If a court “throws the book” at steadfastly uncooperative litigants, did it really happen if there’s no one around to take the hit? The Business Court tested that “tree falling in the woods” theory in JCG. & Assocs., LLC v. Disaster Am. USA, LLC, 2022 NCBC 82, as its patience reached an end when Judge Conrad unleashed a comprehensive set of sanctions on the defendants in response to repeated noncompliance with court orders, refusing to file briefs, and declining to even communicate with the plaintiffs or the Court.
In a fitting end for defendants who “refused every invitation to explain their conduct,” they declined to respond to, or appear to argue against, an order to show cause why they should not be sanctioned. ¶¶ 28.
Plaintiffs James and Patricia Bonica and MIP 1, LLC owned properties on Bald Head Island that suffered significant wind and water damage from Hurricane Florence. They were approached by defendant Jason Husk, and executed contracts for repair work with Disaster Services USA under which it would perform work approved by the insurance carriers. Jason Husk’s father, defendant Donald Husk, signed the contracts. 2019 NCBC 78, ¶¶ 5, 7-8.
The Bonicas and MIP 1 gave notice to terminate within six months, and each had similar laments: Disaster Services USA (i) had no general contractor’s license at execution and fraudulently indicated it did via plaintiff JCG, and (ii) hadn’t done any restoration work. Id. ¶ 9. Donald Husk responded to the purported terminations by sending an unpaid invoice to MIP 1’s counsel and threatening a lien on its property for non-payment, and informing the Bonicas’ counsel that their personal property would be retained pending full payment. Id. ¶ 10.
The Business Court previously rejected Donald Husk’s challenge to personal jurisdiction lying over him in an individual capacity. We wrote the Court found that a defendant’s aggregated official and individual capacity contacts, together, formed the appropriate jurisdictional standard for his “minimum contacts” with North Carolina. Moreover, in an earlier grant of partial summary judgment for homeowner plaintiffs, we blogged that the Court underscored the “unyielding” rule that a contract entered into by an unlicensed contractor (Disaster America USA) is illegal and unenforceable by the contractor, even if later assigned to a contractor licensed in North Carolina (Disaster America of North Carolina, LLC).
In early 2021, counsel for the corporate and individual defendants withdrew and Donald Husk died. Jason Husk made a couple of appearances before the Court before filing for bankruptcy in January 2022 and having the claims against him dismissed in July 2022 following discharge. No counsel appeared for Disaster America, as the Court repeatedly noted was required, and the executrix of Donald Husk’s estate neither appeared through counsel nor pro se. 2022 NCBC 82, ¶¶ 6, 16-17. When the plaintiffs later reported that the remaining defendants had not participated in meeting obligations of a pretrial order, or participating in the pre-trial process, the Court ordered them to do so – without response – and then issued the show cause order. Id. ¶¶ 18-19.
Judge Conrad noted that “[s]evere sanctions – such as striking a party’s answer and entering default judgment – are appropriate when a party . . . abuses the process at a level that is utterly inconsistent with the orderly administration of justice or undermines the integrity of the process. Id. ¶ 22 (quoting Projects Mgmt. Co. v. DynCorp Int’l LLC, 734 F.3d 366, 373 (4th Cir. 2013)). The Court found that tough standard easily met (Id. ¶ 25):
“Since the withdrawal of their counsel in February 2021, Defendants have repeatedly disregarded the Business Court Rules, willfully disobeyed court orders, and completely failed to participate in this litigation. This misconduct has caused prejudice to Plaintiffs, impeded the progress of the case, and wasted judicial resources.”
Finding that lesser sanctions were “unsuited to the conduct at issue,” the Court dismissed the defendants’ third-party claims, struck their answers and affirmative defenses, and entered default judgment on most of plaintiffs’ remaining claims. Id. ¶¶ 31-33.
- Plaintiffs asked for, and got, “ultimate sanctions” that might well have been avoided, the Court suggested, had defendants “taken even the most basic steps necessary to participate in this case.” Id. ¶ 26.
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.