Trade Association May Appear as Amicus, but Can't Intervene

An entity can be interested (legally) in the outcome of a lawsuit, or it may simply be interested (in the go-sports-team-from-my-hometown-or-university! sense) in the outcome.  Under a recent Business Court ruling, only the former supports intervention under Rule 24.

Time Warner Entertainment Advance / Newhouse Partnership v. Town of Landis involved access to utility poles, a type of dispute committed to the Business Court under 2009 legislation. The North Carolina Association of Electric Cooperatives ("NCAEC"), an organization of 26 electric membership corporations across North Carolina, sought leave to intervene under Rule 24 as a defendant aligned with the Town.  NCAEC admitted that it had no direct interest in the outcome of the dispute between the plaintiff and the defendant, but was concerned about the potential precedential effect of a ruling that would establish a methodology for use in future cases.

The Court denied NCAEC's request to intervene.  First, NCAEC could not intervene as of right because it had neither a statutory right to intervene nor an interest relating to the specific property or transaction (i.e. the particular utility poles at issue).  "Instead, NCAEC has at best a general interest in the precedent that may be set in this case regarding the methodology for calculating pole attachment rates, terms, and conditions, which the Court concludes is insufficient to allow intervention as of right pursuant to Rule 24."

NCAEC could not intervene permissibly either.  Rule 24(b)(2) requires a common question of fact or law for permissive intervention, and the Court held that NCAEC had not put forth any claim for relief for any ripe dispute.  According to Judge Diaz, allowing intervention would force the Court to issue an advisory opinion in advance of any actual dispute between NCAEC and any cable provider.  Moreover, allowing intervention and the addition of new counterclaims would threaten the statutory mandate that utility access disputes be resolved by the Court within 180 days of commencement.

The Court permitted NCAEC an opportunity to be heard, however.  To the extent that future proceedings in the case involved the question of the rate methodology to be applied by the Court, the Court allowed NCAEC leave to appear as amicus curiae on that one issue.

Full Order

 

Overly Broad Discovery Requests Undercut Attempt to Prevent Spoliation

As discovery of electronically-stored information ("ESI") becomes more prevalent and relevant in litigation, so too does litigation regarding the obligation to preserve ESI.  Last Friday, the Business Court issued two orders reaching opposite results on motions for "non-spoliation" orders, based on significant differences between the scope of the preservation obligations that the plaintiff sought to impose.

In Capps v. Blondeau, the Business Court previously ruled that an arbitration clause was unenforceable.  Two defendants appealed that ruling and, during the pendency of the appeal, the plaintiff moved the Court for what they called "non-spoliation" orders (essentially, orders that parties preserve ESI) one against a defendant and one against Wachovia Bank.  In a pair of orders, the Court allowed the motion as to Wachovia but denied the motion as to the defendant.

Judge Jolly discussed several principles of note in the order denying the motion against the defendant, Morgan Keegan:

  • As is typical in Case Management Orders in the Business Court, the CMO in this case already contained a mandate that the parties preserve relevant information, including ESI, until the conclusion of the lawsuit.  This suggested that a further order on the subject was unnecessary.
  • When a lawsuit has already been filed, "the potential parameters of the claims – and the evidentiary importance of relevant information – are apparent."
  • The Court's duty is to "weigh and balance the respective rights and interests of the parties" when determining the scope of any preservation obligation.

The Court examined the categories of information proferred by the plaintiff and determined that the breadth of those requests prevented the Court from entering any order that would impose a preservation obligation for specific information:

Many of the categories of Information defined in the Motion are stated in the form of either a request for production of documents and materials or in the form of interrogatories, and are not focused on the stated concept of Information preservation.   In substance, the requests are so broadly and loosely defined that the court is forced to conclude that it would be difficult, if not impossible, to enter a preservation order without micro-managing the preservation initiative to such an extent that the result likely would impose an unjust result on either Plaintiff or Morgan Keegan.   An order from this court requiring preservation of such Information would be difficult, if not impossible, for Morgan Keegan in good faith to obey or for this court to police.

In a footnote, the Court identified specific concerns about the scope of those requests:  "For example, the Motion makes multiple use of broad qualifying words such as 'any' and 'all' 'records' or 'communications' about a particular subject.  It also uses qualifiers seeking to preserve information about occurrences, events or 'communications' that took place 'at all relevant times.''''

In contrast, the Court allowed plaintiff's motion for an order against Wachovia, a third party who was served with a subpoena duces tecum.  There were three key differences between Wachovia and Morgan Keegan.  First, Wachovia was not a party and was not subject to the CMO, so a separate order was conceivably more necessary.  Second, Wachovia, unlike Morgan Keegan, never filed a response in opposition to plaintiff's motion.  Third, the scope of Wachovia's information that plaintiff sought to preserve was clearly and specifically outlined in the requests attached to the subpoena.  The Court listed and ordered preservation of those specific categories of information, such as signature cards, account statements, and transaction details for specific bank accounts.

In the end, however, the Court's reluctance to enter an order against Morgan Keegan did not mean that its preservation obligations were lessened:

The duty of Morgan Keegan and other party litigants to preserve Information relevant to the issues is apparent. The potential ramifications and available sanctions of a violation of that duty also are apparent. The court expects that Morgan Keegan and all other parties will discharge those duties appropriately and in good faith.

There are two takeaways for Business Court litigators.  First, if there is a CMO in place, preservation obligations already have been ordered against the parties, and the Court is likely to perceive a subsequent motion as superfluous.  Second, to the extent that a party wants to impose a preservation obligation, use of typical discovery terminology like "any" and "all," rather than identifying specific categories of information, will hamper that party's ability to impose an enforceable obligation on its opponent.

 

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4th Circuit High-Fives Georgia Pacific in enMotion Towel Dispenser Case

If you have visited the restroom in an office building in the last five years, chances are you've had the opportunity to use Georgia Pacific's hands-free paper towel dispenser known as "enMotion."  In a published opinion released yesterday, the Fourth Circuit generally ruled in GP's favor on trademark infringement, tortious interference, and unfair and deceptive trade practices claims.

The enMotion dispenser (pictured here) operates through an electronic motion sensor that dispenses towels without any physical contact from the user's hands.  The dispenser was designed for use with a proprietary paper towel sold exclusively by GP, one that the Fourth Circuit described as having "a soft-fabric like feel created by using a through-air-dried (TAD) process."  (Our own end-user experience confirms that these towels are quite supple, as commercial paper towels go).  The dispensers are not sold, they are leased to distributors, who are permitted to sub-lease them to end-users (like office buildings).  The leases and subleases require the end users to use only GP's towels in the dispensers.  The towels themselves are a non-standard size.

The defendant designed and manufactured a competing paper towel in the exact same non-standard size, but with a "slick, scratchy feel," and marketed it to users of the enMotion dispensers.  Those towels did not fit any other dispenser on the market.

GP sued in the Eastern District for trademark infringement, Lanham Act and common law unfair competition, and tortious interference with contract, and the defendant counterclaimed for unfair and deceptive trade practices.  Judge Boyle granted summary judgment in favor of the defendant on GP's claims and in favor of GP on the defendant's unfair & deceptive counterclaim.

The Fourth Circuit vacated and remanded everything except the counterclaim.  Without delving too deeply into the trademark issues, suffice it to say that the court was convinced that a fact issue existed due to statistical evidence of substantial consumer confusion as to the source of the towels, combined with evidence of the defendant's intent to "stuff" the GP dispensers with its own towels.

As for the tortious interference claim, the district court ruled that the defendant's conduct was legitimate competition and was therefore justified, creating a qualified privilege under North Carolina law.  The Fourth Circuit vacated that ruling with two caveats.  First, GP's claim would be limited to tortious interference with contracts between GP and its distributors because GP did not have contractual relations with the end users themselves.  Second, GP could prevail only if it also prevailed on its trademark claims.  Success on those claims would make the defendant's conduct illegal, which would destroy the qualified privilege.

Finally, the Fourth Circuit affirmed the dismissal of the defendant's unfair & deceptive trade practices counterclaim (describing the district court's reasoning with the Blackstonian phrase "right on the money").  Although the defendant claimed that GP's attempts to exclude other towel manufacturers from its dispensers was unfair or deceptive, the court held that GP entered into its leases "in good faith, openly, and transparently."  Moreover, the defendant had shown no actual injury because it had been successful in competing with GP in the marketplace.

Full Opinion

Husband Not Allowed to Dismiss Request for Judicial Dissolution of Family Firm

Be careful what you request in your complaint, particularly if it's a request for judicial dissolution.  According to a Court of Appeals opinion this week, you'll be stuck with that request if your defendant asks for the same thing.

In Bradley v. Bradley, a husband-wife team were the shareholders and officers of a legal recruiting firm, Laura Segal & Associates ("LSA").  When the couple separated, the business basically did too -- the wife asserted that the husband misappropriated corporate funds and denied her access to the company's books, records, and accounting software.  The husband alleged that the wife was trying to usurp the intellectual property of LSA, freeze the husband out of the business, and terminate his employment.

The husband filed a complaint seeking judicial dissolution, appointment of a receiver, and damages for breach of fiduciary duty.  The wife counterclaimed for judicial dissolution or appointment of a receiver.  The trial court entered a TRO and later a preliminary injunction preventing the parties from taking various actions against each other and "established a procedure allowing the management of LSA’s accounts receivable and payable without the parties having to directly interact with each other."

The husband filed a notice of voluntary dismissal of his dissolution and receivership claims.  The trial court set aside the voluntary dismissal and granted summary judgment on the defendant's counterclaims for judicial dissolution and appointed a receiver.

Three legal issues of note arose in the Court of Appeals opinion:

  • The trial court properly set aside the husband's voluntary dismissal of his dissolution and receivership claims.  The voluntary dismissal was void on its face because, once the wife asserted counterclaims arising from the exact same transactions, the husband lost the authority to voluntarily dismiss claims without the wife's consent.
  • The husband could not challenge the wife's right to dissolution because his own complaint pled facts supporting dissolution (and, of course, he requested dissolution himself).  The husband was not allowed to contradict his judicial admissions.
  • The Court rejected the husband's assertion that the appointment of a receiver should be reviewed de novo.  Instead, the Court followed earlier cases reviewing such appointments for abuse of discretion.

 Full Opinion