpaid contributions for these two periods in the amount

$150,111.81.5 McBride Decl., at ¶13-14.

Because plaintiffs’ request for unpaid contributions is supported by the

evidence, we RECOMMEND that the District Court enter judgment against

defendants in the amount $150,111.81 for unpaid contributions for the periods

January 1, 1998, through June 30, 2000, and October 2001 through August 2005. 

B. Liquidated Damages and Interest

Plaintiffs seek liquidated damages and interest relating to the above unpaid

contributions. Motion at 2 and 5; Supp. Brief at 5; McBride Decl., at ¶¶7-8.

1. Liquidated Damages

Plaintiffs seek liquidated damages for each of the two relevant periods at the

contract rate of $35.00 per delinquent contribution or 15% of the amount of the

contribution due to each separate Trust Fund, whichever is greater. McBride

Decl., at ¶7 and Ex. B.

ERISA compels the court to award plaintiffs “liquidated damages provided

for under the plan in an amount not in excess of 20 percent . . . of the amount

determined by the court [as unpaid contributions].” 29 U.S.C. §1132(g)(2)(C)(ii). 

Liquidated damages are “mandatory and not discretionary” if “the following three

requirements [are] satisfied: (1) the employer must be delinquent at the time the

action is filed; (2) the district court must enter a judgment against the employer;

and (3) the plan must provide for such an award.” Northwest Administrators, Inc.,

v. Albertson’s Inc., 104 F.3d 253 (9th Cir. 1996) citing Idaho Plumbers &

Pipefitters v. United Mechanical Contractors, Inc., 875 F.2d 212 (9th Cir. 1989). 

The collective bargaining agreement together with Trust Agreements

provide for an award of liquidated damages on delinquent contributions at the rate

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of $35.00 per delinquent contribution or 15% of the amount of the delinquent

contribution due to each separate Trust Fund, whichever is greater. McBride

Decl., at ¶7 and Ex. B. Therefore, plaintiffs have satisfied the third Northwest

requirement.

As we understand it, the liquidated damages sought in connection with the

period January 1998 to June 2000 pertain to contributions that were delinquent

and unpaid as of October 18, 2005. Additionally, some of the liquidated damages

for the period October 2001 to August 2005 pertain to contributions that were

delinquent and unpaid as of October 18, 2005. If the District Court to whom this

case is reassigned adopts our recommendation to enter judgment against

defendants for unpaid contributions for the periods January 1, 1998, through June

30, 2000, and October 2001 through August 2005, then with respect to the

delinquent contributions unpaid on October 18, 2005, plaintiffs will have satisfied

the first and second requirements as well. 

Therefore, we RECOMMEND that, if the District Court enters judgment

against defendants for unpaid contributions that were delinquent and unpaid as of

October 18, 2005, the Court also enter judgment for liquidated damages in

connection with those contributions at the rate of $35.00 per delinquent

contribution or 15% of the amount of the delinquent contribution due to each

separate Trust Fund, whichever is greater. 

It is also our understanding that some of the liquidated damages plaintiffs

seek for the period October 2001 through August 2005 pertain to contributions

that were late but were paid before October 18, 2005. See, Transcript August 30,

2006, hearing; McBride Decl., at Ex. F. With respect to contributions that were

delinquent but were paid before plaintiffs filed this action, plaintiffs cannot satisfy

the first requirement imposed by Northwest Administrators. Board of Trustees v.

Udovch, 771 F.Supp. 1044 (N.D.Cal 1991); Idaho Plumbers and Pipefitters

Health and Welfare Fund v. United Mechanical Contractors, Inc., 875 F.2d 212

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9

(9th Cir. 1989). Accordingly, plaintiffs would not be entitled to a mandatory

award of liquidated damages under §1132(g)(2) of ERISA. Id. Plaintiffs might,

however, be entitled to liquidated damages as a matter of contract. Idaho

Plumbers, 875 F.2d at 217 (§1132(g)(2) does not preempt the federal common law

of liquidated damages when that section does not apply); Udovch, 771 F.Supp. at

1047. 

A contractual “liquidated damages provision is enforceable in this setting,

and not void as a penalty, only if (1) ‘the harm caused by a breach [is] very

difficult or impossible to estimate’ and (2) the fixed amount is ‘a reasonable

forecast of just compensation for the harm caused.’” Udovch, 771 F.Supp. at 1048

citing Idaho Plumbers, 875 F.2d at 217.

Plaintiffs satisfy the first prong of the test. “When an employer is

delinquent in paying contributions into a fringe benefit trust fund, the fund suffers

some kinds of harms that are very difficult to gauge.” Udovch, 771 F. Supp. at

1049. 

When we address the second prong of the test, whether the fixed amount is

“a reasonable forecast of just compensation for the harm caused,” we focus on the

“parties’ intentions.” Udovch, 771 F. Supp. at 1048. The negotiating parties “must

make a good faith attempt to set an amount equivalent to the damages they

anticipate.” Idaho Plumbers, 875 F.2d at 217. For the reasons explained in

Udovch we focus “on the character of the process that led, at the time the contract

language was drafted, to the fixing of the liquidated damages figures or formulas.” 

771 F.Supp. at 1048. We look for evidence that “the drafters made a good faith

effort to determine that there would be a rational relationship between the damages

that would be paid under the clause and the harms that would be suffered in most

of the situations that were reasonably foreseeable.” 771 F. Supp. at 1049

(emphasis in original). 

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10

Plaintiffs have directed us to evidence (unrebutted as a result of default) that

supports an inference that the negotiating parties contemplated this issue and made

a good faith effort to establish a liquidated damages rate that would be a

reasonable forecast of just compensation for the anticipated harms. McBride

Decl., at ¶7 and Ex. B (Master Agreement at 12.13.00). 

Accordingly, we also RECOMMEND that the District Court enter judgment

for plaintiffs for liquidated damages with respect to those contributions that were

delinquent but were paid before October 18, 2005, at the rate of $35.00 per

delinquent contribution or 15% of the amount of the delinquent contribution due

to each separate Trust Fund, whichever is greater. 

Because we recommend that the District Court award statutory and

contractual liquidated damages at the same rates we do not require plaintiffs to

provide separate totals for each type of award. The evidence supports a finding

that the total amount of liquidated damages known to be owing for the periods

January 1, 1998, through June 30, 2000, and October 2001 through August 2005 is

$55,611.79. McBride Decl., at ¶¶13-14; Supp. Brief at 5. Therefore, we

RECOMMEND that the District Court enter judgment for liquidated damages in

the amount $55,611.79.

2. Interest

If the Court enters judgment in plaintiffs’ favor for unpaid contributions,

ERISA requires the Court to award plaintiffs “interest on the unpaid

contributions.” 29 U.S.C. §1132(g)(2)(B). ERISA provides that “interest on

unpaid contributions shall be determined by using the rate provided under the

plan.” 29 U.S.C. §1132(g)(2). 

Plaintiffs seek interest on the unpaid contributions at the annual rate of

12%. McBride Decl., at ¶8. Plaintiffs have submitted evidence that supports a

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finding that 12% is the applicable interest rate under the Trust Agreements. 

McBride Decl., at Ex. B. 

Plaintiffs seek interest in the amount $22,443.44 for the period January 1,

1998, through June 30, 2000, and seek interest in the amount $16,370.80 for the

period October 2001 through August 2005. McBride Decl., at ¶¶13-14; Supp.

Brief at 5. Interest for the first period has been calculated per year for the years

1998, 1999, and 2000. Complaint at Ex. D; Transcript August 30, 2006, hearing. 

Interest for the second period runs through May 2005. See, Transcript August 30,

2006, hearing; McBride Decl., at Ex. F. After completion of an audit that will

disclose whether defendants owe additional amounts for the period from July 1,

2000, through the present, plaintiffs intend to seek amendment of the judgment to

reflect additional interest through the date of the judgment. See, Transcript

August 30, 2006, hearing.

We RECOMMEND that the District Judge grant plaintiffs’ request for a

judgment that includes interest at the rate of 12% on the delinquent contributions

for January 1, 1998, through June 30, 2000, and October 2001 through August

2005, in the amount $38,814.24. As stated in section C below, we also

recommend that the District Court permit plaintiffs to move the Court to amend

the judgment after the auditor has assessed the full extent of defendants’ debt.

C. Request for Audit, Production of Monthly Reports, and Amounts

Owing at Conclusion of Audit

The collective bargaining agreement to which defendants are signatories

governs employer contributions to the various employee fringe benefit trust funds

and obligates the employer to submit monthly reports documenting the number of

hours worked by covered employees together with the monthly payments indicated

as owing by each month’s report. E.g., McBride Decl., at ¶¶11 and 14 and Ex. B

at 12.01.00. The governing Trust Agreements also obligate the employer to

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6Mr. McBride’s declaration states that this audit was conducted in August 2005.

Plaintiffs’ counsel stated that this date was an error and that the prior audit was completed

approximately May 2001. See, Transcript August 30, 2006, hearing.

12

submit to an audit of its records for the purpose of determining whether the

employer has paid the appropriate amount of contributions to the trusts. 

Supplemental Declaration of Wayne E. McBride in Support of Default Judgment,

filed July 21, 2006, (“Supp. McBride Decl.”) at ¶4.

Plaintiffs previously conducted an audit for the period through June 30,

2000. McBride Decl., at ¶12.6 Plaintiffs seek an order compelling defendants to

submit to an audit for the period from July 1, 2000, through the present. Supp.

Brief at 2-3.

Section 1132 of ERISA authorizes the Court to award “such legal and

equitable relief as the court deems appropriate.” 29 U.S.C. §1132(g)(2)(E). 

As a result of defendants’ failure to submit complete and timely reports as

contemplated by the governing agreements, plaintiffs have been unable to verify

the full extent of defendants’ obligations for the period since July 1, 2000. 

Accordingly, we RECOMMEND that the District Court to whom this action is

assigned enter judgment compelling defendants to submit to an audit for the

purpose of determining the full amount of fringe benefit contributions, liquidated

damages and interest owed for the period July 1, 2000, through the present, and

that the District Court order defendants to provide relevant records requested by

the auditor.

Plaintiffs represent that the audit procedures followed by plaintiffs include

an opportunity for defendants to discuss their records with the auditor and to

present comments and/or objections within the auditor’s report to the Trustees. 

Supp. McBride Decl., at Ex. A. In addition, the court has directed plaintiffs to

provide defendants with an opportunity to provide input directly to the Trustees in

response to the auditor’s report before the Trustees make their final assessment of

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7This recommendation is not contrary to Int’l Union of Operating Engineers, v. Karr , 994

F.2d 1426 (9th Cir. 1993). In Karr the Trusts filed two separate lawsuits to recover delinquent

contributions, liquidated damages and interest for different periods. Defendant Karr appeared

in those actions. In the first action, the trial court granted the Trusts’ motion to compel an audit,

but the Trusts never conducted the audit. Instead, the parties settled both actions. Specifically,

Karr agreed to pay specified amounts in exchange for the Trusts dismissing the lawsuits. Neither

settlement contained a reservation of right to bring an action for additional payments found

owing by any subsequent audit of the relevant periods.

The Trusts later sought an audit, and when Karr refused, the Trusts filed a third action to

compel an audit and collect amounts found owing. In this third action, the Trusts sought to audit

a period that included months that had been the subjects of the prior settlements. The court

dismissed the third action as a matter of res judicata because the request for an audit was

subsumed in the settled first action and should have been brought in the settled second action.

The Court states, “the Trusts could have brought their claim to compel an audit and to recover

underpaid contributions found by the audit in the same action as their prior claims for delinquent

payments.” 994 F.2d at 1430 (emphasis in original).

The facts before us are distinguishable from those in Karr. In this case, the Trusts have

filed one action seeking a judgment for damages currently known to be owing as well as an audit

of the relevant period to more accurately assess the delinquencies. Defendants have not

appeared, and there is no settlement regarding the amounts owed for this period. The Trusts do

not seek to file a new lawsuit. They ask the court to retain jurisdiction to amend the judgment

to ‘correct’ the damages award in this lawsuit following the audit. It is within the Court’s power

to retain jurisdiction for the purpose of amending the judgment by default once an audit more

accurately assesses the damages.

13

the amount owing. See, Transcript August 30, 2006 hearing. Plaintiffs’ counsel

agreed to do so. Id.

Plaintiffs also ask the Court to retain jurisdiction so that following the audit

plaintiffs may move to amend the judgment to include additional damages, if any,

found owing as a result of the audit. 

Because it appears that plaintiffs’ practice provides defendants with an

opportunity to present challenges to the accuracy of the audit to the Trustees, we

RECOMMEND that the District Judge permit plaintiffs to apply to the Court to

amend the judgment to include all sums revealed as due and owing by the audit --

on the condition that defendants are given sufficient notice of the pendency of any

court proceedings and a fair opportunity to challenge the accuracy of the audit

before the District Judge.7

//

//

//

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D. Attorneys’ Fees and Costs

Section 1132(g) of ERISA requires the Court to award plaintiffs “reasonable

attorney’s fees and costs of the action” when plaintiffs obtain a judgment in their

favor or otherwise obtain the relief sought. 29 U.S.C. §1132(g)(2)(D); Northwest

Administrators, 104 F.3d at 258.

Plaintiffs seek reimbursement of attorneys’ fees and costs in the amount

$4,172.50. Supp. Brief; Declaration of Bruce A. Harland in Support of Plaintiffs’

Motion for Default Judgment, filed May 19, 2006, (“Harland Decl.”);

Supplemental Declaration of Bruce A. Harland in Support of Plaintiffs’ Motion for

Default Judgment, filed July 21, 2006, (“Supp. Harland Decl.”). 

1. Tasks Performed and Number of Hours Spent on Those

Tasks

Plaintiffs seek fees in connection with eighteen (18) hours expended

drafting and filing the instant Motion, corresponding with the court, and

responding to the issues raised in this court’s invitation for supplemental briefing. 

See, Harland Decl., at ¶¶4 and 5; Supp. Harland Decl., at 3. Plaintiffs’ initial

request for fees also sought reimbursement of one (1) hour for fees incurred

attending the August 30, 2006, hearing, but this request does not appear to be

encompassed by the final request for fees. See, Harland Decl., at ¶5; Supp. Brief

at 5:24; and Supp. Harland Decl., at ¶¶3-4.

As stated on the record, the court RECOMMENDS that the District Court

disallow 1.5 hours for “6/29/06 -- Telephonic conference with Judge’s clerk”

because counsel’s billing records were insufficient to support the claim made.

The court also RECOMMENDS that the District Court disallow .75 hours

billed for “6/30/06 -- Review of file; legal strategy and review of correspondence

to Court regarding continuance to request for further briefing.” This request for

continuance was made necessary by counsel’s failure to properly calendar the

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deadline for responding to the court’s invitation for supplemental briefing. If

counsel had properly calendared the deadline there would have been no need to

seek the continuance.

The record indicates that counsel expended 10.5 hours responding to the

court’s invitation for supplemental briefing. Supp. Harland Decl., at ¶3. In our

view, at least some of this time would not have been necessary had plaintiffs’

original motion been properly supported. Moreover, in response to the court’s

inquiries, plaintiffs concluded that a portion of their request (the portion relating to

the “Materials Agreement”) was not appropriately sought. Supp. Brief at 3:15-24. 

Accordingly, some portion of the work expended drafting plaintiffs’ original

Motion was not reasonably undertaken. Counsel expended 5.25 hours drafting the

original Motion. Supp. Harland Decl., at ¶3. Based on the total hours expended

and our review of plaintiffs’ original and supplemental submissions, the court

RECOMMENDS that the District Court disallow 2.0 hours of the 15.75 hours

expended on the original and supplemental submissions to adjust for

“unnecessary” work conducted by counsel.

With respect to hours other than those just identified, we have reviewed

counsel’s billing records and RECOMMEND that the District Court find that the

kinds of tasks performed by counsel were reasonably undertaken. We also

RECOMMEND that the District Court find that counsel expended a reasonable

number of hours completing those tasks.

Additionally, although plaintiffs failed to reiterate their request for

reimbursement of one hour expended by counsel to attend the August 30, 2006,

hearing, we take judicial notice of the fact that counsel did appear for the hearing

which lasted almost one full hour (not including counsel’s travel time). Therefore,

we RECOMMEND that the District Court award 1.0 hour for counsel’s

appearance at the hearing.

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Accordingly, the court RECOMMENDS that the District Court grant

plaintiffs’ request for reimbursement of attorneys’ fees in connection with 14.75

hours.

2. Hourly Rates

Plaintiffs seek reimbursement of their attorneys’ time at the rate of $225 per

hour for Bruce A. Harland and Nicole M. Phillips. Supp. Harland Decl., at 2-3. 

Ms. Phillips represented that her law firm charges this client the same rate for all

lawyers. See, Transcript August 30, 2006, hearing. 

We have sufficient experience with local billing rates in these kinds of cases

(as well as many others) to conclude that Ms. Phillips’ billing rate is

commensurate with the prevailing market rate in the Bay Area for lawyers of her

skill and experience doing the kind of work these matters involved. We, therefore, 

RECOMMEND that the District Court approve reimbursement of her hours at the

rate of $225.00 per hour. In contrast, it is our view that $225.00 per hour is high

for an attorney of Mr. Harland’s limited experience. Ms. Phillips indicated that

Mr. Harland was responsible for the bulk of the work on this case, and our

conclusion that the requested hourly rate for his work is too high is reinforced by

the unusually high number of errors in plaintiffs’ submissions. We

RECOMMEND that the District Court approve reimbursement of Mr. Harland’s

hours at the reduced rate of $200.00 per hour.

3. Costs

Plaintiffs also seek costs in the amount of $235.00. Harland Decl., at ¶7;

Supp. Harland Decl., at 5. These costs were incurred for “in-house” photocopies. 

Id. The cost of photocopies constitutes an out-of-pocket expense normally

chargeable to the client. Accord, Harris v. Marhoefer, 24 F.3d 16 (9th Cir. 1994)

(fee award under 42 U.S.C. §1988). Given the size of plaintiffs’ motion and its

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attachments we find that the amount plaintiffs request for photocopies is

reasonable. See, Transcript August 30, 2006, hearing. We, therefore,

RECOMMEND that the District Court grant plaintiffs’ request for costs in the

amount $235.00.

4. Recommendation re Fees and Costs

We recommended that the District Court reimburse plaintiffs for 14.75

hours expended by counsel. We also recommended that Ms. Phillips’

hours be reimbursed at the rate of $225.00 per hour and that Mr. Harland’s hours

be reimbursed at the rate of $200.00 per hour. Although the billing records do not

identify the attorney who performed each task, Ms. Phillips represented to the

court that Mr. Harland performed 75% of the work on this matter and she

performed 25% of that work. Accordingly, we recommend that the District Court

reimburse 75% of the 14.75 hours (11.06 hours) at the rate of $200.00 per hour

and 25% of the 14.75 hours (3.69 hours) at the rate of $225.00 per hour. We also

recommend that the District Court award costs in the amount $235.00.

For the reasons set forth above, if the District Court to whom this case is

reassigned adopts this Court’s recommendation to enter judgment in favor of

plaintiffs on their claim for unpaid contributions, we RECOMMEND that the

District Court award plaintiffs attorneys' fees and costs in the amount $3,277.25.

III. Conclusion

The court ORDERS the Clerk of the Court to randomly reassign this action

to a District Judge.

We RECOMMEND that the District Judge to whom the Clerk reassigns this

matter enter judgment in plaintiffs’ favor and against the entity Essayons, Inc., and

Terry E. Smith, individually, for unpaid contributions, liquidated damages, and

interest for contributions due for work performed during the periods January 1,

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1998, through June 30, 2000, and October 2001 through August 2005, as well as

for attorneys’ fees and costs, in the total amount $247,815.09.

We also RECOMMEND that the District Court enter an order compelling

defendants Essayons and Terry Smith to submit to an audit for the period July 1,

2000, through the present and that the District Court enter an amended judgment

for additional amounts found owing following an audit procedure in which

defendants received notice of the auditor’s findings and an opportunity to respond.

IT IS SO REPORTED AND RECOMMENDED.

Dated: September 8, 2006

/s/ Wayne D. Brazil 

WAYNE D. BRAZIL

United States Magistrate Judge

Copies to: 

Plaintiffs with direction to serve defendants,

wdb, stats, Clerk

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