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Discovery violations end in default judgment

Virginia Lawyers Weekly//May 23, 2023

Discovery violations end in default judgment

Virginia Lawyers Weekly//May 23, 2023

Where defendants failed to respond to discovery propounded in a case alleging they violated federal and state consumer protection laws, even after they were ordered to do so by the court, default judgment was entered against each defendant as a sanction.


In February 2021, the Consumer Financial Protection Bureau, or CFPB, the Commonwealth of Massachusetts, the People of the State of New York and the Commonwealth of Virginia filed a 17-count complaint against Nexus Services Inc., Libre by Nexus Inc., Micheal Donovan, Richard Moore and Evan Ajin, alleging that defendants violated the federal and state consumer protection laws in administering “immigration bonds” for indigent consumers facing deportation.

This matter is now before the court on plaintiffs’ motion for sanctions and for consideration of the magistrate judge’s Feb. 7, 2023, order.

Civil contempt

The magistrate judge’s order documented the failings of both the entity and individual defendants to respond to plaintiffs’ discovery requests or make a good faith effort to do so. The factual certification constitutes prima facie evidence of contempt, which sustains plaintiffs’ initial burden of proof.

Then, at the hearing, no party contested any of the certified facts; rather, counsel for defendants conceded that defendants should be held in contempt and offered consent to a monetary sanction in lieu of default judgment. And in a sworn declaration, plaintiffs advised the court that defendants still have not produced any additional discovery or otherwise come into further compliance with the June 8 order.

As defendants do not challenge any of the certified facts and have not produced the discovery required by the magistrate judge’s order to date, defendants’ contempt is established. The record establishes (1) the existence of the June 8 order; (2) that compelling discovery responses from defendants is in plaintiffs’ favor; (3) a knowing violation of the order on behalf of both the entity and individual defendants and (4) harm to plaintiffs by virtue of gross delay of the discovery process, several sources of excess expense and postponement of the bench trial.

Moreover, if default judgment is to ever be warranted as a sanction for discovery abuses, it is emphatically so in this case. First, defendants’ bad faith is implicit in their pattern of knowing noncompliance with numerous orders of the court, including but not limited to their failure to timely retain counsel when ordered to do so, their refusal to respond in writing to the magistrate judge’s order to show cause when directed to do so and their unexcused absence from a scheduled telephone conference.

Defendants’ other litigation activity in this case — even after the appearance of new counsel — further indicates a lack of candor with the court and a delusion as to the exigency of the situation. For example, in an April 17 motion to continue the show-cause hearing, counsel for defendants (who had entered an appearance only three days prior) expressed their intention “to come into compliance with the Court’s June Discovery Order as quickly as humanly possible” and not “to further delay or to prevaricate and obfuscate their way out of discovery compliance or sanctions.”

But that representation proved false-hearted; two weeks later (and with no further indication of progress on discovery compliance), defendants filed a motion for judgment on the pleadings — long after any conceivable deadline to do so and with an incomplete supporting memorandum — based on the theory that the case must be dismissed in its entirety because the CFPB’s funding structure is unconstitutional. That is hardly consistent with the conduct of a litigant for whom purging itself of contempt and avoiding delay are top priorities. As to the prejudice caused by defendants’ persistent noncompliance, over two years after filing their complaint, plaintiffs are without meaningful discovery and without a trial date.

At the hearing, defendants argued that they should be afforded an opportunity to demonstrate compliance under a monetary sanction because the court had not already used monetary sanctions to compel that compliance. Though it is true that the court has not yet ordered sanctions in this case, civil contempt in the federal courts is not new territory for Nexus; both the entity and individual defendants have quite recently been reprimanded for failing to comply with court orders — including discovery orders — in other cases. The court will grant plaintiffs’ motion for sanctions and enter default judgment against each defendant.

Plaintiffs’ motion for sanctions granted. Defendants’ motion for judgment on the pleadings denied as moot.

Consumer Financial Protection Bureau v. Nexus Services Inc., Case No. 5:21-cv-00016, May 11, 2023. WDVA at Harrisonburg (Dillon). VLW 023-3-244. 16 pp.

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