North Carolina Business Litigation Report

Meet & Confer Means More Than Exchanging Motions

If you have exchanged three-page letters with opposing counsel and held a short teleconference with dueling soliloquies on the scope of discovery relevance, you probably have complied with the meet & confer requirement that is a prerequisite to filing a motion to compel under North Carolina Rule 37 and any motion or objection related to discovery under Business Court Rule 18.6.  The minimum contact to satisfy that requirement may be that exchange; it may even be something short of that.  What does not satisfy the requirement is no contact at all, as a Business Court decision yesterday made clear.

In Northfield Investments, Inc. v. Regions Bank, a developer, Northfield, sued its lender, Regions, in June 2007 to try to enjoin a foreclosure sale, and Regions counterclaimed to collect under the promissory note at issue.  Two years later, in August 2009, Northfield moved to depose Regions's attorney , Derr, on the grounds that Derr may have "failed to timely transmit the Purchase Agreement to Regions so that Regions could adequately assess the offer, respond in good faith to its customer and agree to have its lien released upon the closing of the Purchase Agreement . . ."  Allegedly, the attorney's failure may have caused a third-party sale to fall through which otherwise would have maximized the value of the collateral. 

Derr filed a motion for sanctions under Rule 26(g) and attached email correspondence demonstrating that she did transmit the documents at issue to her client.  Northfield then withdrew its motion for leave to depose Derr.

Judge Diaz analyzed the parties' Rule 26(g) duties by the same objective reasonableness standard used in Rule 11 cases:  "a party’s inquiry is objectively reasonable if, 'given the knowledge and information which can be imputed to a party, a reasonable person under the same or similar circumstances would have terminated his or her inquiry and formed the belief that the claim was warranted under existing law.'”  He held that Northfield and its attorneys did not satisfy that duty in seeking Derr's deposition.

The Court rejected Northfield's proffered good-faith basis: 

9. The fact that Smith may have (during some unspecified timeframe) suggested to
Northfield that Derr was unresponsive to inquiries made in 2007 on the subject of the Purchase Agreement is a thin reed indeed on which to support a motion seeking to depose opposing counsel two years later.

10. Moreover, had Northfield and the Third-Party Defendants (or their new counsel)
spoken with Smith prior to filing the Discovery Motion, it is difficult to believe that Smith would not have refuted the factual premise for taking Derr’s deposition and made the relevant e-mails on the subject available to his former client, particularly since Smith was personally involved on behalf of Northfield in the discussions and e-mails surrounding the settlement negotiations. See N.C. Rev. R. Prof’l Conduct 1.16(d) (“[u]pon termination of representation, a lawyer shall . . . [surrender] papers and property to which the client is entitled[.]”).

11. Similarly, the fact that a Regions officer testified in a deposition that he could not
recall whether he saw the proposed settlement documents does not (without more) provide a good faith basis for believing that Derr in fact did not transmit the documents to her client.

12. The Court holds that the knowledge of Northfield’s prior counsel, including the emails between Smith and Derr refuting the factual basis for taking Derr’s deposition, should be imputed to Northfield and the Third-Party Defendants and their new counsel for purposes of determining whether they undertook a reasonable inquiry. Alternatively, a reasonable inquiry by Northfield and the Third-Party Defendants would have revealed the information contained in the e-mails without the need to file the Discovery Motion, which in turn would have made clear to these parties that their Discovery Motion was unreasonable.

The Court also chastised Northfield for declining Derr's invitation to discuss the issue, which refusal violated Business Court Rule 18.6:  "'Judges and lawyers should resurrect the original intention of the discovery rules, which was to make discovery a more cooperative and less adversarial system designed to reduce, not increase, the cost of litigation. . . .  Our system of civil justice cannot function effectively and economically unless lawyers . . . make cooperation [and] communication . . . cornerstones' of discovery."  Order ¶ 14 (quoting Azalea Garden Bd. & Care, Inc. v. Vanhoy, 2009 NCBC 9 ¶¶ 18-19).  On the other hand, the Court also believed that Derr was partly at fault for filing the Motion for Sanctions without first attempting to defuse the situation by producing the emails attached to her motion.

Nevertheless, the Court determined that Northfield bore the primary responsibility due to its failure to conduct a Rule 26(g) reasonableness inquiry and failure to satisfy the meet & confer obligations of Rule 18.6.  The Court allowed Northfield five days to respond on the issue of the reasonableness of Regions's requested fees.

 Full Order

 [UPDATE:  On July 1, 2010, Judge Diaz entered an Order awarding $10,630 in sanctions.]

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Mack Sperling
Brooks Pierce, LLP
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230 North Elm Street
Greensboro, NC 27401
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