PER CURIAM.
RDLG, LLC ("RDLG") sued Fred M. Leonard, Jr. ("Leonard"), raising state law fraud claims. The district court
Leonard now challenges the default judgment, asserting it violated his right to due process, and the damages verdict, contending the district court erred when instructing the jury. We disagree on both counts. The default judgment complied with due process, as it was imposed after the court provided Leonard both clear warning that the sanction would result from further misconduct and an opportunity to oppose imposition of the sanction. And Leonard's proposed jury instruction was properly rejected as irrelevant to the issue submitted to the jury. We, therefore, affirm the judgment below.
RDLG filed this diversity action in the United States District Court for the Western District of North Carolina in September of 2010. RDLG sued Leonard, a number of other individuals, and some related business entities under state law, alleging a pattern of fraudulent activity. The merits of the fraud claims are not at issue in this appeal.
The events underlying this appeal began on May 2, 2012, when attorneys Terri Lankford and Seth Neyhart entered appearances on behalf of Leonard and two business-entity defendants. Both attorneys were still representing the same three defendants on September 6, 2012, when the district court entered an order scheduling a pretrial conference for October 3.
On September 30, just two business days before the scheduled conference, Lankford and Neyhart filed a motion to continue the pretrial conference and a separate motion to withdraw as counsel. They explained that Leonard had not been communicating with Lankford
The district court denied the motion to continue and the motion to withdraw the next day — October 1. The court ordered both Lankford and Neyhart to appear and represent Leonard and the related business entities at the pretrial conference and explained that either attorney's absence would result in a further order holding counsel in contempt.
On October 2, Lankford responded to the court's order by filing a declaration. The declaration expanded her explanation of how she came to request a continuance so close to the date of the pretrial conference. Lankford asserted that she did not receive the district court's October 1 order directing her to appear at the pretrial conference under pain of contempt until she had already left for Puerto Rico. But she assured the court that both Leonard and Neyhart would appear at the pretrial conference in person, while she would be available to appear via teleconference.
As promised, Leonard and Neyhart both appeared in person. However, the pretrial conference did not go well. Having anticipated that a bankruptcy stay would delay both the conference and the trial, Leonard and his counsel were not prepared for either.
Preparation aside, Neyhart worried that a potential conflict of interest had arisen. He reported to the court that Leonard was disputing some of Lankford's representations in her declaration and in the motion to continue. Neyhart asked the court for time to clarify the scope and consequences of any dispute between counsel and client. This request was denied.
During the pretrial conference, RDLG moved for sanctions, citing Leonard's lack of preparation. RDLG argued that entry of a default judgment would be appropriate.
Two days later, the district court imposed sanctions pursuant to Federal Rule of Civil Procedure 16(f) and the court's inherent power, finding that "the actions of Defendants and their counsel at the pretrial conference and leading up [to] the conference made a mockery of the judicial process."
Separately, the district court raised the prospect of imposing additional sanctions against Lankford and Neyhart pursuant to Federal Rule of Civil Procedure 11 and directed Lankford and Neyhart "to Appear at a hearing at 10:00 a.m. on Thursday, October 11, 2012, . . . and SHOW CAUSE why they should not be further sanctioned."
October 10 — the deadline for paying the assessed fines — came and went without Leonard attempting to pay his fine. Instead, he filed for personal bankruptcy.
On the other hand, Lankford and Neyhart paid their fines on time. They also appeared at the Rule 11 hearing on October 11 as directed. Leonard, who had not been ordered to attend the hearing, chose not to attend. Lankford and Neyhart both presented evidence at the show cause hearing.
The court decided no additional sanctions should be imposed on the two attorneys. It then turned to the previously imposed Rule 16 sanction, which Leonard had failed to pay. That failure, the district court decided, warranted striking Leonard's answer and entering default judgment against him. The court reasoned, "It's my belief that even though he's filed bankruptcy, the court ordered sanctions are not excusable. . . . [I]t was [Leonard] who plotted and schemed to cause a delay and continuance of this matter and to cause the Court difficulty in trying to administer this case and prepare it for trial." J.A. 204-05.
The court followed up with a written order on October 24. The court recounted that its October 5 order cautioned that failure to pay any assessed fine would result in default. "Despite this warning," the court observed, Leonard "failed to comply with the Court's Order." J.A. 211. The court then found Leonard more blameworthy than his attorneys, concluding, "[Leonard] manipulated counsel" and "undermined counsel's ability to prepare for the Pretrial Conference and for the trial."
The default judgment resolved the issue of liability but did not set an amount of damages. That determination required a jury trial, which began on January 12, 2015.
At trial, Leonard requested that the jury be instructed, "Actual damages recoverable by the plaintiff for fraudulent misrepresentation are limited to the amount of money, property, services, or credit obtained by defendant from plaintiff by means of defendant's fraudulent misrepresentations." J.A. 243. The court declined to do so, and the jury subsequently returned a verdict for $500,580.36 in damages. The district court entered judgment accordingly. This timely appeal followed.
Leonard challenges both the default judgment and the damages jury instruction. We begin with the argument that the entry of default judgment violated his due process rights.
Normally, "[w]e review the district court's grant of sanctions under [Federal] Rule [of Civil Procedure] 37, including the imposition of a default judgment, for abuse of discretion."
Leonard is not challenging whether the district court exceeded the bounds of its discretion, though. Rather, Leonard contends that he is entitled to relief from the sanction because he "had neither notice nor a meaningful opportunity to respond to the allegations leveled against him prior to the court imposing" the default judgment. Leonard's Br. 24.
We agree that there are due-process-based limits on a court's power to sanction through default judgment. "[T]he provisions of the Fifth Amendment[, which provide] that no person shall be deprived of property without due process of law," impose "constitutional limitations upon the power of courts, even in aid of their own valid processes, to dismiss an action without affording a party the opportunity for a hearing on the merits of his cause."
But Leonard was provided ample notice and hearing in this case. Prior to imposing the sanction at issue, the district court issued both oral and written warnings that continued recalcitrance would result in default judgment. At the pretrial conference, the court notified the parties that it was considering "strik[ing] the answer . . . and rul[ing] in default." J.A. 118. Moreover, the court's October 5 order could not have been more clear, warning, "failure . . . to comply . . .
Such process was constitutionally adequate. And even if it were not, Leonard fails to demonstrate that he was prejudiced by any violation, so he is not entitled to relief on appeal. We discuss the adequacy of the process employed by the district court and Leonard's inability to show prejudice in turn.
In this circuit, we "requir[e] explicit and clear notice to" parties "when their failure to meet the . . . conditions [of a court order] will" preclude their right to adjudication on the merits.
Leonard received the requisite "explicit and clear notice" in this case.
In
Leonard was also provided an adequate opportunity to be heard.
"[N]ot . . . every [dismissal] order entered without . . . a preliminary adversary hearing offends due process."
We need not go that far today, though, because Leonard was permitted, through counsel, to oppose RDLG's motion for default judgment. At the pretrial conference, Neyhart argued in opposition to the motion and, in fact, convinced the court that default judgment should not be entered without first warning Leonard that it could result from further noncompliance.
There is no question that this hearing was adequate. Like notice, "[t]he adequacy of . . . hearing . . . turns, to a considerable extent, on the knowledge which the circumstances show such party may be taken to have of the consequences of his own conduct."
Leonard concedes as much. At oral argument, his counsel agreed there would have been no violation if, at the October 11 hearing, the district court had simply entered default judgment as a sanction for Leonard's noncompliance.
Leonard nevertheless contends that his right to due process was violated because he lacked notice that his failure to pay his fine would be discussed at the October 11 hearing. That hearing was set to address potential Rule 11 sanctions for Leonard's attorneys, but the district court proceeded further, raising Leonard's failure to pay, and then, according to Leonard, relying on information drawn from the October 11 hearing when ordering default judgment. The court, for example, ordered the Rule 11 hearing in part because it "ha[d] serious concern regarding the factual ac[c]uracy of . . . statements in [Lankford's] Declaration and pleadings."
But having conceded that, consistent with due process, the district court "could have [entered default judgment] essentially with a one-sentence order," Oral Argument at 3:23-3:34, and having neglected to identify any evidence suggesting that the district court's findings would have been different had Leonard attended and testified at the October 11 hearing, Leonard necessarily concedes that any error is harmless. Even if the court's appeal to additional findings constituted a due process violation, the violation did not prejudice Leonard if the findings were neither material to the determination he seeks to undo nor incorrect.
And if Leonard cannot show prejudice, his argument cannot succeed. Where a sanctioned party "has not made any showing of any possible prejudice[,] . . . failure to afford . . . notice and hearing before imposition of the sanction [i]s harmless error."
We turn next to the award of damages. Leonard contends that the damages verdict must be vacated because the district court erred when instructing the jury. Again, we disagree.
"We review a district court's `decision to give (or not give) a jury instruction and the content of an instruction . . . for abuse of discretion.'"
Reversal is not appropriate here because Leonard's proposed instruction was not relevant to the issue submitted to the jury. Irrelevant instructions do not, by definition, "deal[] with some point in the trial so important, that failure to give [them] seriously impair[s] [a] party's ability to make its case."
Leonard asked the district court to instruct the jury that damages must be "limited to the amount of money, property, services, or credit obtained by [Leonard] from [RDLG] by means of [Leonard]'s fraudulent misrepresentations." J.A. 243. This instruction was apparently adapted from
No issue of federal bankruptcy law, however, was submitted to Leonard's jury. Rather, the jury was tasked with deciding the extent to which he was liable to RDLG pursuant to the state law causes of action alleged in this diversity suit. And while "the issue of nondischargeability" addressed in
The question whether Leonard's judgment debt is dischargeable is properly directed to the court overseeing his bankruptcy. Indeed, Leonard did present his
The district court's decision to enter default judgment as a sanction did not violate Leonard's right to due process, and Leonard's proposed jury instruction was properly refused. Accordingly, the judgment of the district court is
DAVIS, Senior Circuit Judge, concurring in the judgment:
This case is a closer call for me than it is for my friends in the majority. I am somewhat puzzled by the manner in which the district court sought to vindicate the court's interest in maintaining appropriate supervision and control over the workflow in the busy United States District Court for the Western District of North Carolina.
In addition to ordering that Leonard and his counsel pay the plaintiff's attorney's fees in preparing for and attending the pretrial conference, the court further sanctioned Leonard and his counsel for failing to prepare for the pre-trial conference by imposing a monetary penalty
Manifestly, the district court would have been wise to have built a more convincing record to explicate the appropriateness of the ultimate sanction of default by affording Leonard an opportunity to explain or justify his failure to pay the fine and why something short of default would have been a more appropriate sanction. Indeed, the usual course of action in such circumstances is to hold a show cause hearing. I am constrained, nonetheless, under the totality of the circumstances shown by the record, to join in the judgment affirming the district court.