Bond security business must pay $5.7M

Refereeing a strained business relationship poisoned by “historic intransigence” on the part of an immigrant bond security company, a federal judge has levied a $3,331,197.55 award of damages – mostly legal expenses – against the business.

The award largely represents costs of obstructive litigation tactics used by Nexus Services Inc., a Georgia-based company with operations in Augusta County, the judge said.

U.S. District Judge Michael F. Urbanski also ordered Nexus to deposit $2.4 million by Dec. 1 as collateral security under an indemnity agreement with business partner RLI Insurance Company.

Urbanski’s Oct. 23 opinion is RLI Insurance Co. v. Nexus Services Inc. (VLW 020-3-543).

Dispute over financials

Nexus – founded in Verona and now based in Atlanta – developed a business plan where it would rent ankle monitors or other security devices to immigrant detainees to induce sureties to post immigration bonds for the detainees. RLI – one of those sureties – accused Nexus of failing to live up to its contract obligations. The insurance company sued in federal court to get access to Nexus books, records and accounts.

It has been an uphill battle for that information, according to Urbanski’s opinion. Nexus admitted its books were a mess.

In July, Urbanski granted specific performance of certain provisions of the companies’ indemnity agreement. He then heard evidence to set a reasonable amount of collateral security for bonds for which RLI requests discharge, to set a reasonable amount of damages and to sort out cross motions for sanctions.

Collateral security

The deal between the companies called for Nexus to put up collateral for unpaid breached bonds plus collateral for any reasonably certain risk of future loss. The companies clashed about the risk of future bond breaches, when bonded immigrants fail to show up for hearings.

“[W]e’ve done what we were supposed to do every step of the way, every month of the way,” Nexus CEO Micheal Donovan testified.

RLI demanded $10 million in collateral security based on Nexus’ alleged “historic intransigence.” Urbanski said that amount was unwarranted.

Urbanski said he came away from the hearing with a clear picture of the risk faced by RLI.

“Over the course of the past four years, Nexus has proven itself to be an unreliable business partner with RLI,” the judge wrote.

Nexus blocked access to books and records, insisting on a previously unmentioned confidentiality agreement, Urbanski said. Nexus walled off access to related corporate entities, he added.

“To this day, they fail to make available accurate financial records,” Urbanski wrote.

“While it is true that Nexus has paid RLI nearly $4 million for breached bonds and that RLI has not suffered any unreimbursed penal sum losses on breached bonds, it has strung RLI out over the past four years. Nexus’s historic intransigence represents an ongoing financial risk to RLI,” Urbanski wrote.

Added risk comes from investigations by state regulators, claims from large creditors, a recent real estate sell-off and diminished cash flow, Urbanski said.

The judge said his $2.4 million security requirement represents $1.4 million for the risk associated with Nexus’ historic failure to timely pay breached bonds, $500,000 related to the “murky glimpse” of Nexus’s financial position and $500,000 related to Nexus’s “struggling financial condition” and involvement in regulatory investigations.

Damages

Because Nexus has either paid the government or reimbursed RLI for breached bonds to date, RLI’s damages in the contract action were largely attorney’s fees, special master fees, expert fees and related expenses, Urbanski said. He determined the amount of the award need not be resolved by a jury.

Urbanski cut the fee claim for overly redacted billing statements and for bills not yet reviewed, but he found “no doubt” RLI’s claimed legal fees arose out of Nexus’ breach of the indemnity agreement.

“The court is well aware of the myriad issues in this case supporting the large legal fees claimed,” Urbanski wrote. One example was Nexus’ attempt to cloak two affiliated companies from review, only to later admit they were corporate alter egos, the judge said. He also noted Nexus’ “intractable resistance to providing RLI with access to its books and records” that required appointment of a special master to try to sort it out. Urbanski said Nexus “has consistently failed to timely meet its payment obligations.”

Urbanski also ordered Nexus to provide daily access to records related to RLI-bonded Nexus program participants as to whom the government has issued a notice to deliver. The judge ordered weekly access to information to allow RLI to assess its bond risk and monthly access to corporate finances.

Sanctions issues

The business clash produced unusual claims of out-of-court tactics. RLI claimed in court papers last month that Nexus was spreading “false, misleading and defamatory information” about RLI and harassing RLI employees, officers and directors.

RLI said Nexus falsely claimed that the insurance company’s disclosures resulted in a “massive data breach” that never occurred. Nexus orchestrated public protests based on false information at RLI’s Peoria, Illinois, headquarters, RLI contended.

“It is beyond question that Nexus is acting in concert with the purported protesters who are spreading Nexus’ lies and slander that RLI perpetuated a ‘massive’ data breach and is guilty of racist actions,” wrote lawyers for RLI in an Oct. 8 brief urging a protective order.

Urbanski said Oct. 23 he was still pondering cross motions for sanctions and related issues.

RLI is represented by Vivian Katsantonis and other lawyers at Watt, Tieder, Hoffar & Fitzgerald LLP in McLean.

Nexus is represented by Mario B. Williams of Atlanta and John M. Shoreman of Washington.