Quintanilla Vasquez v. Libre by Nexus, Inc.

Background

The court had previously approved a settlement requiring Libre by Nexus, Inc. (LBN) to make payments totaling specified amounts, including a $750,000 cash settlement fund, $40,000 in incentive awards, and $800,000 in attorneys’ fees and costs. The settlement also required LBN to pay settlement-administration costs, apply debt-relief credits, implement discounts and a payment cap, and provide non-monetary benefits.

The court retained authority to enforce the settlement and its final approval order. In earlier enforcement orders, it required LBN to comply with these obligations, provide records and sworn declarations demonstrating compliance, respond promptly to class counsel, and pay attorneys’ fees incurred in an earlier enforcement motion. On October 3, 2022, the court found LBN in violation of those orders and imposed civil contempt sanctions, including payment deadlines, document-production requirements, and $1,000-per-day coercive fines for continued noncompliance.

Plaintiffs later argued that LBN had not made the required payments or produced sufficient records showing that it had implemented the required discounts, payment cap, and debt-relief credits. They asked the court to hold LBN’s principals—Micheal Donovan, Evan Ajin, and Richard Moore—in civil contempt and to impose monetary sanctions, imprisonment, and an amended judgment making them jointly and severally liable with LBN for the company’s settlement obligations. None of the three filed a response to the motion or to the court’s order to show cause.

Legal standard

Civil contempt is a party’s disobedience of a specific and definite court order by failing to take all reasonable steps within the party’s power to comply. The moving party must prove the violation by clear and convincing evidence. After that showing, the alleged contemnor must demonstrate why compliance was not possible despite reasonable efforts.

Under the rule applied by the court, a nonparty may be held in civil contempt for a corporation’s violation of a court order if the nonparty either helped violate the order or was legally identified with the corporation, and had notice of the order. A person may be legally identified with a corporation when the person is responsible for conducting the corporation’s affairs, including as an actual or de facto officer.

Civil contempt sanctions may compensate for actual losses or encourage compliance with a court order. Coercive sanctions must remain avoidable through compliance.

Findings of violation and responsibility

The court treated as true the uncontradicted facts in the declaration submitted by plaintiffs’ counsel because Donovan, Ajin, and Moore did not submit evidence disputing it. The court found that LBN had violated and continued to violate the October 3, 2022 orders by failing to pay $1,590,000 in settlement-related cash amounts, $72,000 in remaining settlement-administration costs, and specified attorneys’ fees. The court also found that LBN had failed to provide adequate records showing implementation of the required discounts, payment cap, and debt-relief credits. The court incorporated its earlier findings that LBN had violated prior enforcement orders as well.

The court found that Donovan and Ajin were LBN officers and principals who had control over LBN’s compliance with the orders. It found that Moore was also legally identified with LBN based on the company’s annual report, communications concerning compliance, his identification as a principal, and his conduct at court hearings. The court gave no weight to counsel’s unsupported statement that Moore was no longer an officer, director, or owner.

Because the three men were legally identified with LBN, the court concluded that they had notice of the orders when the orders were served electronically on LBN’s attorneys. The court therefore found that Donovan, Ajin, and Moore could be held in civil contempt for LBN’s violations.

Sanctions imposed

The court ordered Donovan, Ajin, and Moore to pay, jointly and severally, $74,952 in attorneys’ fees incurred for the contempt motion. It found that amount reasonable and required payment within ten business days of the order.

The court also ordered them to pay, jointly and severally with LBN, $34,142.60 in attorneys’ fees from the 2021 enforcement motion, with interest from July 30, 2021, and $53,021.60 in attorneys’ fees from the August 2022 contempt motion, with interest from October 17, 2022. Those amounts were also due within ten business days.

The court imposed a $1,000-per-day fine for each day Donovan, Ajin, and Moore failed to pay those attorneys’ fees after the payment deadline. The fines were to be paid to the settlement administrator for the benefit and eventual distribution of specified settlement subclasses.

The court also imposed a $1,000-per-day fine for each day after the order was filed that LBN failed to provide records sufficient to show implementation of the required discounts, payment cap, and debt-relief credits. Those fines likewise were to benefit the specified settlement subclasses.

Relief denied or deferred

The court declined at that time to order Donovan, Ajin, and Moore imprisoned. It also declined to amend the existing judgment to make them jointly and severally liable with LBN for the $1,590,000 in settlement-related cash obligations and the $72,000 in settlement-administration costs.

To the extent plaintiffs instead sought contempt sanctions against the three men equal to those amounts, the court denied that request without prejudice. The court stated that it could consider a later request for further sanctions if the sanctions imposed in this order did not lead LBN to pay or produce the required records, including evidence that the principals deliberately caused LBN’s failure to pay.

The court directed plaintiffs to submit proposed separate judgments concerning the contempt sanctions previously imposed on LBN and the sanctions imposed on Donovan, Ajin, and Moore. The court concluded that it granted in part and denied in part plaintiffs’ motion.