NC Business Court On Conversion Of Electronic Data

The Defendant in SQL Sentry, LLC v. ApexSQL, LLC, 2017 NCBC 105 was alleged to have copied the Plaintiff's software program which was designed to make "resource intensive T-SQL queries. . . in the Microsoft enterprise database platform, SQL Server."  Op. Par. 5.  (Ask your IT person).

Adding insult to injury, the Defendant marketed the program it had copied under the same trademark used by the Plaintiff  to sell its competing program ("Plan Explorer"). 

So, when representatives of this Plaintiff walk into your office, what claims do you fire off in your Complaint against that thieving Defendant?  Trademark infringement, obviously.  How about a claim for conversion?

Maybe.  Electronic data is personal property, so it falls into the category of property which is subject to a claim for conversion.  Op. ¶14.

But the Plaintiff ran into a problem with its conversion claim.  It still had full access to its software, and that killed its conversion claim.

The NC Business Court has repeatedly "held that making a copy of electronically-stored information which does not deprive the plaintiff of possession or use of information, does not support a claim for conversion.” Op. ¶15 (citing RCJJ, LLC v. RCWIL Enters., LLC, 2016 NCBC 44, ¶67; accord New Friendship Used Clothing Collection, LLC v. Katz, 2017 NCBC 71, ¶77; Strategic Mgmt. Decisions, LLC v. Sales Performance Int'l, LLC, 2017 NCBC 68, ¶18; Addison Whitney, LLC v. Cashion, 2017 NCBC 50, ¶39.

Trying to fit a 21st century development like ESI into a tort like conversion, which has been around since the 1500's, is like trying  to fit a round peg into a square hole.

If you are insistent on including a conversion claim in your lawsuit over improper copying of electronic data, you might do better suing in federal court.  The United States District Court for the Western District of North Carolina has recognized such a claimBridgetree, Inc. v. Red F Marketing, LLC, 3:10CV228-FDW, 2013 WL 443698 (W.D.N.C. Feb. 5, 2013).

But avoid the NC Business Court.

 

Nc Business Court Stretches NCRCP 14 to Allow New Third Party Defendants To Be Added Years After The Commencement Of Litigation

The North Carolina Rules of Civil Procedure are fairly identical to the Federal Rules of Civil Procedure.  In fact, I am hard pressed to think of any substantial differences.

But the lack of one word contained in FRCP 14 -- "original" -- but omitted from the parallel NC Rule made all the difference in the NC Business Court's Opinion in AP Atlantic, Inc. v. Crescent University City Ventures, LLC, 2017 NCBC 91.

The case had to do with Plaintiff AP filing a third party complaint against multiple Defendants after Defendant Crescent University amended its Answer and counterclaim.  Big deal, you are probably thinking.  Rule 14 says that you can add as a third party Defendant anyone who "is or may be liable" to that party.  It is designed to "promote judicial efficiency and the convenience of parties by eliminating circuity of action . . . by consolidating [all] suits into one action."  Op. ¶26 (quoting Heath v. Board of Comm’rs, 292 N.C. 369, 376, 233 S.E.2d 889, 893 (1977)(quoting Charles Alan Wright et al., Federal Practice and Procedure § 1442 (1971)).

What made the AP Atlantic case unusual was that the counterclaim against AP which entitled it to add third party defendants who "were or might be liable to it" was first made in January 2016.  It wasn't until a year and a half later (in July 2017), when Crescent amended its counterclaim, that AP made its third party complaint against thirteen new third party defendant subcontractors.

AP Did Not Need The Permission Of The Court To File Its Third Party Complaint

Defendant Crescent said that AP needed to leave of court to make its third party complaint.  Crescent, relying on NCRCP 14, disputed that it had needed leave of court.  North Carolina's Rule 14 says:

At any time after commencement of the action a defendant, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff's claim against him. Leave to make the service need not be obtained if the third-party complaint is filed not later than 45 days after the answer to the complaint is served.

N.C. R. Civ. Pro. 14(a)(emphasis added).

The third party complaint adding the thirteen new parties was filed 21 days after the Answer amending the counterclaim against AP.  Timely?  Not under federal Rule 14, which says that:

the third-party plaintiff must, by motion, obtain the court's leave if it files the third-party complaint more than 14 days after serving its original answer.

FRCP 14(a)(1)(emphasis added).

The absence of the word "original," or any reference to amended pleadings in NCRCP 14, led Judge Bledsoe to rule that the words "answer to the complaint" in NCRCP 14 were ambiguous.  Op. ¶18.  He then embarked on an effort to determine the intention of the North Carolina Legislature in adopting a rule that did not parrot the "original answer" language of FRCP 14.

It Was Fundamental To The Court's Decision That The NC Legislature Is Presumed To Know Everything

He started with the proposition that:

Because North Carolina’s rule was first enacted in 1967, and because the Court must presume the legislature acted with full knowledge of prior and existing law, the Court must presume that the legislature knew of the language in Federal Rule of Civil Procedure 14 and — and continues to make — a deliberate decision not to use it in North Carolina’s rule.

Op. ¶21.

The presumption that the NC Legislature was omniscient and well versed in the Federal Rules of Civil Procedure is not something that Judge Bledsoe created out of thin air.  The North Carolina Supreme Court has said many times that "[i]t is always presumed that the legislature acted with care and deliberation and with full knowledge of prior and existing law."  See, e.g., State v. Benton, 276 N.C. 641, 174 S.E.2d 793, 805 (1970).

Judge Bledsoe moved on to considering the meaning of the words "original answer" in the federal rule, concluding that it "would be the first or earliest answer filed in a lawsuit, as no answer would have been filed before it."  Op. ¶23. It follows from that proposition that North Carolina's version of Rule 14 doesn't make a distinction between original or amended pleadings.  Op. ¶23.

So, AP was allowed to amend its third party complaint -- without leave of Court -- to add more than a doen new parties to the case well more than a year after the case was first filed.

Judge Bledsoe obviously had some uneasiness about this ruling, saying that he made his decision "reluctantly."  Op. ¶23.

 

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NC Business Court Rules On What Constitutes An "Arbitration"

You've probably never had to decide what it means to agree to arbitrate.  Usually, there is a written provision that references the AAA Rules and includes a consent to AAA's procedures as to the appointment of the arbitrator(s) and the conduct of the procedure. And most usually, the word "arbitration" is used in the provision.

Lately, however, the NC Business Court wrestled with two cases in which there was no provision referencing the AAA, no mention of the words "arbitrate" or "arbitration" but only a provision deferring resolution of some financial issues to an accountant.

The more recent one is Martin & Jones, PLLC v. Olson, 2017 NCBC 85.  The earlier case (unpublished) is Post v. Avita Drugs, LLC.  It is worth it to me to point out that I would not have known about the Post decision if it wasn't referenced in the Martin & Jones decision.  Back before the Business Court revamped its filing system, my software program would have caught the Post decision.  Now?  Not possible.  I hate that new filing system.  Maybe those of you filing cases in the Business Court like it.

Anyway, having vented and now feeling a little better, I can turn to the Post decision.  Post had sold his business to Defendant Avita.  The purchase price included an deferred earnout payment based on "six times (6x) the difference between (a) Adjusted EBITDA and (b) $925,000.

After the sale was completed, Post disputed Avita's calculation of Adjusted EBITDA.  He contended that Avita had depressed the amount of the Adjusted EBITDA by using improper accounting standards.

A Dispute Can Be "Arbitrated" By An Accountant If The Procedure Resembles "Classic Arbitration"

The Stock Purchase Agreement specified how a dispute over Adjusted EBITDA should be resolved. It said that:

the determination of Adjusted EBITDA shall be submitted promptly to [an] Independent Accountant for determination in accordance with this Agreement and the determination of the Independent Accountant shall be binding and conclusive for the purposes of this Agreement absent manifest error by the Independent Accountant” (the “Independent Accountant Process”).

After Post sued Avita, Avita moved to stay the case pending the resolution of the "Independent Accountant Process."  It made that Motion per G.S. §1-569.7, which is a motion to compel or stay arbitration.

As Judge Conrad concisely framed the issue, it was "whether [the] independent accountant process is an 'arbitration.'" Order ¶2.  You might think that the Federal Arbitration Act, which governed that issue, would contain a definition of "arbitration,"  but it doesn't.  Judge Conrad, looking to federal court decisions on whether an agreed dispute resolution procedure fit the definition of arbitration, held that:

courts routinely consider 'how closely the specified procedure resembles classic arbitration.' Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 7 (1st Cir. 2004).  The question is whether the agreement exhibits the 'common incidents of arbitration': a final determination by 'an independent adjudicator,' 'substantive standards,' 'and an opportunity for each side to present its case.' Id. at 7.

Order ¶13 (emphasis added).

Judge Conrad found that the terms setting out the Independent Accountant Process met the standard of "classic arbitration."  The parties had agreed to a "binding and conclusive" determination.  The agreement required the application of "substantive standards" via a definition in the Stock Purchase Agreement of how Adjusted EBITDA should be calculated.  Furthermore each side was afforded the opportunity to present whatever written materials it deemed relevant.  Order ¶¶14-15.

This Procedure Did Not Resemble "Classic Arbitration"

The result was different in the second Business Court decision, Martin & Jones, which was a dispute among former law firm partners regarding the amount to be paid to the Plaintiff for his retirement benefits per the law firm''s Operating Agreement.  That agreement, like the agreement in the Post case, called for the involvement of an accountant if there was disagreement.  It said that:

in the event of a dispute among the Members with respect to the determination of the net cash flow, net profit, net losses or capital account balances of the Law Firm, an independent certified public accountant shall be engaged by the Law Firm at the Law Firm’s expense whose computation of such items shall be binding upon all the Members.

Op. Par. 15.

The two flaws in the argument that this accountant-oriented provision should be treated as an arbitration as pointed out by Judge McGuire were that:

the Operating Agreement does not set forth any 'substantive standards' such as procedural guidance for selecting the independent CPA,or the method by which the independent CPA will make a determination. Furthermore, the Operating Agreement does not state whether, or how, each side will have the 'opportunity  . . .  to present its case.'

Op. Par. 19.

So if you want a CPA to be acting as the arbitrator of a dispute arising under a document that you drafted, set the appropriate rules of a "classic arbitration."

 

Demand Futility Isn't Dead For Derivative Actions Against Non-Profit Corporations

You probably thought that you would never again have to argue that a demand on a corporation's board of directors before filing a derivative action should be excused because it would have been futile. 

That's because the North Carolina Legislature amended NC corporate law in 1995 to make clear that a demand on the corporation to take action is an essential prerequisite to the filing of a derivative action.  Section §55-7-42 of the General Statutes, as amended twelve years ago, says that a shareholder "may not commence a derivative proceeding" without having made a written demand "upon the corporation to take suitable action."  In other words, there is no excuse for not making a pre-filing demand.

But demand futility was alive and directly before the Business Court last week in Finley v. Brown, 2017 NCBC 78.

It's easy to forget that there is an entire set of statutes that apply to non-profit corporations (Chapter 55A of the North Carolina General Statutes) than to "business corporations" (Chapter 55 of the North Carolina General Statutes).  The lawsuit in Finley involved a non-profit corporation: the Finley Foundation.

Before the Legislature amended the demand requirement in Chapter 55 in 1995, the parallel provision regarding demand applicable to non-profit corporations (N.C. Gen. Stat. §55A-7-40) was virtually identical to its "business corporation" partner.  That unamended statute applicable to non-profit corporations says that:

(b) The complaint shall allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort.

The North Carolina appellate courts had made it pretty clear, before the amendment, that a demand on a business corporation before filing a derivative action could be excused if it would have been futile.  Op. 26-27 (citing Norman v. Nash Johnson & Sons’ Farms, Inc., 140 N.C. App. 390, 409, 537 S.E.2d 248, 261 (2000); Roney v. Joyner, 86 N.C. App. 81, 84, 356 S.E.2d 401, 403 (1987); Seaboard Air Line R.R. v. Atl.Coast Line R.R., 240 N.C. 495, 515, 82 S.E.2d 771, 785 (1954)).

So, looking at the "old" law applicable to for-profit corporations, Business Court Judge Bledsoe ruled that the Plaintiff had established that a pre-lawsuit demand would have been futile.

This Plaintiff, a board member of the Finley Foundation did a pretty good job of showing why it would have been futile to make a demand on the four Foundation directors he was suing.

He was attacking them for violating their fiduciary duties, saying that they had "grossly mismanaged the Foundation, and unjustly enriched themselves . . . , by, among other things, failing to prudently manage the assets of the Foundation, incurring unnecessary expenses, paying themselves excessive compensation, and dishonoring Mr. Finley’s intent as the donor of charitable gifts to the Foundation."  Op. ¶12.

Given that the Defendants were direct participants in the conduct that Plaintiff Finley was complaining of, especially in controlling their allegedly "excessive compensation," Judge Bledsoe agreed that the Plaintiff had pled enough to establish that a demand on them to take action would have been futile.

NC Legislature Decides To Legislate Choice Of Law Provisions In "Business Contracts"

The North Carolina General Assembly has decided to legislate choice of law in commercial transactions.  The new statute, enacted in June, is called the "North Carolina Choice of Law and Forum in Business Contracts Act." It will be codified at N.C. Gen. Stat. §1G-1.

The Statute Applies Only To "Business Contracts"

The statute applies only to "business contracts."  That term is defined as: "[a] contract or undertaking, contingent or otherwise, entered into primarily for business or commercial purposes."  Specifically excluded from that definition are "consumer contract[s] or . . .. employment contract[s]."  N.C. Gen. Stat. §1G-2(1).  If you had any doubt about what constitutes a "consumer contract," that term is defined as well.  It is "[a] contract or undertaking, contingent or otherwise, entered into by an individual primarily for the individual's personal, family, or household purposes."  N.C. Gen. Stat. §1G-2(2).

It seems like the General Assembly could have gone without bothering to define an "employment contract," but it didn't.  An "employment contract" is "A contract or undertaking, contingent or otherwise, between an individual and another party to provide labor or personal services by that individual to the other party, whether the relationship is in the nature of employer-employee or principal-independent contractor."  N.C. Gen. Stat. §1G-2(3).

So, what are the benefits extended to those who are party to a "business contract"?  The short answer is that they can choose North Carolina law to govern their contracts and they can select North Carolina as a forum to resolve their disputes.  You might be thinking: "big deal, couldn't they do that anyway"?

This Represents A Big Shift In NC Law On Choice Of Law Provisions

Before the new statute, you were always subject to the opposing party who had agreed to apply NC law being able to squirm out of its commitment.  The opposing party could do that by saying that North Carolina was improperly chosen as the State's law which should apply -- because the dispute does not bear a "reasonable relation" to this State, or could also argue that the application of North Carolina's law would violate a "fundamental policy" of the State whose law would apply in the absence of the choice of law provision (call that the "public policy exception") .

Those arguments have long been recognized by NC appellate courts. See below 

The new statute does away with those types of attacks on a choice of law provision. It says that parties to a business contract may agree that North Carolina law will govern their relationship:

whether or not any of the following statements are true:

(1) The parties, the business contract, or the transaction that is the subject of the business contract bear a reasonable relation to this State.

(2) A provision of the business contract is contrary to the fundamental policy of the jurisdiction whose law would apply in the absence of the parties' choice of North Carolina law.  

N.C. Gen. Stat. §1G-3(a)(emphasis added).

The approach of the new statute is directly contrary to what the widely accepted doctrine is on the validity of an agreement to apply the law of a particular State.  The North Carolina appellate courts have long followed the principles set out by the Restatement (Second) Conflict of Laws §187. See, e.g., Behr v. Behr, 46 N.C. App. 694, 266 S.E.2d 393 (1980); Cable Tel Services, Inc. v. Overland Contracting, Inc., 154 N.C.App. 639, 574 S.E.2d 31 (2002). The Restatement says that choice of law should be deemed invalid for the reasons that are permitted in the new statute.  It says that a choice of law provision should not be applied if:

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [section] 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

Restatement (Second) Conflict of Laws §187.

Why Did We Need This Statute?

Did North Carolina need its Legislature to intrude in this area of the law?  According to the Business Law Section of the North Carolina Bar Association, there were "many sound reasons" for the legislation.  Those are detailed in a Report from the Legal Opinion Committee of the Business Law Section.

They seem to boil down to making North Carolina more "business friendly."  The report says:

The General Assembly’s enactment of statutes that give effect to choice of North Carolina law and forum provisions in business contracts will enhance the perception of North Carolina as a business friendly state. Businesses are attracted by such freedom and clarity, and the proposed legislation will provide certainty to businesses and the attorneys who counsel them as to the applicability of North Carolina law and the ability to have disputes resolved by North Carolina courts. Such legislation will, in effect, place North Carolina on an equal footing with states such as Delaware, New York, Illinois and California.

Report at 4.

Every one of the States mentioned in the Report have legislated that choice of law provisions are valid even if the matter has "no reasonable relation" to that State.  Delaware's statute is here, New York's is  here, Illinois' is here, and California's is here.

Will this statute be enough to make North Carolina the choice of lawyers as the State within which to incorporate, or whose law to choose, as opposed to Delaware?  Or New York, Illinois, and California? I doubt it, but it is probably at least a step in that direction.

But none of the four States mentioned in the Report have included in their statute a provision rejecting the public policy exception.

Effective Date And A Question

Drafters of business contracts don't need to do anything to revise previously drafted choice of law provisions.  The new statute says that it "is effective when it becomes law and applies to business contracts entered into before, on, or after that date."

I have at least one question about the force of this statute.  Although the title of the statute professes to "validate choice of North Carolina law and forum [selection] provisions in business contracts," the operative provision of the statute does not use the word "validate" or to make any suggestion that they must be enforced. It says simply that the parties to a business contract "may agree" that North Carolina law will control their relationship. 

You will note that I did not discuss the "choice of forum" aspect of this statute at all.  The choice of law part was much more interesting to me.

 

 

 

In-House Counsel's Worst Nightmare: A Subpoena In A Case To Which The Company Is Not A Party

I don't think that there is anything worse than having a client get subpoenaed in a case to which it isn't a party.  It didn't want to be drawn into someone else's problem, to have to scour its records to respond to an unanticipated and intrusive request for documents, and to have to deal with the expense of an outside lawyer to handle the mess.

The good news is that Rule 45 provides greater protection to a non-party responding to a subpoena than it does to a party responding to discovery.  Judge Conrad of the NC Business Court observed in a decision last week, Arris Group, Inc. v. CyberPower Systems (USA), Inc., 2017 NCBC 57, that “[t]he courts have an obligation to protect nonparties from burden and expense imposed without sufficient justification.”(quoting Bank of Am. Corp. v. SR Int'l Bus. Ins. Co., 2006 NCBC LEXIS 17, at *16.  Op. ¶13.

He outlined some of those protections:

  • the issuing party must “take reasonable steps to avoid imposing an undue burden or expense on a person subject to the subpoena.”Id. at *11 (quoting N.C. R. Civ. P. 45(c)(1)). Op. ¶13.
  • Also,“'[t]he court shall quash or modify the subpoena if' the recipient demonstrates the existence of any enumerated grounds for objection, including privilege, unreasonableness,and undue burden." Op. ¶14 (quoting N.C.R. Civ. P. 55(c)(5)).
  • Furthermore, "[w]here the subpoena requests trade secrets or other confidential information, Rule 45 provides additional safeguards: the court may “quash or modify the subpoena” unless the issuing party “shows a substantial need for the testimony or material that cannot otherwise be met without undue hardship.” N.C. R. Civ. P. 45(c)(7) Op. ¶14.

Judge Conrad also relied on some federal court decisions on the difference between party and non-party status when dealing with discovery matters.  He said that: 

federal courts have also stressed the “distinction between a party and nonparty” in applying the Federal Rules of Civil Procedure. Beinin v. Ctr. for the Study of Popular Culture, No. C 06-2298 JW (RS), 2007 U.S. Dist. LEXIS 22518, at *6 (N.D. Cal. Mar. 16, 2007).  Although parties to litigation must accept the “travails [of discovery] as a natural concomitant of modern civil litigation,” “[n]on-parties have a different set of expectations.” Papst Licensing GmbH & Co. KG v. Apple, Inc., No. 6:15-cv-1095, 2017 U.S. Dist. LEXIS 51274, at *9 (N.D. Ill. Apr. 4, 2017). Accordingly, “the fact of nonparty status may be considered by the court in weighing the burdens imposed in the circumstances.” Katz v. Batavia Marine & Sporting Supplies, Inc., 984 F.2d 422, 424 (Fed. Cir. 1993); see also Intermec Techs. Corp. v. Palm, Inc., No. C09-80098 MISC WHA, 2009 U.S. Dist. LEXIS 132759, at *7 (N.D. Cal. May 15, 2009)(holding that protections apply “doubly when the respondent is a non-party”).

Op. ¶15 (emphasis added).

So how did Delta Products (the non-party recipient of the Defendant's subpoena) fare against this backdrop of accommodation to non-parties?  Delta came out pretty well, although not unscathed.

 

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Incorporating By Reference In Your NC Business Court Brief? Don't Do It!

If you have ever drafted a Complaint, you have undoubtedly used the words that your previous numbered allegations were "incorporated by reference."  It's a way of not having to repeat yourself.  That  shortcut is specifically allowed by Rule 10(c) of the North Carolina Rules of Civil Procedure, which says that: "Statements in a pleading may be adopted by reference in a different part of the same pleading or in another pleading or in any motion in the action."

If you have a case where you have filed multiple briefs, you might "incorporate by reference" arguments you made in an earlier brief.  You probably haven't thought twice about that. 

Well, Judge McGuire of the NC Business Court has thought about it, and he doesn't like it.  In American Air Filter Co. v. Price, 2017 NCBC 54, he ruled that the use of incorporation by reference of earlier briefs could be a violation of the Rules of the NC Business Court and that it could result in the Court refusing to consider the referenced argument.

How could that be, you are wondering, as there is no mention (or any prohibition) of this practice in the Court's rules.  The reason is that the inclusion of the pages of a previously filed brief might push you over the page limitations contained in the Business Court Rules for briefs.  The Rules require the lawyer for a party filing a brief to limit her words to 7,500, and to "include a certificate by the attorney or party that the brief complies with this rule." BCR 7.8.

Judge McGuire said in the American Filter case that: 

The General Rules of Practice and Procedure for the North Carolina Business Court (“BCR”) do not expressly permit parties to incorporate previously-filed briefs and documents outside of the brief at issue, at least not to supplement the substantive text of the brief at issue. In fact, BCR 7.8 provides strict word limits on briefs submitted to this Court. Even if incorporation of previous briefs were allowable, it appears a party incorporating a previously-filed brief would have to certify under BCR 7.8 that the brief and the incorporated brief did not exceed the word limits. Defendants have not done so in this case. As a result, the Court declines to consider Defendants’ arguments and authorities regarding choice of law issues contained in other filings with the Court.

Op. at n.2.

 

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Joint Defense Agreements Are Not Protected By The Attorney-Client Privilege

Why would any lawyer think that his Joint Defense Agreement, entered into with a co-defendant, was protected from production by the attorney-client privilege?  Well, the lawyer for one of the Defendants in AP Atlantic, Inc., v. Crescent University City Venture, LLC, 2017 NCBC 48 did, but his position was rejected by NC Business Court Judge Bledsoe last week.

A JDA is a written agreement between separately represented parties with common legal interests (generally relating to pending or anticipated litigation) that allows the parties to share confidential information with each other without waiving the attorney-client privilege, work product privilege or any other applicable privilege. 

These agreements generally declare that the parties have a "common legal interest" and that they will not waive their attorney-client privilege by exchanging information.   I'm pretty unenthusiastic about these kind of agreements because if your client really does have a "common legal interest" with someone else, then the law says that the client doesn't waive its privilege by giving the party with the common interest information that is covered by the privilege.  Saying on paper that a client has a a common legal interest with another party doesn't create such an interest if it didn't exist in the first place.

As for the discoverability of a JDA, I don't see why you would even pursue the production of a JDA.  How it would help in proving your case that a Defendant had entered into a JDA?  Or why you would put up a fight if one were requested from you, as it is not protected by any privilege.

The Plaintiff AP Atlantic, the general contractor on a construction project spawning litigation (don't they all do that?) didn't share my point of view.  It wanted the owner of the project (Defendant Crescent) to produce its JDA with a non-party, Summit Contracting Group, Inc.  Summit had been hired by Crescent to perform repairs done in connection with the project.

Judge Bledsoe dismissed the argument that a JDA was protected by the attorney-client privilege.  He relied on a New York appellate decision -- Fewer v. GFI Group, Inc., 78 A.D.3d 412 (N.Y. App. Div. 2010) for that conclusion.  Op. 16.

Moreover, Judge Bledsoe ruled that Crescent and Summit did not share a common legal interest despite their declaration in their JDA that they did.  The argument that Crescent ultimately would have to indemnify and defend Summit over claims regarding its repair work was unavailing, especially since no demand had been made on Summit with regard to its repairs, and it was not a party to the litigation.  Op. 17.

This is probably a good point to say that my posts do not reflect the views of Brooks Pierce.  There may be many lawyers at Brooks Pierce who think that JDA's are essential.  But not me.

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Deposition, My Office Or Yours? NC Business Court: Neither

You probably don't think much, when you are noticing a deposition, about where it should take place.  Ideally, you probably want it to happen in your own office.

The NC Rule of Civil Procedure on depositions, Rule 30, says that the notice of deposition "shall state the time and place for taking the deposition." 

Although you don't have to subpoena a party to appear at his deposition, there are specific deposition locations identified in the Rule for residents and non-residents of North Carolina.  As to residents, Rule 30(b)(1) says that "[a] resident of the State may be required to attend for examination by deposition only in the county wherein he resides or is employed or transacts his business in person."

Non-residents?  The Rule says that "[a] nonresident of the State may be required to attend for such examination only in the county wherein he resides or within 50 miles of the place of service."

So the attorney for the Plaintiff in Micro Miniature Bearing Co. v. Barnett-Sabatino noticed the depositions of the four individual Defendants (all former employees of the corporate Plaintiff) at his office in Statesville.  Each individual Defendant resides in Iredell County, and the Rules would seem to dictate that the deposition be taken in their home county.

Counsel for the individual Defendants (whose office is in Winston-Salem, Forsyth County), apparently decided that he didn't want to make the ardurous 44 mile trek to Statesville to take the depositions, and sought a Protective Order requiring the depositions to be taken in his office.  In an (unpublished) Order, Judge Robinson denied that request, stating that "[t[he Court has broad discretion and authority . . . to control the location of discovery depositions."  Order 11.

The reason given for the objection from the witnesses' counsel to the depositions being taken at Plaintiff's counsel's office was that the deponents:

want to be able to confer with their counsel before and during the depositions [and that they] expect the depositions to be  ''especially emotional', and that [they wanted] to be able to retreat to [their] attorney's office if [they] need a minute to relax.

Order 12.

Judge Robinson said that he was "sympathetic to the emotional and psychological stress experienced by the Individual Defendants arising from and as a result of this litigation, specifically the upcoming depositions."  Order 13.  But even so, he said that this potential stress did not warrant requiring Plaintiff's counsel having to travel from Statesville to Winston-Salem, away from the county in which the individual Defendants live and where the case was venued.

In a bit of Solomonic wisdom, Judge Robinson directed the parties to try to find a neutral site in Statesville for the depositions.  If that was not possible he said that the depositions should be taken "in Room 106 at the Iredell County Courthouse."  Order ¶15. 

There was nothing in this Order dictating which party should bring the Kleenex to the depositions.  But in all seriousness, I had a deponent cry once when I was taking his deposition.  And I wasn't even trying to make him cry.  So depositions probably are stressful for the witnesses.

[Note: If you've read this post in the hour since it was published, it has been corrected by now thanks to Andrew Rodenbough of Brooks Pierce pointing out an error of mine confusing the Plaintiff's attorney and the Defendants' attorney.  Thanks Andy!]

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Failure To Comply With Discovery Orders Results In Dismissal Of Pro Se Plaintiff's Case

Going pro se in the NC Business Court is a bad idea.  At least it was for the Plaintiff in Gillespie v. Majestic Transport, Inc., 2017 NCBC 43 who saw his claims dismissed (without prejudice) for failing to comply with the Court's discovery orders and was ordered to pay attorneys' fees to the Defendant.

Gillespie didn't start out in the Business Court without a lawyer.  His lawyer was allowed to withdraw in November 2016, and the Court ordered Gillespie to report within the next month regarding his efforts to retain a new lawyer.  He didn't make that report, stating later that he had "forgotten" to do so.  Op. ¶12.

Before the deadline for that report had run out, the Business Court granted a pending Motion to Compel, and ordered the Plaintiff to provide supplemental discovery responses and to provide a privilege log within ten days of the Order granting the Motion or within ten days of the appearance of new counsel.

Gillespie, without new counsel, didn't provide the material required by the discovery order.  He also didn't respond at all to Interrogatories served on him by the Defendant. The Defendant filed another Motion to Compel, this time requesting sanctions against Gillespie including  dismissal of his case.

Judge McGuire held a hearing on the second Motion to Compel in January 2017.  Gillespie appeared at the hearing, and explained his non-compliance by contending that "without legal representation, he did not understand his obligations."  Op. ¶12.  He said that he did not intend to represent himself, and asked for additional time to hire an attorney.

Judge McGuire said that he would not dismiss the case and that "[t]he Court desires to provide Gillespie with a final opportunity to retain counsel to represent him."  Op. ¶13.  He gave Gillespie a deadline of February 15th to retain new counsel and to have that new lawyer file a notice of appearance in the case.

When that deadline rolled around, Gillespie informed the Court "it has been impossible to retain new legal counsel,” and that he had  “elected to represent himself in matters of this case so that no further delays occur.”  Judge McGuire granted that request and ordered Gillespie to respond to some outstanding discovery and reminded him of a prior order requiring mediation to take place by March 31st.  He warned Gillespie that if he did not comply with these obligations, that the Court would consider “appropriate sanctions up to and including dismissal of Gillespie’s claims.”  Op. ¶15.

When Gillespie fell down on those obligations, Judge McGuire cut him no slack for proceeding pro se.  He said in ruling on Defendant's Motion for Sanctions that:

The Court is not unsympathetic to Gillespie’s current status as an unrepresented litigant, but notes that he consented to withdrawal of his counsel in this case. Gillespie also was provided with more than a reasonable amount of time to retain new counsel, but failed to do so. Ultimately, an individual who chooses to represent himself in the civil courts of our State must abide by the orders of those courts and by rules of procedure applicable to civil proceedings.

Op. ¶25.  Even so, Judge McGuire ruled that Gillespie's lack of assistance of counsel had "probably hampered his ability to comply with court rules," and that the dismissal would be without prejudice.  Id.

Although Mr. Gillespie might be relieved that he can refile his lawsuit, he can't be delighted at having to pay attorneys' fees to the Defendant.  But I was struck by the reasonableness of the  fees sought by Defendant's counsel.  They were $1265.50 for the first Motion to Compel (4.6 hours at $275 per hour), $770 for the Motion for Sanctions (2.8 hours at $275 per hour) and $385 for the second Motion to Compel (1.4 hours at $275).  Judge McGuire awarded a total of $2,421.00.

Would it have made a difference if Gillespie had been able to find new counsel to step into the case?  Maybe.

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