Wolf stated that the records provided by Mr. McDaniel in October 2003 were “scattered” and
incomplete and did not warrant changes to any of his figures.

Mr. McDaniel also testified at the hearing. He stated that MCC I — the “McDaniel
Construction Corporation” on behalf of which he had executed the pertinent agreements — had
been dissolved in May 2001. He stated that he had been a minority shareholder of the
corporation, which was run by his brother Stephen Alexander McDaniel. Mr. McDaniel took the
position that under Illinois law, anyone (including the Funds) that claimed the dissolved
corporation owed it money was required to take action within 90 days after the dissolution, which
he implied the Funds had failed to do. Mr. McDaniel said that he had submitted his books and
records to the Funds even though he believed he had no obligation to do so. MCC II, he said,
commenced operations in July 2002.

Mr. McDaniel testified that MCC | had employed a total of nine persons: himself; a
secretary, Bernardine Lyon; a receptionist, Velma McDaniel (Mr. McDaniel’s wi fe); a project
manager; and five carpenters, who he said were members of a local of the Carpenters Union with
which, he said, MCC I had a collective bargaining agreement.

Mr. McDaniel stated that the company had done work between August and October 2001
on a project involving the Ebenezer Church on South Vincennes in Chicago but that work
stopped when a check from the contractor bounced in October 2001. The new McDaniel
Construction Corporation performed construction work from August 2002 for a number of
months on a project for an entity called NIIS. Currently, he said, the company had no work.

The Court gave the Funds leave to supplement the record after the hearing with further

evidence regarding the dissolution of MCC [. The Funds thereafter submitted a certified copy of


opposed to, for example, some other collective bargaining agreement such as the one Mr.
McDaniel had with the Carpenters’ Union). And Mr. McDaniel made no such admissions at the
hearing.

The only evidence that covered work was performed during the relevant period concerned
January 2001; the evidence consisted of Mr. McDaniel’s admission to Fund representative
Joseph Gilleran that some unspecified amount of work had been done during that period. Mr.
McDaniel produced no records for that period; Mr. Wolf’s audit provides a sufficient basis for
assessing the amount of unpaid contributions; and Mr. McDaniel has not rebutted the audit in
this regard. Because the audit report gives a single figure for the months of January through May
2001, to derive the amount due for January 2001 we will take one fifth of the amount for that
period. The resulting amounts of unpaid contributions are set forth below, together with 10%

liquidated damages as provided by the relevant agreements, plus interest.!

Fund Unpaid contribs. _Liquidated dams. Interest Total
Welfare Fund $989.00 $98.90 $93.96 $1,181.86
Pension Fund $716.00 $71.60 $68.02 $855.62
Training Fund $50.00 $5.00 $4.75 $59.75
Dues $44.00 $4.40 $4.18 $52.58
MCIAF/Safety | $9.00 $0.90 $0.86 $10.76
LECET $15.00 $1.50 $1.43 $17.93
TOTAL $1,823.00 $182.30 $173.19 $2,178.49

The Funds are also entitled to recover their audit costs and attorney’s fees, for the period

' We have approximated accrued interest at an effective overall rate of 9.5% based on the
figures used in the proposed totals set forth in Paragraph 5 of Mr. Gilleran’s affidavit.

9



supporting a claim that any covered work was performed by MCC II between July 30, 2002 and
December 31, 2002, the end of the period covered by Mr. Wolf’s audit.

An employer covered by an ERISA-governed pension or health and welfare plan is
required to obtain the records necessary to permit the trustees of the plan to determine the
accuracy of the employer’s contributions. See, e.g., Combs v. King, 764 F.2d 818, 824-25 (11th
Cir. 1985). If the employer fails to do so, and the plan presents records reflecting that covered
work was performed and “sufficient evidence to show the amount and extent of that work as a
matter of just and reasonable inference,” it is entitled to a judgment based on the amount of work
reflected by that showing, unless the employer can rebut the plan’s evidence by “com[ing)}
forward with evidence of the precise amount of work performed or with evidence to negative the
reasonableness of the inference to be drawn from the [plan’s] evidence.” Jd. at 826. If the
employer fails to do so, the court may enter a judgment in favor of the plan, “even though the
result be only approximate.” Jd. See Illinois Conference of Teamsters and Employers Welfare
Fund v. Steve Gilbert Trucking, 71 F.3d 1361, 1367 (7th Cir. 1995) (appearing to approve of
Combs).

Part of the necessary showing under Combs is evidence that covered work was
performed. Combs, 764 F.2d at 826. Our colleague Judge Joan Lefkow discussed this
thoroughly in a recent decision which we quote:

Where trust funds attempt to collect delinquent employer contributions, courts have

imposed a presumption in favor of the funds regarding proof of the extent of damages. If

the funds establish that the employer has failed to make contributions for employees
covered under the collective bargaining agreement and they also establish a breach of
section 1059 (failure to keep accurate employee records), then the Funds need only

“produce[ ] sufficient evidence to show the amount and extent of that work as a matter of
just and a reasonable inference,” which, in turn, shifts to the employer the burden to


a certificate of dissolution from the Illinois Secretary of State reflecting that MCC I had actually
been dissolved in September 1998, not May 2001 as Mr. McDaniel had claimed. Thus, the
Funds argued, when Mr. McDaniel signed the collective bargaining agreement in January 2001,
he effectively did so as an individual sole proprietor, as no corporate entity existed at that time.
The Funds argued that Mr. McDaniel was thus liable for unpaid contributions through July 30,
2002, the date on which the successor entity was incorporated.

The Court agrees with the Funds that Mr. McDaniel is personally liable for any unpaid
contributions from January 2001, the date he signed the relevant agreements, through July 30,
2002, when MCC II was incorporated. No corporate entity called McDaniel Construction Corp.
existed when Mr. McDaniel signed the agreements, as the prior entity had been dissolved by the
Illinois Secretary of State more than two years earlier. A corporate officer who is aware of a
corporation's dissolution and carries on business under the non-existent corporation’s name is
personally liable for debts incurred during the period under which he conducts such operations.
See, e.g., Affiliated Corp. v. Buck, 886 ¥'. Supp. 647, 649 (N.D. Ill. 1995); Gonella Baking Co. v.
Clara’s Pasta di Casa, Lid., 337 Ill. App. 3d 385, 786 N.E.2d 1058, 1062 (2003). Despite his
testimony at the hearing, the Court finds that Mr. McDaniel knew that MCC I had been
dissolved; he had penned a letter, admitted at the prove-up hearing as Exhibit 5, in which he
stated that he believed the corporation had been dissolved in 1999.

On the other hand, there is no basis in the record for imposing liability on MCC II, which
was incorporated in July 2002. The Funds offered no evidence or argument supporting a claim
that the Court should disregard the fact that MCC II is a separate corporation and hold it liable

for Mr. McDaniel’s debts for the earlier period. And as we will explain below, there is no basis


Here, by contrast, the Funds have not identified any employee who did work covered
under the collective bargaining agreement with Local No. 1 who was paid in cash for the
audit period,
Chicago Steel & Crane, Inc. v. Structural Ironworkers Local No. 1 Welfare Fund, No. 00 C
1615, 2002 WL 1610980, at *5-6 (N.D, Ill. July 22, 2002).

In this case, the Funds presented no evidence at the prove-up hearing that any employee
of Mr. McDaniel, MCC I, or MCC I performed work covered by the relevant agreements with the
Laborers Union and the Funds (except for the month of January 2001, which we will address
shortly); for this the Funds can rely only on whatever is deemed to have been established via
entry of the order of default against the defendants. An order of default establishes the truth of
all material allegations in the complaint upon which liability is based. See, e.g., Franco v.
Selective Ins. Co., 184 F.3d 4, 9 (1st Cir. 1999), Quirindongo Pacheco v. Rolon Morales, 953
F.2d 15, 16 (1st Cir.1992); Dundee Cement Co. v. Howard Pipe & Concrete Prods., Inc., 722
F.2d 1319, 1323 (7th Cir. 1983) (“Upon default, the well-pleaded allegations of a complaint
relating to liability are taken as true.”); Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d
Cir. 1981); see also, Fed. R. Civ. P. 8(d) (‘Averments in a pleading to which a responsive
pleading is required ... are admitted when not denied in the responsive pleading.”). But the
Funds did not allege in their complaint that Mr. McDaniel or the named entities had performed
covered work, thus that proposition is not deemed to have been conceded by the defendants’
failure to answer the complaint. And none of the records the Funds submitted at the hearing
reflected that covered work had been performed. These records did establish that Mr. McDaniel
and his companies had performed construction work during certain periods, but we have no basis

to say that any of the work was covered by the Laborers’ collective bargaining agreement (as


Mawuee Onley Hone (04974

‘

United States District Court, Northern District of [linois

Name of Assigned Judge
or Magistrate Judge

Matthew F. Kennelly

Sitting Judge if Other
than Assigned Judge

CASE NUMBER

O1 C 6236

DATE

12/22/2003

CASE laborers’ Pension Fund vs. McDaniel
TITLE
[ln the following box (1) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintilf, and (b) state brietly thy nature
MOTION: of the motion being presented. |

r

DOCKET ENTRY:

an) a Filed motion of [ usc listing in “Motion” box above.]
(2) Qa Brief in support of motion duc
GB) ao Answer brief to motion due __.- Reply to answer brief due_
(4) Oo Ruling/Hearing on _ setfor at
(5) Oo Status hearing[held/continued to] [sct for/re-set for}on_ set for at
w@ Oo Pretrial couference{held/continued to} [set for/re-set for] on -setfor. at
(7) a Trial[set for/re-set for]on at
(8) o [Bench/Jury trial] [Hearing] held/continued to - at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4am) OO Local Rule 44.1 CO FRCP41(a)(1) © FRCP41(a)(2).
do [Other docket entry} For the reasons set forth on the attached Memorandum Opinion and Order,
plaintiff's motion for entry of default judgment in sum certain (31-1) is granted. Judgment is entered in
favor of the plaintiffs and against defendant Alexander McDaniel in the amount of $7,886.97 ($2,178.49
contributions, liquidated damages and penalties; $5,325.48 attorney’s fees and expenses; $383.00 audit
costs). Plaintiffs’ claims against the current McDaniel Construction Corp. are dismissed.
di!) @ [For further detail see order attached to the original minute order.]
No nouces required, advised in open court Document
Number
No notices required. nurbor of notices
Notices mailed by juclge’s stat
Notitied counsel by telephone. DEC 2 3 2003
oY | Docketing lo mail notices.
Copy to judge/magistrate judge. AUNID LAV Sia sq
date mailed noice
OR Poy @o 07 ku
initials
Daty/timne cgecived in

chiral Clette’s Office, -f

mln ety niials



claims against the current McDaniel Construction Corp. are dismissed.

Date: December 22, 2003 Vu UAW

MATTHEW F. KENNELL’
United States District Judge!

11


following the naming of Mr. McDaniel as a defendant in January 2003 (including the drafting of
the amended complaint in which he was first named). Though it might be objected that it is
unreasonable to require payment of the full amount of the audit costs and attorney’s fees claimed
in light of our limitation of recovery of unpaid contributions discussed above, the fact is that the
work required of the Fund, its counsel, and its auditors resulted almost entirely from Mr.
McDaniel’s obstinateness, which in turn was based on an erroneous claim as to when the first
McDaniel Construction Corp. was dissolved and an erroneous understanding of the law applying
to dissolved entities that carry on business following dissolution. If Mr. McDaniel had been
more forthcoming, rather than requiring the Funds to keep dragging him back into Court to
obtain basic information to which they were legally entitled, this matter would have come to a
conclusion much earlier, likely without most of the expenditure for attorney’s and perhaps
without any of the audit costs. The amounts claimed for the legal and auditing work are
reasonable for the post-January 7, 2003 period. After deducting from the total of $10,028.62
requested by the Funds the amounts claimed for attorney’s fees and expenses preceding January
7, 2003 (21.9 hours of attorney time at $175 per hour, a total of $3,832.50, plus expenses of
$870.64, a grand total of $4,703.14), the net amount of attorney’s fees and expenses awarded is
$5,325.48. The cost of the audit, which we also award to the Funds, was $383.00.
Conclusion

For the reasons stated above, plaintiffs’ motion for entry of default judgment in sum
certain [docket # 31-1] is granted. Judgment is entered in favor of the plaintiffs and against
defendant Alexander McDaniel in the amount of $7,886.97 ($2,178.49 contributions, liquidated

damages and penalties; $5,325.48 attorney’s fees and expenses; $383.00 audit costs). Plaintiffs”

10



produce evidence of the precise amount of work performed or evidence to negate the
reasonableness of the inferences to be drawn from the Funds’ evidence. Combs, 764 F.2d
at 826-27; see also Brick Masons [Pension Trust v. Indus. Fence & Supply, 839 F.2d
1333), 1338-39 [(9th Cir. 1988)}. The rationale for applying this burden-shifting analysis
was set out by the Supreme Court in Anderson v. Mt. Clemens Pottery Co., interpreting a
similar record-keeping provision under the Fair Labor Standards Act (FLSA), wherein it
concluded that an employee should not be penalized for his employer's failure to keep
accurate records of his work such that the employee is unable to prove the extent of
damages, and the employer should not be allowed to “keep the benefits of an employee’s
labors without paying due compensation as contemplated” by the statute. 328 U.S. 680,
687 (1946). See also Combs, 764 F.2d at 827.

The point the Funds miss, however, which is emphasized in Anderson, and in the ERISA
cases relied on by both parties, is that the Funds must prove the fact of damage. See
Anderson, 328 U.S. at 688 (The “rule applies only to situations where the fact of damage
is itself uncertain.”); Combs, 764 F.2d at 826-27 (same); Brick Masons, 839 F.2d at 1338
(same); see also Michigan Laborers’ Health Care Fund v. Grimaldi Concrete, Inc., 30
F.3d 692, 697 (6th Cir.1994) (“We agree ... that ... an employer is liable for contributions
on all hours worked during a period in which it has been demonstrated that some covered
work was performed.”); Steve Gilbert Trucking, 71 F.3d at 1367 (“Brick Masons and
Combs held that if a trust fund has proved that the employer is liable for delinquent
contributions and that the employer has failed to keep adequate records, the burden shifts
to the employer to come forward with evidence that the fund's calculations of damages
are not accurate.”). In these ERISA cases, there was either undisputed evidence that the
employees for which the funds sought to recover contributions had performed some
covered work, Brick Masons, 839 F.2d at 1338-39 (reversing denial of damages to trust
funds, stating that “[h]ere, as in Combs and Anderson, the fact of damage is certain” in
that it was “undisputed that the Trust Funds received no contributions for work performed
by ... Harris masons even though they did some covered work during the relevant time
period” and that the employer failed to keep adequate records regarding the extent of the
work performed); Michigan Laborers’, 30 F.3d at 697 (“In Anderson, the Supreme Court
also emphasized that the fact of damage was certain, as in the present case, and that an
employer should not be allowed to benefit from the violation of a statutory duty.”), or in
the one case with a procedural posture akin to the instant case, Combs, it appears the issue
was not whether unnamed employees were covered but rather the precise calculation of
their covered work. See Combs, 764 F.2d at 820, 827 (reversing summary judgment for
employer where trustees produced evidence in the form of affidavits by two of
defendant's employees regarding amount of time worked each day and an affidavit of a
certified public accountant who concluded, inter alia, that during the audit period
“53,387.75 hours had been worked by the defendant company’s classified employees [but
t]he company [sic] had reported and remitted contributions for 35,115.12 hours, resulting
in an unreporting of 18,272.63 hours.”).


counsel and orally contested certain of the assumptions underlying the audit. Specifically, he
argued that the company had only intermittently employed persons covered by the collective
bargaining agreement with the Laborers’ Union and that it had paid contributions when those
persons performed covered work. He also provided additional records. The Court set the matter
for a prove-up hearing and gave the Funds’ counsel the opportunity to review and assess the
records.

The prove-up hearing was held on December 5, 2003. The Funds called Joseph Gilleran,
a field representative for the Funds. He testified regarding Mr. McDaniel’s execution of the
pertinent agreements with the Funds and the submission of monthly reports for February through
April 2001 in which Mr, McDaniel had represented on behalf of MCC I that no covered work
was performed. He said Mr. McDaniel had also advised him that some covered work was
performed in January 2001 and had promised to submit a report for that month but had never
done so. The Funds also called Richard Wolf, the auditor who had prepared the report that
formed the basis for the Funds’ request for entry of judgment. Mr. Wolf stated that he had
limited records with which to perform the audit. For the year 2002, Mr. Wolf stated, he used the
amount of wages paid as reported by MCC II on its federal income tax return for that year,
divided the figure by $10 per hour (a figure the Funds are permitted to use when an employer
fails to submit reports), and used the results to represent the number of employee hours on work
covered by the relevant agreements with the Laborers Union and the Funds. For the year 2001,
there was no tax return. Mr. Wolf stated that he used the company’s bank account records,
backed out any items he could identify as non-payroll expenses, and used the remainder as the

amount of wages paid, dividing by $10 per hour to determine the number of hours worked. Mr.



employees covered by the agreement to the Funds and to submit monthly reports identifying
covered employees and the amounts due. /d. {| 6, 8. The complaint also alleged that MCC I was
required to submit its books and records to the Funds on demand to conduct compliance audits
and to maintain a surety bond to ensure payment of future wages and contributions to the Funds.
Id. 9.9, 10. Despite this, the Funds alleged, MCC I had failed to report and pay contributions for
January 2001 and from April 2001 forward, and it had failed to obtain and maintain the required
surety bond. /d. 411. The Funds alleged that as a result, McDaniel and MCC II were liable for
unpaid contributions, interest, and liquidated damages, as well as audit costs and reasonable
attorney’s fees and expenses. /d. { 13. They sought an order directing the defendants to submit
to an audit and a judgment in the amount shown by the audit to be due.

On March 25, 2003, the Court entered an order of default against the defendants for
failure to respond to the complaint following service of process and also ordered defendants to
submit the relevant books and records to the Funds for an audit. Defendants did not comply, and
on June 2, 2003, the Court issued a “body attachment” against Alexander McDanicl after he
failed to appear pursuant to a rule to show cause why he should not be held in contempt for
ignoring the Court’s order. Mr. McDaniel appeared voluntarily on June 11, 2003 and was sworn
under oath to answer questions by the Funds’ counsel. Mr. McDaniel answered counsel’s
questions but did not live up to a claimed promise to provide the books and records needed for
the Funds to complete the audit. When the Funds’ counsel sought a further contempt order, the
Court instead directed counsel to prepare a motion for entry of judgment using the records the
Funds could obtain. Counsel obtained certain records, procured an audit, and submitted a motion

for judgment in mid-October 2003. Mr. McDaniel appeared in Court in late October without


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

LABORERS’ PENSION FUND and
LABORERS’ WELFARE FUND OF THE
HEALTH AND WELFARE DEPARTMENT
OF THE CONSTRUCTION AND GENERAL
LABORERS’ DISTRICT COUNCIL OF
CHICAGO AND VICINITY, and JAMES S.
JORGENSEN, Fund Administrator,

Plaintiffs,

vs. Case No. 01 C 6236

ALEXANDER McDANIEL, individually and
d/b/a McDaniel Construction Corp., and
McDANIEL CONSTRUCTION CORP.,

DOCKETED

DEC 2 3 2093

wee eee SS HS SY SYS Se Se SY

Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

The pension and welfare funds of the Construction and General Laborers’ District
Council of Chicago and Vicinity (“Funds”) and their administrator filed suit against Alexander
McDaniel and McDaniel Construction Corporation under 29 U.S.C. §§ 1132(e) & 1145 to
recover allegedly unpaid contributions and union dues. The Funds’ first amended complaint,
filed in January 2003, alleged that McDaniel Construction Corporation was incorporated in July
2002 and that McDaniel was the owner and sole proprietor of a predecessor entity bearing the
same name. Cplt. (5. (For the sake of convenience, we will refer to the predecessor entity as
“MCC 1” and the currently existing entity as “MCC II.”) According to the Funds, MCC I was

part to a collective bargaining agreement obligating it to make contributions on behalf of

38