Opinion
5-23-CV-00234-DAE
02-28-2024
STANLEY E. MCGLOTHLIN, Plaintiff, v. BENEFITS FOR CORPORATE AMERICA, INC., BENEFIT STRATEGIES GROUP, LLC, BENEFITS FOR CORPORATE AMERICA, INC. DEFERRED COMPENSATION PLAN, Defendants.
Honorable United States District Judge David Ezra
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
RICHARD B. FARRER, UNITED STATES MAGISTRATE JUDGE
This Report and Recommendation concerns Plaintiff Stanley McGlothlin's Amended Motion for Default Judgment. See Dkt. No. 16. Plaintiff McGlothlin seeks a default judgment against Defendants Benefits for Corporate America, Inc., Benefit Strategies Group, LLC, and Benefits for Corporate America, Inc. Deferred Compensation Plan. Id. This motion has been referred for resolution pursuant to Rules CV-72 and 1 of Appendix C to the Local Rules for the United States District Court for the Western District of Texas. See October 10, 2023, text order. Authority to enter this recommendation stems from 28 U.S.C. § 636(b)(1)(B). For the reasons set forth below, the Amended Motion for Default Judgment should be GRANTED.
Factual and Procedural Background
In 2006, Plaintiff Stanley McGlothlin joined R&F Industries, Inc. as Vice President and General Counsel. Dkt. No. 1 at 4. McGlothlin's father founded R&F in 1990. Id. In 2008, Plaintiff McGlothlin signed an Adoption Agreement on behalf of R&F and became a participant in an employee retirement benefits plan offered by Defendant Benefits for Corporate America (“BCA”). Id.
Between 2009 and 2013, four lump-sum contributions were made on McGlothlin's behalf, totaling $590,900.00. Id. at 7-8. These assets were to be held in a trust created by BCA and Benefit Strategies Group, LLC (“Benefit Strategies”). Id. at 5. The Plan Administrator was to maintain a bookkeeping account on behalf of each participant, called a “Deferral Account,” for deferred compensation, to which compensation amounts and net income or losses were credited or debited. Id. at 6.
Section 8.1 of the Plan required Benefit Strategies, as the Administrator, to keep enough funds in the Trust to meet its “obligation to pay Deferral Accounts” to participants like McGlothlin. Id. at 7. The funds in the Deferral Accounts were to be “earmarked to pay benefits under the terms of the Plan.” Id.
According to the most recent Statement of Benefits McGlothlin received in December 2020, his Deferral Account had a balance of $939,317.82. Id. at 8, 12. McGlothlin has never received any distributions from the Plan or withdrawn any money from his Deferral Account. Id. at 15.
In January 2022, McGlothlin received a memorandum from Defendant Benefit Strategies titled “Status of Trust.” Id. at 8. The memorandum stated that Benefit Strategies intended “to shut down the trust and distribute all benefits to participants,” but provided no date by which benefits would be paid. Id. at 9. Furthermore, the memorandum also stated that the “amount of assets presently in the trust are insufficient to pay all expected benefits under the plan.” Id. The memorandum also contained attached documents that were purportedly previously sent to McGlothlin, but McGlothlin alleges he never received them. Id.
One of the documents, a memorandum dated September 8, 2021, explained that an investment that BCA was “expecting to cash out within the past month ha[d] disappeared.” Id. at 10. According to the memorandum, “several hundred thousand dollars” that were purportedly “recovered relative to a fraud committed on the company to which we had loaned trust funds” had disappeared. Id. McGlothlin alleges that this loaning of trust funds violated Sections 8.1 and 8.2 of the Plan. Id. He further alleges that several other documents attached to the Status of Trust memorandum acknowledged various other violations of the Plan. Id. at 10-12.
McGlothlin never received any of the contributed money, or any of the funds that were supposedly in his Deferral Account. Id. at 15. On February 27, 2023, he sued to recover the $939,317.82 that was supposed to be in the account, alleging violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”) and Texas common law. Id.; see also Dkt. No. 1 at 1-3. All three defendants were served in March 2023. See Dkt. Nos. 6, 7, & 8. McGlothlin noted in his complaint that he would have added a fourth defendant, Ronald H. Snyder, but Mr. Snyder is in bankruptcy and is protected by a bankruptcy stay. Since then, however, no defendant has entered an appearance in this case.
McGlothlin filed a motion for clerk's entry of default on April 12, 2023, which the Clerk granted the same day. Dkt. Nos. 9 & 10. No defendant responded. On May 4, McGlothlin moved for default judgment. Dkt. No. 12. Again, no defendant responded. The Court held a status conference on August 28, 2023. Dkt. No. 14. No defendant appeared. Id. As agreed at the status conference, McGlothlin filed an amended motion for default judgment on October 6, 2023, which is presently before the Court. Dkt. No. 16. Still, no defendant has appeared or otherwise defended against Plaintiff's claims. Because Defendants were properly served and failed to appear or respond, Defendants are deemed to have admitted all factual allegations set forth in McGlothlin's complaint. See Dkt. Nos. 1, 6, 7 & 8; see also Fed.R.Civ.P. 8(b)(6).
Analysis
Plaintiff McGlothlin's Amended Motion for Default Judgment, Dkt. No. 16, should be GRANTED. As demonstrated by the record, Defendants defaulted on Plaintiff's claims. Accordingly, Plaintiff is entitled to default judgment. Additionally, because Plaintiff is entitled to damages, attorneys' fees, costs, and post-judgment interest, the Court recommends that the motion be granted.
A. Defendants Defaulted on Plaintiff McGlothlin's Claims.
Defendants were properly served in this case and failed to appear or respond. The record reflects that on February 28, 2023, Plaintiff McGlothlin served Defendant Benefits for Corporate America, Inc. (“BCA”) through its registered agent, WSFS SPE Services, LLC, who is authorized to accept service on its behalf. See Dkt. No. 7, see also Fed.R.Civ.P. 4(h)(1)(B). Plaintiff McGlothlin served a copy of the Summons and Complaint on March 10, 2023, on Defendant Benefits for Corporate America, Inc. Deferred Compensation Plan (“the Plan”) through its registered agent Ronald H. Snyder, who is authorized to accept service on its behalf. See Dkt. No. 6, see also Fed.R.Civ.P. 4(h)(1)(B). Also on March 10, 2023, Plaintiff McGlothlin served Defendant Benefit Strategies Group, LLC (“Benefit Strategies”) through its registered agent, also Ronald H. Snyder, who is authorized to accept service on its behalf. See Dkt. No. 8, see also Fed.R.Civ.P. 4(h)(1)(B).
Defendants have failed to answer or otherwise defend against Plaintiff's claims. See Dkt. No. 9. The Federal Rules of Civil Procedure provide that “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Accordingly, the Clerk properly entered default.
B. Plaintiff McGlothlin Is Entitled to Default Judgment Against Defendants.
Once a default has been entered, and upon a party's motion, a court may enter a default judgment. Fed.R.Civ.P. 55(b); N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). “[A] party,” however, “is not entitled to a default judgment as a matter of right, even where the defendant is technically in default.” Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (quotation marks omitted). Rather, “[t]here must be a sufficient basis in the pleadings for the judgment entered.” Nishimatsu Constr. Co., Ltd. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). When considering whether such a basis is presented, a court accepts as true the complaint's well-pleaded factual allegations-except regarding damages-and must determine whether those pleaded facts state a claim upon which relief may be granted. See id.; see also United States ex rel. M-Co. Constr., Inc. v. Shipco Gen., Inc., 814 F.2d 1011, 1014 (5th Cir. 1987).
Here, the clerk's office entered default, and Plaintiff McGlothlin moved for default judgment. Dkt. Nos. 10 & 16. Accordingly, the Court accepts as true McGlothlin's well-pleaded factual allegations, except for damages, as alleged in the complaint. Accepting McGlothlin's allegations as true, the Court finds that McGlothlin is entitled to default judgment on his ERISA and Texas common law claims.
1. McGlothlin is entitled to default judgment against Defendants BCA and Benefit Strategies on his first ERISA claim under 29 U.S.C. § 1132(a)(2). Under ERISA, “participants, beneficiaries, fiduciaries, and the Secretary of Labor” may recover for breach of fiduciary duty. 29 U.S.C. § 1132(a)(2). Furthermore, individual recovery for breaches that impair the value of plan assets in a participant's account are authorized by § 1132(a)(2). See LaRue v. DeWolff, 552 U.S. 248, 256 (2008).
In his complaint, McGlothlin alleges that the defendants are fiduciaries who owed duties, the defendants breached their duties, and that McGlothlin suffered damages caused by that breach. See 29 U.S.C. § 1109; see also Dkt. No. 16 at 5. McGlothlin incorporates the complaint's factual background as support for his § 1132(a)(2) claim. Dkt. No. 1 at 13. He also pleads that within the meaning of ERISA, Defendant BCA was the “Sponsor” of the Plan, McGlothlin was a participant in the Plan, and Benefit Strategies was the Plan's Administrator. Id. at 13-16. He further alleges that Defendants are fiduciaries as defined by ERISA and breached their fiduciary duties under § 1132(a)(2) by “failing to ensure that amounts sufficient to fund the obligation to pay McGlothlin's Deferral Account were held in the Trust and were not diverted to, or used for, any purpose except payments to participants and beneficiaries.” Id. at 14. McGlothlin further alleges that BCA and Benefit Strategies “invested some or all of McGlothlin's contributions in illiquid, high-risk investments, contrary to . . . the terms of the Trust” and that they “breached the ‘Nonalienation' provision of the Plan by making risky loans of Plan assets.” Id. at 14. McGlothlin alleges that he suffered resulting damages in the amount of $939,317.82, the value of his investment account. Id. at 15. McGlothlin has sufficiently pleaded a claim and is entitled to default judgment on his first ERISA claim.
2. McGlothlin is entitled to default judgment against all three defendants on his second ERISA claim under 29 U.S.C. § 1132(a)(3). Section 1132(a)(3) enables “a participant, beneficiary, or fiduciary (A) to enjoin an act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” The section also “acts as a safety net, offering appropriate equitable relief for injuries caused by violations that [§ 1132(a)(2)] does not elsewhere adequately remedy.” Varity Corp. v. Howe, 516 U.S. 489, 512 (1996). Unlike § 1132(a)(2), § 1132(a)(3) also allows ERISA claims to be brought against an employee-benefit plan itself. See Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 246 (2000); see also Brennan v. HCA, Inc. Health and Welfare Benefits Plan, 2016 WL 11578834 at *4 (W.D. Tex. Feb. 29, 2016) (citing Greenbaum v. Sedgwick Claims Management Services, Inc. and HCA Health and Welfare Benefits Plan, 111 F.Supp.3d 764, 766 (W.D. Tex. May 29, 2015). Furthermore, the Supreme Court has recognized that in the context of claims for violations of § 1132(a)(3), equitable relief can be in the form of a monetary payment called a “surcharge,” which represents “compensation for a loss resulting from a [fiduciary]'s breach of duty.” CIGNA Corp. v. Amara, 563 U.S. 421, 441-42 (2011) (internal quotations omitted).
McGlothlin again incorporates the complaint's factual background to support the § 1132(a)(3) claim. Dkt. No. 1 at 15. The complaint sufficiently alleges that Defendants violated the terms of the plan by inadequately funding and managing the Deferred Account. To further support his claim that Defendants, including the Plan itself, violated this section, McGlothlin pleads that that Defendants' actions-in making risky investments that violated the terms of the trust and Plan-constituted a breach of their duty of care and violated ERISA. Id. at 15-16.
McGlothlin has sufficiently pleaded a claim and is entitled to default judgment on his second ERISA claim.
3. McGlothlin is entitled to default judgment against Defendant Benefit Strategies on his negligence claim. Plaintiff McGlothlin also claims that Defendant Benefit Strategies' actions constitute negligence under Texas common law. See id. at 16-17. As McGlothlin points out in his motion, any potential affirmative defense of ERISA pre-emption of common law claims would be the Defendant's burden to prove. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987); see also Dkt. No. 16 at 9. By not appearing in this case, Defendants have failed to meet that burden, and the common law claims are not pre-empted.
Under Texas law, the elements of a negligence claim are: (1) the defendant owed a legal duty to the plaintiff; (2) the defendant breached the duty; and (3) the breach proximately caused the plaintiff's injury. Nabors Drilling, U.S.A., Inc. v. Escoto, 288 S.W.3d 401, 404 (Tex. 2009). McGlothlin again references the complaint's background and then alleges that Benefit Strategies, as the Plan administrator, owed him a legal duty to handle his investment with due care, and that it breached that duty by mismanaging funds, which caused McGlothlin to suffer damages. Id. at 16-17. McGlothlin has sufficiently pleaded a negligence claim and is entitled to default judgment.
4. McGlothlin is entitled to default judgment against Defendant Benefit Strategies on his conversion claim. Plaintiff McGlothlin also claims that Defendant Benefit Strategies' actions constitute conversion under Texas common law. See id. at 17. In Texas, conversion is defined as “the wrongful exercise of dominion and control over another's property in denial of or inconsistent with his rights.” Bandy v. First State Bank, Overton, Tex., 835 S.W.2d 609, 622 (Tex. 1992). To support his claim for conversion, McGlothlin pleads that he is the rightful owner of his investment in the Plan, Benefit Strategies exercised dominion and control over McGlothlin's investment, and Benefit Strategies' actions deprived McGlothlin of the use and possession of his funds. Dkt. No. 1 at 17. McGlothlin has sufficiently pleaded a conversion claim and is entitled to default judgment on the claim.
5. McGlothlin is entitled to default judgment against Defendants BCA and Benefit Strategies on his breach of fiduciary duty claim. Under Texas law, the elements of a breach of fiduciary duty claim are “(1) the existence of a fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages.” First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017). McGlothlin alleges that BCA and Benefit Strategies had a fiduciary relationship with McGlothlin and owed him fiduciary duties. Dkt. No. 1 at 17-18. McGlothlin also alleges that as a trustee, Benefit Strategies had specific fiduciary duties under Texas common law and the Texas Trust Code. Id. at 18. Finally, McGlothlin pleads that Defendants' risky investments, which went against the terms of the Trust, violated their fiduciary duties to him under Texas common law and the Texas Trust Code. Id. Here, too, McGlothlin has successfully pleaded a claim for breach of fiduciary duty and is entitled to default judgment.
C. Plaintiff McGlothlin Is Entitled to Damages.
Damages ordinarily may not be awarded via default judgment “without a hearing or a demonstration by detailed affidavits establishing the necessary facts.” United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979). But if the damages can be “determined with certainty by reference to the pleadings and supporting documents,” and a hearing would reveal no pertinent information, “the court need not jump through the hoop of an evidentiary hearing.” James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993) (noting that a district court has “wide latitude” in deciding whether to require an evidentiary hearing when granting default judgment).
Here, Plaintiff McGlothlin's pleadings and supporting documents demonstrate that McGlothlin's investment account managed by Defendants held a total of $939,317.82, all of which he is entitled to recover. See Dkt. No. 1, Exhibit A at 78, 81, 83. Since McGlothlin never received the balance of his account, which he was entitled to receive, he suffered actual damages due to Defendants' violations of ERISA and Texas common law. McGlothlin also attached evidentiary material to his complaint, including a copy of the Plan, the Adoption Agreement, the Trust Agreement, the Plan's 2020 annual review, and memoranda from 2019-2022, all of which support the factual allegations in his claim. Id., Exhibit A at 2-91. Because his pleadings and supporting documentation establish the exact damages suffered, no evidentiary hearing is necessary. McGlothlin is entitled to default judgment for the full amount of his actual damages.
D. Plaintiff McGlothlin Is Entitled to Attorneys' Fees.
Plaintiff McGlothlin's Motion also requests his reasonable attorneys' fees incurred in pursuing this action. Dkt. No. 16 at 12-13.
Attorney's fees are authorized under ERISA, which provides that “[i]n any action under this subchapter ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). As further explained by the Supreme Court, in the context of fees authorized by ERISA, “a court in its discretion may award fees and costs to either party, as long as the fee claimant has achieved some degree of success on the merits.” Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 244 (2010) (citing Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983) (internal quotations omitted). Here, as McGlothlin has succeeded on all his claims via default judgment, he has achieved success on the merits of his case and attorneys' fees are warranted under ERISA. See Hardt, 560 U.S. at 255-56; see also 29 U.S.C. § 1132(g)(1).
Once a federal court “concludes that a party is entitled to attorneys' fees, it must utilize the lodestar method to determine the amount to be awarded.” Wegner v. Standard Ins. Co., 129 F.3d 814, 822 (5th Cir. 1997). The lodestar method requires a court to “determine the reasonable number of hours expended on the litigation and the reasonable hourly rates for the participating attorneys, and then multiply the two figures together to arrive at the lodestar.” Id. (citing Louisiana Power & Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995)) (internal quotations omitted). After calculating the lodestar, the court may decrease or enhance the amount based on the relative weights of the twelve factors set forth in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). The lodestar, however, is a presumptively reasonable fee. See Pembroke v. Wood Cty., 16 F.3d 1214 (5th Cir. 1994) (citing City of Burlington v. Dague, 505 U.S. 557, 562 (1992)). Moreover, an award of attorneys' fees is entrusted to the “sound discretion” of the district court. Tex. Commerce Bank Nat'l Ass'n v. Capital Bancshares, Inc., 907 F.2d 1571, 1575 (5th Cir. 1990).
In Plaintiff McGlothlin's motion, his counsel provided a detailed breakdown of the hours spent working on the case, as well as information on counsel's rates and qualifications. Dkt. No. 16 at 12-13 & Exhibit B. Three attorneys worked on this case, including an ERISA specialist. Id. at 12. When possible, the firm opted to have the attorney with the lowest hourly rate do most of the work on this case to minimize costs incurred. See id. at 13. In total, McGlothlin has incurred $58,148.50 in attorneys' fees. Id.
Plaintiff McGlothlin initially requested attorney's fees in his original Motion for Default Judgment, Dkt. No. 12. After a hearing on the Motion, the Court ordered Plaintiff McGlothlin to submit a more complete record of the time spent and matters worked on by Plaintiff's counsel for this case. Dkt. No. 15. Given the relatively high amount of fees in a case where no defendant has appeared, the Court sought to ensure counsel had used responsible billing practices. McGlothlin agreed and submitted his more thorough Amended Motion for Default Judgment, Dkt. No. 16, which is before the Court.
Upon review of the time expended and description of matters provided by Plaintiff's counsel, the Court finds that the attorneys' fees requested are reasonable. McGlothlin's counsel provided a detailed breakdown of the work done, as well as information regarding the qualifications and experience of each attorney working on the case. Dkt. No. 16, Exhibit B. Given that the lodestar figure is presumptively reasonable and there is no reason presented to depart from that figure, the Court declines to modify the lodestar upward or downward. Accordingly, McGlothlin should be granted an award of attorneys' fees in the amount of $58,148.50.
D. Plaintiff McGlothlin Is Entitled to Costs and Post-Judgment Interest.
Plaintiff McGlothlin's Motion also requests court costs, as accounted for in his timely-filed Bill of Costs form, and post-judgment interest. See Local Rule CV-54. Plaintiff McGlothlin is entitled to an award of court costs under ERISA due to his success in this case. 29 U.S.C. § 1132(g)(1); see also Hardt, 560 U.S. at 255-56. The Court finds that costs should also be awarded, in the requested amount of $1,050.72. Post-judgment interest should also be awarded, at a rate to be determined by the date of the District Court's judgment and should also begin to accumulate on the date of such judgment. See 28 U.S.C. §1961; Post-Judgment Interest Rates -2024, United States Courts, https://www.casb.uscourts.gov/post-judgment-interest-rates-2024.
Conclusion and Recommendation
For the reasons discussed above, it is recommended that Plaintiff's Amended Motion for Default Judgment, Dkt. No. 16, should be GRANTED. Plaintiff should be awarded (1) recovery in the amount of $939,317.82, (2) attorneys' fees in the amount of $58,148.50, (3) costs in the amount of $1,050.72, and (4) post-judgment interest at a rate determined by the date of the District Court's judgment, which will also begin to accumulate on the date of such judgment.
Instructions for Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this report and recommendation on all parties by either (1) electronic transmittal to all parties represented by attorneys registered as a “filing user” with the clerk of court, or (2) by mailing a copy by certified mail, return receipt requested, to those not registered. Written objections to this report and recommendation must be filed within fourteen (14) days after being served with a copy of same, unless this time period is modified by the district court. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Objections, responses, and replies must comply with the same page limits as other filings, unless otherwise excused by the district court's standing orders. See Rule CV-7. The objecting party shall file the objections with the clerk of the court, and serve the objections on all other parties. A party filing objections must specifically identify those findings, conclusions, or recommendations to which objections are being made and the basis for such objections; the district court need not consider frivolous, conclusory, or general objections. A party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the district court. Thomas v. Arn, 474 U.S. 140, 149-52 (1985); Acuna v. Brown & Root, Inc., 200 F.3d 335, 340 (5th Cir. 2000). Additionally, failure to timely file written objections to the proposed findings, conclusions, and recommendations contained in this report and recommendation shall bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the district court. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
IT IS SO ORDERED.