Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

RLI Insurance Co. v. Nexus Services, Inc.

United States District Court, W.D. Virginia, Harrisonburg Division

July 2, 2018

RLI INSURANCE COMPANY, Plaintiff,
v.
NEXUS SERVICES, INC., Defendant,
v.
JUAN VALOY, et al., Intervenors.

          MEMORANDUM OPINION

          Michael F. Urbanski, Chief United States District Judge.

         This matter is before the court on a motion for preliminary injunction filed by plaintiff RLI Insurance Company ("RLI"). ECF No. 4. RLI seeks an order enforcing provisions of a Commercial Surety General Indemnity Agreement (the "Indemnity Agreement") entered into with defendant Nexus Services, Inc. ("Nexus") on January 20, 2016, specifically obligating Nexus to provide RLI access to Nexus' books, records and accounts. The matter has been fully briefed, and the court held an evidentiary hearing on April 27, 2018. Per the parties' request, the court held its order in abeyance through May 17 to allow for settlement discussions. Following court-ordered mediation on May 30 and June 1, the court held a second evidentiary hearing to set an appropriate bond on June 7. For the reasons stated below, the court finds that: (1) the law and facts clearly favor RLI's position, and RLI is likely to succeed on the merits of some portion of its breach of contract action; (2) RLI is likely to suffer irreparable harm in the absence of a preliminary injunction; (3) the balance of the equities supports a preliminary injunction; and (4) a preliminary injunction is in the public interest. Accordingly, RLI's motion for preliminary injunction is GRANTED in part and DENIED in part, and Nexus is PRELIMINARILY ENJOINED from restricting RLI's access to the books, records and accounts specified below and in the accompanying order.

         I.

         This is a breach of contract dispute arising from an indemnity agreement between two corporations servicing immigration bonds. On January 20, 2016, RLI, an Illinois corporation, entered into the Indemnity Agreement as the surety with Nexus, a Virginia corporation. See Commercial Surety General Indemnity Agreement, Ex. A to Compl, ECF No. 1-2. The Indemnity Agreement served as consideration for RLI's agreement to issue immigration bonds, which included bonds conditioned upon delivery of an alien, bonds conditioned upon voluntary departure of alien, and order of supervision bonds.[1] Pursuant to ¶ 3(c) of the Indemnity Agreement:

Until Surety has been furnished with conclusive evidence of its discharge without loss from any Bonds, and until Surety has been otherwise fully indemnified as hereunder provided, Surety shall have the right of access to the books, records and accounts of the Indemnitor(s) for the purpose of examining and copying them. The Indemnitor(s) hereby authome third parties, including but not limited to depositories of funds of the Indemnitor(s), to furnish to Surety any information requested by Surety in connection with any transaction. Surety may furnish any information, which it now has or may hereafter acquire concerning the Indemnitor(s), to other persons, firms or entities for the purpose of procuring co-suretyship or reinsurance or of advising such persons, firms, or entities as it may deem appropriate.

ECF No. 1-2, at 3 (emphasis added). Illinois law governs the Indemnity Agreement. See id, at 3. RLI alleges issuing more than 2, 400 bonds in reliance upon the Indemnity Agreement, with at least 2, 197 bonds remaining in force at the time of the April 27, 2018 hearing.

         Approximately one year after signing the Indemnity Agreement, RLI asked Nexus for access to its records for the first time. Through multiple letters and e-mails, RLI requested meetings to review Nexus' records of immigration bonds and expressed concerns about notices from Department of the Treasury ("Treasury") about past due invoices for the bonds. On March 13, 2017, after receiving no response to its record review request, RLI demanded full bond discharge or collateral pursuant to Paragraph 3.d of the Indemnity Agreement. Nexus subsequently agreed to provide access to its documents for review during a meeting with RLI on May 26, 2017. While Nexus provided some records, not all records were provided and RLI claims that it lacked sufficient information to close its corresponding bond files. The parties again met on December 12, 2017, and Nexus informed RLI that it would only provide access to records pursuant to a confidentiality agreement. Without waiving its rights, RLI agreed to negotiate a confidentiality agreement with Nexus. Because the parties could not agree to a set of terms, Nexus continued to deny access.

         During these negotiations, the business relationship worsened. RLI claims Nexus failed to contemporaneously inform them of dealings with Department of Homeland Security ("DHS"), provide conclusive evidence of discharge without loss from bonds, or comply with specific requests for information. The Treasury notified RLI of past due payments and made monetary demands with interest on outstanding bonds. Although the parties dispute whether RLI should have made the payments, RLI paid $83, 874.14 for unsatisfied bond claims because Nexus allegedly failed to demonstrate that it had paid the claims. RLI states that these notices have been increasing in frequency. As a result of these Treasury notices and late payments, RLI fears that its relationship with the government has been undermined. Specifically, RLI worries that similar demands for past due payments will continue based on the higher-than-expected number of bonds remaining outstanding, and its reputation will be harmed because continued delinquencies could be reported to the Treasury or ultimately the Department of Justice's collection department. RLI is not aware of any repercussions from the Treasury to date. However, RLI claims that its concerns are bolstered by the multiple investigations into Nexus by state attorneys general, and by Nexus' repayment schedule for another surety's bonds that require payments of $30, 000 to $35, 000 per day by certified check. Nexus asked RLI if it was interested in engaging in a similar repayment plan, which caused RLI to question the number of its bonds in breach and Nexus' solvency.

         Nexus, for its part, claims that it is willing to comply with the Indemnity Agreement, but needs to protect the privacy of its immigration clients. Nexus also claims that it is financially viable and that RLI should not be concerned, stating that its financial arrangements with other sureties are standard business practice. RLI, in Nexus' view, has been unreasonable in its demands to review books, records and accounts and for collateral.

         RLI brought suit against Nexus on April 12, 2018, seeking injunctive relief, specific performance, and breach of indemnity agreement. ECF No. 1. On the same day, RLI moved for a preliminary injunction on the grounds that Nexus defaulted under the Indemnity Agreement by refusing to comply with RLI's requests to inspect Nexus' books and records for more than a year. ECF No. 4-1. RLI claims irreparable injury through the denial of its bargained-for contractual right to inspect documents, which prevents it from assessing and protecting itself against the outstanding bond liability, and the loss of goodwill that follows from Nexus' continued failure to make timely bond payments. RLI now seeks access to Nexus' books, records and accounts, and those of its related entities, within seven days. RLI requests an extensive assortment of documents, including all records related to the immigration bonds, financial records, tax notices, historical data about bonds, and information about the bonded aliens.

         The court held a hearing on the motion for preliminary injunction on April 27, 2018. Both parties presented witnesses from their respective companies: RLI Vice President of Claims Ira Sussman and Nexus Vice President of Risk Management Eric Schneider. Although the parties disputed the nature of most of their business relationship, Nexus agreed at the hearing that RLI had a right of access to at least some of its financial documents per the Indemnity Agreement. The court took the motion under advisement for ten days to allow the parties to negotiate the terms of accessing Nexus' records. ECF No. 15. On May 9, 2018, the parties jointly moved the court to hold its preliminary injunction order in abeyance per further negotiations. ECF No. 28. The court granted the request through May 17, 2018. ECF No. 29. On the night of May 17, the parties notified the court that no agreement had been reached. ECF Nos. 30-31. RLI claimed that Nexus provided no financial records as of 4:00 p.m. on May 17, and solely provided documents that Nexus previously received from RLI or its bond producer. See Letter from Vivian Katsantonis, May 17, 2018, ECF No. 30. Nexus responded that it had provided more than 9, 000 documents; nearly 7, 000 pages of immigration records were produced on May 14, 2018 and more than 2, 000 pages were produced after 4:00 p.m. on May 17, including asset lists, receipts, invoices, general ledgers, payroll account and salary information, profit and loss documents, vendor balance detail, and its 2016 federal tax return. See Letter from Dale G. Mullen, May 17, 2018, ECF No. 31. Upon reviewing the letters from the parties, the court ordered the parties to engage in mediation with the U.S. Magistrate Judge. ECF No. 32. The parties were unable to come to terms.

         The court thereafter held an evidentiary hearing on June 7, 2018 for purposes of taking evidence related to an appropriate bond amount. ECF No. 43. The parties did not present evidence for an appropriate bond amount, but provided further argument. RLI introduced new evidence regarding Nexus' solvency through the testimony of Peter Fascia, a forensic accountant at Matson, Driscoll & Damico LLP. Fascia testified that he had difficulty assessing Nexus' financial state based on the information provided to date, explaining how the nearly $44 million in total income for the 2017 calendar year was accounted for through a cryptic notation of $42 million in "combined client income." In addition to this evidence about solvency, RLI expressed concern that Nexus may manipulate its books, records and accounts. Based on representations by Nexus' counsel that they were still preparing records for production, RLI believed that Nexus collectively maintained their records with the records of Nexus-related entities, such as Libre by Nexus. Nexus countered that records are being preserved, and that additional information is simply being added into Nexus' Quickbooks in real time. Nexus contended that access to its records alone could be provided through a separate logon. After hearing argument, the court gave the parties notice of potentially appointing a special master to resolve their dispute, either with or without a preliminary injunction. Both parties consented to the special master, but did so on varying conditional terms. ECF Nos. 48-49. In its consent, Nexus notified the court of an additional 1, 043 pages of documents produced to RLI on June 11, 2018. ECF No. 48, at 2.

         II.

         "A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Def. Council. Inc.. 555 U.S. 7, 24 (2008); Real Truth About Obama. Inc. v. Fed. Election Comm'n. 575 F.3d 342, 345 (4th Cir. 2009), vacated on other grounds. 130 S.Ct. 2371 (2010), reinstated in relevant part. 607 F.3d 355 (4th Cir. 2010). It is a remedy that is '"granted only sparingly and in limited circumstances.'" MicroStrategy, Inc. v. Motorola. Inc., 245 F.3d 335, 339 (4th Cir. 2001) (quoting Direx Israel. Ltd. v. Breakthrough Med. Corp., 952 F.2d 802, 816 (4th Cir. 1991) (internal quotation marks omitted)). The Court in Winter explained that in each case, courts "must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Prod. Co. v. Gamhell. 480 U.S. 531, 542 (1987). "In exercising their sound discretion, courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction." Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982); see also Railroad Comm'n of Tex, v. Pullman Co.. 312 U.S. 496, 500 (1941). Therefore, under Winter, "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." 555 U.S. at 20; see also Real Truth About Qbama. 575 F.3d at 347 (noting that, post-Winter, a plaintiff must make a "clear showing" that he is likely to succeed on the merits and is likely to be irreparably harmed absent preliminary relief); Cantley v. W. Virginia Reg'l Jail & Corr. Facility Auth., 771 F.3d 201, 207 (4th Or. 2014).

         The Winter elements face a heightened injunctive standard for mandatory, rather than prohibitory, preliminary injunctions. See Pro-Concepts. LLC v. Resh, No. 2:12-CV-573, 2013 WL 5741542, at *4 (E.D. Va. Oct. 22, 2013) ("The demanding standard [for preliminary injunctions] becomes even more exacting when a plaintiff seeks a preliminary injunction that mandates action, as contrasted with the typical form of preliminary injunction that merely preserves the status quo pending trial.") (emphasis in original); see also Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (noting that a prohibitory injunction preserves the status quo pending trial, while a mandatory injunction mandates action by "order[ing] a responsible party to take action") (internal citations omitted). "Mandatory preliminary injunctions [generally] do not preserve the status quo and normally should be granted only in those circumstances when the exigencies of the situation demand such relief." Wetzel v. Edwards. 635 F.2d 283, 286 (4th Cir. 1980). Mandatory preliminary injunctions must show that the "law and facts clearly favor [its] position, not simply that [it] is likely to succeed." Garcia. 786 F.3d at 740.

         A preliminary injunction cannot be issued unless all four of these elements are met. See Winter. 555 U.S. at 20; see also League of Women Voters of N. Carolina v. N. Carolina. 769 F.3d 224, 236 (4th Cir. 2014), cert, denied. 135 S.Ct. 1735 (2015).

         III.

         In its motion for preliminary injunction, RLI seeks access to Nexus' books, records and accounts, and those of its related entities, within seven days. District courts in Virginia have varied in their determinations of whether requiring a party to perform its contractual obligations is mandatory or prohibitory in nature. Compare Pro-Concepts. LLC v. Resh. No. 2:12CV573, 2013 WL 5741542, at *17 (E.D. Va. Oct. 22, 2013) ("Pro-Concepts claims that Resh's breach of his employment agreement supports a preliminary injunction requiring him to return Pro-Concepts' Risk Radar software immediately. Based on the fact that such injunction mandates action (i.e., the return of the software), the Court will apply the more exacting standard to Count VI."), with W. Indus.-N.. LLC v. Lessard, No. L12CV177 JCC/TRJ, 2012 WL 966028, at *2 (E.D. Va. Mar. 21, 2012) ("With this principle in mind, the Court will examine the likelihood of success on the merits both as to Plaintiffs conversion claim, which is the basis for the mandatory injunctive sought, as well as its breach of contract claim, which is the basis for the prohibitive injunctive relief sought."). Although RLI argued that its sought relief was prohibitory, RLI has never accessed Nexus' books, records and accounts. A grant of broad access to Nexus' records would alter the factual status quo between the parties and thus is mandatory. However, the court finds the distinction between the standards for mandatory and prohibitory injunctions irrelevant in this case. RLI has met its burden under either standard because RLI demonstrated that the law and facts clearly favor its position under the Winter test.[2]

         A.

         The first hurdle that RLI must overcome in order to obtain a preliminary injunction is demonstrating a likelihood of success on the merits of its asserted claims. See Dewhurst v. Century Aluminum Co.. 649 F.3d 287, 290 (4th Or. 2011). "In general, where multiple causes of action are alleged, a plaintiff need only show likelihood of success on one claim to justify injunctive relief." Western Indus.-North. LLC v. Lessard. No. I:12cvl77, 2012 WL 966028, at *2 (E.D. Va. Mar. 21, 2012) (citing McNeil-PPC v. Granutec, Inc., 919 F.Supp. 198, 201 (E.D. N.C. 1995)). But, "in cases where the request for preliminary relief encompasses both an injunction to maintain the status quo and to provide mandatory relief, as here, the two requests must be viewed separately, with the request for mandatory relief being subjected to a more exacting standard of review." Id. (quoting Cornwell v. Sachs. 99 F.Supp.2d 695, 703 (E.D.Va.2000)). In this case, RLI brings multiple claims, including injunctive relief, specific performance, and breach of indemnity agreement. See Compl., ECF No. 1. The focus of the preliminary injunction briefing and hearing was Nexus' alleged breach of the Indemnity Agreement by failing to provide access to its records for review.

         Under Illinois law, which governs the Indemnification Agreement, RLI can state a claim for breach of contract by demonstrating: "(1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of the contract by the defendant; and (4) resultant injury to the plaintiff." Gonzalzles v. Am. Exp. Credit Corp., 315 Ill.App.3d 199, 206, 733 N.E.2d 345, 351 (2000) (citing Gallagher Corp. v. Russ. 309 Ill.App.3d 192, 199, 242 Ill.Dec. 326, 721 N.E.2d 605 (1999)). The first element is undisputed in this case, as both RLI and Nexus agree that they are bound by the Indemnity Agreement. Similarly, the parties do not dispute the second element-performance by RLI-as RLI has issued immigration bonds at Nexus' request.[3] The only disputes are whether Nexus' refusal to provide record access violates paragraph 3 of the Indemnity Agreement and whether RLI has been injured because of it.

         1.

         In determining whether Nexus has breached the Indemnity Agreement, the court turns first to the plain language of the contract provision in dispute. See Ins. Benefit Grp., Inc. v. Guarantee Tr. Life Ins. Co., 2017 IL App (1st) 162808, ¶ 38, 91 N.E.3d 950, 961, appeal denied. 95 N.E.3d 493 (Ill. 2018) ("The court will first look to the language of the contract itself to determine the parties' intent, and the contract must be construed as a whole, Viewing each provision in light of the other provisions.'" (quoting Thompson v. Gordon. 241 Ill.2d 428, 441, 349 Ill.Dec. 936, 948 N.E.2d 39 (2011))). "When the language of the contract is clear and unambiguous, the parties' intent must be determined solely from the language of the contract itself and be given its plain and ordinary meaning." Quality Transportation Servs., Inc. v. Mark Thompson Trucking. Inc., 2017 IL App (3d) 160761, ¶ 25, 90 N.E.3d 485, 490.

         In relevant part, [4] the Indemnity Agreement states:

Until Surety has been furnished with conclusive evidence of its discharge without loss from any Bonds, and until Surety has been otherwise fully indemnified as hereunder provided, Surety-shall have the right of access to the books, records and accounts of the Indemnitor(s) for the purpose of examining and copying them. The Indemnitor(s) hereby authorize third parties, including but not limited to depositories of funds of the Indemnitor(s), to furnish to Surety any information requested by Surety in connection with any transaction. Surety may furnish any information, which it now has or may hereafter acquire concerning the Indemnitor(s), to other persons, firms or entities for the purpose of procuring co-suretyship or reinsurance or of advising such persons, firms, or entities as it may deem appropriate.

See Indemnity Agreement, ¶ 3(c). The parties disagree as to the meaning of "books, records and accounts of the Indemnitor(s)." RLI argues that "books, records and accounts" plainly means all of Nexus' books, records and accounts, without exception. Nexus counters that the phrase means only Nexus' financial records and does not extend to detailed personal records about bond holders. Based on this theory, counsel for Nexus agreed at the hearing that RLI is entitled to some financial records, including balance sheets, profit and loss statements, and tax returns. As of April 27, the first hearing on this motion, Nexus had not provided financial records to RLI despite this acknowledgement. Nexus provided at least some financial documents in its May 17, 2018 production to RLI. The parties continue to disagree regarding the sufficiency of this production.

         Nexus' admission that it is obligated and has failed to provide financial records that it believed were subject to the Indemnity Agreement is evidence of a breach in and of itself. Moreover, the court does not find Nexus' argument persuasive. The plain language of the agreement places no limitation on RLI's access to Nexus' records. The meaning of "books, records and accounts" is not so plainly limited in the Indemnity Agreement or by a common knowledge of these terms. For example, Black's Law Dictionary defines these terms broadly beyond financial documents. "Corporate books", which is comparable to "books" given that Nexus is a corporation, is defined as "[w]ritten records of a corporation's activities and business transactions." Corporate Books, Black's Law Dictionary (10th ed. 2014). "Business record," which again appears appropriate given that Nexus is a business, is defined as "[a] report, memorandum, or other record made usu[ally] in the ordinary course of business." Business Record, Black's Law Dictionary (10th ed. 2014). In reviewing a Northern District of Illinois action based on the Federal Trade Commission Act, the Seventh Circuit explained, '"books of accounts' and 'records' have reference to serial, continuous, and more permanent memorials of a concern's business and affairs, chronologically and systematically kept and arranged." Cudahy Packing Co. v. United States. 15 F.2d 133, 136 (7th Cir. 1926). The understanding of these terms by Black's Dictionary and the Seventh Circuit extend beyond financial documents.

         Nexus is a sophisticated corporate entity and had the capacity to understand and negotiate the terms of the contract it entered into with RLI. Nexus could have bargained for a narrower set of documents available to RLI for access, simply by modifying "books, records and accounts" with the term "financial." Yet Nexus did not do so, and during the April 27 hearing before this court, struggled to ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.