Wentao LI, Plaintiffs, v. Jeff Z. XU, et al., Defendants Civil Action No. 1:20-cv-241 (LMB/TCB) United States District Court, E.D. Virginia, Alexandria Division Signed December 08, 2020 Buchanan, Theresa Carroll, United States Magistrate Judge REPORT & RECOMMENDATION *1 THIS MATTER is before the undersigned on Plaintiff Wentao Li's (“Plaintiff”) Motion and Memorandum Requesting Entry of Default (Dkt. 48).[1] For the reasons stated below, the undersigned U.S. Magistrate Judge recommends that the Court grant Plaintiff's motion for default judgment. I. BACKGROUND A. Procedural Posture Plaintiff filed his Complaint on March 3, 2020 bringing claims for fraud, civil liability under Virginia Code § 13.1-52, conversion, breach of contract, and unjust enrichment. (See Dkt. 1.) Plaintiff's Complaint sought no less than $189,278.15 in compensatory damages, $350,000.00 in punitive damages, and reasonable attorneys' fees and costs, pre and post judgment interest, and consequential and incidental damages. (Compl. at 10.) Defendant Jeff Z. Xu, acting pro se, filed an answer on behalf of himself and Aston Technologies, Inc. (“Xu” or “Aston” or collectively “Defendants”) on March 23, 2020. (Dkt. 6.) Three days later, The Honorable District Court Judge Leonie M. Brinkema issued an Order instructing Defendant Aston Technologies, Inc. to retain counsel by April 17, 2020 or it would be deemed in default.[2] (Dkt. 8.) Counsel for Defendant noticed his appearance on April 9, 2020. (Dkt. 9.) Counsel then filed an amended answer on behalf of Xu on April 16, 2020 and an answer on behalf of Aston on June 9, 2020. (Dkts. 15, 24.) Plaintiff filed his Motion to Compel Discovery Responses and for Sanctions Against Defendants Jeff Z. Xu and Aston Technologies, Inc. on August 28, 2020. (Dkt. 30.) The undersigned granted Plaintiff's motion on September 4, 2020 after a hearing and ordered that Defendant re-answer all discovery requests by September 15, 2020.[3] (Dkt. 38.) Defendants objected to the undersigned's Order and then counsel for Defendants moved the Court to withdraw due to “a breakdown in the representation between the Defendants and counsel.” (Dkts. 39, 43.) Judge Brinkema, on September 16, 2020, issued another order overruling Defendants' objection and ordering Defendants to re-answer all discovery requests by September 25, 2020. (Dkt. 44.) Additionally, Judge Brinkema granted Counsel's motion to withdraw, again ordering Defendant Aston Technologies, Inc. to retain counsel by September 25, 2020 to avoid being in default. (Id.) *2 On the eve of the September 25, 2020 deadline, Defendant Xu, proceeding pro se, wrote a letter to the Court requesting a four-week extension for time to retain counsel and submit his discovery responses. (Dkt. 45.) That same day, Judge Brinkema denied Defendants' letter motion and reiterated that failure to comply with the Court's orders “may result in the imposition of sanctions under Federal Rule of Civil Procedure 37, including entry of a judgment against defendants.” (Dkt. 47.) Finally, Plaintiff filed the instant motion on October 5, 2020 requesting entry of default against Defendants. (Dkt. 48.) Specifically, Plaintiff alleged he was entitled to default judgment because Defendants had not yet complied with this Court's orders requiring Plaintiff to re-answer all discovery requests and because Defendant Aston remained unrepresented. Shortly thereafter, Counsel Kevin Jaros noticed his appearance on behalf of Defendants. (Dkt. 51.) After an October 23, 2020 hearing on Plaintiff's motion for default judgment, at which counsel for both parties appeared, the undersigned held the motion in abeyance and gave Defendants an additional fourteen (14) days to produce the required discovery. (Dkts. 53, 54.) Plaintiff then filed his renewed motion for default on November 13, 2020 alleging that Defendants still failed to provide the required discovery responses. (Dkt. 56.) After another hearing at which counsel for both parties attended, the undersigned continued the matter to December 4, 2020 and gave Defendants one last chance to fulfill their discovery obligations by November 30, 2020. (Dkts. 59, 60.) On December 2, 2020, Plaintiff filed his final renewed motion for default, as Defendants had still not complied with this Court's orders. (Dkt. 61.) Defendants have not fulfilled their discovery obligations and the undersigned granted the instant motion at the December 4, 2020 hearing. (Dkts. 63, 64.) B. Jurisdiction and Venue Before the Court can render default judgment, it must have subject-matter and personal jurisdiction over the defaulting parties, and venue must be proper. First, the Court has subject-matter jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(1). A federal district court has subject-matter jurisdiction when a dispute involves “citizens of different States” or “citizens of a State and citizens or subjects of a foreign state” and the amount in controversy “exceeds the sum or value of $75,000, exclusive of interest and costs.” 28 U.S.C. § 1332(a)(1). Here, Plaintiff resides in and is a citizen of the Peoples Republic of China. (Compl. ¶ 1.) Defendant Xu is a citizen of Fairfax County, Virginia, where he resides. (Compl. ¶ 2.) Defendant Aston is a Virginia corporation. (Compl. ¶ 3.) Accordingly, there is complete diversity jurisdiction between the parties. Furthermore, the amount in controversy exceeds $75,000 because Plaintiff sought $189,278.15 in compensatory damages and $350,000.00 in punitive damages, exclusive of interest, fees, and costs, in his Complaint. (Compl. ¶ 10.) Second, the Court has personal jurisdiction over Defendants. The standards of federal due process and the forum state's long-arm statute must be satisfied for a federal court to have personal jurisdiction over a party. See Tire Eng'g & Distribution, LLC v. Shandong Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012). Federal due process permits personal jurisdiction where a defendant has “certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). Further, “a defendant should be able to anticipate being brought to court in the forum, in that the contacts must be directed at the forum state in more than a random, fortuitous, or attenuated way.” ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 176 (4th Cir. 2002). Virginia's long-arm statute, Virginia Code section 8.01-328.1, provides for personal jurisdiction to the extent that federal due process permits. Id. With federal due process and Virginia's long-arm statute requiring the same standard, essentially only one inquiry is required. See id. *3 Furthermore, a court may either have specific jurisdiction, which arises when the defendant's contacts with the forum state give rise to the basis of the lawsuit, or general jurisdiction, which arises when the defendant is domiciled in the forum state or if the defendant has affiliations with the state that are so “continuous and systematic” as to render the party “essentially at home.” Fireclean LLC v. Tuohy, No. 1:16-cv-294-JJC-MSN, 2016 WL 4414845, at *2 (E.D. Va. June 14, 2016) (citation omitted); see also Tire Eng'g, 682 F.3d at 301 (citation omitted). Here, the Court has general jurisdiction over Defendants, as Xu resides in Fairfax, Virginia and Aston is a Virginia corporation. (Compl. ¶¶ 2, 3.) Lastly, Plaintiff filed this lawsuit in the proper venue. Under 28 U.S.C. § 1391(b), venue is proper in a judicial district (1) “in which any defendant resides, if all defendants are residents of the State in which the district is located; or (2) “in which a substantial part of the events or omissions giving rise to the claim occurred.” 28 U.S.C. § 1391(b)(1)-(2). Here, venue is proper under the first provision, as both Defendants reside in this judicial district. (Compl. ¶¶ 2, 3.) II. FINDINGS OF FACT Upon a full review of the pleadings and record in this case, the undersigned finds that Plaintiff has established the following facts. The parties began discussing in 2017 plans to form a U.S. company that would purchase auto parts and car repair equipment from manufacturers in China and distribute them in the U.S. (Compl. ¶ 6.) By March 2018, Xu formed Aston, a Virginia stock company. (Compl. ¶ 7; Ex. 1.) Xu then offered Plaintiff a majority ownership interest in Aston in the form of a transfer of shares in Aston and offered to make him chairman of the company's board of directors in exchange for a direct capital investment of $90,000.00. (Compl. ¶ 8.) The parties further agreed that once Li made the $90,000.00 investment, Xu would obtain authorization from Li for any expenditure over $1,000.00. (Compl. ¶ 9.) Li transferred the $90,000.00 to Aston through an offshore company he owned on June 22, 2018. (Compl. ¶ 10; Ex. 2.) By October 2018, Xu represented to Li that Li was the majority owner of Aston and the chairman of its board of directors. (Compl. ¶ 11.) Xu also ordered Li business cards, which held Li out to be the “Founder” and “Chairman of the board” of Aston in October 2018 and again in October 2019. (Compl. ¶¶ 12, 17; Exs. 3, 6.) Xu asked Li to purchase auto repair equipment from a Chinese supplier and to ship them to Aston in Virginia for sale in the U.S. Li complied with Xu's request and used $37,385.00 of his own money to purchase and send the first shipment to Aston on May 24, 2019. (Compl. ¶ 14; Ex. 4.) Li then used another $50,997.00 of his own money to purchase and send a second shipment to Aston on May 27, 2019. (Compl. ¶ 15, Ex. 5.) Li traveled from China to Virginia in November 2019 to meet with Xu and to inspect Aston's corporate and financial documents. (Compl. ¶ 19.) When Li requested Aston's company registrations, stock certificates, and financial records, Xu denied that Li was an owner of Aston and claimed Li was merely a supplier of goods. (Compl. ¶ 21.) Xu further denied that he had ever intended to give Li any ownership interest or position within in the company. (Id.) In response, Li requested that Defendants reimburse his $90,000.00 investment and the $88,382.00 Li spent on goods for the company. (Compl. ¶ 22.) Defendants refused to reimburse or otherwise compensate Li and Li alleges that Xu formed Aston for the purpose of defrauding him. (Compl. ¶¶ 23-27.) III. ANALYSIS *4 When a party fails to obey an order to provide discovery, the court may issue further orders issuing sanctions pursuant to Federal Rule of Civil Procedure 37. See Fed. R. Civ. P. 37(b)(2)(A). Sanctions provided for under this rule include, among other things, “directing that the matters embraced in the order or other designated fact be taken as established,” prohibiting the noncompliant party from opposing designated claims or defenses, striking the pleadings, dismissing the action, and “rendering a default judgment against the disobedient party.” Id. District courts have “wide discretion to impose sanctions for a party's failure to comply with discovery orders. Mutual Fed. Sav. & Loan Ass'n v. Richards & Assocs., Inc., 872 F.2d 88, 92 (4th Cir. 1989). But, when the sanction in question is default judgment, the court's “range of discretion is more narrow” because the court must balance its interest in enforcing its discovery orders with the party's rights to a trial by jury. Id. (internal citations omitted). Moreover, when a court seeks to impose default judgment as a discovery sanction, it must consider: “(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 noncompliance; and (4) the effectiveness of less drastic sanctions. Id. citing Wilson v. Volkswagon of America, Inc., 561 F.2s 494, 503-04 (4th Cir. 1997). The undersigned will address each factor in turn. First, Defendants acted in bad faith in failing to comply with the Court's five orders requiring them to fully and completely respond to Plaintiff's discovery requests. Despite the Court's orders, Defendants repeatedly objected to Plaintiff's reasonable document requests related to Aston's financial records, the parties' business venture, capital investments, orders and inventory, the parties' communications, and Plaintiff's position at Aston. (Pl's Supp. Mot. 1 at 5; Pl's Supp. Mot. 2 at 4-5.) Further, Defendants continued to insist that many of these documents were unavailable or did not exist, even though the minimal documents they did produce evidenced undisclosed bank accounts and transfers through Amazon, eBay, PayPal, and others where retrieval of such records should have been feasible. (Id.) Defendants have therefore clearly demonstrated “a pattern of indifference and disrespect to the authority of the court” that supports a finding of bad faith. Mutual Fed. Savings and Loan Ass'n, 872 F.2d at 93. Second, Defendants' failure to produce the ordered discovery substantially prejudices Plaintiff's ability to litigate this case. Defendants' minimal disclosures renders Plaintiff unable to determine what happened to his investment in Aston or discover the evidence surrounding the issues at the crux of this matter. (Pl's Supp. Mot. 1 at 6-7; Pl's Supp. Mot. 2 at 6.) Third, there is a clear need to deter Defendants' behavior in this case. Despite being ordered to produce full and complete discovery responses multiple times, Defendants failed to comply with this Court's orders. (See dkts. 38, 44, 47, 54, 60.) Additionally, on multiple occasions, Judge Brinkema and the undersigned specifically warned Defendants that a failure to obey the Court's orders would subject them to sanctions under Federal Rule of Civil Procedure 37. (See dkts. 44, 47.) Nevertheless, Defendants failed to comply with this Court's orders to fully and completely re-answer Plaintiff's discovery requests and to fulfill their discovery obligations. *5 Fourth, a less drastic sanction is unlikely to salvage this case. Plaintiffs are unable to fairly move forward with this case without discovery, the deadline for which closed nearly three months ago. (See dkts. 7, 12.) Further, it is unclear what other sanction could make Defendants comply with this Court's orders, which they have neglected on five separate occasions. (See dkts. 38, 44, 47, 54, 60.) Accordingly, the undersigned recommends that default judgment be entered against Defendants. V. RECOMMENDATION For the reasons outlined above, the undersigned recommends that the Court enter default judgment against Defendants Jeff Z. Xu and Aston Technologies, Inc. on all counts of Plaintiff's Complaint. VI. NOTICE The parties are advised that objections to this Report and Recommendation, pursuant to 28 U.S.C. § 636 and Rule 72(b) of the Federal Rules of Civil Procedure, must be filed within fourteen (14) days of its service. Failure to object to this Report and Recommendation waives appellate review of any judgment based on it. Footnotes [1] The relevant filings before the undersigned include Plaintiff's Complaint (“Compl.”) (Dkt. 1); Plaintiff's Motion and Memorandum Requesting Entry of Default Judgment (“Mot. Default J.”) (Dkt. 48); Defendants' Memorandum in Opposition to Plaintiff's Motion Requesting Default Judgment (Dkt. 52); Plaintiff's Renewed Motion and Memorandum Requesting Default Judgment (Pl's Supp. Mot. 1) (Dkt. 56); Defendants' Opposition to Plaintiff's Renewed Motion for Entry of Default (Dkt. 58); Plaintiff's Renewed Motion and Supplemental Memorandum Requesting Entry of Default (Pl's Supp. Mot. 2) (Dkt. 61); Defendants' Opposition to Plaintiff's Renewed Motion and Supplemental Memorandum Requesting Entry of Default (Dkt. 64); and all attachments and exhibits submitted with those filings. [2] As explained in Judge Brinkema's Order, a corporation may not proceed pro se in federal court. See Rowland v. Ca. Men's Colony, Unit II Men's Advisory Council 506 U.S. 194, 201-02 (1993); McGowan v. Cross, 991 F.2d 790 (4th Cir. 1993). [3] Even the undersigned's initial September 15, 2020 deadline gave Defendants extra time to meet their discovery obligations. Discovery closed on September 11, 2020. (See Dkts. 7, 12.)