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RLI Insurance Co. v. Nexus Services, Inc.

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

April 26, 2019

RLI Insurance Company, Plaintiff,
v.
Nexus Services, Inc., Defendant.

          MEMORANDUM OPINION

          Joel C. Hoppe United States Magistrate Judge.

         This matter is before the Court on Plaintiff RLI Insurance Company's (“RLI”) Motion for Leave to Amend the Complaint and Add Parties, Amend Scheduling Order, and Reset Trial Date (“Motion to Amend”). ECF No. 161. On February 27, 2019, the Court held a hearing on the motion, and the parties appeared by counsel. The Special Master also participated in the hearing. In an Order entered March 1, 2019, the Court granted in part RLI's motion, amending the Scheduling Order and continuing the trial date. ECF No. 175. The Court took under advisement RLI's request to amend its complaint and add parties. Id. This opinion further explains the Court's rationale for finding that good cause supports RLI's request to modify the Scheduling Order and continue the trial date. Additionally, the Court finds that RLI may amend its complaint and add party defendants.

         I. Background and Procedural History

         This action concerns RLI's issuance of more than 2, 400 immigration bonds on behalf of Defendant Nexus Services, Inc. (“Nexus”), and Nexus's agreement to indemnify RLI on those bonds. As part of the indemnity agreement, Nexus agreed to allow RLI access to its books, records, and accounts. On April 12, 2018, RLI filed its Complaint and Motion for Preliminary Injunction against Nexus. ECF Nos. 1, 4. RLI alleges that Nexus has denied RLI access to its books, records, and accounts and did not indemnify RLI from losses on some bonds. As relief for the alleged violations of the indemnity agreement, RLI seeks an injunction, specific performance, and damages.

         On April 27, 2018, Chief United States District Judge Michael F. Urbanski held a hearing on RLI's initial Motion for Preliminary Injunction. ECF No. 15. After an unsuccessful mediation, Nexus moved for leave to amend its Answer and assert a counterclaim, and Judge Urbanski held a second hearing on RLI's initial preliminary injunction motion. ECF Nos. 43, 45. In an Order entered July 2, 2018, Judge Urbanski granted in part and denied in part RLI's motion. Judge Urbanski ordered that RLI have full access to Nexus's books, records, and accounts, but noted that the preliminary injunction did not extend to “other Nexus-related entities.” Order 2, ECF No. 60. Judge Urbanski also appointed a Special Master to ensure compliance with the order.

         From July 2018 to February 2019, the Special Master presided over Nexus's production of more than 170, 000 documents to RLI. See Sixth Status Report by Special Master 1-3, ECF No. 191. This task presented a significant undertaking not only because of the volume of documents, but also because many of Nexus's documents were disorganized and some needed to be recreated. Nexus provided some documents regarding its affiliates, Libre by Nexus, Inc. (“Libre”) and Homes by Nexus, Inc. (“Homes”), but it refused to provide many others for those entities. At a hearing on November 28, 2018, the Special Master reported that Nexus's production was substantially complete. After that hearing, RLI and Nexus continued to work through the Special Master, and on December 12, 2018, RLI requested numerous additional documents and other information from Nexus. See generally Sixth Status Report by Special Master. In January and February 2019, Nexus produced some of those documents and refused to produce others.

         While the Special Master was working with the parties to facilitate Nexus's production of documents, the parties presented a few discovery disputes to the Court for resolution. Following a status conference in August, Judge Urbanski ordered Nexus to produce certain financial information as well as certain information about Libre. ECF No. 79. On October 25, the undersigned Magistrate Judge granted in part and denied in part Nexus's motion to quash RLI's subpoenas to twelve banks. ECF No. 98.

         On August 20, 2018, the Court issued a Scheduling Order setting a jury trial for May 20 to 24, 2019. ECF No. 77. A week later, Judge Urbanski granted Nexus's motion for leave to file an amended answer and counterclaim, ECF No. 81, which Nexus filed on September 7, ECF No. 83. On October 30, RLI filed a motion seeking a second preliminary injunction. ECF No. 106. During a hearing on November 28, Judge Urbanski heard argument and took evidence, and the following day he granted in part and denied in part RLI's motion for a second preliminary injunction. ECF No. 139. He found that RLI was likely to succeed on its claim that Nexus breached the indemnity agreement. Judge Urbanski ordered Nexus to pay certain past-due bond penalties. Additionally, for each succeeding month before trial, Nexus was required to pay all bond penalties invoiced by the Department of Homeland Security (“DHS”).

         In January 2019, both parties issued written discovery. Nexus responded to RLI's discovery requests on February 21, 2019, and objected, at least in part, to each of RLI's twenty-five interrogatories and eighty-six requests for production of documents. See ECF No. 169-2. RLI sent Nexus meet-and-confer letters on February 22 and 25, and in the second letter, RLI addressed Nexus's objections at length. ECF No. 169-1. On March 12, RLI filed a motion to compel that is pending. ECF No. 179.

         On February 11, 2019, RLI issued third-party subpoenas to Libre and Homes. Libre objected to the subpoena, ECF No. 180-2, and Homes did not respond, see ECF No. 181. RLI filed motions to compel both Nexus affiliates to comply with the subpoenas, and those motions are pending.

         Also on February 11, RLI filed its Motion to Amend. As grounds for its motion, RLI asserts that documents and other information it obtained from Nexus confirmed its suspicions that Libre and Homes operated as alter egos of Nexus. RLI further contends that Nexus has withheld documents and made incomplete or late productions under the Special Master process so that RLI does not have complete information to assess whether Nexus has the financial ability to satisfy its bond obligations to RLI. For those reasons, RLI seeks leave to amend its complaint to add Libre and Homes as Defendants, and it seeks additional time to complete discovery. Nexus opposes the Motion to Amend. Nexus contends that RLI has not diligently pursued discovery or timely sought leave to amend, and it asserts that RLI's proposed amendments are made in bad faith and would cause undue prejudice.

         II. Discussion

         A. RLI's Motion to Extend Deadlines and Continue the Trial Date

         RLI seeks an extension of time beyond the deadline established in the Court's Scheduling Order to complete discovery and a continuance of the trial date. A scheduling order may be amended only upon a showing of good cause and with the court's consent. Fed.R.Civ.P. 16(b)(4). Demonstrating good cause to amend a scheduling order “requires the party seeking relief to show that the deadlines cannot reasonably be met despite the party's diligence, and whatever other factors are also considered, the good-cause standard will not be satisfied if the district court concludes that the party seeking relief (or that party's attorney) has not acted diligently in compliance with the schedule.” Cook v. Howard, 484 Fed.Appx. 805, 815 (4th Cir. 2012) (per curiam) (internal quotation marks and brackets omitted). “In making that determination, courts may consider ‘whether the moving party acted in good faith, the length of the delay and its effects, and whether the delay will prejudice the non-moving party.'” Ademiluyi v. Pennymac Mortg. Inv. Tr. Holdings I, LLC, Civ. No. 12-0752, 2015 U.S. Dist. LEXIS 16386, at *12 (D. Md. Feb. 10, 2015) (quoting Elat v. Ngoubene, 993 F.Supp.2d 497, 520 (D. Md. 2014)).

         RLI contends that it acted diligently in pursuing discovery, and a review of the case's procedural history largely confirms its assertion. At the inception of this lawsuit, RLI vigorously pursued access to Nexus's books, records, and accounts. It sought and obtained a preliminary injunction granting that access. Judge Urbanski appointed a Special Master to ensure Nexus produced the documents and information to which RLI was entitled under the indemnity agreement. RLI also issued some third-party subpoenas to a dozen banks used by Nexus, but the focus of RLI's efforts to obtain information was the Special Master process. The parties fully engaged in this process from July to December 2018, and RLI obtained over 170, 000 documents from Nexus. The disorganized state of many of the documents increased the difficulty and time for RLI to review and make use of them. As of November 28, 2018 the Special Master considered Nexus's production substantially complete, with the caveat that Nexus had refused to produce much of the information related to ...


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