NOA, LLC, et al v. El Khoury, et al

Filing 144

ORDER regarding 121 Motion to Dismiss for Lack of Prosecution and 125 MOTION to Toll Deadlines and for Alternative Sanctions - The court GRANTS in part and DENIES in part defendants' motion for sanctions. (DE 121; DE 125). The court GRANTS the motion insofar is it requests sanctions under Federal Rule of Civil Procedure 37(b). The court DENIES the motion insofar as it requests involuntary dismissal with prejudice under Federal Rule of Civil Procedure 4 (b). Within 14 days of the date h ereof, defendants shall file on the docket a lists of all expenses claimed under Rule 37(b)(2)(C). Within 7 days of the date on which defendants serve that document, plaintiffs shall file a response in opposition, if any. Signed by District Judge Louise Wood Flanagan on 8/23/2016. (Baker, C.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:14-CV-114-FL

NOA, LLC and INSAF NEHME,
Plaintiffs,
v.
WALID EL KHOURY, EDWARD EL
KHOURY, and HOPE COMERCIO E
INDUSTRIA LIMITADA,
Defendants.

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ORDER

This matter is before the court on defendants’ motion for sanctions or, in the alternative, to
dismiss for lack of prosecution, made pursuant to Federal Rules of Civil Procedure 37 and 41(b).
(DE 121; DE 125). The issues raised have been briefed fully and are ripe for ruling. For the reasons
that follow, the court grants in part and denies in part defendants’ motion.
BACKGROUND
This case arises out of an intra-family dispute over the management of a joint venture,
defendant Hope Comercio E Industria Limitada (“Hope Comercio”). Plaintiffs Insaf Nehme and
NOA, LLC, a North Carolina limited liability company owned and operated by plaintiff Nehme,
filed this suit on February 28, 2014, against defendant Walid El Khoury, plaintiff Nehme’s cousin;
defendant Edward El Khoury, plaintiff Nehme’s cousin and defendant Walid El Khoury’s son; and
defendant Hope Comercio, a joint venture entered into between plaintiff Nehme and defendant
Walid El Khoury operating in the Republic of Angola. Plaintiffs assert against defendant Walid El
Khoury claims for 1) breach of partnership agreement, 2) breach of fiduciary duty, 3) constructive

fraud, 4) conversion, and 5) breach of contract. Plaintiffs assert against defendant Edward El
Khoury a single claim for conversion. Plaintiffs assert against defendant Hope Comercio a single
claim for an accounting.
After plaintiffs served properly all defendants, the court’s scheduling order entered on
September 9, 2015. That order provided that all discovery was to be completed no later than August
31, 2016. On October 20, 2015, defendant Walid El Khoury propounded to plaintiffs certain
interrogatories(“defendant Walid El Khoury’s First Set of Interrogatories”), as well as certain
requests for production (“defendant Walid El Khoury’s Requests for Production”) (collectively
defendant Walid El Khoury’s “discovery requests”). Under the terms of the court’s scheduling
order, plaintiffs’ responses to defendant Walid El Khoury’s discovery requests were due no later
than November 19, 2015. However, on November 12, 2015, on plaintiffs’ motion, the court
enlarged plaintiffs’ time for response by 30 days, giving plaintiffs up to and including December 19,
2015, to respond to defendant Walid El Khoury’s discovery requests.
In the meantime, plaintiffs began having trouble with their then-retained counsel, Williams
Mullen, P.C. (“Williams Mullen”). On December 4, 2015, Williams Mullen filed a motion to
withdraw from the case, citing plaintiffs’ failure to pay legal fees. The court granted Williams
Mullen’s motion by order entered December 7, 2015.
The court’s order granting Williams Mullen’s motion left plaintiffs without legal
representation. Ten days later, on December 17, 2015, the court entered text order staying the case
of its own initiative. Citing Rowland v. California Men’s Colony, 506 U.S. 194, 202 (1993) and
RZS Holdings v. PDVSA Petroleo S.A., 506 F.3d 350, 354 n.3 (4th Cir. 2007), the court recognized
that plaintiff NOA, as a business entity, could not “proceed without representation.” (Dec. 17, 2015,

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text order). In its order, the court stayed the case until February 1, 2016, “or such time as plaintiff
NOA secure[d] counsel, whichever occur[ed] sooner.” (Id.).
Plaintiffs’ current counsel entered appearance on February 1, 2016, the last day of the court’s
stay, and the stay was lifted. Because the court earlier had stayed the case with only two days
remaining in plaintiffs’ time to respond to defendant Walid El Khoury’s discovery requests the clock
immediately began running on plaintiffs’ time to serve those responses. On February 3, 2016,
plaintiffs’ time elapsed.
On March 2 and March 4, 2016, plaintiffs filed a motion and amended motion for extension
of time in which to respond to defendant Walid El Khoury’s discovery requests. The court denied
those motions by text order entered March 14, 2016. In that text order, the court concluded that
plaintiffs’ motion for extension of time came well outside the time set by the court’s November 12,
2015, order and, by extension, the court’s September 9, 2015, scheduling order. Thus, the court
sanctioned plaintiffs’ dilatory conduct, pursuant to Federal Rules of Civil Procedure 16(f) and
33(b)(4), by requiring plaintiffs respond to defendant Walid El Khoury’s discovery requests without
objection.1
On April 13, 2016, plaintiffs responded to defendant Walid El Khoury’s discovery requests
without objection. However, defendants’ counsel immediately identified a number of plaintiffs’
responses to defendant Walid El Khoury’s First Set of Interrogatories as inadequate. For example,
plaintiffs failed to provide contact information for several individuals “whom. . .[plaintiffs]

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The court’s March 14, 2016, order refers specifically to “defendants’ first set of interrogatories.” At the time,
the court understood “defendants’ first set of interrogatories” to include defendant Walid El Khoury’s Requests for
Production. It is apparent the parties also adopted this meaning. (See Pl.’s Resp. to Def.’s Motion for Sanctions, DE
132, at 2) (“Thereafter, Plaintiffs responded to Defendants’ Interrogatories and Requests for Production in a timely
manner, without objections, on April 13, 2016, in accordance with the Order of this Court.”).

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believe[d]. . .[were] likely to have discoverable matter or information,” despite being asked
specifically for that information. (DE 123-6 at 2–3). In addition, defendants’ counsel identified
plaintiffs’ responses to defendant Walid El Khoury’s Requests for Production as inadequate, where
plaintiffs only signaled their readiness to produce any and all relevant documents, without proposing
any dates or a location at which those documents would be made available. (Id. at 4).
Defendants’ counsel responded to plaintiffs’ purportedly deficient responses to defendant
Walid El Khoury’s discovery requests by letter to plaintiffs’ counsel dated April 15, 2016. In that
letter, defendants’ counsel asked plaintiffs to supplement their responses to defendant Walid El
Khoury’s discovery requests, specifically asking plaintiffs to propose dates and a location for
inspection of the documents requested by defendant Walid El Khoury’s Requests for Production.
By May 2, 2016, defendants’ counsel had heard nothing from plaintiffs and followed up with a
second letter to plaintiffs’ counsel. (See DE 123-7). On May 6, 2016, plaintiffs’ counsel responded
to defendants’ counsel’s April 15 and May 2 inquiries, stating that plaintiffs expected to serve
amended responses to defendant Walid El Khoury’s First Set of Interrogatories “early next week”
and that the documents responsive to defendant Walid El Khoury’s Requests for Production would
“arrive. . .[at plaintiffs’ counsel’s office] by Wednesday, May 11, 2016.” (DE 123-8).
Plaintiffs’ counsel served amended responses to defendant Walid El Khoury’s First Set of
Interrogatories on May 15, 2016. However, despite plaintiffs’ counsel’s suggestion of imminent,
forthcoming responses to defendant Walid El Khoury’s Requests for Production, defendants
received none during the month of May. So, on June 1, 2016, defendants’ counsel again contacted
plaintiffs’ counsel requesting access to documents responsive to defendant Walid El Khoury’s
Requests for Production. (DE 123-9).

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In the meanwhile, the record suggests the parties’ attorneys developed a disagreement about
defendants’ responses to certain requests for production propounded by plaintiffs while still
represented by Williams Mullen (“plaintiffs’ Requests for Production”). Plaintiffs’ counsel learned
that the case file received from Williams Mullen was missing defendants’ responses to plaintiffs’
Requests for Production during a May 10, 2016, conference call. (See DE 123-10). At that time,
plaintiffs’ counsel requested defendants’ counsel advise as to the content of defendants’ responses
to plaintiffs’ Requests for Production. Plaintiffs’ counsel reiterated this request by letter dated June
6, 2016. (See DE 135-1). Defendants’ counsel responded by letter dated June 13, 2016, wherein
defendants’ counsel provided plaintiffs’ counsel with the Bates number for each document produced.
(See DE 135-2). In follow up correspondence dated June 17, 2016, plaintiffs’ counsel confirmed
defendants had produced that information to Williams Mullen “by way of an e-mail link that is no
longer viable” and asked defendants’ counsel to “make the link viable again so that. . .[plaintiffs]
can download. . .[defendants’] discovery responses.” (DE 135-3). Defendants’ counsel did so on
June 21, 2016. (DE 135 ¶15).
For the duration of that disagreement, and perhaps as a result of it, plaintiffs’ counsel
eschewed defendants’ counsel’s request for amendments to plaintiffs’ responses to defendant Walid
El Khoury’s Requests for Production. On June 17, 2016, after confirming defendants had produced
documents responsive to plaintiffs’ Requests for Production, plaintiffs’ counsel hand delivered to
defendants’ counsel three discs “responsive to. . .[defendant Walid El Khoury’s] Requests for
Production.” (Id.; see also DE 135-3).
On June 13, 2016, the same day defendants’ counsel advised plaintiffs’ counsel of the
content of defendants’ responses to plaintiffs’ Requests for Production, defendants filed the instant

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motion for sanctions or, in the alternative, to dismiss. Defendants’ motion requests dismissal under
Federal Rule of Civil Procedure 37(b) or, in the alternative, dismissal for failure to prosecute under
Rule 41(b). Defendants supplemented their motion on June 17, 2016, the date on which plaintiffs’
counsel hand delivered plaintiffs’ responses to defendant Walid El Khoury’s Requests for
Production to defendants’ counsel. In their supplemented motion, defendants contend that, even if
dismissal is too severe a sanction, that the court still should award expenses, including attorneys’
fees. Plaintiffs oppose defendants’ motion and argue that defendants should have sought first a
motion to compel plaintiffs’ response to defendant Walid El Khoury’s discovery requests.
COURT’S DISCUSSION
A.

Rule 41(b)
Turning first to defendants’ request that this case be dismissed pursuant to Federal Rule of

Civil Procedure 41(b), that request must be denied.
Rule 41(b) provides “[i]f the plaintiff fails to prosecute or to comply with these rules or a
court order, a defendant may move to dismiss the action or any claim against it.” Fed. R. Civ. P.
41(b). Absent some exceptions not applicable here, dismissals under the rule are “with prejudice,”
unless “the dismissal order states otherwise” Id. Rule 41(b) dismissal is a powerful docket
management tool, but one to be used sparingly, only after weighing the consequences of dismissal
against “the sound public policy of deciding cases on their merits.” Reizakis v. Loy, 490 F.2d 1132,
1135 (4th Cir. 1974). The ultimate decision lies within the court’s discretion. See id.
The Fourth Circuit has set out four factors to guide the district court’s discretion. The court
must consider 1) “the degree of personal responsibility of the part of the plaintiff”; 2) “the amount
of prejudice to the defendant caused by the delay”; 3) “the presence or absence of a drawn out

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history of deliberately proceeding in a dilatory fashion”; and 4) “the effectiveness of sanctions less
drastic than dismissal.” Davis v. Williams, 588 F.2d 69, 70 (4th Cir. 1978) (internal quotations
omitted). The first factor operates as a gate keeper, of sorts; as a general rule “courts are reluctant
to punish a client for the behavior of his lawyer.” Reizakis, 490 F.2d at 1135. “[I]n situations where
a party is not responsible for the fault of his attorney, dismissal may be invoked only in extreme
circumstances,” such as “in the face of a clear record of delay or contumacious conduct by the
plaintiff.” Id.
Dismissal is not an appropriate sanction in this case. The court declines to find plaintiffs
responsible for the delay of this case. “A dismissal sanction is usually inappropriate when it unjustly
penalizes a blameless client for the attorney’s behavior.” Hillig v. Comm’r, 916 F.2d 171, 174 (4th
Cir. 1990) (collecting cases). There is no evidence to suggest that plaintiffs, as opposed to their
attorneys, played any role in the delay of this case since the day those attorneys entered appearance,
February 1, 2016. See id. Moreover, defendants also present no evidence to suggest plaintiffs are
personally responsible for any delay occurring prior to February 1, 2016.
Beginning first with plaintiffs’ purported delay occurring after February 1, 2016, it is
undisputed plaintiffs delayed in completing (and supplementing) properly their discovery responses.
However, without more that is not enough to warrant dismissal. Discovery requests are served on
a party only nominally, in reality those requests are served on the party’s attorney. As an advocate
and counselor, it is incumbent upon the attorney to assist the party in navigating the complexities
of discovery. Part of that obligation includes facilitating the party’s response to various discovery
requests. Defendants have failed to isolate the cause of plaintiffs’ alleged failure to prosecute to the
court’s satisfaction. On the one hand, plaintiffs certainly may have been stonewalling defendants’

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defense, or, as defendants put it, attempting to hold defendants “hostage” with litigation. (DE 138
at 2). On the other hand, it is equally likely that plaintiffs’ delay may be the result of a breakdown
in communication between plaintiffs and their attorneys. With those two equally probable scenarios,
it would be inappropriate to find plaintiffs “personally responsible” for any delay occurring after
February 1, 2016, especially in the face of this circuit’s preference for resolving cases on the merits.
The court turns next to plaintiffs’ purported delay occurring before February 1. As evidence
of this delay, defendants point to plaintiffs’ failure to pay Williams Mullen. Certainly that failure
generated some measure of delay. However, a failure to timely remit payment, without a record of
delay or evidence of contumacious conduct, is not enough to warrant dismissal. See Ulyssix Techs.,
Inc. v. Orbital Network Eng’g, Inc., Civil Action No. ELH-10-2091, 2011 WL 5555853, at *3 (D.
Md. Nov. 15, 2011) (addressing effect of corporate plaintiff’s delay in obtaining replacement
counsel); see also Apace Commc’ns, Ltd. v. Burke, 105 F. Supp.3d 252, 254–55 (W.D.N.Y. 2015)
(dismissing corporate plaintiff’s claim under Rule 41(b) where evidence shows corporate plaintiff
had failed to fund lawsuit, necessitating counsel’s withdrawal, for over one year). There is no
evidence plaintiffs’ failure to pay Williams Mullen was meant to secure any advantage. Likewise,
there is no evidence plaintiffs have engaged in a larger pattern of delay. Importantly, although
Williams Mullen’s motion to withdraw provides that plaintiffs had been provided “numerous
warnings” about the consequences of plaintiffs’ failure to pay legal fees, there is no indication as
to the duration of those warnings. (DE 108 ¶3). Because defendants have not demonstrate
plaintiffs’ “personal responsibility” for the delay, the court declines to exercise its discretion to
dismiss this case under Rule 41(b).

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In any case, even if plaintiffs share some personal responsibility for this case’s lengthy
history, dismissal still is not appropriate. For one thing, defendants have not shown actual prejudice
arising from the delay. As a general rule, prejudice to defendant accruing from a substantial delay
is presumed. See O’Rourke Bros. v. Nesbitt Burns, Inc., 201 F.3d 948, 952 (7th Cir. 2000); Morris
v. Morgan Stanley & Co., 942 F.2d 648, 651 (9th Cir. 1991). However, a lack of actual prejudice
“is a factor that must be considered” when determining whether or not to dismiss the case. Reizakis,
490 F.2d at 1135. Here, there are “no indications that the delay increased the litigation costs
defendants had to bear or reduced. . .their likelihood of success on the merits.” LeSane v. Hall’s
Sec. Analyst, Inc., 239 F.3d 206, 210 (2d Cir. 2001). Two factors conspire to undermine defendants’
assertions of prejudice. First, plaintiffs served documents responsive to defendant Walid El
Khoury’s Requests for Production on June 17, 2016, four days after the instant motion was filed.
Second, the parties have mutually agreed to extend the discovery deadline up to and including
October 28, 2016. (DE 137 ¶3) (“All discovery shall be commenced or served in time to be
completed by October 28, 2016.”). In light of these developments, “there is no evidence in the
record that [plaintiffs’] delay. . .caused any particular, or specially burdensome, prejudice to
defendants beyond the delay itself.” LeSane, 239 F.3d at 210.
Lastly, dismissal is inappropriate given the lack of a “drawn out” litigation history
attributable to plaintiff. Any delay attributable to plaintiffs is but a drop in the bucket when
considered in the larger context of this case. From the moment this case was filed, there has been
delay. That delay comes from various places, including the complexities of international service of
process (see Declaration of Ramy Aoun, DE 69 ¶¶7–10) (describing deficiencies in service of
process under Lebanese law); the distance between this forum and defendants’ homes in Angola and

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Lebanon; and defendants’ own conduct (see Declaration of Kamal Abou Mrad, DE 59-1 at 1 ¶5)
(describing defendant Edward El Khoury as “looking at” service documents before “thr[owing] them
on the ground” and indicating “that he would not retain them”). Moreover, almost a year of this
case’s overall delay is directly attributable to a series of motions to dismiss, filed by each defendant,
each of which was rejected by the court. Accordingly, because there is no “drawn out” litigation
history attributable to plaintiffs, dismissal under Rule 41(b) also is improper.
B.

Rule 37
Addressing next defendants’ motion for sanctions under Federal Rule of Civil Procedure 37,

that motion is granted in part.
Rule 37(b) provides “[i]f a party or a party’s officer, director, or managing agent. . .fails to
obey an order to provide or permit discovery. . .the court where the action is pending may issue
further just orders,” including an order for sanctions. Fed. R. Civ. P. 37(b)(2)(A). Rule 37(b) gives
the court the authority to impose a panoply of sanctions, including dismissing, either in whole or in
part, plaintiffs’ case. See Fed. R. Civ. P. 37(b)(2)(A)(v). In addition, Rule 37(b) requires the court,
where sanctions are appropriate, to award reasonable expenses, including attorney’s fees, either as
a stand-alone sanction or in addition to some other sanction authorized by the rule. Id. 37(b)(2)(C).
As an initial matter, although defendants request the court dismiss plaintiffs’ case in its
entirety, dismissal is inappropriate. “The legal standard for [dismissals] under Rule 37 is virtually
the same as that for dismissals for failure to prosecute under Rule 41.” Carter v. Univ. of W. Va.
Sys., Bd. of Trustees, No. 93-1905, 1994 WL 192031, at *2 (4th Cir. May 16, 1994); Gainey v.
Alliance One, No. 1:11-CV-279, 2012 WL 4482988, at *2 n.1 (W.D.N.C. Sept. 27, 2012). For the
reasons given in part A, the court rejects defendants’ request for the sanction of dismissal.

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Nevertheless, monetary sanctions are warranted in this case. Plaintiffs violated a court order
to provide or permit discovery when they failed to respond appropriately to defendant Walid El
Khoury’s discovery requests by April 13, 2016. Although plaintiffs suggest their responses were
compliant, they plainly were not. As derived from defendants’ evidence, plaintiffs’ responses to
defendant Walid El Khoury’s First Set of Interrogatories were deficient by, among other things,
failing to provide contact information for every individual named in those responses, as requested
by the instructions. (See DE 123-6 at 1–4). Similarly, plaintiffs’ responses to defendant Walid El
Khoury’s Requests for Production also were deficient. In response to each request for production,
plaintiffs stated “[a]ny and all documents in the possession, custody or control of the
Plaintiff/Counter-Defendant that is responsive to this Request will be made available for inspection
and/or copying at a mutually agreed date and time.” (Id. at 4). This boiler-plate response lacks the
substance required by Rule 34.
Rule 34 provides that production of documents “must be completed no later than the time
for inspection specified in the request or another reasonable time specified in the response.” Fed.
R. Civ. P. 34(b)(2)(B). As another court has described it “there are only three appropriate responses
to a request for production of documents”: 1) an objection; 2) “an answer agreeing to the requested
scope, time, place and manner of production”; or 3) “a response offering a good faith, reasonable
alternative [to the proponent’s requested time, place, or manner of] production, which is definite in
scope, time, place or manner.” Jayne H. Lee, Inc. v. Flagstaff Indus. Corp., 173 F.R.D. 651, 656 (D.
Md. 1997). “[A] response to a request for production of documents which merely promises to
produce the requested documents at some unidentified time in the future, without offering a specific

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time, place and manner, is not a complete answer as required by Rule 34(b).” Id.; see also Kinetic
Concepts, Inc. v. ConvaTec Inc., 268 F.R.D. 226, 240–41 (M.D.N.C. 2010).
The only issue remaining is to determine who will pay. Rule 37(b) allows the court to assess
fees against the disobedient party, the disobedient party’s attorney, or both. Fed. R. Civ. P.
37(b)(2)(C). In this case, the court concludes that all fees incurred prior to May 4, 2016, the date
on which plaintiffs’ counsel John J. Shahady entered appearance in this case, shall be borne
exclusively by plaintiffs’ counsel Edward M. Shahady. All expenses incurred thereafter shall be
borne equally between John J. and Edward M. Shahady. In fashioning this sanction, the court has
considered alternatives, including imposing some portion of the cost on plaintiffs. However, given
plaintiffs’ earlier failure to pay Williams Mullen its legal fees, the court finds it unlikely that
plaintiffs could or would pay. More significantly, imposing sanctions on plaintiffs’ counsel is more
apt under the circumstances of this case. As discussed at length above, the issues raised by
defendants’ motion are not typically attributable to a specific failure of the represented party other
than that party’s choice of attorney. Blame for technical failures, like the shoddy discovery
responses in this case, usually, and appropriately, falls at the feet of counsel.
Accordingly, the court will grant defendants’ motion inasmuch as it sounds as one for
sanctions. Within 14 days of the date of entry of this order, defendants shall respond with an
affidavit, complete with appropriate evidence, detailing their “reasonable expenses,” including
attorneys’ fees, caused by the failure. Fed. R. Civ. P. 37(b)(2)(C). Within 7 days thereof, plaintiffs’
counsel shall serve response, if any, contesting either the reasonableness or cause of those expenses.

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CONCLUSION
Based on the foregoing, the court GRANTS in part and DENIES in part defendants’ motion
for sanctions. (DE 121; DE 125). The court GRANTS the motion insofar is it requests sanctions
under Federal Rule of Civil Procedure 37(b). The court DENIES the motion insofar as it requests
involuntary dismissal with prejudice under Federal Rule of Civil Procedure 41(b).
Within 14 days of the date hereof, defendants shall file on the docket a lists of all expenses
claimed under Rule 37(b)(2)(C). Within 7 days of the date on which defendants serve that
document, plaintiffs shall file a response in opposition, if any.
SO ORDERED, this the 23rd day of August, 2016.

_____________________________
LOUISE W. FLANAGAN
United States District Judge

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