United States District Court, D. Maryland
Direct Benefits, LLC, et al.
TAC Financial, Inc., et al.
Direct Benefits, LLC (“Direct Benefits”) and
Andrew C. Gellene (“Plaintiff Gellene”)
(together, “Plaintiffs”) filed a Third Amended
Complaint against Defendants TAC Financial, Inc.
(“TAC”) and Roy Eder (“Eder”),
TAC's former Financial CEO (together,
“Defendants”), on June 20, 2014. ECF 77.
Plaintiffs seek to rescind an Asset Purchase Agreement under
which Defendants would purchase Plaintiff Direct Benefits, as
well as restitution of profits and an award of damages and
attorneys' fees. On April 12, 2019, TAC filed the instant
Motion to Dismiss Claims of Plaintiff Direct Benefits, LLC,
for Failure to Prosecute, ECF 139, along with a Memorandum of
Law, ECF 139-1 (together, the “Motion”). Direct
Benefits sought and received a sixty-day extension of time to
oppose the Motion, ECF 143, but still filed belatedly on July
12, 2019, ECF 167 (the “Opposition”). Defendants
filed a reply (the “Reply”) on July 17, 2019. ECF
171. I have considered all of the filings, and find that no
hearing is necessary. See Loc. R. 105.6 (D. Md.
2018). For the reasons set forth below, Defendants'
Motion will be denied.
filed their Complaint on April 22, 2013, and amended it as a
matter of right on May 3, 2013. ECF 1, 6. Defendants
successfully moved to dismiss this First Amended Complaint.
See ECF 48. After Plaintiffs filed a Second Amended
Complaint, ECF 50, Defendants TAC and Eder answered and filed
a Counterclaim, ECF 51. All other named Defendants, however,
successfully moved to dismiss the claims against them in the
Second Amended Complaint. See ECF 68, 75-76.
Plaintiffs then filed their Third Amended Complaint against
Defendants TAC and Eder on June 20, 2014. ECF 77. The parties
engaged in discovery, and filed partial cross-motions for
summary judgment by December, 2014. See ECF 98, 104.
January 7, 2015, however, the litigation grinded to a halt
when TAC filed a Suggestion of Bankruptcy, indicating that it
had filed for Chapter 7 bankruptcy in the United States
Bankruptcy Court for the Southern District of California (the
“Bankruptcy Court”). ECF 120, ¶ 1. Because
this required an automatic stay of the case, by February 20,
2015, Judge Motz administratively closed the case as to all
remaining Defendants, pending the result of the bankruptcy
proceedings. ECF 122, 125. Defendants have represented that,
during the bankruptcy proceedings, Defendant Eder passed away
due to illness. ECF 139-1 at 2.
three and a half years later, on October 18, 2018, Mr. Alfred
Gellene (“Mr. Gellene”) (representing Plaintiffs
on a pro hac vice admission, ECF 5) moved to reopen
the case. ECF 126.
March 12, 2019, the Court granted the motion. ECF 129. Just
one day later, Mr. Andrew L. Jiranek (“Mr.
Jiranek”), then Plaintiffs' local counsel, informed
the Court that he had not approved the motion to reopen the
case, and that he had been terminated as Plaintiffs'
counsel during the pendency of the bankruptcy proceedings.
ECF 130. Mr. Jiranek then filed a Motion under Seal
to Disqualify Mr. Gellene. ECF 131. The Court denied the
motion, but allowed Mr. Jiranek to withdraw as counsel. ECF
135. The Court further noted that Mr. Gellene could not
represent any party until he was re-admitted pro hac
vice. Id. Mr. Jiranek withdrew from this case
on March 21, 2019. The next day, the Court mailed Plaintiffs
a Local Rule 101.2 Letter, warning that “[p]arties
other than individuals are required to have counsel.”
ECF 137 at 1. Notably, the letter contained a copy of Local
Rule 101.2, which states that if “within thirty (30)
days of the filing of [a] motion to withdraw, new counsel has
not entered an appearance, the Court may take such action
that it deems appropriate, ” including dismissal of the
party's claims. Id. at 2; Loc. R. 101.2(b).
April 12, 2019, Defendants filed the instant Motion. ECF 139.
Four days later, within the time allotted by Local Rule
101.2, Mr. Francis J. Collins (“Mr. Collins”)
entered an appearance on Plaintiffs' behalf and requested
a sixty-day extension of time to answer Defendants'
Motion, which the Court granted. ECF 140-42. On May 1, 2019,
the Court also granted Mr. Gellene's renewed motion to
appear pro hac vice. ECF 147. Judge Bennett then
held a telephonic conference with the parties on May 29, 2019
to discuss all outstanding motions, ECF 149, and he referred
the case to Magistrate Judge Copperthite for all
“non-dispositive matters, ” ECF 150. The parties
litigated Plaintiffs' renewed Motion to File a Fourth
Amended Complaint throughout June, July, and August, 2019.
See ECF 154-62, 173, 177-79. On July 11, 2019,
noting that Direct Benefits had not filed any opposition to
the Motion after seeking an extension of time, the Court
issued a Show Cause Order instructing Direct Benefits
“to show cause why this case should not be dismissed,
and to respond to Defendants' Motion to Dismiss within 15
days.” ECF 165. Direct Benefits filed its Opposition
the next day, on July 12, 2019. ECF 167.
this backdrop, the Court now considers Defendants' Motion
to Dismiss for Failure to Prosecute. Federal Rule of Civil
Procedure 41(b) authorizes a defendant to move for dismissal
of an action “[i]f the plaintiff fails to prosecute or
to comply with these rules or a court order.”
Typically, unless the Court finds otherwise, such dismissal
is with prejudice. See Id. Dismissals with prejudice
are “harsh sanction[s] which should not be invoked
lightly.” Davis v. Williams, 588 F.2d 69, 70
(4th Cir. 1978). Accordingly, the Fourth Circuit instructs
courts to consider four factors in determining whether a
plaintiff's failure to prosecute warrants dismissal:
“(1) the degree of personal responsibility of the
plaintiff, (2) the amount of prejudice caused the defendant,
(3) the existence of ‘a drawn out history of
deliberately proceeding in a dilatory fashion,' and (4)
the existence of a sanction less drastic than
dismissal.” Chandler Leasing Corp. v. Lopez,
669 F.2d 919, 920 (4th Cir. 1982) (quoting Davis,
588 F.2d at 70). These factors, however, “are not a
rigid four-prong test”; rather, whether to dismiss for
failure to prosecute “depends on the particular
circumstances of the case.” Ballard v.
Carlson, 882 F.2d 92, 95 (4th Cir. 1989).
Defendants claim that dismissal is proper because Direct
Benefits “neglected” its responsibility to obtain
counsel for one year, between April, 2018 and April, 2019,
which has caused Defendants “manifest” prejudice.
ECF 139-1 at 5-6. This argument lacks merit, for it rests on
the flawed premise that Direct Benefits automatically had a
duty to obtain new counsel once Mr. Jiranek filed suit
against Direct Benefits and Andrew Gellene in Maryland state
court in April, 2018. See Id. At that time,
TAC's bankruptcy proceedings were still ongoing, and the
Bankruptcy Court did not grant leave for this civil case to
proceed until August 22, 2018. See Order, In re
TAC Fin., Inc., No. 15-00047-CL7 (Bankr. S.D. Cal. Aug.
22, 2018), ECF 405 at 2 (attached to the Opposition at ECF
167-6). Further, this Court did not grant the
motion to reopen this case until March 12, 2019. ECF 129.
Direct Benefits, therefore, was not required to obtain new
counsel until Mr. Jiranek's withdrawal took effect on
March 22, 2019. See ECF 137; Loc. R. 101.2(b). Mr.
Collins entered his appearance on Plaintiffs' behalf on
April 16, 2019, within Rule 101.2(b)'s thirty-day grace
period. See ECF 140. There simply is no delay in
prosecution in this regard.
Defendants assert that Direct Benefits neglected its
responsibility to obtain counsel for six months - between
October, 2018 and March, 2019 - because Mr. Gellene moved to
restore the case without Mr. Jiranek's signature
“in violation of Local Rule 101(b).” ECF 139-1 at
6. Defendants argue that dismissal is proper because Direct
Benefits knew that new counsel was necessary, but
unjustifiably delayed in obtaining it. Id. This
argument similarly lacks merit. Again, Direct Benefits was
not required to obtain new counsel until after the Court
granted the motion, and after Mr. Jiranek withdrew.
See ECF 129, 137.
Defendants argue that “there is no excuse for the
nearly three-month delay between the bankruptcy court's
lifting of the stay on July 26, 2018, and Direct
Benefits's October 18, 2018 motion to restore this case
to the active docket.” ECF 139-1 at 7. Even accepting
Defendants' calculation of the delay, it does not
evidence “a drawn out history of deliberately
proceeding in a dilatory fashion.” Chandler
Leasing, 669 F.2d at 920 (quoting Davis, 588
F.2d at 70). Had Direct Benefits failed to comply with an
order from either this Court or the Bankruptcy Court to
reopen this civil matter, Defendants' argument might have
merit. See, e.g., Ballard, 882 F.2d at
95-96 (finding that a plaintiff's failure to prosecute
despite a court's warning to do so left the district
court with “little alternative” but to dismiss
the case). However, Plaintiff Andrew Gellene similarly failed
to move to reopen this case until October 18, 2018,
see ECF 126, yet Defendants represent that they are,
in accordance with the Court's prior order,
“working with Plaintiff Andrew Gellene . . . on a
proposed joint scheduling order towards the resolution of his
personal claims.” ECF 139 at 2. Further, since Judge
Bennett's conference with the parties on May 29, 2019,
ECF 149, the parties have litigated two motions before Judge
Copperthite over Plaintiffs' desire to file a Fourth
Amended Complaint, see ECF 163, 178. While Direct
Benefits was one month late in opposing Defendants'
Motion, Direct Benefits obtained counsel within thirty days
of receiving its Local Rule 101.2 letter, and has made
efforts to prosecute (and add to) its claims against
Defendants in recent months. In short, there is no failure to
prosecute, or sufficient prejudice to Defendants, to justify
in arguing that Direct Benefits unnecessarily delayed
prosecution in this case, Defendants note that they
“are aware of no impediment at any time to Direct
Benefits' seeking relief from that [bankruptcy] stay to
liquidate its claims in this Court. It did not do so until
after the bankruptcy Trustee made his own motion for this
relief, in early 2018.” ECF 139-1 at 6-7. Defendants do
not cite to, nor could this Court find, any cases to support
this notion. In circumstances such as the instant case,
courts in this circuit typically dismiss for failure to
prosecute only where a plaintiff fails to take any action
after a pending bankruptcy proceeding has ended, or if the
plaintiff otherwise fails to comply with court orders.
See Givens v. Wash. Mut., No. 5:09-cv-00076, 2012 WL
3133639, at *1, *3 (W.D. Va. July 31, 2012) (dismissing for
failure to prosecute after the plaintiff failed to pursue the
case after the defendant's bankruptcy proceeding ended,
and failed to comply with a court order to provide updates
during the stay); O'Dell v. Conseco Fin. Servicing
Corp., No. Civ.A. 2:02-1384, 2006 WL 305328, at *1 (S.D.
W.Va. 2006) (dismissing after plaintiff failed to prosecute
after the defendant's bankruptcy proceeding ended). These
cases, and those that Defendants cite, provide no support for
Defendants' arguments here.
for the reasons stated herein, Defendants' Motion to
Dismiss Claims of Plaintiff Direct Benefits, LLC, for Failure
to Prosecute, ECF 139, is DENIED. The parties are ordered to
meet and confer and, within twenty-one (21) days of the date
of this letter, file with the Court a Status Report and
proposed Scheduling Order for adjudicating both Plaintiff
Gellene's and Plaintiff Direct Benefits's claims. The
submission shall address the following issues: (1)
Plaintiffs' intent with respect to their claims against
Defendant Eder, who is now deceased; and (2) which motions,
if any, that were pending prior to the stay that should be
reinstated for the Court's consideration. In proposing a
schedule, the parties ...