United States District Court, E.D. Missouri, Eastern Division
EDWARD HUGLER, Acting Secretary of Labor, United States Department of Labor, Plaintiff,
JAMES M. CLAXTON, JR., Defendant.
MEMORANDUM AND ORDER
CHARLES A. SHAW UNITED STATES DISTRICT JUDGE
matter is before the Court on plaintiff's motion for
default judgment. Plaintiff Thomas E. Perez, then Secretary
of Labor, United States Department of Labor (the
“Secretary”) brought this action against James M.
Claxton under Sections 403, 404, and 406 of the Employee
Retirement Income Security Act of 1974 (“ERISA”)
29 U.S.C. §§ 1103, 1104, and 1106 for breach of
fiduciary duties, failure to forward employee elective
deferrals to a 401(k) plan, and failure to forward payroll
withholdings of insurance premiums for a group health plan.
The Secretary asks that defendant be ordered to make payments
to the 401(k) plan and group health plan.
March 16, 2016, the Secretary filed a Waiver of Service of
Summons signed by defendant James M. Claxton, Jr. dated March
14, 2016. Defendant Claxton did not respond to the complaint,
and the Secretary filed a motion for the clerk's entry of
default against defendant, which was granted on June 21,
2016. The Secretary then filed a motion for default judgment
against defendant Claxton, which is currently pending before
the Court. The motion is unopposed.
to the Complaint, defendant Claxton was sole officer and
owner of Claxton Consulting Engineers, Inc.
(“CCE”), a Missouri corporation providing
engineering consulting services. CCE was located in the State
of Missouri and operated within Missouri until ceasing
operations in August 2009. CCE was the sponsor of two plans
covered by ERISA: the Claxton Consulting Engineers, Inc.
401(k) Plan (“401(k) Plan”) and the Claxton
Consulting Engineers, Inc. Health Plan (“Health
Plan”). Defendant is the Trustee and fiduciary of the
401(k) Plan and the fiduciary of the Health Plan.
401(k) Plan is a defined contribution plan that was
administered in Missouri and that allowed employees of CCE to
elect to defer a portion of their compensation and have that
amount contributed to the 401(k) Plan. Defendant Claxton
established the 401(k) Plan on June 30, 2006, by signing the
Adoption Agreement on behalf of CCE as the company's
President and as the named Trustee. The 401(k) Plan is an
employee benefit plan within the meaning of § 3(3) of
ERISA, 29 U.S.C. § 1002(3), and subject to coverage of
the Act under ERISA § 4(a), 29 U.S.C. § 1003(a).
Defendant Claxton was a fiduciary with respect to the 401(k)
Plan pursuant to ERISA §§ 3(21)(A)(i) and (iii), 29
U.S.C. §§ 1002(21)(A)(i) and (iii).
Health Plan operated through a fully insured Point of Service
contract for health care coverage with Anthem Blue Cross/Blue
Shield of Missouri that provided health, dental, life and
accidental death benefits for employees of CCE. Defendant
Claxton executed the Group Master Application on June 20,
2006, with CCE as the Group and Plan Sponsor of the Health
Claxton was the owner and officer of CCE, the Plan Sponsor,
and he exercised discretionary authority over assets of the
Health Plan by withholding premiums from employee pay for
forwarding to the Health Plan to continue insurance coverage.
The CCE Group Health Plan is an employee welfare benefit plan
within the meaning of § 3(3) of ERISA, 29 U.S.C. §
1002(3) and subject to coverage of the Act under ERISA §
4(a), 29 U.S.C. § 1003(a). Defendant Claxton was a
fiduciary with respect to the Health Plan pursuant to ERISA
§§ 3(21)(A) (i) and (iii), 29 U.S.C. §§
1002(21)(A)(i) and (iii).
about September 15, 2009, the Secretary of Labor, through the
Employee Benefits Security Administration
(“EBSA”) initiated an investigation under ERISA
of the 401(k) Plan and the Health Plan. At varying times from
October 2006 through September 2008, defendant Claxton
withheld and failed to forward $13, 119.19 in employee
elective deferrals to the 401(k) Plan. Defendant Claxton
failed to take action to secure the transfer to, or cause the
transfer to, the 401(k) Plan of amounts withheld from the
wages of four CCE employees: Richard Kuehl $6, 688.19;
Jeanetta Perks $1, 551.00; Joshua Shewmake $3, 360.00; and
Deshawn Taylor $1, 520.00; for a total amount of $13, 119.19.
According to the Complaint, lost earnings totaling $2, 816.58
are owed on the unpaid employee withholdings from pay periods
beginning in October 2006.
varying times in 2007 through August 2009, defendant Claxton
also withheld and failed to forward $1, 363.38 in payroll
withholdings of insurance premiums intended for payment of
health care premiums for Richard Kuehl, a participant in the
CCE Blue Cross/Blue Shield Health Plan. Claxton failed to
segregate the insurance premium withholdings from the general
assets of the company and forward them to the Health Plan. By
not forwarding the insurance premiums by the first of the
month in which coverage was in force, defendant Claxton
caused cancellation of the company's health insurance
coverage and did not inform participant Kuehl that the
coverage had been cancelled. According to the Complaint, lost
earnings totaling $96.09 are owed on the unpaid insurance
premium withholdings that were withheld and not forwarded in
2007 through August 2009.
James Claxton and his wife Bobbette filed for protection from
creditors under Chapter 13 of the United States Bankruptcy
Code. Under the confirmed Chapter 13 Plan, defendant Claxton
paid $2, 398.86 to the 401(k) Plan over five years. Defendant
Claxton signed a Stipulation of Nondischargeability with the
Secretary in which he admitted that he was a fiduciary to the
401(k) Plan and to the Health Plan, and that the debt to the
two plans was nondischargeable under Section 523(a)(4) of the
Bankruptcy Code. The Stipulation also included a tolling
agreement whereby the Statute of Limitations date for the
Secretary to file a complaint for the remainder of the
amounts owed on these 2007-2009 violations, after all Chapter
13 payments were made, was extended to no later than January
1, 2016. The Secretary alleges in the Complaint that the
amount of restitution it seeks for the 401(k) Plan is
therefore reduced by the amount of the Chapter 13 payments -
from $13, 119.19 to $10, 720.33, plus lost earnings.
judgments are not favored in the law, United States ex
rel. Time Equip. Rental & Sales, Inc. v. Harre, 983
F.2d 128, 130 (8th Cir. 1993), and their entry is
discretionary. See Taylor v. City of Ballwin, Mo.,
859 F.2d 1330, 1332 (8th Cir. 1988). “The entry of a
default judgment should be a ‘rare judicial
act.'” Comiskey v. JFTJ Corp., 989 F.2d
1007, 1009 (8th Cir. 1993) (quoted case omitted). There is a
judicial preference for adjudication on the merits.
Oberstar v. F.D.I.C., 987 F.2d 494, 504 (8th Cir.
1993). Entry of default judgment pursuant to Federal Rule of