RDLG, LLC v. RPM Group, LLC et al

Filing 110

ORDER granting in part 10/03/12 Pltf's Oral Motion for Sanctions and finding sua sponte Defts and their counsel are subject to sanctions; awarding Pltf its reasonable expenses, including its attorneys' fees; the Court directs Attys Landford and Neyhart to appear on Thursday, 10/11/12 at 10:00 a.m., for SHOW CAUSE Hearing. (SEE ORDER FOR DETAILS) Signed by Magistrate Judge Dennis Howell on 10/4/12. (ejb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
1:10cv204
RDLG, LLC,
Plaintiff,
v.
RPM GROUP, LLC; RPM GROUP
BROKERAGE, LLC; FRED M.
LEONARD, III; JESSICA LEWIS
LEONARD; JASON BENTON;
NICK JAMES; and DEXTER
HUBBARD,
Defendants.
__________________________________

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ORDER

The Court held a pretrial conference in this case on October 3, 2012. At the
hearing, Plaintiff orally moved for the imposition of sanctions pursuant to Rule
16(f) against Defendants RPM Group Brokerage, LLC, RPM Group, LLC, and
Fred M. Leonard, III (“Defendants”). Accordingly, this case is now before the
Court sua sponte based on the conduct of Defendants and their counsel at the
conference and upon the oral motion of Plaintiff. The Court GRANTS in part the
oral motion for sanctions and finds sua sponte that sanctions are warranted against
Defendants and their counsel.
I.

Background

On August 10, 2011, the Court entered a Pretrial Order and Case
Management Plan setting the trial in this case for September 4, 2012, before United

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States District Court Judge Martin Reidinger. (Order, Aug. 10, 2011.) After the
parties consented to the jurisdiction of a United States Magistrate Judge and, thus,
this Court, the Court amended the Pretrial Order and rescheduled the trial for
October 15, 2012. (Order, February 27, 2012.) Attorneys Seth Allen Neyhart and
Terri Lankford, both of whom represent Defendants, entered appearances in this
case on May 2, 2012.
The Court then entered an Order on September 6, 2012, directing the parties
to appear at a pretrial conference at 9:30 a.m. on October 3, 2012. (Order, Sept. 6,
2012.) The Court’s September 6, 2012, Order stated that “[c]ounsel for plaintiffs
and defendants RPM Group, LLC, RPM Group Brokerage, LLC and Fred M.
Leonard, III are required to be present.” (Order, Sept. 6, 2012, at p. 1-2.) In
addition, the Order stated that:
Both the represented parties and the pro se parties are directed to review
the Pretrial Order and Case Management Plan and particularly review the
portion of the Pretrial Order and Case Management Plan entitled
“V-TRIAL PROCEDURES”. The parties are further directed to be in
compliance with all provisions of the Pretrial Order and Case
Management Plan as of the date and time of the pretrial conference.
(Order, Sept. 6, 2012, at p. 2.)
The Pretrial Order and Case Management Plan provides that counsel shall by
the earlier of the date of the pretrial conference or one week before trial: (1)
discuss the possibility of settlement, (2) exchange copies of exhibits, (3) number
and become acquainted with all exhibits, (4) agree upon the issues and submit a
description of the issues with the court, and (5) agree to stipulations of fact and file

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them with the Court. (Order, Aug. 9, 2011, at pp. 8-9.) The Pretrial Order also
required that the parties each submit proposed jury instructions by the date of the
pretrial conference. (Order, Aug. 9, 2011, at p. 9.) Finally, the Order warns
counsel that the failure to comply with these deadlines may result in the imposition
of sanctions. (Order, Aug. 9, 2011, at p. 12.)
Subsequently, on Sunday, September 30, 2012, two business days prior to
the pretrial conference and two weeks before the scheduled trial date, counsel for
Defendants moved to postpone the pretrial conference and to withdraw as counsel.
Both Attorney Neyhart and Lankford signed the pleadings. In the motions, counsel
represented that she informed Defendant Leonard that she would no longer
represent the Defendants in this matter after September 1, 2012. (Mot. Withdraw
at p. 3; Mot. Postpone Pretrial Conf. at p. 1.) Counsel, however, was under the
belief that Defendant Leonard would seek bankruptcy and did not move to
withdraw as counsel at the time. (Mot. Withdraw at p. 3.) Counsel also
represented in the motion that “ Local Counsel Seth A. Neyhart has acted solely as
local counsel on behalf of Counsel and has had no independent contact or
communication with Defendants at this time.” (Mot. Withdraw at p. 4.) The
motion, however, acknowledged that Defendants did not have new counsel to
represent them in this matter, as new counsel was being obtained solely to initiate
bankruptcy proceedings. (Mot. Withdraw at p. 4; Mot. Postpone Pretrial Conf. at
p. 1-2.)
At the same time counsel filed the Motion to Withdraw, Defendants moved

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to postpone the pretrial conference. In the motion, counsel acknowledged that she
would “be out of the country on October 3rd.” (Mot. Postpone Pretrial Conf. at p.
2.) Counsel, however, had not previously informed the Court on the docket of her
anticipated international travel and waited until two business days prior to the
pretrial conference to file a pleading informing the Court that she would not be
able to attend. In addition, the motion stated that “Local Counsel has never
communicated directly with Defendants and has been retained solely for the
function of providing local counsel services. Local Counsel would not be able to
meaningfully contribute to or participate in a Pre Trial Conference without the
presence of Counsel or Defendants.” (Mot. Postpone Pretrial Conf. at p. 2.)
The Court denied the Motion to Withdraw and Motion to Postpone Pretrial
Conference on October 1, 2012. (Order, Oct. 1, 2012.) In it’s October 1, 2012,
Order, the Court stated that:
Although counsel contends that she and local counsel ceased
communications with Defendants on September 1, 2012, and that she has
now scheduled a trip out of the country on the date of the pretrial
conference, counsel waited until the eve of the pretrial conference to
move to postpone the conference. Presumably, counsel did not book her
trip out of the country on September 30, 2012, when she filed her
motion. And even if she booked her trip after February 27, 2012, she did
so with full knowledge that she was scheduled for trial starting October
15, 2012, and that a pretrial conference would need to be held
immediately prior to trial.
Similarly, counsel has waited until the eve of trial to move to withdraw
as counsel. It appears to the Court that Defendants and counsel have
engaged in such a tactic to delay the trial in this Court, and the Court will
not allow either Terri Lankford or Seth Neyhart to withdraw as counsel
at such a late date. This case will proceed to trial as scheduled.
Moreover, the Court will not reschedule the pretrial conference. The
Court also INSTRUCTS counsel for Defendants that the failure of either
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Terri B. Lankford or Seth A. Neyhart to appear at the pretrial conference
will result in the Court finding counsel in contempt of Court.
(Order, Oct. 1, 2012.)
The next day, Attorney Lankford submitted a Declaration to the Court.
According to the Declaration, Attorney Lankford, left the country on a flight at
6:00 a.m. on October 1, 2012. (Lankford Decl. ¶ 6, Oct. 2, 2012.) Attorney
Lankford left the country despite the fact that: (1) she filed her motions on the
Sunday the day before she was scheduled to leave the country on a 6:00 a.m. flight;
(2) that the Court had not ruled on the motions at the time; (3) that the pretrial
conference was scheduled for 9:30 am on October 3, 2012; and (4) that she
previously represented to the Court that local counsel was unprepared to participate
in the pretrial conference. Despite her prior representations to the Court, Attorney
Lankford stated in her Declaration that she was under the belief that the presence
of local counsel would be sufficient representation in accordance with Court’s
September 6, 2012, Order. (Lankford Decl. ¶ 5.) Finally, Attorney Lankford also
declares that:
Defendant Leonard then specifically asked me to not inform the Court
until September 28, 2012, because he and his other attorney’s believed
that it would severely prejudice him in the resolution of other legal
matters, including but not limited to, the execution of a refinance on
Defendant’s home, the sale of that home, the negotiation of federal tax
liens, the settlement negotiation of another litigation matter, the
execution of current and pending business deals, and the resolution of an
investment conflict.
(Lankford Decl. ¶ 15(f)).

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On October 3, 2012, the Court held the pretrial conference in this case.
Attorney Lankford did not appear. Local Counsel Seth Neyhart appeared on behalf
of Defendants. Defendant Leonard was also present. Attorney Neyhart, however,
was wholly unprepared for the pretrial conference and had no knowledge of the
case. As he admitted during the pretrial conference, he had served only as local
counsel, had not interacted with Defendants previously, had not attended
depositions, and had not read depositions in preparation for the pretrial conference.
It appeared to the Court at the pretrial conference that Attorney Neyhart had
virtually no knowledge of the case. As a result, the entire pretrial conference was
largely a waste of time and resources.
In addition, Defendants had not prepared an exhibit list prior to the
conference, and Attorney Neyhart seemed to lack any knowledge as to what
exhibits might even be needed at trial. Although Defendants submitted proposed
jury instructions and a trial brief, both appear to have been largely copied from the
filings of Plaintiff. In fact, Defendants simply took large portions of Plaintiff’s
trial brief and cut and pasted it into their brief. It does not appear that Defendants
undertook any independent research of the issues or the law in this matter.
At the close of the pretrial conference, Plaintiff’s moved for the entry of
sanctions pursuant to Rule 16(f) of the Federal Rules of Civil Procedure.
Accordingly, the case is now before the Court on Plaintiff’s oral motion and sua
sponte based on the conduct of Defendant and their counsel.
II.

Analysis

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A.

Sanctions under Rule 16(f) are Warranted in this Case

Rule 16(f) of the Federal Rules of Civil Procedure provides that a Court may
impose sanctions against a party or its attorneys, including those authorized by
Rule 37(b)(2)(A)(ii)-(vii), where a party or its attorney: (1) fails to appear at a
pretrial conference; (2) is substantially unprepared to participate or does not
participate in good faith in the conference; or (3) fails to obey a scheduling order or
pretrial order. Fed. R. Civ. P. 16(f)(1); see also Young Again Prods., Inc. v.
Acord, 459 Fed. App’x 294, 301 (4th Cir. 2011); Briggs v. City of Norfolk, 42 Fed
App’x 585, 587 (4th Cir. 2002) (unpublished). The sanctions available under Rule
37(b) include striking pleadings, rendering default judgment, and finding the party
or attorney in contempt. Fed. R. Civ. P. 37(b)(2)(A). In addition, Rule 16(f)(2)
provides that:
Instead of or in addition to any other sanction, the court must order the
party, its attorney, or both to pay the reasonable expenses-including
attorney’s fees-incurred because of any noncompliance with this rule,
unless the noncompliance was substantially justified or other
circumstances make an award of expenses unjust.
Fed. R. Civ. P. 16(f)(2).
Due to the severity of a sanction entering default judgment against a
defendant, the Fourth Circuit has set forth a fourth part test when determining
whether such a sanction is appropriate under Rule 37(b). Acord, 459 Fed. App’x at
301. These four factors include:
(1) whether the noncomplying party acted in bad faith; (2) the amount of
prejudice his noncompliance caused his adversary, which necessarily
includes an inquiry into the materiality of the evidence he failed to
produce; (3) the need for deterrence of the particular sort of
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noncompliance; and (4) the effectiveness of less drastic sanctions.
Mut. Fed. Sav. and Loan Ass’n v. Richards & Assoc., Inc., 872 F.2d 88, 92 (4th
Cir. 1989); see also Acord, 459 Fed. App’x at 301.
Upon a review of the entire record in this case and based on the conduct of
Defendant and counsel for Defendant at the pretrial conference and leading up to
the conference, the Court finds that sanctions are warranted under Rule 16(f). As a
threshold matter, despite two Court Orders directing counsel to appear at the
pretrial conference, Attorney Lankford failed to appear. The Court’s October 1,
2012, Order even warned her that the failure to appear may result in the Court
finding her in contempt. Although she contends that she was “out of the country,”
Attorney Lankford had been aware that the pretrial conference was scheduled for
October 3, 2012, for nearly a month.1 Morever, the trial in this case has been
scheduled to begin October 15, 2012, since February of this year. Although at
some point Attorney Lankford states that she booked a non-refundable trip out of
the country, she waited until 11:23 p.m. on Sunday, September 30, 2012, to file her
Motion to Withdraw and until 11:19 p.m. to file her Motion to Continue, despite
the fact that she was scheduled to depart on a plane a little over six hours later at
6:00 a.m. on October 1, 2012. Accordingly, Attorney Lankford’s absence at the

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The Court finds it curious that in neither the motions nor the Declaration, Attorney
Lankford states what country she was in or when she actually booked the trip. When the Court
asked Attorney Neyhart at the pretrial conference where Attorney Lankford was at the time, he
stated that he was not sure but believed it was somewhere in the “islands” and that he thought
she was in Puerto Rico. Puerto Rico, of course, is a territory of the United States. Thus, being in
Puerto Rico would not constitute being “out of the country” and the statements in the
Declaration and other pleadings would be untruthful.
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pretrial conference was not substantially justified and sanctions against her under
Rule 16(f) for failure to attend are warranted.
Similarly, sanctions against Attorney Neyhart are also warranted under Rule
16(f). Although Attorney Neyhart appeared at the pre-trial conference, he had zero
knowledge of the case and was wholly and completely unprepared to participate in
the pretrial conference in a meaningful or substantive manner. Attorney Neyhart
could not answer any of the Court’s questions regarding the case, had no
knowledge of the facts of the case, and had no knowledge as to what would be
required for trial. In fact, the entire pretrial conference was largely a waste of time
for Plaintiff and the Court because no attorney for Defendants was present with
any actual knowledge of the case. In addition, Defendants failed to prepare an
exhibit list as ordered by the Court in its prior Orders and Attorney Neyhart had no
knowledge as to what exhibits may even be needed at trial. Finally, even though
Defendants did file a trial brief and jury instructions, a thorough review of both by
the Court reflects that both documents were largely copied from the documents
previously filed by Plaintiff.
As a result of the failure to obey the Court’s scheduling orders by
Defendants and their counsel, the failure of Attorney Lankford to attend the pretrial
conference as ordered, and the failure of Attorney Neyhart to come to the pretrial
conference substantially prepared to participate, the Court finds that sanctions
under Rule 16(f) are warranted against Defendants and their counsel in this case.
Moreover, after a careful review of the record, the relevant legal authority, and

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after the benefit of hearing from counsel at the pretrial conference, the Court finds
that the noncompliance was not substantially justified and no circumstances make
an award of expenses unjust. Accordingly, this Court must order Defendants and
their counsel to pay the reasonable expenses of Plaintiff, including attorneys’ fees
incurred from the noncompliance. Fed. R. Civ. P. 16(f)(2). Finally, although
Plaintiff requests the entry of a default judgment as a sanction, the Court finds that
such a harsh sanction is not yet justified in this case. The Court makes this
determination after considering the the relevant factors set forth by the Fourth
Circuit. The Court has carefully considered the conduct of the parties and counsel
and the record and finds that the sanctions set out below are appropriated under
Rule 16(f) and will deter future conduct of this type. The Court, therefore,
sanctions Defendants and their counsel as follows:
(1)

The Court AWARDS Plaintiff its reasonable expenses, including its
attorneys’ fees, in preparing for and attending the pretrial conference.
The Court DIRECTS the parties to confer as to the reasonable
amount of such an award. If the parties cannot resolve the reasonable
amount of such an award, the Court DIRECTS counsel for Plaintiff to
file an affidavit within five (5) days of the entry of this Order setting
forth the expenses occurred and the Court will determine whether
such an amount is reasonable under the applicable law. Such
expenses shall be paid equally by Defendant Fred M. Leonard, III,
Attorney Lankford, and Attorney Neyhart.

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(2)

The Court SANCTIONS Attorney Neyhart pursuant to Rule
16(f)(1)(B) and (C) in the amount of $2500.00. Such sanction should
by paid to the Clerk of Court within five (5) days of the entry of this
Order.

(3)

The Court SANCTIONS Attorney Lankford pursuant to Rule
16(f)(1)(A) and (C) in the amount of $5000.00. Such sanction should
by paid to the Clerk of Court within five (5) days of the entry of this
Order.

(4)

The Court SANCTIONS Defendants RPM Group Brokerage, LLC,
RPM Group, LLC, and Fred M. Leonard, III each $2500.00 pursuant
to Rule 16(f)(1)(C) and for the conduct of its counsel. Such sanction
should by paid to the Clerk of Court within five (5) days of the entry
of this Order.

(5)

The failure of Defendants or counsel to comply with this Order within
the time frame set forth in this Order will result in the Court striking
the answer of Defendants and entering default judgment against
Defendants and/or the instigation of contempt proceedings against
counsel.

B.

Sanctions against Defendants and Counsel are also Warranted
under the Inherent Power of the Court

It is now well settled that a district court has the inherent power to sanction
conduct that constitutes an abuse of the judicial process. Hensley v. Alcon Labs.,
Inc., 277 F.3d 535, 542 (4th Cir. 2002); Silvestri v. Gen. Motors Corp., 271 F.3d
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583, 590 (4th Cir. 2001); United States v. Shaffer Equip. Co., 11 F.3d 450, 461-62
(4th Cir. 1993). “The policy underlying this inherent power of the courts is the
need to preserve the integrity of the judicial process in order to retain confidence
that the process works to uncover the truth.” Silvestri, 271 F.3d at 590. The most
powerful sanction in the district court’s quiver is its inherent power to dismiss a
case with prejudice. Shaffer, 11 F.3d at 462; Hensley, 277 F.3d at 542. “Since
orders dismissing actions are the most severe, such orders must be entered with the
greatest caution.” Shaffer, 11 F.3d at 462.
As a result of the severity of the sanction, a district court may only dismiss
an action with prejudice upon a finding of bad faith or similar abuse of the judicial
process. Hensley, 277 F.3d at 542. As the Fourth Circuit explained in Shaffer,
“when a party deceives a court or abuses the process at a level that is utterly
inconsistent with the orderly administration of justice or undermines the integrity
of the process, the court has the inherent power to dismiss the action.” 11 F.3d at
462. To aid district courts in wielding their inherent power, the Fourth Circuit has
set forth six factors that courts must consider prior to dismissing a case with
prejudice. Id. These six factors include:
(1) the degree of the wrongdoer’s culpability; (2) the extent of the
client’s blameworthiness if the wrongful conduct is committed by its
attorney, recognizing that we seldom dismiss claims against blameless
clients; (3) the prejudice to the judicial process and the administration
of justice; (4) the prejudice to the victim; (5) the availability of other
sanctions to rectify the wrong by punishing culpable persons,
compensating harmed person, and deterring similar conduct in the
future; and (6) the public interest.

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Id. at 462-63.
The Court finds that Defendants and counsel filed the Motion to Withdraw
and Motion to Continue in bad faith as a means of delaying this case and
prohibiting the trial of this case from going forward on October 15, 2012.
According to Attorney Lankford, she was no longer representing Defendants after
September 1, 2012, but she waited a month to move to withdraw. She states that
she did so at the express instruction of Defendant Leonard. The only reasonable
explanation for such conduct is that the motion to withdraw was filed with the
express intention of delaying the trial and pre-trial conference in this case. If
Attorney Lankford had in fact ceased representing Defendants as of September 1,
2012, as expressly stated in her Motion to Withdraw, she should have immediately
moved to withdraw, irrespective of the instructions of her “former” client. Instead,
Defendants and Attorneys Lankford and Neyhart timed the filing of the Motion to
Withdraw to attempt to delay the pretrial conference and the trial in this case. Such
conduct by both Defendants and their counsel constitutes an assault on the integrity
of this Court and warrants the imposition of sanctions.
Moreover, the actions of Defendants and their counsel at the pretrial
conference and leading up the conference made a mockery of the judicial process.
Such abuses of the judicial process must be sanctioned in order to protect the
integrity of the federal court system. Accordingly, as an alterative holding, the
Court finds that the sanctions imposed under Rule 16(f) are independently
warranted under the inherent power of the Court. The Court, however, warns

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Defendants that any future dilatory conduct will result in the Court striking their
Answers and entering default judgment against them.
C.

Rule 11 Sanctions Against Attorney Lankford and Neyhart May
be Required in this Case

Rule 11 provides that by signing and presenting a paper to the Court, that the
attorney “certifies that to the best of the person’s knowledge, information, and
belief, formed after an inquiry reasonable under the circumstances” that the
pleading or paper is not presented for an improper purpose such as to cause
unnecessary delay and that the factual contentions have evidentiary support. Fed.
R. Civ. P. 11(b). In her Declaration, Attorney Lankford states that she believed
that the presence of local counsel would be sufficient representation at the pretrial
conference. Just two days prior, however, counsel moved to continue the pretrial
conference partially because local counsel had no knowledge of the case. At the
pretrial conference it became clear that local counsel in fact had no knowledge of
the case and was completely unprepared to participate in the conference. The
Court finds that this statement in the Declaration contradicts the prior pleadings
signed by counsel and the experience of the Court at the pretrial conference. In
addition, the Court finds that the statement is not credible and lacks any basis in
fact such that Attorney Lankford could have, in good faith, believed that the
presence of only local counsel would be sufficient for the pretrial conference.
Moreover, it appears to the Court based on the representations in the
Declaration that Defendants and Attorney Lankford and Attorney Neyhart waited
to filed the Motion to Withdraw and Motion to Continue in bad faith in order to
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cause unnecessary delay in this case. Finally, the Court has serious concern
regarding the factual acturacy of other statements in the Declaration and pleadings,
including whether Attorney Lankford was in fact in another country as she stated.
Accordingly, the Court DIRECTS Attorney Lankford and Attorney Neyhart to
Appear at a hearing at 10:00 a.m. on Thursday, October 11, 2012, in Courtroom 2
at the United States District Court Western District of North Carolina, Asheville
Division, 100 Otis Street, Asheville, North Carolina and SHOW CAUSE why they
should not be further sanctioned under Rule 11.
III.

Conclusion

The Court GRANTS in part the oral motion for sanctions and finds sua
sponte that Defendants and their counsel are subject to sanctions. The Court
DIRECTS the parties as follows:
(1)

The Court AWARDS Plaintiff its reasonable expenses, including its
attorneys’ fees, in preparing for and attending the pretrial conference.
The Court DIRECTS the parties to confer as to the reasonable
amount of such an award. If the parties cannot resolve the reasonable
amount of such an award, the Court DIRECTS counsel for Plaintiff to
file an affidavit within five (5) days of the entry of this Order setting
forth the expenses occurred and the Court will determine whether
such an amount is reasonable under the applicable law. Such
expenses shall be paid equally by Defendant Fred M. Leonard, III,
Attorney Lankford, and Attorney Neyhart.

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(2)

The Court SANCTIONS Attorney Neyhart pursuant to Rule
16(f)(1)(B) and (C) in the amount of $2500.00. Such sanction should
by paid to the Clerk of Court within five (5) days of the entry of this
Order.

(3)

The Court SANCTIONS Attorney Lankford pursuant to Rule
16(f)(1)(A) and (C) in the amount of $5000.00. Such sanction should
by paid to the Clerk of Court within five (5) days of the entry of this
Order.

(4)

The Court SANCTIONS Defendants RPM Group Brokerage, LLC,
RPM Group, LLC, and Fred M. Leonard, III each $2500.00 pursuant
to Rule 16(f)(1)(C) and for the conduct of its counsel. Such sanction
should by paid to the Clerk of Court within five (5) days of the entry
of this Order.

(5)

The failure of Defendants or counsel to comply with this Order within
the time frame set forth in this Order will result in the Court striking
the answer of Defendants and entering default judgment against
Defendants and/or the instigation of contempt proceedings against
counsel.

(6)

In the alternative, the Court AWARDS sanctions against Defendants
and their counsel in the same amount under the inherent power of the
Court.

(7)

The Court DIRECTS Attorney Landford and Attorney Neyhart to

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Appear at a hearing at 10:00 a.m. on Thursday, October 11, 2012, in
Courtroom 2 at the United States District Court Western District of
North Carolina, Asheville Division, 100 Otis Street, Asheville, North
Carolina and SHOW CAUSE why they should not be further
sanctioned under Rule 11.

Signed: October 4, 2012

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