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LABORERS' PENSION FUND v. QUALITY GENERAL CONSTR.

June 3, 2005.

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, Administrator of the Funds, Plaintiffs,
v.
QUALITY GENERAL CONSTRUCTION, INC., an Illinois corporation, Defendant.



The opinion of the court was delivered by: MARK FILIP, District Judge

MEMORANDUM OPINION AND ORDER

This matter comes before the Court on the "Motion to Vacate Default Judgment" and "Motion to Dismiss or, in the Alternative, for Summary Judgment" of Defendant Quality Construction, Inc. ("Defendant" or "Quality General"). For the reasons explained below, the Defendant's motions are denied.

I. Background

  The Laborers' Welfare Fund of the Health and Welfare Department of the Construction and General Laborers' District Council of Chicago and Vicinity, the Laborers' Pension Fund, and James S. Jorgensen, Administrator of the Funds (collectively, "Plaintiffs" or "Laborers' Funds") filed a complaint initiating the case on October 15, 2002. (D.E. 1. (the "Complaint").)*fn1 The Complaint alleges that Quality General violated the terms of a collective bargaining agreement (the "CBA"), which Defendant entered into with the Construction and General Laborers' District Council of Chicago and Vicinity ("the Union") in approximately June of 2002. (Id. ¶ 6.) (The Laborers' Funds are multiemployer benefits plans within the meaning of ERISA, and they are authorized to collect employer contributions owed to the funds, as articulated further in agreements between the Union and the Laborers' Funds which are binding as to Defendant through Defendant's agreement to the CBA. (Id. ¶ 3.)) The Laborers' Funds allege that Defendant has violated its obligations by, among other things, failing to make contributions for certain pension, health and welfare benefits, failing to submit certain books and records, and failing to obtain and maintain a surety bond. (Id. ¶¶ 11-12.) In the Complaint, Plaintiffs assert federal jurisdiction under §§ 502(e)(1) and (2) and 505 of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. §§ 1132(e)(1) and (2) and 1145, and § 301(a) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C. § 185(a). (Id. ¶ 1.)

  In October 2002, the case was assigned to the Honorable Blanche M. Manning of the United States District Court for the Northern District of Illinois. Based on Defendant's failure to appear or answer, after having been served through the Secretary of State,*fn2 Judge Manning entered a default against Defendant pursuant to Federal Rule of Civil Procedure 55(a) on December 13, 2002. (D.E. 2, 3.) At that time, Judge Manning also directed the Laborers' Funds to file a motion for entry of a default judgment. (D.E. 3.) The Laborers' Funds subsequently filed a motion on December 26, 2002, which explained that they could not seek judgment in sum certain because Defendant had failed to comply with various reporting requirements, and the Laborers' Funds accordingly moved to compel an audit. (D.E. 4.)

  On February 13, 2003, Judge Manning granted a motion for a rule to show cause why Marek Kawa, the co-owner and president of Quality General, should not be held in contempt of court for failure to submit the company's books and records to an audit. (D.E. 7.) Judge Manning ordered a writ of body attachment as to Marek Kawa for failure to appear in March 2003 (D.E. 9), which body attachment was discharged after a second Marek Kawa (who apparently lives near the Marek Kawa who owns Quality General) was erroneously brought before the Court. (D.E. 10.)

  On July 8, 2003, Judge Manning issued a renewed rule to show cause why Marek Kawa, the president and co-owner of Quality General, "should not be held in contempt of court for failure to submit books and records to an audit." (D.E. 12.) The rule to show cause was returnable on September 9, 2003. (Id.) Mr. Kawa failed to appear as required on September 9, 2003, despite in-hand service of the rule to show cause on August 5, 2003. (D.E. 13.) Judge Manning therefore ordered the U.S. Marshals Service "to arrest Marek Kawa and bring him before the Court at the earliest possible time." (D.E. 14.) The next day, Judge Manning issued a writ of body attachment as to Mr. Kawa. It appears, at least viewing things charitably to Mr. Kawa, that Mr. Kawa thereafter came to court "voluntarily" after learning of the outstanding writ of body attachment.*fn3 On October 7, 2003, Mr. Kawa agreed in court to submit books and records for an audit, as previously ordered. (D.E. 15.) At that time, Mr. Kawa advised the Court and counsel for the Laborers' Funds that Quality General had not performed any covered work and submitted books and records to Plaintiffs' counsel that Mr. Kawa represented as the complete records responsive to the Court's order. (D.E. 21 at 2.)

  Plaintiffs thereafter issued third-party subpoenas to, inter alia, a general contractor, and Plaintiffs discovered that, at least in Plaintiffs' view, Defendant and Mr. Kawa had not produced all responsive documents. Plaintiffs also issued a subpoena to Mid-America Bank in Clarendon Hills, Illinois, calling for production of "[a]ll records including bank statements and canceled checks for any accounts held by Quality General Construction, Inc. a/k/a Quality Construction and/or Marek Kawa from the period of June 18, 2002 forward." (D.E. 17.) This subpoena prompted Defendant to file a motion to quash, in which Defendant argued that the subpoena was overbroad because it failed to distinguish between corporate accounts and personal accounts of Mr. Kawa and his wife, the Secretary of the Defendant corporation. (Id. at 1.) Mr. Kawa further claimed that the subpoena sought bank records that "have no connection to Quality General." (Id.) On January 20, 2004, in response to the Defendant's motion to quash, Judge Manning ordered that Plaintiffs should file an amended subpoena to Mid-America Bank that would be "returnable to the chambers of this court for in camera inspection by 1/23/04." (D.E. 18.)

  On March 3, 2004, the Executive Committee of the United States District Court for the Northern District of Illinois transferred the case to this Court, pursuant to the process employed in this district to supply cases to newly sworn district judges. After the transfer, this Court set the case for status on March 25, 2004, and requested the parties to file a joint status report. (D.E. 19.) The parties also were advised that this Court would address the pending discovery issue at the status hearing and would attempt to resolve it expeditiously.

  In the lead-up to the initial post-transfer status conference, on March 12, 2001, the parties filed a joint status report. (D.E. 21) ("Joint Report").) In the Joint Report, the parties re-stated the grounds for federal subject matter jurisdiction alleged in the Complaint — namely, that the case involved claims under the federal ERISA statute and the federal LMRA statute. (Id. ¶ 2.)

  At the March 25, 2004 hearing, the Court asked counsel for Defendant to tender copies of the relevant bank documents that the Laborers' Funds sought under the purportedly overbroad bank subpoena. Counsel for the Laborers' Funds suggested that Mr. Kawa was engaging in misconduct that would be exposed by the subpoenaed documents. The Court stated that it would attempt to review the records and have them available for the parties by the morning of March 29, 2004. On March 26, 2004, Defendant filed a motion to transfer the case and for a stay. (D.E. 22.) Defendant requested (1) a transfer of the case back to Judge Manning; and (2) that this Court should not review the subpoenaed documents pending a ruling on Defendant's transfer request. (Id.)

  This motion was denied in a written opinion, as it was substantially frivolous. (D.E. 23.) The Court also indicated that Mr. Kawa and Defendant would be given an opportunity to seek appellate review, and that if they did not do so, then the Court would release relevant documents as it had performed the in camera review. When Defendant and Mr. Kawa indicated that they would not seek to appeal, the Court issued a written opinion denying the motion to quash of Mr. Kawa and Quality General because nothing in the financial records appeared to implicate "personal" matters within any reasonable meaning of that term. (See D.E. 25.) The Court also denied the motion to quash because there were indications in the bank records that at least potentially suggested that Quality General, Mr. Kawa, and/or his wife were engaging in misconduct with respect to the financial affairs of Quality General as it related to their obligations to the Laborers' Funds. (See id.) The Court made no findings of misconduct by the corporation or Mr. Kawa, but the Court did conclude that the financial records clearly were discoverable to the Laborers' Funds under federal civil discovery principles. (See id.)

  II. The Pending Motions

  On October 1, 2004, Defendant filed the Motion to Dismiss, or in the Alternative, for Summary Judgment and an accompanying memorandum. (D.E. 33 ("Motion to Dismiss").) Several weeks later, Defendant filed the Motion to Vacate Default Judgment. (D.E. 32 ("Motion to Vacate").) Plaintiffs filed a consolidated response to the Motion to Dismiss and Motion to Vacate. (D.E. 37 ("Plaintiffs' Response").) Thereafter, the Defendant submitted a reply. (D.E. 38 ("Defendant's Reply").) In the Motion to Vacate, Defendant contends that: (i) at the time Mr. Kawa was served with process of the Complaint, the company had no employees and thus the CBA is void; (ii) Mr. Kawa was ignorant of the court procedures and "presumed" that, because the CBA is void, there was no need to respond to the Complaint; and (iii) the fact that the CBA is void is a "meritorious defense." (Motion to Vacate ¶¶ 1, 4, 5.) In response, Plaintiffs contend that the ...


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