RLI Insurance Company v. Nexus Services, Inc.
Filing
612
MEMORANDUM OPINION. Signed by Chief Judge Michael F. Urbanski on 12/17/2020. (jv)
Case 5:18-cv-00066-MFU-JCH Document 612 Filed 12/17/20 Page 1 of 11 Pageid#: 16786
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
HARRISONBURG DIVISION
RLI INSURANCE COMPANY,
Plaintiff,
v.
NEXUS SERVICES INC, et al.,
Defendants,
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)
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Civil Action No. 5:18-cv-66
By: Michael F. Urbanski
Chief United States District Judge
MEMORANDUM OPINION
This matter is before the court on defendants Nexus Services, Inc.; Libre by Nexus,
Inc.; and Homes by Nexus, Inc.’s (collectively “Nexus”) motion to stay the court’s October
23, 2020, order (hereinafter “October order”) regarding damages and collateral security
pending appeal without requiring Nexus to post a supersedeas bond. ECF No. 602. Plaintiff
RLI Insurance Company (“RLI”) opposes the motion, arguing that Nexus has not met its
burden to justify a stay of damages without posting a bond nor has it met its burden to justify
the stay of the court’s injunction regarding collateral security. ECF No. 606. Nexus replied to
RLI’s opposition, claiming a stay on damages is necessary to avoid irreparable harm to Nexus
and the public interest and that the court’s order of collateral is not injunctive in nature. ECF
No. 608. 1
RLI filed a motion for leave to file a sur-reply to further respond in opposition to Nexus’s most recent briefing. ECF
No. 609. This morning, Magistrate Judge Joel C. Hoppe granted this motion by oral order. ECF No. 611. The court
VACATES that oral order and DENIES as moot the motion for leave to file a sur-reply, finding it does not need any
additional briefing on the issue to aid the decisional process.
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The matter has been fully briefed and is ripe for resolution. The court dispenses with
oral argument because the facts and legal contentions are adequately presented in the materials
before this court and argument would not aid the decisional process. For the reasons stated
herein, the court DENIES Nexus’s motion to stay the court’s October order.
I.
Applicable Law
Rule 62 of the Federal Rules of Civil Procedure provides that “[w]hile an appeal is
pending from an interlocutory order or final judgment that grants, dissolves, or denies an
injunction, the court may suspend, modify, restore, or grant an injunction on terms for bond
or other terms that secure the opposing party’s rights.” Fed. R. Civ. P. 62(d). Nexus appeals
several of this court’s orders and requests the court grant its motion to stay the October order,
including the court’s order on damages and collateral security, without a supersedeas bond.
Generally, “[a] party can obtain a stay as a matter of right under Rule 62(d) by posting
a supersedeas bond in the full amount of the judgment, but district courts have the discretion
to grant a stay without a bond or with a reduced bond.” E.I. DuPont de Nemours and Co. v.
Kolon Industries, Inc., No. 3:09-cv-58, 2012 WL 1202485, at *2 (E.D. Va. April 10, 2012)
(citing Alexander v. Chesapeake, Potomac & Tidewater Books, Inc., 190 F.R.D. 190, 192 (E.D.
Va. 1999)). However, “[d]efendants are not entitled to a stay [when they]have not posted a
supersedeas bond in the full amount of the judgment.” Schmidt v. FCI Enterprises LLC, No.
118-CV-1472, 2020 WL 2748499, at *4 (E.D. Va. Feb. 3, 2020).
“A stay is considered ‘extraordinary relief’ for which the moving party bears a ‘heavy
burden.’” Northrop Grumman Technical Services, Inc. v. DynCorp International, LLC, No.
1:16-cv-534, 2016 WL 3346349, *2 (E.D. Va. 2016) (quoting Larios v. Cox, 305 F. Supp. 2d
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1335, 1336 (N.D. Ga. 2004)). “In determining whether to issue a stay pending appeal on the
basis of less than a full bond, a district court should act to ‘preserve the status quo while
protecting the non-appealing party’s rights pending appeal.’” Alexander, 190 F.R.D. at 193
(quoting Poplar Grove Planting and Refining Co., Inc. v. Bache Halsey Stuart, Inc., 600 F.2d
1189, 1190-91 (5th Cir. 1979)). In considering a motion to stay pending appeal, the court must
evaluate the following factors:
(1) whether the stay applicant has made a strong showing that he
is likely to succeed on the merits;
(2) whether the applicant will be irreparably injured absent a stay;
(3) whether issuance of the stay will substantially injure the other
parties interested in the proceeding; and
(4) where the public interest lies.
Northrop, 2016 WL 3346349 at *2 (quoting Nken v. Holder, 556 U.S. 418, 434 (2009)).
“Since the traditional stay factors contemplated individualized judgments in each case,
the formula cannot be reduced to a set of rigid rules.” Hilton v. Braunskill, 481 U.S. 770, 777
(1987). Accordingly, “[t]he court need not give these factors equal weight, but should consider
all of the factors in light of the circumstances surrounding the injunction.” MicroStrategy, Inc.
v. Bus. Objects, S.A., 661 F. Supp. 2d 548, 558 (E.D. Va. 2009). Although the Fourth Circuit
has not addressed the issue directly, many sister circuits treat the first two factors as a sliding
scale, requiring a less rigorous showing of likelihood of success on appeal in the face of a
compelling showing of irreparable harm. Id. (collecting cases). Absent a showing of likelihood
of success on appeal, a movant must, at the very least, “demonstrate a substantial case on the
merits,” irrespective of the degree of irreparable harm. ePlus Inc. v. Lawson Software, Inc.,
946 F. Supp. 2d 503, 507 (E.D. Va. 2013) (quoting Hilton, 481 U.S. at 778) (internal quotations
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and citations omitted). But see Combs v. FV–1, Inc., No. MJG–13–3734, 2013 WL 6662729,
at *2 (D. Md. Dec. 16, 2013) (“[Movant] must satisfy each element for relief.”).
In the Fourth Circuit, “the posting of a supersedeas bond may only stay a monetary
judgment pending an appeal, Fed. R. Civ. P. 62(d), and does not permit a party to stay
injunctive relief.” Solis v. Malkani, 638 F.3d 269, 275 (4th Cir. 2011). See also ActiveVideo
Networks, Inc. v. Verizon Commc’ns, Inc., No. 2011-1538, 2012 WL 10716768, at *1 (Fed.
Cir. Apr. 2, 2012) (applying Fourth Circuit law); 11 Charles Alan Wright et al., Federal Practice
and Procedure § 2905 (2d ed.1995).
II.
Motion to Stay
Nexus requests the court grant a motion to stay its payment of damages and collateral
security pending appeal. Nexus claims a stay without a bond is justified given the
overwhelming irreparable harm at issue. RLI disagrees, arguing that Nexus has not presented
any actual evidence of irreparable harm beyond speculative allegations and that Nexus is
unable to show a likelihood of success on appeal. Further, RLI contends that the order to pay
a specific amount of collateral security is an affirmative injunction and therefore not subject
to a stay of the judgment. Conversely, Nexus characterizes the court’s order of collateral
security as “nothing more than a straight-forward order to pay a specific lump sum of money”
and “purely monetary,” and therefore subject to the stay it requests.
First, Nexus must show that it is likely to succeed in appealing the court’s grant of
summary judgment based on its interpretation of the Indemnity Agreement. In assessing the
likelihood of success on appeal, the “standard does not require the trial court to change its
mind or conclude that its determination on the merits was erroneous. Rather, the court must
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determine whether there is a strong likelihood that the issues presented on appeal could be
rationally resolved in favor of the party seeking the stay.” United States v. Fourteen Various
Firearms, 897 F. Supp. 271, 273 (E.D. Va. 1995) (internal citations omitted) (emphasis added).
The Fourth Circuit reviews a court’s award of summary judgment de novo and views the facts
and inferences drawn therefrom in the light most favorable to the non-moving party. Spriggs
v. Diamond Auto Glass, 242 F.3d 179, 183 (4th Cir. 2001). The Fourth Circuit also reviews a
district court’s interpretation of a contract de novo. Choice Hotels Int’l, Inc. v. BSR Tropicana
Resort, Inc., 252 F.3d 707, 710 (4th Cir. 2001). Although Nexus offers no new evidence or
argument to support its interpretation of the Indemnity Agreement, the court agrees the
Fourth Circuit may diverge in its interpretation of the contract upon a de novo review. U.S.
Home Corp. v. Settlers Crossing, LLC, No. 8-cv-1863, 2015 WL 3973071, at *5 (D. Md. June
29, 2015) (“Although the court stands by its prior rulings and final Judgment, a number of the
issues Purchaser plans to raise on appeal are objections to this court’s interpretations of the
parties’ Agreement, which will be reviewed de novo by the Fourth Circuit.”). Nexus “has not
necessarily shown a ‘strong likelihood of success’ on appeal, but has identified specific legal
findings that raise ‘serious questions of law.’” Id.
Second, Nexus must provide evidence that it would be irreparably injured without a
stay. Nexus claims that it currently indemnifies approximately 20,000 immigration bonds with
non-party sureties, who would view Nexus’s requirement to pay the monetary judgment as a
“material change in Nexus’s condition and seek to unwind the immigration bonds.” ECF No.
602 at 5. Nexus claims:
Those sureties would be correct in assuming that paying damages
to RLI necessarily drains resources otherwise available to keep
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[Nexus] current on their payment and collateral demands, even if
such funds are ultimately returned to Nexus following a
successful appeal effort.
Id. Nexus also argues that without the stay, “thousands of asylum seekers will be irreparably
harmed even if Nexus prevails on its appeal.” Id. at 5-6. It suggests that the sureties are bound
to “unwind” their immigration bonds, which would force the previously bonded immigrants
to return to detention facilities during the pandemic. Id. Conversely, RLI argues that Nexus
has not met its burden of producing evidence of irreparable harm and, even if it had evidence,
a claim of financial injury is insufficient to justify irreparable harm. ECF No. 606 at 8.
The court finds Nexus did not carry its burden of showing irreparable harm. When, as
here, the petitioners do not establish a strong likelihood of success on the merits, the impetus
is on them to make an especially “strong showing of probably irreparable injury.” James A.
Merritt & Sons v. Marsh, 791 F.2d 328, 331 (4th Cir. 1986) (citing N.C. State Ports Auth. v.
Dart Containerline Co., 592 F.2d 749, 750 (4th Cir. 1979)). “Mere injuries, however substantial,
in terms of money, time and energy necessarily expended in the absence of a stay are not
enough. The possibility that adequate compensatory or other corrective relief will be available
at a later date ... weighs heavily against a claim of irreparable harm.” Di Biase v. SPX Corp.,
872 F.3d 224, 230 (4th Cir. 2017) (quoting Sampson v. Murray, 415 U.S. 61, 90 (1974)). Nexus
argues the harm of denying a stay is more than monetary, because its financial condition bears
on the fate of its bonded principals. Nexus has speculated that if it were forced to pay the
monetary judgment, then other sureties would rescind the immigration bonds that Nexus
indemnifies, potentially injuring Nexus’s business as well as the bonded principals.
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However, Nexus has provided no evidence to support this speculation. ePlus Inc. v.
Lawson Software, Inc., 946 F. Supp. 2d 503, 510 (E.D. Va. 2013) (rejecting movant’s claim of
irreparable harm for failure to produce any evidence). Indeed, through the course of these
proceedings Nexus has denied any risk of insolvency, pointing to strong relationships with
other sureties and its ability to pay its obligations on bonds in a timely manner. Nexus has also
been forced to pay several millions of dollars pursuant to settlement agreements with various
regulatory agencies, which has not resulted in its partner sureties rescinding their bonds.
Further, as RLI contends, Nexus has not provided any support for the proposition that nonparty sureties are even able to rescind immigration bonds they have contractually agreed to
secure, both with the government and the indemnitor. Finally, Nexus alleges reputational harm
with its other sureties if forced to pay RLI damages and collateral security, but “any
reputational harm is an injury of Petitioners’ own making and cannot justify a finding of
irreparable harm.” Allen v. Fitzgerald for Region Four, 590 B.R. 352, 361 (W.D. Va. 2018).
Third, the court finds that RLI would be substantially injured if the stay is issued
without the posting of a supersedeas bond. In considering a stay, courts are concerned with
the insolvency of the petitioner in as much as it impacts the non-moving parties ability to
collect damages after final judgment on appeal. BDC Capital, Inc. v. Thoburn Ltd. P’ship, 508
B.R. 633, 639 (E.D. Va. 2014) (quoting Cont'l Sec. Corp. v. Shenandoah Nursing Home P’ship,
188 B.R. 205, 209 (W.D. Va. 1995)). “In determining whether the balance of equities tips in
favor of the movant, the Court must balance the likelihood of irreparable harm to [Nexus]
against the likelihood of substantial harm to the non-movants.” Id. (quoting Cont’l Sec. Corp.,
188 B.R. at 208). Nexus claims that RLI would not be harmed by a stay because Nexus would
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continue making payments on breached bonds throughout the appeal process. However, as
the court explained at length in its October order and accompanying opinion, RLI is entitled
under the terms of the contract to collateral security sufficient to protect its interests against
risk of loss. The court previously found that RLI’s concerns regarding Nexus’s financial
condition are well-founded and justified. Indeed, another court in this Circuit found that the
lack of a supersedeas bond would substantially injure the non-moving party when there was
concern regarding petitioner’s ability to pay damages post-appeal:
Plaintiffs have argued that they will be substantially injured if the
stay is issued and less than a full supersedeas bond is required to
be posted. The Court recognizes that Plaintiff[s], however, [are]
entitled to the benefit of the judgment or to adequate surety that
the judgment will be preserved throughout the appeals process,
typically by Defendants' posting of a supersedeas bond.
Defendants have not posted a supersedeas bond or provided
alternative security, and therefore Plaintiff[s] would be harmed by
a stay of execution because Plaintiff[s'] ability to execute on the
judgment would be unsecured throughout the appeals process.
Newport News Holdings Corp. v. Virtual City Vision, Inc., No. 4:08-cv-19, 2009 WL
10689735, *4 (E.D. Va. 2009 Oct. 1, 2009). Thus, this factor weighs against awarding a stay.
Finally, the court finds that denying the stay would be in the public’s best interest. This
litigation has been fraught with contention regarding basic provisions of the Indemnity
Agreement. This agreement implicates the wellbeing of thousands of bonded principals. The
court finds the public interest would be best served by requiring the indemnitor on these
immigration bonds to perform under the terms of the contract, thereby promoting the practice
of sureties securing immigration bonds.
Because Nexus has not met its burden to justify a stay of damages and collateral
security, pending appeal, without a supersedeas bond, the court DENIES its motion to stay.
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III.
Motion to Stay Injunctive Relief
Next, the court addresses whether the order to pay collateral security falls within the
scope of a court’s power to grant a stay under Federal Rules of Civil Procedure Rule 62(d).
Nexus would likely have been entitled to a stay automatically if it had posted a supersedeas
bond in the amount of the money judgment. Nexus argues that the court has authority under
Federal Rule of Civil Procedure 62(d) to grant a stay without the posting of a bond, and that
this authority extends to the order to pay collateral damages as well, as it is monetary in nature.
ECF No. 608 at 1. RLI argues that “Nexus would not be entitled to a stay of this injunctive
aspect of the Order, automatic or otherwise, even had it posted a supersedeas bond….” ECF
No. 606 at 2. By posting a supersedeas bond, Nexus can likely stay as a matter of right the
award of damages against it. However, if the order to pay collateral security is not subject to
Federal Rule of Civil Procedure 62(d), then the court has discretion to deny the stay as to
collateral security, regardless of Nexus’s willingness to post bond.
Although the relief granted in the October order and opinion is in part “monetary”
because it ordered Nexus to pay RLI collateral security in a specific amount, it is still subject
to Federal Rule of Civil Procedure 62(c) because it is an injunction ordering specific
performance of the parties’ Indemnity Agreement. See Settlers Crossing, 2015 WL 3973071,
at *5; Solis v. Malkani, 638 F.3d 269, 275–76 (4th Cir. 2011) (“[T]he posting of a supersedeas
bond may only stay a monetary judgment pending appeal, Fed.R.Civ.P. 62(d), and does not
permit a party to stay injunctive relief[.]”). Federal Rule of Civil Procedure 62(c) mandates that
“[u]nless the court orders otherwise,” a final judgment in an action for an injunction is “not
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stayed after being entered, even if an appeal is taken.” A court may stay an injunctive order
only “on terms for bond or other terms that secure the parties rights.” Fed. R. Civ. P. 62(d).
The court’s order to pay collateral was an order to specifically perform the terms of the
contract, not a grant of damages to compensate RLI for its injury. See e.g., Settlers Crossing,
2015 WL 3973071, at *5. Accordingly, for the same reasons that the court denies Nexus’s
request for a stay without a supersedeas bond, the court denies Nexus’s request to stay the
injunction requiring Nexus, in part, to pay $2.4 million in collateral security. RLI is entitled to
collateral security to protect its interests against loss under the plain terms of the contract.
Nexus disagrees with the court’s assessment of the amount RLI is owed, but that does not
absolve its responsibility to pay some collateral security under the contract. Further, the
likelihood of harm is even smaller regarding the court’s order to pay collateral security, because
those funds would be held in trust and returned to Nexus if Nexus does indeed perform under
the contract and indemnify or exonerate RLI of all outstanding bonds. Absent a strong
showing of likelihood to succeed on the merits or irreparable harm, the court finds no grounds
on which to stay the injunction.
IV.
Conclusion
For the reasons stated herein, the court DENIES Nexus’s motion for stay without a
supersedeas bond. The court finds that Nexus has not made the requisite showing of a strong
likelihood of success on the merits and irreparable harm to warrant a stay without posting a
bond in the amount of the monetary judgment. Nexus must post a supersedeas bond in the
amount of $3,331,197.55 to stay the order of damages pending appeal. However, the court
will not stay the injunctive order requiring Nexus to pay $2.4 million in collateral security. The
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court finds that Nexus does not have a right to an injunctive stay regardless of its willingness
to post a supersedeas bond; that Nexus has not met the standard to warrant an injunctive stay;
and that, given the nature of collateral security, an injunctive stay pursuant to a $2.4 million
bond would serve no purpose.
An appropriate Order will be entered.
Entered: December 17, 2020
Michael F. Urbanski
Chief U.S. District Judge
2020.12.17 11:02:23 -05'00'
Michael F. Urbanski
Chief United States District Judge
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