Dueling sanctions motions are denied

Despite the defendant’s violation of a court order requiring it to provide access to books and records bearing on its financial condition, and the plaintiff’s improper public filing of sensitive login information, neither side was entitled to sanctions. Instead, the costs the defendant incurred in responding to the ECF filing were offset by the plaintiff’s costs in enforcing its right to access books and records.

Background

Pending before the court are multiple motions filed by both RLI Insurance Company and Nexus Services Inc.

RLI’s motions for sanctions

RLI argues that Nexus failed to comply with the terms of the second preliminary injunction order, which required Nexus to pay all breached bonds within 120 days of the date of invoice. The court agrees that Nexus’s delayed or faulty payments constitute a violation of the court’s orders. 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.

Nexus’s defense that it acted reasonably is unavailing. Intent is not an element of civil contempt. Moreover, Nexus cannot raise the substantial compliance defense. 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. Therefore, RLI fails to meet the burden to establish civil contempt.

RLI’s second motion for sanctions alleges that Nexus violated this court’s summary judgment order in continuing to deny access to its books, records and accounts. At the evidentiary hearing, RLI identified several sources of information to which Nexus had not provided access at any point during the litigation, including after the magistrate judge’s most recent order.

The court finds Nexus’s persistent noncompliance with this court’s orders granting RLI access to all books and records bearing on Nexus’s financial condition inexcusable. The court will address the appropriate remedy for Nexus’s intransigence after considering the remaining motions.

Nexus’ motion

On Sept. 8, 2020, RLI made a filing in this court that included unredacted login information. Several things are clear concerning this episode. 

First, RLI had no business filing the Nexus database login information on ECF and should have exercised greater care in reviewing and redacting the exhibits to its filing before placing them on the public docket. Second, Nexus’s counsel immediately discovered the unredacted filings, and Nexus quickly neutralized any ongoing risk by changing its passwords to the relevant databases. Third, in the intervening minutes, a Nexus executive and a former Nexus employee viewed the filing on PACER. The former employee has executed a declaration stating that he did not use the login information displayed in the Sept. 8 ECF filing to access any Nexus database. Fourth, and perhaps most importantly, although more than two months have passed, during which cybersecurity experts have investigated the incident, no evidence has been uncovered that there was any unauthorized access to any Nexus database. Thus, there is no evidence of any data breach.

Nexus argues nonetheless that it is entitled to the costs and fees it incurred in responding to the Sept. 8 ECF filing. While it is indeed true that Nexus would not have incurred these expenses but for RLI’s Sept. 8 ECF filing, these costs are offset by those incurred by RLI in enforcing the books and records provision of the indemnity agreement. Given this offset, the court declines to award sanctions to either party.

Protests

Following the alleged data breach, RLI has been the subject of protests, including demonstrations outside the homes of RLI executives in Peoria. RLI has filed a motion for a cease and desist order and an expedited motion for protective order. 

From the evidence presented, it is clear to the court that Nexus has sought to exploit RLI’s Sept. 8 ECF docketing error to gain an advantage in this litigation. Because assertions of a data breach compromising the confidential information of Nexus program participants lacks evidentiary foundation, Nexus must cease these efforts. 

Accordingly, the court will enter a narrowly tailored protective order requiring Nexus and its officers and executives, directly or indirectly, to cease perpetuating the falsehoods that (1) the confidential information of any Nexus program participant was disclosed or compromised as a result of RLI’s Sept. 8 ECF filing and (2) the Waldman actuarial report reflects anti-immigrant bias on the part of RLI.

RLI’s motions for sanctions denied. Nexus’ motion for sanctions denied. RLI’s motion for a protective order granted in part, denied in part.

RLI Insurance Company v. Nexus Services Inc., Case No. 5:18-cv-66, Nov. 19, 2020. WDVA at Harrisonburg (Urbanski). VLW 020-3-573. 23 pp.