Consumer Fin. Prot. Bureau v. Nexus Servs.

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CONSUMER FINANCIAL PROTECTION BUREAU, et al., Plaintiffs, v. NEXUS SERVICES, INC., et al., Defendants.

Civil Action No. 5:21-cv-00016

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

August 7, 2023

MEMORANDUM OPINION AND ORDER

Elizabeth K. Dillon, United States District Judge.

Pending before the court is defendants' motion for reconsideration of the court's May 11, 2023 order entering default judgment on all claims against them and denying their motion for judgment on the pleadings as moot (the “May 11 order”) or, in the alternative, for amendment of the May 11 order to certify two legal issues for interlocutory appeal pursuant to 28 U.S.C. 1292(b). (Dkt. No 205.) For the reasons stated herein, defendants' motion will be denied in full; the court will neither reconsider its May 11 order nor amend it to certify any issues for interlocutory appeal.

I. BACKGROUND

The circumstances of this case are well-known to the parties and are set forth in detail in the court's memorandum opinion on plaintiffs' motion for sanctions. (Dkt. No. 201.) To summarize, in February 2021, the Consumer Financial Protection Bureau (“CFPB”), the Commonwealth of Massachusetts, the People of the State of New York, and the Commonwealth of Virginia (collectively, the “plaintiff-states”) filed a 17-count complaint against Nexus Services, Inc. (“Nexus”), Libre by Nexus, Inc. (“Libre”) (collectively, the “Entity Defendants”), Micheal Donovan, Richard Moore, and Evan Ajin (collectively, the “Individual Defendants”) (Compl., Dkt. No. 1, at 1), alleging that defendants engaged in deceptive, abusive, and fraudulent conduct in their administration of “immigration bonds” for indigent consumers facing deportation. (Compl. 1-3, 26-47.) Counts One through Ten assert violations of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5481, et seq., on behalf of all plaintiffs against different groups of defendants, and Counts Eleven through Seventeen each assert violations of various state consumer protection laws on behalf of the corresponding individual plaintiff-state.

A. Defendants' Failure to Comply with Court Orders to Produce Discovery

Throughout the two-and-a-half years since the inception of this litigation, the parties have brought to the court's attention several disputes regarding defendants' failure to produce large swaths of documents and electronically stored information responsive to plaintiffs' discovery requests. On June 8, 2022, U.S. Magistrate Judge Joel C. Hoppe ordered defendants to take certain steps, within certain timeframes, to fully respond to plaintiffs' outstanding requests for production. (Dkt. No. 129.) Put simply, defendants did not comply with that order. As a result, on July 19, 2022, plaintiffs moved the court to sanction defendants for their noncompliance and to order defendants to show cause why they should not be held in civil contempt. (Dkt. No. 139.) On February 7, 2023, Judge Hoppe granted the motion, certified facts demonstrating that each defendant knowingly violated his June 8, 2022 discovery order and that plaintiffs suffered harm as a result, and recommended that the court treat those violations as civil contempt and impose sanctions of $1,000 per day and $500 per day upon the Entity and Individual Defendants, respectively, to coerce compliance. (Dkt. No. 181.) Further, Judge Hoppe ordered each defendant to appear before the undersigned to show cause why they should not be held in civil contempt given the facts so certified. (Id.)

The court set a supplemental briefing schedule and noticed a show-cause hearing on this matter for April 17, 2023. (Dkt. No. 187.) In their supplemental brief, plaintiffs maintained that entry of default judgment, not monetary sanctions, was “the most appropriate sanction against all Defendants,” and asked in the alternative that the court construe their motion for sanctions as a motion for default judgment. (Dkt. No. 189 at 1-2.) None of the defendants filed a brief in response to the show-cause order before the deadline to do so.

B. Defendants' Inability to Retain Counsel

During this same period, defendants also struggled to consistently retain counsel. Indeed, “[i]rreconcilable differences,” among other reasons, led both their first and second sets of attorneys to move for withdrawal from representation-only four and eight months after their initial appearances, respectively. (Dkt. Nos. 39-40, 134-36.) At a January 10, 2023 hearing on then-defense counsel's motions to withdraw (Dkt. No. 176), Adam Bowser of ArentFox Schiff LLP (one of the attorney-movants) represented that defendants had not paid their attorneys for their services in over a year, that he was not aware of any plans for defendants to begin paying for past or current legal fees, and that he had “repeated[ly]” but unsuccessfully attempted to help defendants meet their court-ordered discovery obligations. (Dkt. No. 178 at 2.) On January 11, 2023, Judge Hoppe granted the pending motions to withdraw from representation and ordered the Entity Defendants to retain new counsel within 14 days.^[1](Id.) When they failed to do so, on February 7, 2023, Judge Hoppe directed the Entity Defendants to show cause why they should not each be sanctioned, “including by entering default judgment,” for disobeying the court's order to retain counsel, and ordered them to do so in a written response within 14 days-through new counsel. (Dkt. No. 182.) Another 14 days passed, and no attorney had appeared on behalf of any of the Entity Defendants to respond to the court's order.

C. Show-Cause Hearing and Defendants' Belated Motion for Judgment on the Pleadings

Finally, on April 14 and 16, 2023-just days before the discovery sanctions show-cause hearing and nearly three months after the court-imposed deadline to retain counsel-two new attorneys entered appearances on behalf of all defendants. (Dkt. Nos. 192, 193.) On April 17, 2023-the day of the show-cause hearing-defendants filed a motion to continue the hearing. (Dkt. No. 195.) Specifically, defendants requested that the court enter Judge Hoppe's proposed monetary sanctions immediately but continue any hearing on case-ending sanctions for 90 days to “allow [defendants], and new counsel, time to demonstrate good faith progress and to come into compliance” with the court's orders before deciding whether to enter default judgment. (Dkt. No. 195-1 at 2.) Of particular significance, defendants' new counsel represented to the court “her intention to come into compliance with the Court's June Discovery Order as quickly as humanly possible” and that defendants did not intend “to further delay or to prevaricate and obfuscate their way out of discovery compliance or sanctions.” (Id. 3, 8 (emphasis added).)

But obfuscate they did. Two weeks after the show-cause hearing,^[2]defendants filed a motion for judgment on the pleadings (Dkt. No. 198)-long after the deadline for filing dispositive motions provided in the court's scheduling order had expired. Defendants' sole argument for dismissal on the pleadings was that the CFPB's funding structure violates the Appropriations Clause of the U.S. Constitution and, as a result, that the court must dismiss all claims in the complaint (including not only those claims brought by the CFPB, but also claims brought exclusively by each of the plaintiff-states), relying extensively upon the Fifth Circuit's decision in Community Financial Services Ass'n of America, Ltd. v. CFPB (“CFSA”), 51 F.4th 616 (5th Cir. 2022). During the intervening two weeks between the show-cause hearing and the filing of this motion, defendants did not provide either plaintiffs or the court with any indication of progress on compliance with its discovery obligations.^[3]

D. The Court's May 11 Order; Defendants' Motion for Reconsideration or, in the Alternative, for Interlocutory Appeal

On May 11, 2023, the court issued a memorandum opinion and order finding each defendant in civil contempt and entering default judgment against each defendant pursuant to Federal Rule of Civil Procedure 37(b)(2)(A)(iv). (Dkt. Nos. 201, 202.) Because the terminating sanctions disposed of all claims in the case, the court also denied defendants' motion for judgment on the pleadings as moot. (Dkt. No. 201 at 16; Dkt. No. 202 at 2.)

Defendants now move for reconsideration of that order pursuant to Federal Rule of Civil Procedure 54(b) or, in the alternative, for amendment of that order to include certification of an interlocutory appeal-pursuant to 28 U.S.C. 1292(b)-on two issues, “(1) whether the Consumer

Financial Protection Bureau's funding mechanism is constitutional and (2) if such is unconstitutional whether invalidation of actions taken derived from such unconstitutional funding is appropriate and proper and whether dismissal is required.” (Dkt. No. 205 at 1-2.)

II. DISCUSSION

A. Motion for Reconsideration

Under Federal Rule of Civil Procedure 54(b), “a district court retains the power to reconsider and modify its interlocutory judgments . . . at any time prior to final judgment when such is warranted.” Am. Canoe Ass'n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (4th Cir. 2003). “Nevertheless, the discretion afforded by Rule 54(b) is not limitless,” and the Fourth Circuit has “cabined revision pursuant to Rule 54(b) by treating interlocutory rulings as law of the case.” U.S. Tobacco Coop. Inc. v. Big South Wholesale of Va LLC, 899 F.3d 236, 256-57 (4th Cir. 2018) (internal quotation marks and citation omitted). “Accordingly, a court may revise an interlocutory order under the same circumstances in which it may depart from the law of the case: (1) a subsequent trial producing substantially different evidence; (2) a change in applicable law; or (3) clear...