THERESA CARROLL BUCHANAN, Magistrate Judge.
This matter comes before the Court on Plaintiffs' Motion for Sanctions and Entry of Default Judgment Against Defendants Carla McPhun and Cadem Capital Group ("McPhun Defendants") (Dkt. 150) and this Court's Rule to Show Cause (Dkt. 159). The Court's Rule to Show Cause directed McPhun Defendants to appear before the undersigned magistrate judge on Friday, November 30, 2018, at 10:00 a.m. to show cause why the Court should not enter default judgment against them. After a representative for McPhun Defendants failed to respond to the Court's Rule to Show Cause or to appear before the Court on November 30, 2018, the undersigned U.S. Magistrate Judge stated that she would recommend an entry of default for McPhun Defendants. Upon a late filing by McPhun Defendants, the undersigned did not issue her Report & Recommendation ("R&R") and instead provided McPhun Defendants an opportunity to explain themselves at a hearing on December 21, 2018. However, after no representative for McPhun Defendants appeared at the hearing, the undersigned decided to proceed with issuing her R&R and recommend an entry of default for McPhun Defendants. The reasons for recommending an entry of default are stated below.
On June 8, 2018, Plaintiffs filed a Verified Complaint alleging, among other Counts, that McPhun Defendants as well as other named defendants violated the Racketeer Influenced and Corrupt Organizations ("RICO") Act. Plaintiffs allege that McPhun Defendants participated in an unlawful association-in-fact enterprise ("Enterprise") for purposes of defrauding Plaintiffs and other victims. The Enterprise convinced Plaintiffs to make short-term real estate investments through false promises of exceptional and guaranteed returns.
Upon a review of the pleadings and docket, the undersigned makes the following findings of fact.
On June 8, 2018, Plaintiffs filed their Verified Complaint (Dkt. 1). On July 13, 2018, Laura Lee Golden Liff filed a Notice of Appearance on behalf of McPhun Defendants (Dkt. 14). On July 27, 2018, McPhun Defendants filed a Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. 26). On August 17, 2018, McPhun Defendants filed a Partial Motion to Dismiss for Failure to State a Claim (Dkt. 37). On August 22, 2018, McPhun Defendants filed a Motion to Withdraw Its Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. 49), which the Court granted on August 23, 2018 (Dkt. 52). The Court denied McPhun Defendants' Motion to Dismiss for Failure to State a Claim on September 7, 2018 (Dkt. 63). One week later, on September 14, 2018, counsel for McPhun Defendants filed a Motion to Withdraw as Counsel (Dkt. 67), which the Court granted three (3) days later (Dkt. 70).
Prior to the Court's denial of McPhun Defendants' Motion to Dismiss, the Court held an initial pre-trial conference on August 22, 2018. The Court entered a Rule 16(b) Scheduling Order that same day, approving the court-modified Joint Discovery Plan (Dkt. 51) ("JDP"). On September 5, 2018, the United States, an intervenor in this case, filed a Motion to Stay Discovery (Dkt. 58). The Government sought a stay, in part, as to McPhun Defendants because they anticipated that Carla McPhun would serve as a government witness in an upcoming related criminal trial. (Dkt. 58 at 4-5.) On September 17, 2018, the Court granted the Motion (Dkt. 71). The Order specified that as of "September 21, 2018, there shall be a partial stay of discovery prohibiting any party from taking discovery from [McPhun Defendants] . . . until after October 22, 2018." The Order also extended the discovery response deadline for McPhun Defendants from October 5, 2018 to November 22, 2018.
On behalf of McPhun Defendants, Ms. McPhun filed a Motion for Extension of Time to File an Answer (Dkt. 75), which the Court granted on September 25, 2018 (Dkt. 80). McPhun Defendants filed their Answer on October 2, 2018, in accordance with the Court's order (Dkt. 89).
On October 19, 2018, Plaintiffs filed a Motion to Compel McPhun Defendants to Make Initial Disclosures and Supplement Their Answer by November 2, 2018 (Dkt. 109) ("Mot. Compel") and a corresponding Memorandum in Support (Dkt. 110) ("Mem. Supp."). Plaintiffs' Motion raised two issues: (1) McPhun Defendants' Answer was "factually unjustified and suggest[ed] a lack of good faith" as McPhun Defendants refused to affirm allegations in the Complaint which were obviously true and (2) McPhun Defendants failed to make their Initial Disclosures. (Mem. Supp. at 2-3.) On November 2, 2018, the Court held a hearing on Plaintiffs' Motion to Compel, at which no representative (including Ms. McPhun) for McPhun Defendants appeared. The Court granted Plaintiffs' Motion to Compel, requiring McPhun Defendants to serve their Initial Disclosures under Rule 26(a)(1) of the Federal Rules of Civil Procedure and supplement their Answer with "truthful, accurate, and complete statements" by Thursday, November 8, 2018, at 5:00 p.m. (Dkt. 128). The Court also admonished McPhun Defendants that "failure to comply with this Court's Order, may result in sanctions, including the Court entering default judgment pursuant to Federal Rule of Civil Procedure 37(b)(2)(A)(vi)."
On November 9, 2018, Plaintiffs filed a Motion for Sanctions and Entry of Default Judgment against McPhun Defendants (Dkt. 150) ("Mot. Sanctions") and corresponding Memorandum in Support (Dkt. 150-1) ("Mem. Supp. Sanctions"). Plaintiffs' moved for sanctions after McPhun Defendants failed to supplement their Answer as well as serve their Initial Disclosures. (Mem. Supp. Sanctions at 2.) In their Memorandum, Plaintiffs argued that McPhun Defendants' actions were completely unjustified as Ms. McPhun's testimony in the related criminal trial concluded approximately three-and-half weeks prior to the Court-ordered deadline. (
Prior to the Show Cause hearing, Plaintiffs filed a supplemental Memorandum in Support of Plaintiffs' Motion for Sanctions (Dkt. 167) ("Suppl. Mem. Supp. Sanctions"). Plaintiffs informed the Court that, as of November 29, 2018, McPhun Defendants had "still not responded to Plaintiffs' discovery requests, made any Initial Disclosures, or supplemented their Answers." (
On December 14, 2018, McPhun Defendants finally reappeared in the case, filing a Response to Motion for Default Judgment and Request for Extension of Time (Dkts. 189-90) ("Def.'s Res."). Per their response, McPhun Defendants pledged "to defend the current action and respond completely to discovery of the Plaintiffs." (Def.'s Res. at 1.) Additionally, McPhun Defendants offered a litany of excuses for their failure to comply with their discovery obligations and the Court's orders. Those explanations include (i) Ms. McPhun's "state of duress" due to her involvement in a related criminal matter; (ii) four (4) deaths in the family in the past six (6) weeks; (iii) two (2) emergency room visits; (iv) inability to login and view docket entries despite having registered with ECF ("Electronic Case Filing"); and (v) an inability to understand the meaning of some of Plaintiffs' filings. (
Plaintiffs timely filed their response (Dkt. 193) ("Pl.'s Opp'n"). Plaintiffs argued that McPhun Defendants' actions caused them "to suffer incurable prejudice." (
On December 21, 2018, the Court held a hearing on Plaintiffs' Motion for Entry of Default Judgment. Shockingly, neither Ms. McPhun nor any representative appeared on behalf of McPhun Defendants. The undersigned intentionally called this action last to allow McPhun Defendants additional time to make their appearances. However, even though being directed to appear in court at 10:00 a.m., McPhun Defendants still had not appeared in the undersigned's courtroom by 10:30 a.m. Therefore, the undersigned issued an Order stating Plaintiffs' Motion for Default Judgment (Dkt. 184) would be taken under advisement and that discovery would be stayed pending further order of the Court.
Federal Rule of Civil Procedure Rule 37(a)(3)(A) provides that "[i]f a party fails to make a disclosure required by Rule 26(a), any other party may move to compel disclosure and for appropriate sanctions." Rule 37(b) authorizes a court to issue sanctions for failure to obey a discovery order, including an order under . . . [Rule] 37(a)." FED. R. CIV. P. 37(b)(2)(A). These sanctions include rendering a default judgment against the disobedient party.
In determining what sanctions are appropriate under Rule 37(b), the Fourth Circuit instructs district courts to consider "(1) whether the non-complying party acted in bad faith, (2) the amount of prejudice that noncompliance caused the adversary, (3) the need for deterrence of the particular sort of non-compliance, and (4) whether less drastic sanctions would have been effective."
An entry of default is appropriate in this instance as McPhun Defendants, by essentially abandoning this case through their failure to obey the Court's orders and refusal to appear in court, have materially and severely prejudiced Plaintiffs.
McPhun Defendants disobeyed several of the Court's discovery orders. The Court's September 17th Order only instituted a "partial stay of discovery" (Dkt. 71). The Order prevented any party from taking discovery from McPhun Defendants between September 21, 2018 and October 22, 2018. The Order also extended McPhun Defendants' response deadline to outstanding discovery requests from October 5, 2018 to November 22, 2018. However, the Order did not alter the JDP's deadline for Rule 26(a)(1) Initial Disclosures. Therefore, McPhun Defendants' disclosures were still due by 5:00 p.m. on September 21, 2018. (JDP ¶ 3.) Even if McPhun Defendants were confused by the full effect of the Court's Order, the Order of November 2, 2018 should have eliminated any confusion as the Court unambiguously instructed McPhun Defendants to serve their Initial Disclosures by November 8, 2018 or else face sanctions. Yet, McPhun Defendants failed to do so.
Moreover, the Court's Order staying discovery clearly stated that McPhun Defendants' responses to outstanding discovery requests were due by November 22, 2018. However, more than four (4) weeks later, McPhun Defendants have yet to answer Plaintiffs' discovery requests. Although the Court understands McPhun Defendants promise to comply with their discovery obligations, their continued inaction provides the undersigned with little confidence that their promise is a sincere one. Upon applying the
The undersigned determines McPhun Defendants acted in bad faith by failing to comply with the Court's September 17, 2018 and November 2, 2018 discovery orders as well as the Court's Rule to Show Cause. In the Fourth Circuit, "bad faith includes willful conduct, where the party `clearly should have understood his duty to the court' but nonetheless `deliberately disregarded' it."
The undersigned appreciates that Plaintiff is proceeding
The Court warned McPhun Defendants on multiple occasions that they may face sanctions. The Court also provided McPhun Defendants with several opportunities to appear before the undersigned to offer an explanation for their delinquencies. However, they did not appear before the undersigned at the hearings held on November 2, November 16, November 30, or December 21. Furthermore, although Ms. McPhun offers a variety of excuses and explanations for McPhun Defendants' failures, the undersigned has reason to discount those excuses. As Plaintiffs point out in their brief, Ms. McPhun has a history of using familial tragedies to justify her inaction. (Pl.'s Opp'n at 16-17.) Moreover, Ms. McPhun may not have always demeaned herself before the Court, submitting what appear to be grossly misleading filings. (
Therefore, the undersigned is left to conclude that McPhun Defendants acted in bad faith when they repeatedly failed to obey orders of this Court as well as honor their general discovery obligations.
The undersigned finds that McPhun Defendants' repeated noncompliance with the Federal Rules of Civil Procedure and orders of this Court have materially and significantly prejudiced Plaintiffs. Until this Court completely stayed discovery, critical deadlines for Plaintiffs were fast approaching, such as expert disclosures and close of discovery. (Pl.'s Opp'n at 7.) However, there were "dozens of witnesses" which Plaintiff desired to depose but were unable to because of McPhun Defendants' refusal to produce any discovery. (
Additionally, Plaintiffs expended considerable time and incurred significant monetary expenses due to Defendants' failures to comply with their discovery obligations, which required Plaintiffs to file multiple motions, appear in Court on four separate occasions, and file hundreds pages worth of briefs.
The undersigned finds that the need for deterrence weighs in favor of serious, severe sanctions. Courts must have the ability to effectively manage their cases, and parties are expected to take the Court's orders, instructions, and timelines seriously. "Continued contumacious behavior and abuse through non-compliance with [a Court's] orders cannot be tolerated. And with discovery's important role in modern litigation, deterrence is greatly needed."
Finally, the undersigned determines imposing any sanctions less than an entry of default would not be appropriate. In making this conclusion, the undersigned understands and takes into consideration the Fourth Circuit's instruction that since terminating sanctions "are the most severe, such orders must be entered with the greatest caution."
As noted, Plaintiffs are materially prejudiced due to Defendants' non-compliance. As the state of discovery stands now, Plaintiffs lack critical information with which to prosecute their case. Imposition of lesser sanctions will not cure this.
For the aforementioned reasons, the undersigned U.S. Magistrate Judge recommends that Plaintiffs' Motion for Sanctions and Entry of Default Judgment Against Defendants Carla McPhun and Cadem Capital Group ("McPhun Defendants") (Dkt. 150) be GRANTED. Specifically, the undersigned recommends that the Clerk of the Court be directed to enter default for McPhun Defendants. Further, the undersigned recommends that Plaintiffs be directed to file a supplemental memorandum of law in support of their motion for default judgment (Dkt. 184), addressing specifically how they are entitled to relief under each Count of the Verified Complaint.
The parties are advised that objections to this Report and Recommendation, pursuant to 28 U.S.C. § 636 and Rule 72(b) of the Federal Rules of Civil Procedure, must be filed within fourteen (14) days of its service. Failure to object to this Report and Recommendation waives appellate review of any judgment based on it.
The Clerk is directed to send a copy of this Report and Recommendation to McPhun Defendants at the following addresses on record: