RLI Ins. Co. v. Nexus Servs. Inc.
| Decision Date | 19 November 2020 |
| Docket Number | Civil Action No. 5:18-cv-66 |
| Court | U.S. District Court — Western District of Virginia |
| Parties | RLI INSURANCE COMPANY, Plaintiff, v. NEXUS SERVICES INC, et al., Defendants |
MEMORANDUM OPINION
This matter is before the court on several pending motions tangential to this contract dispute, including plaintiff RLI Insurance Company's ("RLI") first motion for sanctions, ECF No. 452, alleging delayed payments in violation of court orders, and RLI's second motion for sanctions, ECF No. 498, alleging failure to perform under the books and records provision of the Indemnity Agreement and court orders.
Additionally, before the court are several motions arising from an ECF filing RLI made on September 8, 2020 concerning its pending sanctions motions, which attached unredacted exhibits listing login data for certain Nexus Services, Inc. ("Nexus") databases. This filing was immediately noted by Nexus's counsel and passwords were changed. Although there is no evidence that any confidential Nexus information was compromised, this episode has ignited a firestorm in this lawsuit, resulting in protests on the streets of RLI's hometown, Peoria, Illinois, and the filing of myriad motions. These include Nexus's motion for sanctions, ECF No. 531; RLI's motion to compel Nexus to cease and desist from bad faith and defamatory protest activity, ECF No. 533; Nexus's motion to reopen discovery, ECF No. 553; RLI's expedited motion for protective order, ECF No. 560;1 and Nexus's motion to order RLI to pay costs and fees associated with responding to the September 8, 2020 ECF filing,ECF No. 565. The court heard argument on the various motions during the September 21 and 22, 2020 evidentiary hearing as well as during an October 16, 2020 hearing. As the issues are fully briefed and the court has already entered judgment on the substantive issues in this case, the remaining matters in this lawsuit are resolved in this opinion.
RLI's first motion for sanctions was filed on April 2, 2020. RLI Mot. for Sanctions, ECF No. 452. RLI argues that Nexus failed to comply with the terms of the second preliminary injunction order, last modified January 29, 2020, ECF No. 392, which required Nexus to pay all breached bonds within 120 days of the date of invoice. RLI demands reimbursement for all costs and attorney's fees related to the motion.
Since the court amended the second preliminary injunction order, RLI claims Nexus failed to pay five separate invoices, totaling $67,673.51. RLI concedes that four of the five invoices were paid before it filed its motion,2 and that the fifth invoice was paid shortly after it filed its motion. RLI Mot. for Sanctions, ECF No. 452 at 5; Nexus Opp. to Mot. for Sanctions, ECF No. 466 at 4; RLI Reply to Opp., ECF No. 471 at 5. RLI also complains that three checks for separate invoices were returned due to insufficient funds. ECF No. 452 at 2.However, RLI does not dispute that these payments were also satisfied by April 3, 2020 through cashier's checks sent to RLI via overnight mail. Nexus Opp. to Mot. for Sanctions, ECF No. 466 at 4; RLI Reply to Opp., ECF No. 471 at 5. Finally, RLI complains that seven payments made did not include the amount of interest accrued. However, three of the seven payments were rectified by a supplemental check accounting for the interest accrued by the time RLI filed its motion. ECF No. 452-2.
RLI claims these late payments, bounced checks, and failure to pay interest are evidence of bad faith and noncompliance by Nexus. It cites Nexus's pattern of noncompliance as support for its claim of willfulness and bad faith. For its part, Nexus claims it took care to comply with the court's order, but inadvertently made errors in payments due to complications shifting its finance department to remote work due to the COVID-19 pandemic. ECF No. 466, at 1-2. Nexus concedes it made some payments late during this period, and claims the payments returned for insufficient funds were due to the finance department transferring funds for those checks into the wrong account. It also claims that the finance department incorrectly calculated interest amounts during the transition period. Further, Nexus claims it did not know about the issues with its attempted payments until RLI filed its motion for sanctions. ECF No. 466 at 4. Once aware, it acted promptly to rectify the issues by overnighting cashier's checks or sending payments for the incorrectly calculated interest amounts.
On September 16, 2020, RLI filed an additional brief renewing its first motion for sanctions against Nexus on two grounds: (1) Nexus made seven additional delayed payments since RLI filed its most recent sanctions brief on April 23, 2020; and (2) Nexus has "failed todischarge outstanding claims on RLI bonds in the aggregate amount of $240,020.76" under the court's order of specific performance of paragraph 2.a.(ii) of the Indemnity Agreement. ECF No. 520 at 2. The court notes that each of the seven delayed payments were received by RLI within one day of the 120-day deadline.
The court agrees that Nexus's delayed or faulty payments constitute a violation of the court's orders. A district court has wide latitude in entering an order of civil contempt. Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000) (). To support a finding of civil contempt, each of the following elements must be established by clear and convincing evidence: (1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge, (2) that the decree was in the movant's favor, (3) that the alleged contemnor violated the terms of the decree and had knowledge or constructive knowledge of such violation, and (4) that the movant suffered harm as a result. Id. F.3d at 301. There is no dispute that the first two elements are satisfied here. Nexus argues that sanctions would be inappropriate because it acted reasonably, it did not know about the noncompliance, and RLI has made no showing of harm.
Nexus claims it did not know about the delays, incorrect interest rates, or returned payments, but its years' long history of making late and insufficient payments plainly establishes its constructive knowledge of noncompliance. The court has addressed Nexus's delayed payments on many occasions. See, e.g., Order Granting Second Prelim. Inj., ECF No. 139; Order Granting in Part Mot. to Enforce Second Prelim. Inj., ECF No. 278; Second Order Granting in Part Mot. to Enforce Second Prelim. Inj., ECF No. 372. Despite this court'sadmonitions, Nexus did not sufficiently alter its payment practices to ensure compliance. A party subject to a preliminary injunction has a "duty to keep a safe distance from the line drawn by the district court's injunction." Simone v. VSL Pharm., Inc., No. 15-1356, 2016 WL 3466033, at *16 (D. Md. June 20, 2016), modified sub nom. De Simone v. VSL Pharm., Inc., No. 15-1356, 2018 WL 4567111 (D. Md. Sept. 24, 2018) (quoting Oral-B Labs. v. Mi-Lor Corp., 810 F.2d 20, 24 (2d Cir. 1987)).
Nexus's defense that it acted reasonably is unavailing. Intent is not an element of civil contempt. Simone, 2016 WL 3466033, at *16 (). McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949) (internal citations omitted).
Moreover, Nexus cannot raise the substantial compliance defense. To benefit from this defense, the violating party must show that it took all reasonable steps to ensure compliance. Schwartz v. Rent-A-Wreck of Am., 261 F. Supp. 3d 607, 615-16 (D. Md. 2017) (citing United States v. Darwin Const. Co., 873 F.2d 750, 755 (4th Cir. 1989)). Importantly, inadvertent omissions are excused only if reasonable steps were taken to prevent them. Id. (citing United States v. Darwin Const. Co., 679 F. Supp. 531, 536 (D. Md. 1988), aff'd as modified, 873 F.2d 750 (4th Cir. 1989) . "[T]he efforts made by [Nexus]to ensure [compliance]were, to say the least, substandard." Id. at 616. Evidence of curative steps does not bear on whether reasonable measures were taken in the first instance.
However, even if Nexus's marginal delays on payments constitute a violation of the court's orders, RLI has not shown any harm. The moving party "bears the burden of proving both the fact and the amount of its losses," and the amount of damages awarded in a contempt finding must only meet the preponderance of the evidence standard. In re Gen. Motors Corp., 110 F.3d 1003, 1016-18 (4th Cir. 1997). Even so, RLI has provided no specific showing of harm. The court's January 29, 2020 Order provides, "[f]or each succeeding month until the time of trial, to prevent these invoices from being turned over to Treasury for collection, Nexus must pay DHS, or RLI for submission to DHS, any bond breach invoices within 120 days of the date of the DHS invoice, unless such invoices are withdrawn and/or cancelled by DHS." ECF No. 372 at 3. The single purpose of the preliminary injunction was to protect RLI's status as a surety. RLI has made no representation that any breached bonds have been referred to Treasury or that its reputation as a surety has been injured in any way. The preliminary injunction has cured the irreparable harm in that RLI is reimbursed for all breached bonds...
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