Introduction

In Consumer Financial Protection Bureau v. Nexus Services, Inc., the Fourth Circuit affirmed a sweeping district court judgment arising from a federal and state enforcement action against Nexus Services, Inc., its subsidiary Libre by Nexus, Inc., and three individuals (Micheal Donovan, Richard Moore, and Evan Ajin). The case stems from a years‑long scheme targeting vulnerable immigrant detainees seeking release on immigration bonds. Plaintiffs—the Consumer Financial Protection Bureau (CFPB), the Commonwealths of Massachusetts and Virginia, and the People of the State of New York—brought 17 claims under the Consumer Financial Protection Act (CFPA) and state consumer protection laws.

After pervasive discovery misconduct, the district court entered default judgment as a Rule 37 sanction, held defendants in civil contempt, excluded late‑disclosed witnesses and exhibits at the remedies stage, imposed permanent injunctive relief, and awarded approximately $366.5 million in restitution and civil penalties. On appeal, defendants challenged four core rulings: (1) the default sanction; (2) exclusion of witnesses and exhibits at the remedies hearing; (3) the scope and specificity of the injunction; and (4) the calculation of monetary relief. The Fourth Circuit affirmed in full.

This published decision fortifies several important principles: default can be the “natural next step” for systemic discovery abuse without an explicit prior warning; courts may layer post‑default evidentiary exclusions at the remedies stage; CFPA restitution may be measured by defendants’ net revenues where deception pervades; and broad “fencing‑in” injunctions tailored to prevent future evasion are proper when they satisfy Rule 65(d)’s specificity requirements.

Summary of the Opinion

• Default sanction affirmed: The court upheld default judgment under Rule 37 and the court’s inherent authority based on egregious, repeated violations of discovery orders, deadlines, and litigation obligations, coupled with counsel’s concession that lesser sanctions would be ineffective.
• Post‑default evidentiary exclusions affirmed: Applying Rule 37(c)(1) and the Southern States factors, the court affirmed exclusion of all late‑disclosed exhibits and 11 of 12 witnesses at the remedies hearing (permitting only defendant Ajin, who was timely disclosed).
• Permanent injunction upheld: The injunction satisfied the eBay factors, employed permissible “fencing‑in” provisions to prevent future violations, and complied with Rule 65(d)’s requirements for specificity and clarity.
• Monetary award affirmed: Restitution measured by defendants’ net collections from consumers ($230,996,970.84, per party stipulation) was proper under CFPA precedent; Tier Two CFPA civil penalties ($111,135,620) and state penalties (VA $7.1M, MA $3.4M, NY $13.89M) were also affirmed.

Analysis

Precedents Cited and How They Shaped the Decision

1) Sanctions and Default

• Wilson v. Volkswagen of America, Inc., 561 F.3d 494 (4th Cir. 1977) (as cited): The district court applied the four‑factor Wilson test for severe Rule 37 sanctions, weighing bad faith, prejudice, need for deterrence, and the efficacy of lesser sanctions. The Fourth Circuit found the district court’s findings “detailed and comprehensive.”
• Mey v. Phillips, 71 F.4th 203 (4th Cir. 2023): Clarifies that an explicit pre‑default warning is not always required. Where systemic discovery violations make default the “natural next step,” Rule 37 itself provides adequate notice. The panel relied on Mey to reject defendants’ argument that a Hathcock‑style explicit warning was mandatory.
• Hathcock v. Navistar Int’l Transp. Corp., 53 F.3d 36 (4th Cir. 1995): Cited by defendants, but the court emphasized Mey’s limitation—Hathcock does not impose a universal warning requirement.
• Mutual Federal Savings & Loan Ass’n v. Richards & Assocs., Inc., 872 F.2d 88 (4th Cir. 1989): Supports the need to deter repeated misconduct; the court echoed that litigants may not “stall and ignore” court orders “with impunity.”
• Rangarajan v. Johns Hopkins Univ., 917 F.3d 218 (4th Cir. 2019): On prejudice—the plaintiffs expended “tremendous” effort to obtain discovery that never came, rendering much of their work meaningless.
• Ryan v. Homecomings Financial Network, 253 F.3d 778 (4th Cir. 2001): By default, well‑pleaded factual allegations are deemed admitted—critical to both liability and the recklessness finding for Tier Two penalties.

2) Exclusion of Late Evidence and Witnesses

• Rule 37(c)(1) and Southern States Rack & Fixture, Inc. v. Sherwin‑Williams Co., 318 F.3d 592 (4th Cir. 2003): The court affirmed exclusion of late‑disclosed exhibits and witnesses. Applying five factors—surprise, ability to cure, disruption, importance, and explanation—the district court found near‑total prejudice to plaintiffs. Defense counsel’s late entry did not excuse noncompliance.

3) Injunctive Relief and “Fencing‑In”

• eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), and Wudi Indus. (Shanghai) Co., Ltd. v. Wong, 70 F.4th 183 (4th Cir. 2023): The district court applied the four‑factor eBay test and concluded permanent relief was warranted to prevent future harm and serve the public interest.
• FTC v. Pukke, 53 F.4th 80 (4th Cir. 2022), FTC v. Ruberoid Co., 343 U.S. 470 (1952), Russian Media Group, LLC v. Cable America, Inc., 598 F.3d 302 (7th Cir. 2010), and FTC v. Grant Connect, LLC, 763 F.3d 1094 (9th Cir. 2014): Support “fencing‑in” provisions—forward‑looking restrictions designed to prevent future evasion or similar practices when past violations were serious and pervasive.
• Rule 65(d)(1)(B)-(C) and International Longshoremen’s Ass’n v. Philadelphia Marine Trade Ass’n, 389 U.S. 64 (1967): The injunction met the requirement to state terms specifically and describe acts restrained or required in reasonable detail, ensuring those bound “will know” what is required or forbidden.
• RXD Media, LLC v. IP Application Dev. LLC, 986 F.3d 361 (4th Cir. 2021): Confirms abuse‑of‑discretion review for entry and scope of injunctive relief; the panel found no abuse.

4) Monetary Remedies—Restitution and Civil Penalties

• CFPB v. CashCall, Inc., 35 F.4th 734 (4th Cir. 2022): Endorses using gross or net revenues to reasonably approximate unjust gains and consumer loss where deception is systemic. The district court relied on CashCall to use the parties’ stipulated net collections ($230,996,970.84) as restitution.
• U.S. ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015): De novo review of legal principles underlying remedial awards; the panel adopted the district court’s legal analysis as correct.
• CFPB Tier Two penalties: The court found “reckless” CFPA violations (up to $34,065 per day per violation) based on admitted allegations showing conscious disregard of substantial risks to vulnerable consumers.
• State penalty statutes: Virginia Code § 59.1‑206(A) (up to $2,500 per violation); Massachusetts Gen. Laws ch. 93A, § 4 (up to $5,000 per violation for unfair or deceptive acts known or that should have been known); and New York General Business Law § 350‑d ($5,000 per violation). The court multiplied per‑consumer counts to compute each state’s penalty.
• CFPB structure challenge foreclosed: Defendants’ late attack on the CFPB’s funding mechanism was untenable after the Supreme Court’s decision in CFPB v. Community Financial Services Association, Ltd., 601 U.S. 416 (2024).

Legal Reasoning

A. Default as a Sanction for Systemic Discovery Abuse

The record reflected a “pattern of knowing noncompliance” with orders and deadlines: minimal initial disclosures; wholesale failure to produce documents; disregard of a magistrate judge’s production order; missed conferences; failure of the corporate defendants to secure new counsel as ordered; and tactical delay (including an untimely constitutional motion). Notably, defense counsel admitted he was “at a loss” for effective lesser sanctions, undercutting any argument that monetary or other intermediate sanctions would work.

Applying Wilson’s four factors, the district court found: (1) bad faith in deliberate defiance of orders; (2) concrete prejudice to plaintiffs forced to litigate in the dark; (3) a strong need for deterrence; and (4) ineffectiveness of lesser sanctions. Citing Mey, the court and panel emphasized that an explicit pre‑default warning was not required here, where default was the “natural next step” after defendants were given ample chances to comply and chose “continued obstinacy.”

B. Post‑Default Evidentiary Exclusions at the Remedies Stage

After default, defendants attempted to introduce 17 exhibits and 12 witnesses (11 of whom had never been disclosed). Invoking Rule 37(c)(1), the district court excluded all undisclosed exhibits and all witnesses except Ajin, squarely applying the Southern States factors:

• Surprise: Plaintiffs were blindsided by never‑produced documents and un‑deposed witnesses.
• Ability to cure: With a looming hearing and long‑closed discovery, there was no realistic way to cure.
• Disruption: Admission would derail the hearing with threshold authenticity, hearsay, and foundation disputes.
• Importance: Even if important, the other factors predominated; importance does not excuse noncompliance.
• Explanation: Counsel’s recent appearance did not excuse the clients’ systemic discovery violations or failure to produce even after listing the materials.

The Fourth Circuit rejected the argument that these evidentiary sanctions were “duplicative” of the default sanction. Courts routinely impose both when warranted: default addresses liability; evidentiary exclusions police the integrity of the remedies phase.

C. “Fencing‑In” Permanent Injunction Complying with Rule 65(d)

The district court applied eBay and concluded permanent injunctive relief was appropriate under federal and state law. The injunction contained detailed findings, precise definitions, and clear commands, satisfying Rule 65(d)’s requirements to state terms specifically and describe acts restrained/required “in reasonable detail.” Drawing on FTC jurisprudence (Pukke, Ruberoid), the court approved “fencing‑in” provisions—forward‑looking guardrails to prevent future evasion—tailored to the violations found. The panel held the scope was reasonable, the public interest favored relief, and defendants’ procedural attack under Rule 65(d) failed because the order’s specificity ensured those bound would know what is required and forbidden.

D. Restitution by Net Revenues and Civil Penalties

For restitution, the district court adopted the parties’ stipulation that defendants collected $230,996,970.84 from consumers—a reasonable approximation of unjust gains and consumer loss under CashCall, especially where deception was systemic. The court rejected defendants’ complaint that restitution should have been something “other” than total net collections; defendants supplied no case law supporting an alternative and failed to rebut plaintiffs’ showing.

On civil penalties, the district court found, by virtue of the default, that defendants at least “recklessly” violated the CFPA by consciously disregarding substantial and unjustifiable risks to consumers, warranting Tier Two penalties. The court also applied each state’s statutory scheme using per‑consumer counts: Virginia (2,840 consumers), Massachusetts (680), and New York (2,778), multiplying by each statute’s per‑violation penalty. The Fourth Circuit adopted the district court’s analysis as legally sound and affirmed the total award of approximately $366,523,000.

Impact

• Discovery enforcement: This opinion robustly endorses default as a consequence for sustained, willful discovery abuse even without an express warning, especially where lesser sanctions are conceded to be futile. Corporate litigants who ignore orders to obtain counsel do so at grave risk.
• Remedies‑phase discipline: Even after default, parties cannot backfill a record. Rule 37(c)(1) exclusions apply with full force at remedies hearings. The Southern States framework remains the touchstone for assessing late disclosures.
• CFPA remedies architecture: The Fourth Circuit reaffirms CashCall’s net‑revenue methodology for restitution where deception pervades. Agencies and state attorneys general can jointly secure layered relief—restitution and penalties—grounded in complementary federal and state statutes.
• Injunctive “fencing‑in” for consumer protection: Borrowing from FTC law, the court validates prophylactic provisions to thwart recurrence and evasion, provided Rule 65(d) specificity is honored. Expect similarly structured orders in CFPA and UDAP enforcement.
• Litigation strategy caution: Late procedural gambits (e.g., belated constitutional attacks) do not offset systemic noncompliance. Here, the defendants’ attempt to leverage the CFPB‑funding issue failed, and the Supreme Court’s subsequent decision foreclosed that line entirely.
• Quantification by stipulation: Where the parties stipulate to net receipts, courts may adopt that figure as a reasonable approximation of unjust gains absent a concrete alternative from defendants.

Complex Concepts Simplified

• Default judgment (as a sanction): A final determination of liability entered because a party willfully violated discovery obligations and court orders. It is not about the merits but about enforcing process integrity.
• Rule 37(b) vs. Rule 37(c)(1): Rule 37(b) authorizes sanctions (including default) for disobeying discovery orders. Rule 37(c)(1) specifically bars use of information or witnesses not properly disclosed unless the failure was justified or harmless.
• Southern States factors: Five considerations to decide whether a nondisclosure was substantially justified or harmless: surprise; ability to cure; trial disruption; importance; and the nondisclosing party’s explanation.
• “Fencing‑in” relief: Injunctive provisions that go beyond prohibiting the exact misconduct found to prevent future circumvention, tailored to the defendant’s violations and risk profile.
• Rule 65(d) specificity: Injunctions must say exactly what is required or forbidden, without vague cross‑references, so parties know how to comply and courts can enforce.
• eBay permanent‑injunction test: The plaintiff must show irreparable injury; inadequate legal remedies; balance of hardships favoring equitable relief; and that the public interest is not disserved.
• CFPA penalty tiers: Tier One (any violation), Tier Two (reckless violation), Tier Three (knowing violation). Tier Two permits higher per‑day penalties for reckless conduct. Inflation‑adjusted maximums apply.
• Restitution via net revenues: A common measure of unjust gains and consumer loss in deceptive‑practice cases; defendants can try to rebut with evidence (e.g., showing offsets), but failure to produce discovery undermines any rebuttal.
• Civil contempt: A coercive or compensatory sanction for violating a court order. Here, it underscored the gravity of defendants’ noncompliance; it was not separately challenged on appeal.
• Standards of review: Abuse of discretion (for sanctions and injunction scope) is deferential; de novo (for legal principles guiding remedies) is not.

Conclusion

The Fourth Circuit’s decision in CFPB v. Nexus Services delivers a clear message: systemic discovery defiance will trigger the full range of judicial sanctions, up to and including default without an explicit prior warning where Rule 37 and the record make default the evident next step. Post‑default, courts retain authority to exclude sandbagged evidence and witnesses at the remedies phase to safeguard fairness. On remedies, the decision reinforces that CFPA restitution can be assessed using defendants’ net revenues as a reasonable approximation of unjust gains when deception is pervasive, and that Tier Two civil penalties are warranted for reckless violations. Finally, the opinion validates detailed, “fencing‑in” injunctions that meet Rule 65(d)’s specificity requirements and protect the public from recurrence.

In the broader legal landscape, the case strengthens discovery enforcement, clarifies remedies under the CFPA aligned with FTC jurisprudence, and underscores the synergy between federal and state consumer protection regimes. It stands as a comprehensive blueprint for courts confronted with litigants who attempt to “stall and ignore” orders and for enforcers seeking robust, forward‑looking relief in the wake of systemic consumer abuses.