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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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.


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!]


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.


Is There A "Secret Rule" In The NC Business Court Regarding Motions To Compel?

Thinking of filing a Motion to Compel in the NC Business Court?  You might want to file it before the close of the discovery period, even though there is no Business Court Rule establishing a deadline for doing so.

That's because there might be a "secret rule," based on Judge Robinson's (unpublished) Order last week in Carmayer LLC v. Koury Aviation.

Here was the situation: The parties were litigating over the Defendant's alleged misrepresentations as to its ability to rent out at a profit an airplane that it advised the Plaintiff to purchase.  In discovery, the Plaintiff asked for financial information as to other aircraft rented out by the Defendant.  The Defendant refused to provide the information.

The Plaintiff initiated a discovery dispute to the Business Court per new BCR 10.9 in January 2017.  In February, Judge Robinson indicated that the requested financial information seemed to be relevant and within the scope of discovery.  Although he did not issue a formal ruling per BCR 10.9(b) (which he wasn't required to do), he stated that he would be likely to grant a Motion to Compel if one were filed.

The discovery period ended a week later, on February 15, 2017.  Five weeks later, the Plaintiff filed a Motion to Compel production of the financial information.

There is neither a Business Court Rule nor an NC Rule of Civil Procedure prohibiting the filing of a Motion to Compel after the discovery period is over.

Likewise, as Judge Robinson observed: "the North Carolina appellate courts have not established a bright-line rule governing the propriety of motions to compel filed after the close of discovery."  Op. ¶16.

Federal courts, on the other hand, take the position that "[g]enerally, in order for a motion to compel to be timely, it must be filed before the end of discovery."  Op. ¶17.  Judge Robinson cited two opinions from North Carolina district courts questioning or denying motions to compel filed at the end of the discovery period or after it.  PCS Phosphate Co., Inc., v. Norfolk Southern Corp., 238 F.R.D. 555, 558 (E.D.N.C. 2006); Greene v. Swain Cty. P'ship for Health, 342 F. Supp. 442, 449 (W.D.N.C. 2004).

It's not always possible to file a Motion to Compel before the close of discovery.  What about the opposing attorney improperly instructing her witness, at a deposition taken on the last day of discovery, to refuse to answer a question?  Or an inadequate response to written discovery served at the very end of the discovery period?

There are exceptions to every rule, even those that might be "secret."  Federal courts look to a variety of factors when deciding whether to exercise their discretion to rule on a motion to compel filed after the end of discovery.  The case relied on by Judge Robinson, Days Inn Worldwide, Inc. v. Sonia Investments, 237 F.R.D. 395, 397-98 (N.D. Tex. 2006)(Op. ¶18), put those factors as follows:

(1) the length of time since the expiration of the deadline, (2) the length of time that the moving party has known about the discovery, (3) whether the discovery deadline has been extended, (4) the explanation for the tardiness or delay, (5) whether dispositive motions have been scheduled or filed, (7) the age of the case, (8) any prejudice to the party from whom late discovery was sought, and (9) disruption of the court's schedule.

Id. 397-98.

Considering those factors, Judge Robinson ruled the Motion to Compel to be untimely and refused to consider it.  He noted that:

  1. The Motion was filed five weeks after the close of discovery.
  2. It was filed roughly ten months after the Defendant initially objected to the discovery request and when Plaintiff therefore was aware of the Defendant's unwillingness to produce the requested financial information.
  3. The Plaintiff failed to file its Motion immediately, but waited weeks after knowing of the Court's position on the discovery.  There was not an adequate explanation for its delay.
  4. The Motion was filed after the Defendant had filed a Motion for Summary Judgment, which would "disrupt the schedule of [the] litigation."

Op. ¶22.

Despite my reference to a "secret rule," there is no indication in Judge Robinson's Order that this is a rule that will control in other cases before him or whether it will be applied by the other Business Court Judges.  And, if Judge Robinson had wanted to send a message to lawyers practicing in the Business Court. he probably would have published the Order.  Nevertheless, it's safer not to wait until after discovery has ended to file a Motion to Compel.  Unless you can't avoid it.

Who Would Ever Have Thought That Sending A Preservation Letter Might Be Dangerous?

There is probably nothing more routine in litigation today than a Plaintiff's counsel sending a "preservation letter."    A preservation letter, if you've never sent or received one, is a letter sent at the outset of litigation -- or even before it begins -- telling the opposing counsel or party (or even a non-party) to make sure to withhold from destruction documents relevant to the claims.

But who would have ever thought that sending such a routine letter could form the basis for an abuse of process claim?  Apparently it can, based on Judge Robinson's Opinion last month in DDM&S Holdings, LLLC v. Doc Watson Enterprises, LLC, 2016 NCBC 86.

Abuse Of Process

if you need a refresher on what a claim for abuse of process is, it is "the misuse of legal process for an ulterior purpose."  Op. ¶23 (quoting  Chidnese v. Chidnese, 210 N.C. App. 299, 310, 708 S.E.2d 725, 734 (2011)). 

The requirement of an "ulterior purpose"?  That is met when the party accused of the abuse of process takes some willful action after the lawsuit is filed which is aimed at getting the advantage of the opposing party in "some collateral matter."  Op. ¶23.

Judge Robinson spoke to the routine nature of a preservation letter:

Plaintiffs argue that a preservation of evidence letter can never serve as the basis for an abuse of process claim. Indeed, all other things equal, there is nothing inherently improper about a plaintiff sending a letter to individuals who may have relevant evidence requesting that they preserve such evidence. It is a routine litigation practice. The fact that is a routine litigation practice, however, does not mean that such an act can never be used to gain an advantage with respect to some collateral matter. North Carolina courts consistently hold that acts otherwise routine and permissible can constitute an improper act sufficient to satisfy the “act” element of an abuse of process claim.

Op. ¶27 (emphasis added).

The parties to the lawsuit had sold a database, which collected police reports from across the United States, to LexisNexis.  The ulterior motive alleged by the Defendants (via a counterclaim) was that the preservation letter sent to LexisNexis to cause it to withhold distributions from a $2 million escrow fund established in connection with the sale. LexisNexiss did indeed instruct the escrow agent to withhold any distribution from the escrow fund.  The non-payment of money from the escrow fund was alleged by the Defendants to be aimed at coercing and pressuring them to pay more money to the Plaintiffs (which the Defendants said they were not due per the terms of the sale to LexisNexis).

The Allegations Of A Pleading Are Assumed By A Court To Be True

Judge Robinson rejected the argument that a "preservation of evidence letter can never serve as the basis for an abuse of process claim."  Op. ¶27.  The allegations of the Defendants' counterclaim satisfied the bare bones pleading requirements for an abuse of process claim.  As Judge Robinson observed, "[c]oercing a party into paying additional monies is not a purpose for which a preservation of evidence letter is intended." Op. ¶28.  Even though the Plaintiffs denied that coercion was the purpose of their preservation letter, that wasn't enough for them to succeed on their motion to dismiss, as all allegations in a Complaint or counterclaim are accepted as true at the motion to dismiss stage.

This decision highlights the broad latitude that judges, both state and federal, are required to accord to the allegations in a pleading.  Skepticism about the truth of the allegations in a Complaint or Counterclaim is hardly ever sufficient to support a dismissal.  The U.S. Supreme Court said way back in 2009 (in Ashcroft v. Iqbal, 566 U.S. 662 (Souter, J., dissenting) that "[t]he sole exception to this rule lies with allegations that are sufficiently fantastic to defy reality as we know it: claims about little green men, or the plaintiff's recent trip to Pluto, or experiences in time travel."

The allegations surrounding the preservation letter in the DDM&S Holdings case aren't so "sufficient[ly] fantastical" as to fall into the category of little green men, trips to Pluto, or experiences in time travel.

But it remains to be seen whether this abuse of process claim can survive a motion for summary judgment.

What other innocent acts performed in connection with a lawsuit might form the basis for an abuse of process claim?  What about talking to the press?  Sending a notice of deposition or a subpoena?

I don't see an increase in abuse of process claims lying head based on preservation letters being sent.  This ruling wouldn't stop me from sending a preservation letter.



Protecting In-House Counsel From Having To Be Deposed

There a probably few things in legal practice as annoying as getting a Notice of Deposition for your client's in-house counsel.

Are you willing to pursue a Motion for a Protective Order to prevent the deposition?  The Defendant in a case before the Business Court tried that, but its Motion was denied in an Order and Opinion last week from Chief Judge Gale, in Edison v. Acuity Healthcare, 2016 NCBC 82.

The proposed deponent is general counsel and vice president of compliance and risk management for Defendant Acuity  The Defendant, in moving for a Protective Order, said that her deposition would be pointless because it "would be nothing more than a series of objections and instructions to [her] not to answer."  Op. ¶10.

The Shelton Rule

The Defendant premised this Motion on something called the "Shelton rule."  That "rule," if indeed it is a "rule," came from the federal appellate court decision in Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir. 1986).  The rule provides some protection to an attorney who is to be subjected to a deposition.  The Shelton Court held that a party asking to take the deposition of opposing counsel had to show that:

(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case.

Op. 58.

No North Carolina appellate court (federal or state) has adopted the Shelton approach, although it has been followed by two federal district courts in North Carolina.  Op. 13.  (citing CTB, Inc. v. Hog Slat, Inc., No. 7:14-CV-157-D, 2016 U.S. Dist. LEXIS 39024, at  *16–19 (E.D.N.C. Mar. 23, 2016); N.F.A. Corp. v. Riverview Narrow Fabrics, Inc., 117 F.R.D. 83, 85–86 (M.D.N.C. 1987)).  It was also followed by former Business Court Judge Murphy (in Blue Ridge Pediatric & Adolescent Med., Inc. v. First Colony Healthcare, LLC, 2012 NCBC 45).  I wrote about that decision when it was decided four years ago.

Does The Shelton Rule Apply To In-House Counsel?

The Plaintiff argued that the restrictive Shelton rule should not be applied to in-house counsel.  Some Courts have so ruled (cited in Op. 15).  Judge Gale rejected that position, stating that he discerned "no policy reasons that should prevent the Shelton rule from extending to in-house counsel" depending on the objective of the deposition.  He might take a different position "when a deposition targets only litigation strategies rather than necessary, factual information."  Op. 16.

The proposed in-house counsel deponent had been identified by another corporate employee, in a Rule 30(b)(6) deposition, as "the person who could best speak to certain clinical care standards and to consistency among Acuity's hospitals."  Op. 18.

Given her knowledge of facts relevant to the litigation, coupled with the lack of any "evidence . . . showing that she has been substantially involved with overseeing the litigation in this matter,"  (Op. 17), Judge Gale denied the Motion for a Protective Order.

The denial of the Motion doesn't mean that the Court left the Plaintiff to run roughshod over any matters known to the witness that would be protected by the attorney-client privilege.  Judge Gale said that the Defendant could "assert the attorney–client privilege on a question-by-question or subject-by-subject basis, as appropriate, during the deposition."  Op. 18.

Has The Business Court Adopted The Shelton Rule?

At no point in his Opinion did Judge Gale say that the Court had adopted the Shelton rule.  But the last time that the Business Court discussed the application of the Shelton decision (in the Blue Ridge opinion cited above), it applied the rule and quashed the deposition of an attorney who was active in the litigation (he had signed the Complaint). The party requesting the deposition said that it wanted to ask the lawyer about “advice, communications, and receipt of documents [that are] the basis” of Plaintiffs’ suit.  Judge Murphy said that "[s]uch knowledge is precisely the type of information Shelton attempts to protect from disclosure by litigation counsel in a deposition."  Op. 62 (emphasis added).

The circumstances before Judge Gale last week in the Acuity case were quite different.  The lawyer had knowledge of relevant facts.  Remember that "the attorney-client privilege does not protect against the disclosure of facts."  Judge Jolly of the Business Court said that in an unpublished Order back in 2013.

So, if the in-house lawyer of your client has knowledge of the circumstances involved in the lawsuit, her status as a lawyer is unlikely to be sufficient standing alone to protect her from being deposed.



Protecting Your Client's President From Having To Be Deposed: NC Business Court

You have probably been in this situation.  Your client is a successful corporate entity, maybe publicly held.  You are defending the entity in a lawsuit and you receive a Notice of Deposition for the CEO of your client.  The CEO is annoyed, says that she knows nothing about the substance of the lawsuit, and that she's too important (and too darn busy) to sit down for a deposition.  She expects you to get her out of it.

It's a difficult objective.  The NC Business Court has looked at this set of facts a couple of times, Once, a couple of years ago, in an unpublished Order in the case of Gay v. People's Bank (which I wrote about in this post), it granted a Motion for a Protective Order. And last week, in Next Advisor Continued, Inc. v. Lendingtree, Inc, 2016 NCBC 70, the Court denied a similar Motion.

Both decisions came from Judge Bledsoe.  Each time he discussed something called the "apex doctrine," but he decided not to formally adopt it.

The Apex Doctrine

What is the apex doctrine?  It is a federally recognized principle that helps top officers of a corporate client avoid having to be deposed.  In a decision from the Western District of North Carolina, it was described as follows:

The 'apex doctrine,' rooted in Federal Rule of Civil Procedure 26, was developed as an aid in ensuring that the liberal rules of procedure for depositions are used only for their intended purpose and not as a litigation tactic to create undue leverage by harassing the opposition or inflating its discovery costs.

Op. ¶14 (quoting Performance Sales & Mktg. LLC v. Lowe's Cos., 2012 U.S. Dist. LEXIS 131394, at *16 (W.D.N.C. 2012)).

The apex doctrine doesn't presumptively exclude the litigant's top officer from being deposed.  It puts the burden on the party asking for the deposition to show that “(1) the executive has unique or special knowledge of the facts at issue and (2) other less burdensome avenues for obtaining the information sought have been exhausted."  Id.

If you are in federal court and are thinking of filing a Motion for a Protective Order to keep your client's President from having to endure the pain of a deposition, Judge Bledsoe's Opinion in the Next Advisor decision contains a comprehensive discussion of the federally recognized apex doctrine (in ¶¶13-14).

North Carolina Standards In Lieu Of The Apex Doctrine

Judge Bledsoe said that North Carolina's courts had not adopted the apex doctrine, and that he found it unnecessary to do so.  He said that our Courts "are permitted to limit discovery where 'justice requires it' to protect a party or person, including a corporate executive, 'from unreasonable annoyance, embarrassment, oppression, or undue burden or expense.'" Op. ¶15.  Discovery can also be limited if it is “unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive,” or is “unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties’ resources, and the importance of the issues at stake in the litigation.” N.C. R. Civ. P. 26(b)(1a)."  Order ¶15.

So, Judge Bledsoe followed those general principles in ruling that Plaintiff's CEO would have to be deposed.  He said that the CEO had "unique, personal knowledge relevant to the issues in dispute in this litigation" relating to Defendant's attempted acquisition of the Plaintiff."  Op. ¶17.

A CEO Being "Too Busy" Isn't Enough To Warrant A Protective Order

He rejected Plaintiff's argument that the CEO "carri[ed] heavy responsibilities as the CEO of a publicly traded company with over 300 employees" and that he should be protected from having to be deposed for that reason.  He held that:

Although [the CEO] undoubtedly maintains a very busy schedule and carries heavy responsibilities in his role as Lending Tree’s CEO, courts have consistently held that if a prospective deponent has relevant knowledge, the mere fact that the prospective deponent is a CEO or is busy does not constitute a showing of good cause for a protective order.

Op. ¶18.

Given that the CEO had direct knowledge of some of the issues in the case, Judge Bledsoe found that the Defendant's right to obtain relevant information from him "outweighed any burden or inconvenience imposed [the CEO] by requiring him to prepare for and submit to a deposition."  Op. ¶19.

There was no evidence of "annoyance," "harassment," or "undue burden" to the CEO.

If you are wondering why a similar Motion for a Protective Order in the People's Bank case was granted, it was a different set of facts.  The Defendant in that case, a "relatively small bank," had already provided four of its executives for their depositions and argued that further depositions of its top officers would be repetitive of those already taken and disruptive to its operations.  Judge Bledsoe said that he was "persuaded that Defendant faces a sufficient risk of disruption and undue burden in these circumstances to afford Defendant limited relief."  Order ¶21.  He permitted the deposition of the bank's Chief Operating Officer, but prohibited the depositions of its Chief Financial Officer and its Chief Administrative Offer.  That Order was without prejudice to the Plaintiff being allowed to re-notice the depositions of the CFO or the CAO.












Be Very Careful If You Are Instructing Your Clients Not To Answer Questions At A Deposition

In an (unpublished) Order last week in Griggs v. Bittersweet Farms, LLC, Judge McGuire ruled that Plaintiffs' counsel's instruction to his client not to answer certain deposition questions was improper.  He granted a Motion to Compel responses to the unanswered questions, denied a Motion for Protective Order to excuse the Plaintiffs from having to respond, and ordered the Plaintiffs to pay Defendants' attorneys' fees for the cost of Making the Motion to Compel.

Instructing a witness not to answer a deposition question is pretty much forbidden unless a privilege is at issue.  There are rules in almost all courts about this practice.

The Rules On Instructing A Witness Not To Answer

Rule 30 of the North Carolina Rules of Civil Procedure says that: "[s]ubject to any limitations imposed by orders entered pursuant to Rule 26(c) or 30(d), evidence objected to shall be taken subject to the objections."  NCRCP 30(c).  The italicized portion of the Rule has been interpreted to mean that counsel is prohibited "from instructing a witness not to answer where only an objection is proper."  Order ¶4

The federal rule is more specific.  It says that:

A person may instruct a deponent not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3).

FRCP 30(c).  It also says that: "An objection must be stated concisely in a nonargumentative and nonsuggestive manner."

The Business Court has a Rule dealing specifically with when you may instruct a witness not to answer a question.  That is Business Court Rule 18.3:

Counsel shall not direct or request that a witness not answer a question, unless that counsel has objected to the question on the ground that the answer is protected by a privilege or a limitation on evidence directed by the Court.

Business Court Rule 18.3(a).  The Business Court Rule also deals with "speaking objections," saying that "[c]ounsel shall not make objections or statements which might suggest an answer to a witness." BCR 18.3(b).  Objections are to "be succinct, stating briefly the basis of the objection and nothing more."  Id.

The Griggs' Depositions

The questions which the witnesses in the Griggs case refused to answer fell into two categories.  The first was questions concerning the Plaintiffs' net worth, which the Defendants said were relevant to the Plaintiffs' ability to pay punitive damages if the Defendants succeeded on their counterclaims.  The basis for the refusal to answer those questions was that they were intended to "annoy, embarrass or oppress" the witnesses.  The second category of questions concerned a criminal proceeding pending against one of the Plaintiffs.

Judge McGuire said that he understood the Plaintiffs' desire to avoid disclosing their personal financial information in what he said was "an acrimonious family lawsuit,"  (Order ¶4), but he said that the protective order protecting that information should have been sought "prior to, or at the very latest during, the depositions."  Order ¶4.

The NC Rules of Civil Procedure expressly permit counsel to seek a protective order in the midst of a deposition (it's in Rule 30(d)), but I can't imagine a Judge being instantly available to resolve such a dispute.  As far as seeking a protective order "prior to" a deposition, how can a lawyer prophesize in advance of a deposition what opposing counsel might ask that she would want to prohibit?

The effort of Plaintiff's counsel to obtain a Protective Order was hurt by him waiting nearly seven months after the depositions to request it.  Given that the Motion to Compel involved depositions occurring on several different days, Plaintiff's counsel could have moved for a Protective Order after the first deposition.

Attorneys' Fees

In addition to granting the Motion to Compel, Judge McGuire ordered the Plaintiffs to pay more than $3,000 in attorneys' fees for their misconduct..  Rule 37(a)(4) says that the Court shall award attorneys' fees if it grants a Motion to Compel "unless the Court finds that the opposition to the motion was substantially justified or that other circumstances make an award of expenses unjust."

After finding that the opposition to the Motion to Compel was not "substantially justified, Judge McGuire awarded $3,312.50  in fees.  The individual Plaintiffs are responsible for half of the sanctioned amount, and their counsel is responsible for the other half.


A Valuable Point From The NC Business Court On Subpoenas Without Depositions

Can you send a subpoena duces tecum -- which translated from Latin is "a writ commanding a person to produce in court certain designated documents or evidence " --  without coupling it with a deposition?

Maybe that question has never puzzled you, but in an Order of the Business Court on February 12, 2015 in Harriott v. Central Carolina Surgical Eye Associates, P.A. Judge Bledsoe answered whether a subpoena duces tecum can be served without noticing a deposition in conjunction with the subpoena.

Plaintiff had served a subpoena duces tecum on several entities which were not party to the case. Those entities objected contending that a "subpoena duces tecum must be issued in conjunction with a proceeding in which testimony is to be received."

Judge Bledsoe disagreed, ruling "a subpoena duces tecum . . . can . . . be used to compel a non-party to produce documents without a concurrent request to testify."  Order at 1-2.

The governing Rule of Civil Procedure (NCRCP 45) is less than clear on this point. It says that a "command to produce records, books, papers, electronically stored information, or tangible things may be joined with a command to appear at trial or hearing or at a deposition, or any subpoena may be issued separately." NCRCP 45(a)(2).

The federal rule, by contrast,  is explicit on being able to serve a subpoena for documents without a contemporaneous deposition.  It says that:

Combining or Separating a Command to Produce or to Permit Inspection . . . . A command to produce documents, electronically stored information, or tangible things or to permit the inspection of premises may be included in a subpoena commanding attendance at a deposition, hearing, or trial, or may be set out in a separate subpoena.


So, if there was any doubt about this practical nuts and bolts issue, state law practice is now consistent with the federal rule.  Subpoena away.  At least in the Business Court.

The Interrogatory That Does Not Warrant An Objection Based On Privilege

There was enough worth talking about in Judge Bledsoe's opinion in National Financial Partners Corp. v. Ray, 2014 NCBC 49, which I posted about yesterday, to warrant a second post.

What I didn't discuss yesterday was the question answered in the National Financial opinion: whether a lawyer can object, on the basis of privilege, to an interrogatory asking him or her to identify all the documents relied upon in responding to the entire set of interrogatories.

I used to routinely object to that type of interrogatory because I felt that it intruded on the work product privilege.  I don't remember ever facing a Motion to Compel on that objection, but I would probably adjust that response now because it has been deemed unsustainable by Judge Bledsoe.

He said in the National Financial decision that:

in merely seeking identification of documents, [that type of interrogatory] requests only factual information that is not confidential or privileged and, therefore, offends neither the work product doctrine nor the attorney-client privilege.

Op. ¶43 (relying on  Berlinger v. Wells Fargo, N.A., 2012 U.S. Dist. LEXIS 26650, at *5-6 (M.D. Fla. March 1, 2012).

At least I can still object legitimately to interrogatories asking me to identify my trial witnesses.  Judge Bledsoe held a few weeks ago that:

North Carolina law is clear that 'a party is not entitled to find out, by discovery, which witnesses his opponent intends to call at the trial.'

Gay v. Peoples Bank. 2014 NCBC 45 at ¶24 (quoting King v. Koucouliotes, 108 N.C. App. 751, 755, 425 S.E.2d 462, 464 (1993)).




Don't Throw The Kitchen Sink Of Defenses Into Your Answer

Say you are filing an Answer to a Complaint.  NC Rule of Civil Procedure 8(c)  lists a host of affirmative defenses you might raise.  They are:

accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, truth in actions for defamation, usury, waiver, and any other matter constituting an avoidance or affirmative defense.

Do you want to plead all of those, even though you don't currently have a basis to support them, hoping that you will find some facts in discovery to support them?

That's pretty much what the Plaintiffs did when responding to a crossclaim in National Financial Partners Corp. v. Ray, 2014 NCBC 49, decided on Wednesday by Judge Bledsoe.  The Plaintiffs raised nearly fifty affirmative defenses, hoping that they would generate facts later on to support their myriad defenses.

Many of their defenses were not supported by any facts pertinent to the lawsuit, although the Plaintiffs argued that it was too premature in the litigation for their affirmative defenses to be dismissed and that discovery might yield facts to support their defenses.

The Defendants moved to strike per NCRCP 12(f).  Judge Bledsoe wrote that:

'[T]o survive a motion to strike, a defendant must offer more than a "bare-bones conclusory allegation which simply names a legal theory but does not indicate how the theory is connected to the case at hand."'

Op. ¶34 (quoting Villa v. Ally Fin., Inc., 2014 U.S. Dist. LEXIS 25624, at *6 (M.D.N.C. Feb. 28, 2014)(citation omitted).

It didn't make a difference that the Plaintiffs had a good faith belief that discovery might provide a basis for the defenses stricken by Judge Bledsoe. He said that:

Plaintiffs’ professed good faith belief that their presently unsupported defenses will acquire the requisite factual support through the discovery stage of these proceedings does not alter the reality that these defenses were speculative at the time Plaintiffs asserted them in their responsive pleading.

 Op. ¶35.

Some of the arguments raised by the Plaintiffs in support of the defenses they had stated revealed their speculative nature on their face.  For example, on their defense of accord and satisfaction, Plaintiffs said that:

'[i]t is . . .far from certain that I[] Plaintiffs did not receive full and complete return of whatever funds they provided to Mr. Stokes'.

And the defense of "another action pending" was also quite imaginary.  The Plaintiffs said that:

'[n]o action is pending of which Plaintiffs are currently aware' but noted that '[s]uit may have been filed against Defendants somewhere else or against Plaintiffs in some other jurisdiction.'

Op. ¶¶35(iv) and (ix).

If you are, like me, too critical to be an even-tempered Judge and are wondering if there are sanctions available against a party pleading a horde of defenses without any factual support for them, the answer is that there might be.  Judge Bledsoe observed in a footnote that "Plaintiffs’ assertion of numerous affirmative defenses with little or no factual support can also raise concerns under Rule 11 of the North Carolina Rules of Civil Procedure."  Op. ¶36 & n.7.

He also quoted a Third Circuit case for the proposition that: “the practice of ‘throwing in the kitchen
sink’ at times may be so abusive as to merit Rule 11 condemnation.”)  Id. (quoting  Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 97 (3d Cir. 1988)).

But no sanctions were entered.  Judge Bledsoe struck fifteen of the speculative defenses with leave to the Plaintiffs to plead them again in the event that they were able to develop evidence through discovery that the defenses could be properly asserted.  Op. ¶36.


One Superior Court Judge Overruling Another?

You are all familiar with the old adage that "one Superior Court Judge cannot overrule another Superior Court Judge."  But apparently there is at least a little bend in that rule, as illustrated by Judge Bledsoe's opinion this past Thursday, in Taidoc Technology Corp. v. OK Biotech Co., 2014 NCBC 48.

The Taidoc case is one that Judge Bledsoe inherited after Judge Murphy's retirement.

Judge Murphy had entered a discovery order in June 2014 granting in part Taidoc's Motion to Compel.  The Order allowed Taidoc to take the depositions of certain non-parties, but imposed restrictions which Taidoc did not appreciate. 

The proposed deponents had been involved in a related case in which Taidoc had been the Defendant, and they also had been deposed in that case and had testified at trial.  Judge Murphy's Order allowing the depositions limited the proposed deposition testimony to "matters not addressed by prior depositions of those witnesses."  The Order also provided that Taidoc would bear the fees and costs associated with any of the depositions, including the attorneys' fees of the deponents.

Taidoc said that Judge Murphy's restrictions should be overruled and stricken, or at least clarified.  Taidoc suggested in its Motion regarding the Order that counsel for the witnesses was taking the position that the Order cut off Taidoc's right to ask about any events occurring after a certain date.

Criteria For Overruling Another Judge's Decision

Judge Bledsoe stated the limited conditions under which he could change Judge Murphy's Order.  He said that:

our appellate courts have held that “[o]ne superior court judge may only modify, overrule, or change the order of another superior court judge where the original order was (1) interlocutory, (2) discretionary, and (3) there has been a substantial change of circumstances since the entry of the prior order.”

Op. ¶11 (quoting Crook v. KRC Mgmt. Corp., 206 N.C. App. 179, 189, 697 S.E.2d 449, 456 (2010).

Although the Order met the first two requirements for being modified --  being interlocutory and discretionary -- Judge Bledsoe found that there was no basis to find that there had been a "substantial change of circumstances" in the four months since Judge Murphy had entered his Order.

But the lack of changed circumstances didn't stop Judge Bledsoe from interpreting the Order, which he found to be somewhat ambiguous and capable of different interpretations.  He said that the words used by Judge Murphy in his Order -- that the depositions be limited to "matters not addressed by prior depositions of the same witnesses" -- were meant to avoid "unnecessarily duplicative examinations" of those witnesses and to prevent Taidoc from posing the same questions in the hope of obtaining different answers.  Op. ¶16.

He said that Taidoc could:

ask any questions and engage in any specific line of inquiry that was not pursued by Plaintiff in the prior depositions of the Non-Parties concerning any document, thing, person, event or fact, provided such inquiry is consistent with the requirements of Rule 26 and any other applicable rules of the North Carolina Rules of Civil Procedure.

Op. ¶16.

Judge Bledsoe also weighed in on the obligation that the Order had placed on Taidoc to pay the fees and costs associated with the depositions of the previously deposed witnesses, including the attorneys' fees of the deponents.  He ruled that any fees and costs presented for payment had to be "reasonable under the circumstances" and that Taidoc should be allowed to contest the reasonableness of the fees and costs before having to pay them."  Op. ¶17.

Surely that's what Judge Murphy intended in the first instance.

Judge Bledsoe Was Unwilling To Award Attorneys' Fees Which Judge Murphy Possibly Should Have Awarded

Judge Bledsoe refused to alter Judge Murphy's refusal to award attorneys' fees to Taidoc's lawyers with regard to the Motion that resulted in the Order at issue.  Although the Plaintiff had prevailed on the Motion to Compel leading to Judge Murphy's Order, and Rule 37(a)(4) says that fees shall be awarded to the prevailing party on a Motion to Compel, Judge Murphy had never made findings that the Defendant's opposition was "substantially justified" or that a fee award would be "unjust under the circumstances," which would have excused an award of fees,

Even if Judge Murphy not awarding fees was mistaken, which Judge Bledsoe did not suggest, he said that "one Superior Court Judge may not correct another's errors of law."  Op. ¶26 (quoting Calloway v. Ford Motor Co., 281 N.C. 496, 501, 189 S.E.2d 484, 488 (1972)).

So if you are a lawyer handling a case before Judge Bledsoe in which Judge Murphy previously entered an Order, your chances of getting a previous ruling overruled are pretty slim.  But getting an interpretation of an earlier ruling more favorable to your client seems possible.

There's more interesting stuff in Judge Bledsoe's ruling, especially on when a party can withdraw its responses to Requests for Admission.  Or more precisely, when can a party withdraw admissions made as a result of its failure to respond timely to the Requests.  That's in Paragraphs 29 through 35 of the Opinion.




Business Court Resolves A Trio Of Discovery Issues

Three interesting discovery issues were resolved last week by Judge Bledsoe's Order in Gay v. Peoples Bank.  First, can you obtain in discovery in a class action the fee arrangement between the plaintiff and his  lawyers?  Second, can you obtain (in any kind of case) a protective order against the deposition of your client's top executives?  And third, can you refuse to respond to an interrogatory asking you to identify the witnesses you intend to call at trial?

The answers to those very questions are contained in the Order.

Discoverability Of Engagement Letters In Class Actions

Gay is a purported class action against Peoples Bank regarding overdraft charges.  Peoples asked Gay to produce "letters or other forms of agreement concerning the terms of [Plaintiff's] representation by [his] lawyers in the case."  Order ¶2.

Gay responded that the engagement letter was privileged and not relevant to the subject matter of the litigation.

Judge Bledsoe observed that this was a case of first impression in North Carolina, stating that "[t]he North Carolina appellate courts do not appear to have addressed the production of an attorney fee agreement in a purported class action."  Order  ¶13.

But multiple federal courts have ruled on this issue and have generally held that fee agreements are not relevant to the issue of class certification.  See, e.g., Stanich v. Travelers Indem. Co., 259 F.R.D. 294, 322 (N.D. Ohio 2009)("Most courts . . . find [discovery of fee agreements] irrelevant to the issue of class certification, except perhaps to determine whether the named plaintiffs and class counsel have the resources to pursue the class action.").

Fee agreements can become relevant later in a case, however, if the class obtains a judgment or a settlement in its favor.  See, e.g., Porter v. NationsCredit Consumer Disc. Co., 2004 U.S. Dist. LEXIS 13641, *7 (E.D. Pa. 2004)('[f]ee agreements may be relevant . . . to the question of awarding attorney's fees upon settlement or judgment.").

Judge Bledsoe said that he found the federal cases persuasive, and ruled that the fee arrangement between Gay and his counsel was not relevant to the subject matter of the case and therefore not subject to discovery.  He denied the Bank's Motion to Compel without prejudice to its renewal at a later stage in the case.

But the Bank was successful at this point on a couple of separate issues: to prevent two of its top executives (its CFO and its Chief Administrative Officer) from being deposed, and to avoid having to respond to an interrogatory asking it to identify its witnesses for trial.

Protective Order Against Discovery Of Top Executives

The Bank said that five of its Officers had already been deposed and that further depositions of its C-level officers would be unduly burdensome, unnecessary and repetitive.

The Court gave a passing nod to something known as the "apex doctrine."  Judge Bledsoe wrote that:

[u]nder the apex doctrine, 'before a plaintiff may depose a corporate defendant's high ranking officer, the plaintiff must show how "(1) the executive has unique or special knowledge of the facts at issue and (2) other less burdensome avenues for obtaining the information sought have been exhausted."'

Order ¶18 & n.4 (quoting Smithfield Business Park, LLC v. SLR Int'l Corp., 2014 U.S. Dist. LEXIS 16338, *6 (E.D.N.C. 2014)).

But the Judge didn't go down the road of accepting the apex doctrine.  He accepted the Bank's argument that the additional depositions of the chief officers were unnecessary and that they would disrupt the Defendant's operations. He ordered that the depositions not be taken.

You Don't Have To Identify Your Trial Witnesses Before Trial

The Court also dealt with the issue whether the Bank was obligated to identify the witnesses it would be calling at trial so that the Plaintiff could decide whether to depose them before the end of discovery.  Apparently the Plaintiff's counsel raised this issue at a hearing, and had not served an interrogatory asking for this information. 

Judge Bledsoe observed that "[i]t is axiomatic that Defendant is not obligated to provide answers to interrogatories that Plaintiff has not yet served."  Order ¶23.

But even if an interrogatory requesting that information had been served, it would have been denied.  Judge Bledsoe stated that:

North Carolina law is clear that 'a party is not entitled to find out, by discovery, which witnesses his opponent intends to call at the trial.'

Order ¶24 (quoting King v. Koucouliotes, 108 N.C. App. 751, 755, 425 S.E.2d 462, 464 (1993)).

The Bank is represented by Reid Phillips and Dan Smith of Brooks Pierce.




NC Business Court Puts Teeth In Protective Order

I've never thought much about the consequences of the violation of a Protective Order.  In fact, before last week's Business Court ruling in Out of the Box Developers, LLC v. Logicbit Corp., 2014 NCBC 7, no North Carolina case had "squarely addressed whether Rule 37 permits sanctions for violations of Rule 26(c) protective orders." Op. 5.

But now we know that a North Carolina court can issue sanctions for a violation of a protective order because Judge Gale ruled so in the Out of the Box decision.  If you are surprised that this was uncharted territory for a North Carolina court, you probably should be.  Judge Gale cited nearly a dozen federal district court decisions, dating back more than ten years,  reaching the same conclusion.  Op. 5 & n.2.  Though he cited none from a North Carolina federal court.  Perhaps there weren't any.

So what had the Defendants done that warranted sanctions?  One of the Defendants had posted on the internet a document subject to the protective order that had been produced to it.  The document hadn't been designated as "confidential," but "it bore a Bates stamp and was clearly a document produced in discovery covered by the Protective Order's restriction that it not be used for business or competitive purpose or any other purpose unrelated to the litigation of [the] case."  Op. 19.

The sanctions imposed were the striking of the Defendants' counterclaims as well as their affirmative defenses.

The discovery process in the Out of the Box case has not been smooth.  The Defendants were previously sanctioned for $38,000 for failing to comply with production orders from the Court; and the Court also issued an interesting ruling last year about subpoenas directed to non-parties.


You Can't Appeal That! Or Can You?

You may remember the case of Out of the Box Developers, LLC v. Logicbit Corp.  It has spawned a couple of interesting discovery decisions.  One was on subpoenas to third parties, another involved nearly $40,000 in sanctions for attorneys' fees against two of the Defendants for failing to comply with a discovery order.

Now there's something new in that case.  Judge Gale followed that nearly $40,000 sanctions order  with an October 4th Order ruling that the Defendants had violated a Protective Order by posting on the internet  information which it had obtained during discovery.  He allowed the Plaintiff some limited discovery on the extent of the protective order violation, and deferred his ruling on sanctions "until a later date."

I blinked when the Defendants filed a notice of appeal  the same day that the Order was entered.  Can you even appeal a discovery ruling?  Isn't it interlocutory?  The appealability of non-final judgments is not an issue I focus on, though it does seem like half of the output from the North Carolina Court of Appeals involves a discussion whether an appeal is interlocutory.  If you like reading about that issue or other appellate procedure quirks, the North Carolina Appellate Practice blog discusses them frequently.

Did the Defendants care if the October 4th Order was immediately appealable?  Maybe not.  Maybe they thought that even if they ended up having their appeal dismissed as interlocutory by the COA a year down the line, at least they would have delayed the discovery contemplated by the Order.

Their next step was to ask Judge Gale for a stay of all proceedings in the Business Court while their appeal proceeded. 

That motion was denied by Judge Gale, who ruled last week in a November 1st Order that his October 4th Order was not immediately appealable.  Now, wait, you are thinking.  The trial court can't do that, can it?  Isn't it an issue for the appellate court?

Well, the North Carolina Court of Appeals has held that a trial court can determine whether its own Order is immediately appealable:

The trial court has the authority. . .  to determine whether or not its order affects a substantial right of the parties or is otherwise immediately appealable. See Utilities Comm. v. Edmisten, Attorney General, 291 N.C. 361, 365, 230 S.E.2d 671, 674 (1976); Veazey, 231 N.C. at 364, 57 S.E.2d at 382-83; T & T Development Co., 125 N.C.App. at 603, 481 S.E.2d at 349; Benfield v. Benfield, 89 N.C.App. 415, 420, 366 S.E.2d 500, 503 (1988).

 RPR & Assocs., Inc. v. University of North Carolina, 153 N.C. App. 342, 348, 570 S.E.2d 510, 514 (2002).

So what's next for the Defendants?  Apparently, a motion in the Court of Appeals.  The RPR & Associates case says that:

Pursuant to Appellate Rule 8, a party may apply to the appellate courts for a stay when the trial court chooses to proceed with the matter. See N.C.R.App. P. 8 (2002).

Id.  The Defendants stated in a November 4th filing that they intend to file a Petition for a Writ of Supersedeas.  [Update: That Petition was filed on November 6th.]

It might be that the parties will never get to the merits of this case, with all the wrangling over discovery issues.


Who Doesn't Like Reading About A Ruling On A Motion To Compel?

I probably enjoy reading a ruling on a motion to compel a whole lot more than the judge does in writing it.  So of course I enjoyed reading Judge Murphy's Order on a Motion to Compel yesterday in County of Catawba v. Frye Regional Medical Center.  It's actually pretty interesting.  It's got discovery issues, a 30(b)(6) issue, and an attorney-client privilege issue too.

Frye Regional moved to compel because the County hadn't organized and labelled its document production to respond to the request to which the documents were responsive.  Frye Regional's co-defendant re-served the same document requests to which the County had already responded, demanding labelling.  Rule 34 requires labelling, but it also allows a party in the alternative to produce documents as they are kept in the "ordinary course of business."  Judge Murphy accepted the County's representation that it had produced its documents as they were kept in the ordinary course of business, and denied that aspect of the motion to compel. 

The County was more successful on its own Motion to Compel.  Frye Regional had refused to produce a witness on some of the topics listed in the County's 30(b)(6) deposition notice.  The Defendant had argued that a number of the topics in the notice requested information not "known or reasonably available" to it.  Frye Regional said that the proposed topics -- on its financial performance -- would require its witness to make burdensome calculations and compilations that it did not ordinarily perform.

Judge Murphy said:

While the Court is cognizant of the fact that the Rule 30(b)(6) Notice, by its nature, imposes a heavy burden on Frye and its designee, this burden does not relieve Frye of its obligation to appoint a designee to provide deposition testimony on behalf of the company. Rule 30(b)(6) clearly states that, upon notice from the requesting party, the organization “shall designate” a representative to “testify as to matters known or reasonably available to the organization.” N.C. R. Civ. P. 30(b)(6). Having considered Plaintiff’s Motion and the arguments of counsel, the Court finds no basis to relieve Frye of its obligation under Rule 30(b)(6). Therefore, the Court concludes that Frye must respond to the Rule 30(b)(6) Notice [and] designate a witness to testify on the company’s behalf.

Order ¶20.

The County also sought documents from Frye Regional by its Motion to Compel.  These were "Quarterly Certifications" prepared by Frye Regional's parent to prepare filings required by the federal government under the Sarbanes Oxley Act.

Frye Regional had withheld those documents on the basis of attorney-client privilege, but Judge Murphy said that any privilege belonged to Frye Regional's parent company (Tenet), not to Frye Regional.  He held:

the documents in question reflect communications between a Tenet employee and Tenet executives and counsel.  Although Frye appears to be a subsidiary of Tenet, Frye remains a third party to any privileged communications between Tenet and its counsel, and therefore, has no standing to assert a claim of privilege over such communications. . . . Therefore, the Court concludes that only Tenet or an attorney on its behalf may raise a claim of privilege over the requested portions of the Quarterly Certifications and accompanying memos.

Op. ¶22.

If the issue of the invocation of the parent's attorney-client privilege by a subsidiary is ringing a distant bell in your mind, you might be thinking of Judge Gale's recent opinion in SCR-Tech v. Evonik Energy Services LLC, 2013 NCBC 42,which I wrote about in August.  Though the issue in SCR-Tech wasn't precisely whether a subsidiary can claim its parent company's privilege, that certainly seemed assumed in the opinion.  At the hearing in this case, Frye Regional's counsel stated that the privilege belonged to Tenet, not Frye Regional. Op. ¶22.

But all is not lost for the privilege  -- Judge Murphy ordered that Tenet should be given notice of his ruling and be allowed to intervene to protect its privilege.

The County is represented by Brooks Pierce lawyers Jimmy Adams, Forrest Campbell, and Justin Outling.


Business Court Awards $38,000 In Fees For Opposing Party's Failure To Comply With Discovery Order

Have you ever billed a client nearly $65,000 for pursuing a motion to compel? Maybe you routinely handle mega-cases and you aren't goggled by the size of that kind of fee  But that was the amount of the fee sought last month, in Out of the Box Developers, LLC  v. Logicbit Corp. following Plaintiff's win on a motion for sanctions growing out of a discovery dispute.  It was sizeable enough to catch my attention.

The case is about the Defendants' alleged theft of Plaintiff's customizations to its case management software.  The Defendants' product, aimed at  use by bankruptcy attorneys, is marketed under the name HoudiniEsq.   During discovery, Plaintiff requested production of the version of HoudiniEsq used by one of the Defendants in May 2010, which would have allowed Plaintiff to isolate the customization to the software as of that time.

Despite an April 12, 2013 Order from the Court directing the production of that version of the software, the two Defendants at which the Order was directed -- The Doan Law Firm and Doan Law, LLP -- failed to comply.  Judge Gale ruled in 2013 NCBC 32 that there was no justifiable reason for the noncompliance. Op. 41.  He found it egregious enough to warrant the "severe sanctions" allowed by Rule 37(b)(2) of the North Carolina Rules of Civil Procedure.  Op. 44.

Instead of imposing those severe sanctions -- like striking pleadings or barring the Defendants from defending against a claim as allowed by Rule 37(b)(2) --  Judge Gale ruled that the Plaintiff should be reimbursed its "reasonable costs and expenses" associated with the several motions to compel made necessary by the Doan Defendants' failure to produce the software.

The issue of the reasonableness of the costs and expenses was decided by the Business Court in 2013 NCBC 34.  Plaintiff's lead counsel had filed an Affidavit requesting an award of $63,714.57.  That was based on fees the fim had billed for three motions to compel and the hearing for sanctions which led to the Court's final discovery ruling.


Continue Reading...

Fourth Circuit Takes A Narrow View On Recovery Of E-Discovery Costs

You've undoubtedly prevailed in a federal case -- either at summary judgment or after a trial -- and you have probably struggled with what you are entitled to recover as costs under 28 U.S.C. §1920.  And recently, your client, being the victor, most likely has asked about the recovery of its costs associated with the production of electronically stored information.

The Fourth Circuit's decision on Monday of this week in The Country Vintner v. E & J Gallo Winery, Inc. gives answers to those questions, but your prevailing party client won't like them.

Gallo ran up bills from e-discovery vendors of more than $100,000 in its production to the Plaintiff of its ESI, and it sought to have the District Court award that as an element of costs.  The bulk of that amount was for "flattening" and "indexing" the ESI. The Court defined that as the "initial processing" of the data, which:

involved decompressing container files (e.g., ZIP files or Microsoft PST files); making the data searchable by extracting text and creating Optical Character Recognition for text that could not be extracted; indexing the data; removing system files that were known not to contain any user-generated content; and removing duplicate files. 

Op. at 5.

That part of the application for costs was denied by the District Court, which was affirmed by the Fourth Circuit.

The Court was constrained by the terms of 28 U.S.C. sec 1920(4), which says that a "judge or clerk of any court of the United States may tax as costs . . . fees for exemplification and the cost of making copies of any materials where the copies are necessarily obtained for use in the case."

The heart of the holding was in the narrow definition of "making copies."  The Court relied on the Third Circuit's decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), which held that "only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved 'copying'" within the meaning of §1920(4).  Id. at 171.

Judge Davis of the Fourth Circuit ruled that "subsection (4) limits taxable costs to . . . converting electronic files to non-editable formats, and burning the files onto discs."  Op. at 21.  Thus, Gallo recovered only about $600 of the more than $100,000 it had asked for.
Why so little?  Well, as the Supreme Court has said,
Taxable costs are a fraction of the nontaxable expenses borne by litigants for attorneys, experts, consultants, and investigators. It comes as little surprise, therefore, that costs almost always amount to less than the successful litigant’s total expenses in connection with a lawsuit.
Taniguchi v. Kan P. Saipan, Ltd., 132 S. Ct. 1997, 2006 (2012).
If you don't like this result, your only option may be to move to England, where "loser pays" is the general rule.





Subpoenas To Non-Parties: A Few Ground Rules

If you are in NC state court and want to take the deposition of an out-of-state non-party, the Order last week in Out of the Box Developers, LLC v. Logicbit Corp. carries a few lessons.

Serving A Subpoena.  You can't serve a subpoena on a non-party through their counsel unless they are authorized to accept service.  That's true even if counsel has appeared in the case.  Only parties can be served through their counsel of record, per Rule 5(b) of the Rules of Civil Procedure

The subpoena at issue in Out of the Box was directed to LexisNexis, which is based in Massachusetts. LexisNexis had appeared in the case to move to quash an earlier subpoena, so the party serving the new subpoena apparently thought it was valid to serve its North Carolina counsel.

Place Of Deposition.  The subpoena called for LexisNexis to present its witness in North Carolina. Judge Gale ruled that LexisNexis could not be required to send its witness to North Carolina.  He relied on a Business Court ruling of six years ago that:

the existence of personal jurisdiction over a non-party foreign corporation, standing alone, is insufficient to extend the Court's subpoena power to that corporation for purposes of a deposition or the production of documents.

AARP v. American Family Prepaid Legal Corp., 2007 NCBC 4 (February 23, 2007).

30(b)(6) Deposition Topics.  The last lesson of Out of the Box is that when Rule of Civil Procedure 30(b)(6) says that the topics on which a corporation is to designate a witness must be stated with "reasonable particularity," it really means it. The Defendant framed its topics in an expansively broad way, like the name of the software product at issue "in the broadest sense and including any and all conceivable topics."  Judge Gale found the subjects identified to be too broad, and recast them in his own terms.




How NOT to Quash An Out Of State Subpoena

You've gone through the laborious process of getting a subpoena issued in another state for production of documents.  You've had a commission issued by the Superior Court and you've hired out-of-state counsel to get the subpoena.

But now, opposing counsel shows up in North Carolina Superior Court and moves to quash the subpoena issued in another state by way of a North Carolina commission.

What do you do?  Not what the Plaintiff did in Capital Resources, LLC v. Chelda, Inc., decided this week by the NC Court of Appeals.  Capital persuaded the NC judge to enter a Protective Order quashing several out-of-state subpoenas.  In addition, the Protective Order directed that it should be served on each recipient of the subpoenas and on each clerk of court issuing the subpoenas.

The Court of Appeals, through Judge Stephens, said that "a superior court judge in this State does not have any authority over the courts of other states, and thus could not quash subpoenas issued by such courts."  Op. 13.

The orders quashing the subpoenas were "void and of no effect."  Op. 13.  They were so void that Judge Stephens said that the out-of-state courts "could simply have ignored" them.  Id.

By like measure, the party pursuing the subpoeanas has to seek their enforcement in the foreign courts.  The Court held that:

Had [the party issuing the subpoeanas] wished to proceed with its attempt to obtain documents under the . . . subpoenas, [it] could have requested those out-of-state courts to notify the subpoena recipients that Judge Levinson’s order was to no effect. To the extent the entities in question failed to comply with the subpoenas, [Its] remedy was to initiate contempt or other proceedings in those states’ courts as
provided for by their rules of civil procedure. Had [it] thus obtained any documents it felt relevant to this action, it could have attempted to introduce such in this case.

Op. 14.

It's pretty clear that the federal practice is the same.  FRCP 45(c)(3) gives the power to quash a subpoena to the "issuing court."  The issuing court is also given the power to "hold in contempt" a person who fails "without adequate excuse to obey the subpoena,"  FRCP 45(e).

On a related issue, Judge Diaz of the Business Court held four years ago in Hilb Rogal & Hobbs Co. v. Sellars (unpublished) that a North Carolina court has no power to order an out-of-state resident to comply with a subpoena.






Motion to Compel Yields in Camera Review of Discovery to Bank

The Order on the Motion to Compel last week in WNC Holdings, LLC v. Alliance Bank & Trust Co. will be of particular interest to lawyers in litigation with banks.

The case deals mainly with the discoverability of a bank's "compliance review documents."  Those are defined by statute as "documents prepared for or created by a compliance review committee."  N.C. Gen. Stat. sec 53-99.1(a)(2).  A compliance review committee is a committee appointed by the board of directors of a bank and charged with determining compliance with:

1. Loan underwriting standards;

2. Asset quality;

3. Financial reporting to federal or State regulatory agencies;

4. Adherence to the bank's investment, lending, accounting, ethical, and financial standards; or

5. Compliance with federal or State statutory requirements.

Id. at (a)(1)(b).  Probably good stuff to have if you are suing a bank for failing to follow its own underwriting guidelines with regard to an allegedly inflated proposal, as WNC is doing.

There's a statute dealing with these types of documents.  It says that they "are not discoverable or admissible in evidence in a civil action against a bank, its directors, officers, or employees, unless the court finds that the interests of justice require that the documents be discoverable or admissible in evidence."  N.C. Gen. Stat. Sec. 53-99.1 (emphasis added).

Judge Murphy, after observing that "there is no case law in North Carolina dealing with the interpretation of" the statute, said that the term "in the interests of justice" meant "the fair allocation of common advantages and the sharing of common burdens between parties to a legal action."  Op. ¶11.

He ordered the bank Defendant to provide its compliance review documents for an in camera inspection.

But WNC wasn't as successful in its attempt to obtain attorney-client privileged documents based on  its argument that they fell within the crime-fraud exception.  (If you've forgotten the crime-fraud exception to attorney-client privilege, it says that communications between a lawyer and a client will not be privileged where an attorney's services are utilized in furtherance of a crime or fraud.).

Judge Murphy said that before he would conduct an in camera review of the documents in question, the Plaintiffs would need to "present 'a factual basis adequate to support a good faith belief by a reasonable person,’ . . . that in camera review of the materials may reveal evidence to establish the claim that the crime-fraud exception applies.'"  Op. ¶14.

Plaintiff's argument that the communications sought were made during the time that the bank defendant had allegedly converted hundreds of thousands of dollars from its account were insufficient to "support a good faith belief that an in camera review would reveal evidence that the crime-fraud exception applies."  Op. ¶15.



Business Court Rules On Multiple Discovery Issues, Including: Validity Of Subpoena, Deposing Opposing Counsel, And Need For A Motion For A Protective Order

There haven't been a lot of opinions from the Business Court on Motions to Compel, but yesterday there were two, both from Judge Murphy.  In the first, Blue Ridge Pediatric & Adolescent Medicine, Inc. v. First Colony Healthcare, LLC, 2012 NCBC 45, the Judge found a general objection insufficient to withstand the Motion to Compel and made other rulings of interest.

You'd Better Think About Moving for a Protective Order

The objections to the discovery in the case stated that the discovery was inappropriate and that the Defendant intended to move for a protective order against it.

But the Defendants who had objected to the discovery never followed on with their Motion for a Protective Order.  Judge Murphy held that this was fatal to their opposition to the Motion to Compel and granted the Motion:

The appropriate means for the [] Defendants to prevent or limit discovery that they contend is unreasonable, inappropriate, and excessive is to seek a protective order under Rule 26(c). Because no such motion has been made to this Court, the Court concludes that the [] Defendants have not properly contested Plaintiff Blue Ridge’s discovery requests.

Op. 29 (emphasis added).

So if you are trying to shut the other side down on discovery, you'd better file a Motion for a Protective Order soon, probably before they file a Motion to Compel.

And there's more to the Blue Ridge case.

Service of Subpoena on a Corporation

When you send a subpoena to a corporation, do you have to address it to a particular human being?  Rule 45 says that a subpoena must contain "[a] command to each person to whom it is directed. . . ."

The subpoena at issue was addressed to a law firm (a P.A., and therefore a corporation), without naming an individual or agent responsible for compliance.  There's no North Carolina appellate case law on the validity of this sort of subpoena.

The Judge found "substantial compliance" with Rule 45, particularly since a corporation is often held to be a "person" under the law.

Good to know, though there's no reason not to put the name of the registered agent on a subpoena to a corporation.

Preserving Objections Based on Privilege

The law firm quarreling with the validity of the subpoena also objected to it on the basis that it sought privileged materials.  And it did, it asked for "all materials, whether considered privileged or not, that relate to the transactions and execution of instruments that give rise to this litigation."

Here, the non-compliance with the Rules of Civil Procedure was more extreme than with the subpoena.   Rule 45(d)(5) says that a person receiving a subpoena objecting on grounds of privilege must make the objection "with specificity" and support it with:

a description of the nature of the communications, records, books, papers, documents, electronically stored information, or other tangible things not produced, sufficient for the requesting party to contest the objection.

Judge Murphy held that as a result of a failure to obey Rule 45, the privilege issue was not properly before him.  Op. ¶49.  He didn't find waiver of the privilege, however.  He ordered a privilege log to be produced in thirty days, and for the parties to meet to attempt to resolve the claims of privilege.

Deposing Opposing Litigation Counsel

 You've all wanted to depose opposing trial counsel at one time or another.  Admit it. 

There's no North Carolina state court authority on whether you can do that, but Blue Ridge provides some guidance.  It adopts the standard set out by the Eighth Circuit in Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir. 1986), followed by the Middle District of North Carolina in N.F.A. Corp. v. Riverview Narrow Fabrics, Inc., 117 F.R.D. 83 (M.D.N.C. 1987); and Static Control Components, Inc. v. Darkprint Imaging, Inc., 201 F.R.D. 431 (M.D.N.C. 2001).

The Shelton case says that you can depose opposing counsel only if you have:

shown that (1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged [sic]; and (3) the information is crucial to the preparation of the case.

Op. 58.

Applying that standard, Judge Murphy quashed the subpoena to the attorney who had signed the Complaint.He didn't find attractive Defendants' position that they wanted to ask the lawyer about “advice, communications, and receipt of documents [that are] the basis” of Plaintiffs’ suit.  He said that "[s]uch knowledge is precisely the type of information Shelton attempts to protect from disclosure by litigation counsel in a deposition."  Op. 62.

The opportunity for deposing opposing litigation counsel is pretty limited.  Better quench that desire.

 There's Another One Coming

Yes, I did say there were two Motion to Compel opinions.  The Blue Ridge case was so chock full of stuff that I'm saving the other case for Monday.


On Expert Witnesses, Confidential Material, And Protective Orders

Protective Orders usually list those persons who can view documents that are designated "confidential": like counsel of record and their staff, designated business representatives of the client, court reporters, and experts.

Sometimes information can be so sensitive that the producing party doesn't want to share it with an expert.  A well-designed Protective Order can deal with that type of concern.  That was the case in this  week's Order in SCR-Tech LLC v. Evonik Energy Services LLC, 2012 NCBC 43.  The issue was whether an expert designated by the Plaintiff should be allowed to see the confidential material produced by the Defendants under the terms of the Protective Order agreed to by the parties.

The Protective Order said that the party producing confidential information could object to it being seen by an expert "with current or prior employment within the industry in which the parties compete."

The Defendants objected to an expert named Staudt, who Defendants said "actively consulted for its competitors," being allowed to see the confidential material they had produced,   Plaintiff disagreed, and took the dispute to Judge Gale for resolution.

The Judge first concluded that the term "industry" as used in the Protective Order was "the broader SCR industry in which both parties operate and in which the expert was involved.  ("SCR" stands for "selective catalyst reduction," which is "a chemical process by which harmful nitrogen oxide contained in coal-burning power plants’ exhaust gas is converted into harmless nitrogen gas and water.")

The next step for the Business Court was to decide how to balance the risk to the Defendants of producing sensitive confidential information to an expert "with prior or ongoing involvement with [the Defendants'] competitors."  Op. 15.

North Carolina's courts hadn't addressed this issue yet, so Judge Gale looked to federal decisions for guidance.  The leading case is apparently Digital Equip. Co. v. MicroTech, Inc., 142 F.R.D. 488 (D. Colo. 1992).  It lays out five factors for consideration:

(1) the expert’s affiliation with the receiving party;

(2) the extent of regular employment, consultation, or association with the receiving party;

(3) present involvement in the receiving party's competitive decisions;

(4) the potential for future involvement of the expert in the receiving party’s competitive decisions; and

(5) if the expert’s involvement is deemed beyond the point of independent, the expert’s willingness to curtail or forego future involvement with the receiving party.

The past work done by Staudt for the Plaintiff did not give the Court much pause under the first two factors, as it was more than five years ago.   But Judge Gale was concerned more about Staudt's work for the Defendants' other competitors.  He said there was not enough information in the record on that point for him to make a decision, and he ordered the Plaintiff to supplement the record on Staudt's "independence" from those competitors, using the Digital factors.

Judge Gale also indicated that he might require Staudt to agree that he would not do future "non-litigation" consulting work with the Plaintiff related to the services at issue in the lawsuit.  He said that "[s]uch a covenant would eliminate concerns relating to the fourth and final Digital factors of future involvement with the receiving party."  Op. 22.

The SCR-Tech Order is a good illustration of the concerns that experts may present in a case between competitors.  Tailor your Protective Orders carefully in those types of cases.



Be Careful Before Going Paperless For An In Camera Review

Judges don't like to do in camera reviews of documents.  Part of the reason is the quantity of documents involved.  There was an Order from Judge Tennille a couple of years ago in which the Judge chastised the parties for submitting notebooks filled with repetitive paper copies of emails which the Defendant claimed were privileged.  For a recap of that October 2009 ruling regarding an in camera review, see here.

Judge Tennille observed then that "discovery in a digital age is expensive and difficult."  Today, we are even further into the digital age.  Things are no less expensive now, but just as difficult (or even more so).

A case in point is Capps v. Blondeau, in the discovery phase now before Judge Jolly in the Business Court.  This week, Judge Jolly found a digital presentation of documents submitted to be reviewed in camera to be too voluminous for the Court to handle, and ordered that paper copies be provided.  The defendant claiming privilege had submitted two DVD's containing electronic copies of privilege logs and the more than a thousand documents claimed to be privileged. 

Judge Jolly wasn't happy about the presentation.  He said that he could not "access and/or manage a material portion of the voluminous electronic In Camera Submission in the format provided by [the defendant]." Order at 1.

He ordered the defendant to submit  "in individual hard copy, each of the documents and other electronically stored information that constitutes the In Camera Submission."  He also ordered the paper documents to be bates stamped to correspond to the privilege log entries.  Order at ¶¶1&2.  He gave the defendant two days to comply.

The lesson here?  Don't trick yourself into thinking that you are organized because you've put all the documents from a case on a disk instead of filling boxes with paper.  All you've done is make your box smaller. 

How can you be sure that your digital presentation will be easily reviewed by the Court?  I have no idea of the nature of the presentation by the Capps defendant, but the privilege log could have contained links to the documents at issue, and it could have been sortable by the originator and recipient of the document.  The defendant could have tested the disk in several computers to make sure that it would be accessible to Judge Jolly.  Maybe the defendant did all that.  Maybe Judge Jolly just prefers paper.

Either way, it's best to ask any Judge when requesting an in camera review whether he or she prefers  paper copies of documents or a disk.  Or to avoid in camera reviews altogether.


North Carolina's Revised Rules Of Civil Procedure Regarding ESI

Revisions to the North Carolina Rules of Civil Procedure became effective to actions filed on or after October 1, 2011. A blacklined version showing the changes wrought by a law titled  an  "Act to clarify the procedure for discovery of electronically stored information and to make conforming changes to the North Carolina Rules of Civil Procedure" is here.  

You all are probably  familiar with these amendments already, as I’m behind the curve on this subject.. There’s lots out there on the web, way earlier than this post, from other law firms. Like here, here and here.  There are at least 39 states which have addressed the issue of e-discovery.  Here's the most current listing I've seen.

On the subject of other North Carolina changes, the North Carolina Bar Association has put together a comprehensive bulletin which is a “summary of new laws affecting North Carolina lawyers.”  One of the new laws you should look at, beyond the ESI-specific changes, is North Carolina's adoption of the Uniform Interstate Discovery and Depositions Act as N..C. Gen Stat. §§1F-1 to 7.  The Act defines clear procedures for an out of state litigant to get a subpoena to depose a witness (or to obtain documents) in North Carolina.  It also elucidates the procedure for a  litigant to in a North Carolina case to send a subpoena outside of North Carolina.  These procedures kick into effect on December 1, and apply to actions filed on or after that date.

 Definition of ESI Includes Metadata 

Rule 26 now contains a definition of ESI, though it is limited to the subcategory of metadata and whether that should be included in production It says that only limited metadata must be produced, absent an agreement between counsel:

For the purposes of these rules regarding discovery, the phrase 'electronically stored information' includes reasonably accessible metadata that will enable the discovering party to have the ability to access such information as the date sent, date received, author, and recipients. The phrase does not include other metadata unless the parties agree otherwise or the court orders otherwise upon motion of a party and a showing of good cause for the production of certain metadata

Recovery of Costs Of Production Of ESI

In a change which is destined to become the source of a good bit of pretrial wrangling given the high cost often involved in the gathering and production of ESI, Revised Rule 26(b)(3) now empowers the Court to “specify conditions for the discovery,” specifically “including allocation of discovery costs.”

Protective Orders

If a protective order is sought on the basis that the ESI is not “reasonably accessible,” Revised Rule 26(c) says that the Court can still order production if the requesting party shows “good cause” and the Court takes into account the considerations of Rule 26(b)(2(iii)), which allows the Court to limit discovery if “the discovery is unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation.”

Privilege Issues

The revised rules amp up the obligations of an attorney withholding information on the basis of privilege. Revised Rule 26(b)(7)(ii) requires that the withholding party must “describe the nature of the documents, communications, or tangible things not produced or disclosed, and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” That contemplates a privilege log.

Revised Rule 26(b)(7)(b) covers inadvertent production, and like Federal Rule 26(b)(5)(B), requires the party receiving the inadvertent production to promptly return or destroy  the material or to disclose it to the Court under seal so that the Court can rule on the claim of privilege,

New Discovery Conference Procedure

Another change in the NC Rules is that the attorney for a party may require a discovery conference to be held on a specified timetable (as soon as 61 days after the filing of the Complaint), and that the discovery plan should include a laundry list of items, including in the appropriate case “a reference to the preservation of [ESI], the media form, format, or procedures by which such information will be produced, the allocation of the costs of preservation, production, and, if necessary, restoration, of such information,. . . .”

Safe Harbor For Routinely Destroyed ESI

Revised Rule 37(c) provides a “safe harbor” from sanctions if ESI is destroyed as a result of “routine, good faith operation of an electronic information system.” The new Rule says that a court may not impose sanctions for a failure to provide what was routinely deleted, “[a]bsent exceptional circumstances.”


Business Court Orders Japanese CEO To Appear In the U.S. For Deposition


 So much of discovery depends on agreement: for example, where and when will the officers of an out of state corporate defendant appear for their depositions.  And what about an out of country defendant?  Can you make their representatives appear in the United States for a deposition if you can't persuade opposing counsel to do so?  There was no North Carolina state court authority on this point until yesterday, when Judge Jolly ordered in Cheatham v. Ribonomics, Inc., that the president and CEO of a Japanese company (MBL) which had invested in a North Carolina entity (Ribonomics) would be required to appear for a deposition in one of the 48 continental United States, the state to be  agreed upon by all counsel.

Before making that ruling, the Court denied Plaintiff's request for a video deposition   He based that denial on "notions of international comity and foreign sovereignty" as protected by the Hague Convention.  Since the witness would have been on Japanese soil for a video deposition, Judge Jolly observed that Japan's territorial sovereignty would be implicated.    The defendants said that Japanese law prohibits the taking of video depositions.

The same concerns for comity and sovereignty are not present when a foreign national's deposition is taken in the U.S.  From there, it becomes a question whether the Court has jurisdiction over the defendant corporation.  Because of MBL's controlling interest in Ribonomics, the Court found that MBL was subject to personal jurisdiction, and that it therefore could be "compelled under Rule 30(b)(6) to produce its officers, directors or managing agents in the United States to give deposition testimony."

Judge Jolly concluded his Order by directing counsel to agree on the "time, place, date and mechanics" of an in-person  deposition to take place "in any one of the States of the United States, other than Hawaii and Alaska."


Work Product Protection For Communications Between Lawyers And Expert Witnesses Coming Next Month Under Revised Federal Rules of Civil Procedure

Until December 10, 2010, lawyers need to remain aware that, in cases pending in  federal court  their communications with their retained expert witnesses and any draft reports prepared by the expert are likely to be discoverable based on a request from opposing counsel.

The expert rule changes which become effective on December 10  will give work product protection to both items.  This will permit attorneys to have more involvement in the preparation of an expert's report without their involvement being subject to discovery. The new Rule also specifically exempts draft reports from any disclosure obligation.  

The limited exceptions to the work product protection specifically granted by new FRCP Rule 26(a)(4) (B) and (C) are contained in new FRCP Rule 26(a)(4)(C), and include:

  • communications regarding compensation to be paid to the expert,
  • "facts or data that the lawyer provided and that the expert considered in forming his opinion."
  • assumptions provided by the attorney upon which the expert relied in forming his opinion.

The former practice of dodging the need to disclose communications with an expert or the expert's draft reports, by  which lawyers limited written communications to their experts and may have encouraged their experts not to keep drafts of their reports, will no longer be necessary.  The revisors felt that the discoverability of draft reports and the written give and take between lawyers and their experts "inhibited robust communications" between them.

The rule remains unchanged in the North Carolina Rules of Civil Procedure.  The Business Court ruled in 2008 that there is no privilege between counsel and an expert witness, which had been the general approach in federal cases. So, communications between lawyers and their experts remain discoverable in state court litigation regardless of the December 10 changes.

According to the judge chairing the committee responsible for the revisions the "changes will reduce cost, focus discovery and trial on the merits of the experts’ opinions, and allow parties and their counsel to make better use of their experts."  An interview in which he discusses the changes is here.

There are also changes to Rule 56, which governs summary judgment.  As I read the revised Rule, it doesn't mark a change in how lawyers in North Carolina would approach a motion for summary judgment, but it is worth a read before you file or oppose a summary judgment motion in federal court after December 10.

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.



Document Dump Doesn't Do It Under Rule 33(c)

Discovery disputes are often fought at the margins, and the question for any attorney responding to written interrogatories is how much information is necessary to be responsive.  In an order Tuesday, the Business Court disapproved of one common tactic:  the generalized Rule 33(c) answer.

In case you haven't answered interrogatories in a while, recall that Rule 33(c) allows a responding party to point the propounding party to responsive business documents rather than the responding party poring over those documents itself to create a written answer:

(c)        Option to produce business records. – Where the answer to an interrogatory may be derived or ascertained from the business records of the party upon whom the interrogatory has been served or from an examination, audit or inspection of such business records, or from a compilation, abstract or summary based thereon, and the burden of deriving or ascertaining the answer is substantially the same for the party serving the interrogatory as for the party served, it is a sufficient answer to such interrogatory to specify the records from which the answer may be derived or ascertained and to afford to the party serving the interrogatory reasonable opportunity to examine, audit or inspect such records and to make copies, compilations, abstracts or summaries.

In Phillips & Jordan, Inc. v. Bostic, the parties already had been through a full round of briefing and a status conference on the plaintiff's motion to compel.  Plaintiff asserted that the Defendants' supplemental responses still weren't enough.  To the Court's frustration, Plaintiff did not identify specific responses that allegedly remained deficient, but the Court decided to address the issue anyway in order "to avoid further motions practice in a case where counsel cannot agree on the time of day. . . ."

Judge Diaz ruled that the Defendants could not use Rule 33(c) "to foist upon Plaintiff the obligation to comb through the records for materials responsive to the Discovery Requests."  The volume of documents at issue was an important factor for the Court:  over 200 bankers' boxes of paper documents in a warehouse, plus electronic records.  Also important was that "the records are in total disarray" (which the Court determined based on photographs submitted by the Plaintiff of the inside of the warehouse where the records were stored).

The Court accordingly held that the Defendants were not entitled to use Rule 33(c) because "the burden to derive or ascertain the relevant information from the records is not the same for Plaintiff as for the . . . Defendants."  As a result, the Defendants were ordered to cull through their records to identify responsive documents and to "produce documents in a manner such that Plaintiff (and, if necessary, the Court) can readily identify the set of documents that are responsive to each interrogatory or request for production." (emphasis in original).  The Court also required each Defendant to file an affidavit within 10 days of production specifically setting forth how that Defendant complied with the Court's order.

This order is not the death knell for Rule 33(c), which remains a valid response to interrogatories.  However, the Business Court appears willing to scrutinize the use of Rule 33(c) and the surrounding circumstances.  Based on this order, Business Court practitioners wanting to avoid being on the wrong end of a motion to compel might consider at least two responses:  (1) identify specific documents that the propounding party needs to review to determine the answer and (2) narrow the universe of those documents to make sure that the burden on the propounding party truly is equal to the burden on the responding party.  Practically, it may be easier just to answer the interrogatory with the information requested.

Full Order


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.]


Questioning The Failure To Respond To Requests For Admission: Two Opinions From The NC Court Of Appeals

Not responding to Requests for Admissions is dangerous. Rule 36 of the North Carolina Rules of Civil Procedure say that a request is admitted if not answered, and that “any matter admitted under [Rule 36] is conclusively established unless the court on motion permits withdrawal or amendment of the admission.”

Two different panels of the North Carolina Court of Appeals in unpublished decisions yesterday dealt with defendants who hadn’t responded to Requests for Admission.

In one case, the Court affirmed a grant of summary judgment against the Defendant based on the ignored Requests. In the other, the Court went in a different direction and didn't hold the Defendant to an admission as to the amount of damages suffered by the Plaintiff.

Summary Judgment Based On Failure To Respond To Requests For Admission

In the first case, Kluttz v. Next Safety, Inc., the Plaintiff sued for breach of an employment contract. The Defendant denied the breach in its Answer, challenging the validity of the contract and whether it was supported by consideration. But the Defendant didn’t respond to later Requests for Admission which asked it to admit the validity of the contract and its breach.

The trial court entered summary judgment against the Defendant based upon the facts established by the admissions, and the Court of Appeals as affirmed. Judge Wynn said that “facts admitted under Rule 36(a) as a result of a party’s failure to respond timely to a request for admissions are sufficient to support a grant of summary judgment."

The Kluttz decision relied on an NC Supreme Court case, Goins v. Puleo, 350 N.C. 277, 512 S.E.2d 748 (1999), which holds that "an admitted matter, even if dispositive of the case, is conclusively established when admitted through failure to respond to a Rule 36 request for admissions."

Failure To Respond To Request For Admission Not Determinative Of Damages

The other case, Garner v. Cheek, noted the Goins decision, but relieved the Defendant from an admission as to the amount of damages. The Plaintiff had sent a series of Requests looking for admissions about Defendant’s fault in an auto accident and Plaintiff’s damages. One request asked the Defendant to admit that “[Plaintiff] has been damaged by the negligence of [Defendant] in the amount of thirty thousand dollars.”

Plaintiff sought and obtained a default judgment for $30,000. Defendant moved for a new trial on damages, arguing that he wasn't bound by the admission as to damages. The trial court granted the motion and entered a new judgment for only $7,500. The Court of Appeals affirmed.

There was conflicting evidence in the Garner case – from the same set of unanswered Requests for Admission – that warranted a much lower damage award. The Court of Appeals observed that  “plaintiff’s own evidence contradicted the amount of damages requested,” and it held that “it was within the trial court’s discretion to determine the amount of damages based on the Plaintiff’s medical expenses and pain suffered as a result of the collision."

The Garner case makes a couple of points about the nature of a Rule 36 admission from an earlier Court of Appeals decision, Eury v. N.C. Employment Security Comm., 115 N.C. App. 590, 446 S.E.2d 383 (1994):

A rule 36 admission is comparable to an admission in pleadings or a stipulation drafted by counsel for use at trial, rather than to an evidentiary admission of a party.

A judicial admission . . . is not evidence, but it, instead, serves to remove the admitted fact from the trial by formally conceding its existence.

If you understand either of those statements, please let me know. Apart from the riddle of how "judicial" admissions are different than "evidentiary" admissions, it's hard to square those statements from Eury with the explicit statement in the Supreme Court's Goins decision that an admitted matter is "conclusively established" by a failure to respond.


Last Minute Service Of Delinquent Discovery Responses Didn't Save Plaintiff From Dismissal Of Her Complaint

The Plaintiff in Batlle v. Sabates didn't respond to Defendant's discovery for more than eight months. She served her responses only on the day that Defendant's motion for sanctions came on for hearing.The trial court granted the motion for sanctions and dismissed the Complaint as a result of the discovery violation.

The Plaintiff argued on appeal that her last minute service of the responses should have precluded the sanction of dismissal.

Today, the Court of Appeals affirmed the dismissal, in a thorough opinion by Judge Ervin. He concluded that:

Plaintiff has cited no authority tending to establish that the trial court abused its discretion by dismissing Plaintiff's complaint after such a lengthy, eight month delay because Plaintiff ultimately served responses upon Defendant, and we are aware of none. Furthermore, given the length of Plaintiff's delay in responding to Defendant's discovery requests, a reasonable trial judge could well have concluded that the last minute provision of discovery on 4 September 2007 did not suffice to preclude dismissal.  Thus, the fact that Plaintiff provided discovery at the last minute does not establish that the trial court abused its discretion by dismissing Plaintiff's complaint.

Op. at 19.

The Court also rejected the argument that the Defendant was required to show prejudice as a result of the delinquent discovery, holding that the trial court "was not required to find prejudice as a precondition for dismissing Plaintiff's complaint." 21.



Spoliation Results In Sanctions From NC Business Court

The Business Court sanctioned the Defendants in Clark v. Alan Vester Auto Group, Inc., 2009 NCBC 18 (N.C. Super. Ct. July 17, 2009) for spoliation of evidence.

The destruction of evidence involved "Cover Sheets" that the Defendants prepared whenever they sold a car. The Plaintiff contended that an entry on a Cover Sheet referring to "CFA" -- which was shorthand for "customer funding assistance" -- would have shown the Defendants' falsification of information regarding the down payment made by the customer.

The Defendants continued to destroy Cover Sheets even after the Court entered an Order requiring them to produce all records which showed down payments. When Plaintiffs' counsel learned of the continuing destruction, they asked Defendants through counsel to stop, but the response was that the Plaintiff would "continue with its normal business practice that has been in place for many years." There was in addition conflicting testimony from representatives of the Defendants regarding their procedures with regard to the Cover Sheets.

Judge Jolly determined:

  • "Where there has been improper destruction of documents even without notice of a claim, there can exist spoliation, particularly when the wholesale document destruction flies in the face of legal standards for document retention." Op. ¶73. (NC's motor vehicle laws require down payment records to be retained for four years.)
  • Plaintiffs didn't need to show that the spoliation involved intentional misconduct.
  • Prior litigation against the Defendants with regard to their financing practices established the knowledge and culpability of the Defendants with regard to the spoliation.
  • Defendants knew of the probative nature of the Cover Sheets when they were destroyed.
  • The Plaintiffs were prejudiced by the destruction. 

On sanctions, Judge Jolly ruled that he had "discretion to pursue a wide range of actions both for the purpose of leveling the evidentiary playing field and for sanctioning the improper conduct."  Op. ¶81. He said "the scope of discovery is intentionally broad, and discovery is not meant to be a game of hide and seek. The purpose of the discovery rules is 'to prevent a party who has discoverable information from making evasive, incomplete, or untimely responses to requests for discovery.'" Op. ¶83.

The Court didn't enter the sanction requested by the Plaintiffs, which was a striking of Defendants' Answer, but ruled instead that it would give a "appropriate spoliation jury instruction with regard to inferences raised by the absence of Cover Sheets."  In addition to the adverse inference instruction, the Court awarded Plaintiffs their attorneys' fees relative to the spoliation issue. Also, in a companion decision certifying a class action, the Court took the spoliation into account in determining that a class should be certified, and also ruled that the spoliation would cause the burden of class notice to shift from the Plaintiffs to the Defendants.

I have not included the briefs because they were all filed under seal.

Business Court Dismisses Complaint Due To Discovery Violations

The Business Court today granted a Motion to Compel and delivered a harsh sanction to the Plaintiff: dismissal with prejudice of its Complaint.   The case is TelSouth Solutions, Inc. v. Voyss Liquidation Company, LLC.

Plaintiff's failure to timely respond to discovery, standing alone, might not have warranted dismissal, but It had been preceded by a string of failures to meet deadlines. 

Those began with a failure to file the Case Management Report per Rule 17, continued with a failure to respond to a counterclaim resulting in an entry of default, then a lack of compliance with the deadlines in the Case Management Order for mediator selection and cost estimates, and culminated in Plaintiff no-showing at a hearing regarding the missed deadlines. 

The failure to respond to discovery was then the straw that broke the camel's back. The due date came and went for responses to interrogatories and document requests.  Defendant's counsel followed up and asked for responses, but Plaintiff's counsel responded that he had "been traveling and [was] swamped."  The responses finally came about two months after they were due, and only after more prodding from Defendant's counsel. 

Judge Diaz observed that Rule 37 provides for a wide range of sanctions for a party who doesn't respond at all to interrogatories, including "[a]n order striking out pleadings . . . or dismissing the action or proceeding."  He said that "the Court may impose drastic sanctions for discovery violations, including dismissal of claims with prejudice when it is 'just' to do so," and that it wasn't necessary for there first to be an order directing compliance.

Plaintiff's counsel said at the Motion to Compel hearing that his inability to respond "was the result of factors beyond his client's control."  The Court held that it was true that "if a party is unable to answer discovery requests because of circumstances beyond its control, an answer cannot be compelled," but said that there was no evidence presented as to the reason that Plaintiff was unable to respond.

The Court held that "Plaintiff has demonstrated (time and again) an unwillingness to give proper attention to litigation that it initiated. In light of Plaintiff’s most recent transgression, and because the fact discovery deadline has now expired, the Court concludes, in its discretion and after considering lesser sanctions, that the appropriate sanction is dismissal of Plaintiff’s Amended Complaint with prejudice." 


A Message From The North Carolina Business Court About E-Discovery

There isn't much out there in the way of a road map from North Carolina's state courts on how lawyers should fulfill their obligations to produce electronically stored information. So you might want to take notice of a little bit of direction in today's Order from the Business Court in Hill v. StubHub, Inc.

By a little bit of direction, I mean exactly that.  It's only this tidbit from the last paragraph of the Order, where Judge Tennille said:

Attached hereto is an opinion from Magistrate Judge Andrew Peak in William A. Gross Construction Association, Inc. v. American Manufacturers Mutual Insurance Company.  It contains a message for counsel. 

What's the message of American Manufacturers?  Well, that case involved a dispute between parties about how a keyword search of an email database in the hands of a non-party ought to be done.  The parties disagreed on what words ought to be searched for.  One wanted narrow terms, the other broad terms, and no one had bothered to talk to the party that held the emails about what would make sense.

Instead of making any deliberate effort to resolve the issue, the parties dropped the problem in Judge Peck's lap.  He wasn't happy about being the decider, noting that he was "no keyword expert."  He said:

This case is just the latest example of lawyers designing keyword searches in the dark, by the seat of the pants, without adequate (indeed, here, apparently without any) discussion with those who wrote the emails.  Prior decisions . . . have warned counsel of this problem, but the message has not gotten through to the Bar in this District.

Judge Peck said he was delivering a "wake-up call to the Bar."  He said that "[i]t is time that the Bar -- even those lawyers who did not come of age in the computer era -- understand" what it takes to craft an appropriate keyword search.  He stressed the "need for careful thought, quality control, testing, and cooperation with opposing counsel in designing search terms . . . to be used to produce emails or other electronically stored information."

So, that's the "message" conveyed today by Hill v. StubHub. Judge Tennille told the parties that they had twenty days "to meet and confer and agree upon a word search that is carefully crafted with the appropriate keywords determined after consultation with StubHub's ESI custodians."  He also ordered the parties to "address quality control and testing in their discussions and, if the volume of documents is excessive, use of appropriate sampling methodologies."

NC Business Court Issues Significant Discovery Sanctions Opinion

The North Carolina Business Court delivered a significant opinion on discovery sanctions today in Azalea Garden Board & Care, Inc. v. Vanhoy, 2009 NCBC 9 (N.C. Super. Ct. March 26, 2009). If you are litigating in the Business Court, you'd better read this one, which emphasizes the duty of lawyers to cooperate with one another in discovery.

The Defendant's Motion for Sanctions concerned an interrogatory response by Plaintiff identifying two attorneys as potential expert witnesses, its subsequent refusal based on attorney-client privilege to supply information that it had provided to the experts, and its withdrawal of those persons as experts after the Court granted a Motion to Compel.

That earlier ruling on the Motion to Compel was very short, and wasn't published, but if you were reading this blog you would have seen it in this May 2008 post.

The Defendant, having prevailed on the Motion to Compel, sought sanctions. The basis for the Sanctions was Rule 26(g) of the North Carolina Rules of Civil Procedure, which provides that an attorney's signature on a discovery response is a certification that it is "consistent with the rules," and "not interposed for any improper purpose," and "not unreasonable or unduly burdensome or expensive."

In a first impression aspect of his ruling, Judge Tennille said that sanctions under Rule 26(g) are mandatory in the event of a violation.  He also said that Rule 11 cases don't have much relevance in a Rule 26(g) sanctions motion.

Judge Tennille emphasized the duty of attorneys to cooperate in discovery in complex cases, quoting extensively from Mancia v. Mayflower Textile Serv. Co., 253 F.R.D. 354 (D.Md. 2008), an opinion by Magistrate Judge Paul Grimm.  Judge Tennille described Judge Grimm as "one of the leading commentators on discovery issues in the federal court,"  and said that "his entire opinion should be read by all trial lawyers."  Op. ¶18. (The link is in the case name).

Forthright discovery is particularly important, said Judge Tennille, when expert discovery is involved.  He held that "[o]ur rules are designed to flush out what opinions are going to be expressed at trial so that challenges to those opinions can be heard pretrial without wasting the jurors’ time. Responses to discovery that comply with the rules save the parties and the courts substantial time and money." Op. ¶13.

Here's how Judge Tennille summed it up:

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. North Carolina’s Rule 26(g) was designed to do that and mandates sanctions when violations of the rule occur. Our system of civil justice cannot function effectively and economically unless lawyers and judges return to the original intention of the discovery rules and make cooperation, communication, and transparency the cornerstones of the discovery process.

Op. ¶19.

On the facts before him, Judge Tennille entered sanctions.  He determined that Rule 26(g) had been violated because Plaintiff's counsel had (1) designated one person (Wagner) as an expert "without an intention of having  Wagner prepare any expert report containing his opinions and the basis therefore, (2) failing to make inquiry into Wagner’s qualifications to give any expert opinions, and (3) designating [another witness, Tarr] as an expert without even having communicated with Tarr." Op. ¶28.

The Court found that these actions had caused delay and undue expense for Defendant and his counsel, necessitating a Motion to Compel, and furthermore that "[t]he conduct was unreasonable under the circumstances. It was more than mere negligence."  Op. ¶28.  The Court also said that the refusal to provide information based on attorney client privilege was "totally unfounded in the law." Op. ¶29.

Another factor leading to sanctions was Plaintiff's counsel refusal to discuss matters with Defendant's counsel.  Judge Tennille said that "[l]awyers have a responsibility and a duty to their clients, the Court, and opposing counsel to communicate openly and civilly with each other. A failure to do so is a breach of their professional duties and results in unnecessary delay and expense to the parties and the Court." Op. ¶32.

Brief in Support of Motion for Sanctions

Brief in Opposition to Motion for Sanctions

North Carolina May Require Licensing For Computer Forensic Consultants, But Do We Need It?

In cases in the Business Court, the lawyers are often assisted by computer forensics experts in dealing with electronic discovery issues. That’s becoming almost essential in complicated business cases.

Anyone can do this type of work right now.  I get regular phone calls and emails from people pitching this type of work.  But there is regulation in the works in North Carolina to clamp down on who can provide computer forensic services.

The North Carolina Board which regulates private investigators is looking at proposing legislation that would require that someone be a licensed private investigator before being able to do computer forensics work. Regulation in this area isn’t a revolutionary idea. You have to be licensed in some states to analyze electronically stored information, although there are great variances from state to state. Kessler International recently did a national survey on state licensing requirements.  An American Bar Association Committee recently issued a report recommending against such licensing, as discussed below.

The driving force for the North Carolina legislation is the Private Protective Services Board, which regulates private investigators and others in the "private protective services professions."  The Board is working on amendments to N.C. Gen. Stat. Chapter 74C to require a private investigator’s license for anyone doing computer forensics consulting.

Here's a draft of the legislation, which was recently approved by the Board's Computer Forensics Committee. It creates a new license category for a "Digital Forensics Examiner," which it defines as "any person who, on a contractual basis, engages in the profession of or accepts employment to conduct examinations of digitally stored data in order to recover, image, analyze, or examine such data to determine responsibility and/or reconstruct usage of such data."  A person seeking such a license will need to have 3,000 hours of experience in digital forensics or a closely related field in order to be licensed, and to have completed basic training offered by the company supplying the analysis software used by the licensee.

The Board provided me with excerpts from other committee meetings at which the amendments were discussed, and also the draft minutes from the June 9, 2008 meeting of the committee.

Attorneys are exempt from the current statute, as are their agents, “provided the agent is performing duties only in connection with his or her principal’s practice of law.” G.S. §74C-3(b)(4). That exemption presumably would continue if the statute is amended, so this legislation may not prove to be a major issue for litigation matters if a lawyer retains the consultant, but if a client hires a consultant to perform analysis before litigation, that might be an issue. 

The proposed amendment also exempts accountants and others it defines, including "persons employed to conduct network security operations up to the point of responsibility for network security violations," and "members of network security compromise response teams."

The American Bar Association's Section of Science and Technology Law is also looking at this issue, and has come to a completely different conclusion regarding the need for licensing. The Report from the Section concludes that there shouldn't be licensing, and recommends that the ABA should take a position discouraging the states from enacting regulatory legislation. Their rationale is that this is a technical area outside the expertise of those regulating private investigators, that there are professional certification programs available for forensic specialists, and that judges can in the final analysis determine whether a person is qualified to testify about the forensic work that he or she did. (Thanks to the TechDirt blog for this information).

New Federal Rule of Evidence 502 Deals With Attorney-Client Privilege, Waiver, And Inadvertent Production

There's going to be a new Federal Rule of Evidence, approved by voice vote in the House this week and unanimously by the Senate earlier this year.  It's on President Bush's desk for signature (that's him signing the baseball in the picture at the left), and should be on the books in the next few weeks.  

The new addition to the Rules is Rule 502, titled "Attorney-Client Privilege and Work Product: Limitations on Waiver."  New Rule 502 covers the scope of a waiver of privilege and the issue of inadvertent production of privileged documents, among other waiver related issues. 

The full text of the Rule is at the bottom, but here's a synopsis:

  • If a waiver of privilege is found, the waiver extends to undisclosed communications or information only if (1) the waiver is intentional,  (2) the other communications involve the same subject matter, and (3) the communications "ought in fairness to be considered together."  Rule 502(a).
  • If the disclosure is inadvertent, it does not operate as a waiver in either federal or state court if (1) the disclosure was inadvertent, (2) the holder of the privilege took "reasonable steps to prevent disclosure," and (3) the holder "promptly took reasonable steps to rectify the error."  Rule 502(b)
  • If the disclosure was made in a state court proceeding, it doesn't operate as a waiver in a federal proceeding if either the disclosure wouldn't have been a waiver under the federal rule, or it wouldn't be a waiver under state law. Rule 502(c).
  • If the Court enters an Order (like a consent Protective Order) that a disclosure will not be a waiver, that Order will bar any determination by another federal court or a state court that a waiver has occurred.  In other words, such a judicially approved non-waiver provision will have effect beyond the pending litigation, which isn't the case now.  Since parties can provide by such an agreement that, for example, there will be no waiver irrespective of the care taken by the disclosing party, no-waiver provisions will no doubt become stock provisions in Protective Orders. An agreement between the parties on waiver issues won't be effective unless it becomes part of a Court Order.  Rule 502(d) and (e).

The new Rule resolves conflict between courts throughout the country on whether an inadvertent production results in waiver.  North Carolina's District Courts had reached different conclusions on that issue.  Scott v. Glickman, 199 F.R.D. 174 (E.D.N.C. 2001) and Parkway Gallery v. Kittinger/Pennsylvania H. Group, 116 F.R.D. 46 (M.D.N.C.1987) followed the flexible approach espoused by the new Rule, but the Western District had held that even an inadvertent production waived privilege, in Thomas v. Pansy Ellen Products, Inc., 672 F. Supp. 237 (W.D.N.C. 1987).

The Rule takes effect immediately upon the President's signature.  It applies to all cases filed after its enactment, and applies to pending cases "insofar as is just and practicable."

I read about Congress' passage of the Rule on the Electronic Discovery Law blog. The full text of the Rule is below, the explanatory note is here.

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Rules Are Rules, Make Sure To Comply With Those Of The Business Court

In North Carolina Superior Court, there is no civil procedure tradition more respected than the courtesy of a thirty day extension of time to answer a Complaint or to respond to discovery.  Like it or not, motions seeking the extra month are granted almost without exception, and are so routine that the requesting party usually doesn't even bother to ask for the consent of opposing counsel.

The same courtesy applies in the Business Court, but there are rules to be followed.  Business Court Rule 9.2 says that "the movant shall have a good faith basis for requesting any such extension of time and, except in extraordinary cases, the movant shall first consult with any opposing party and reflect that party's position in the motion and indicate whether the opposing party wishes to be heard on the motion."

If you don't follow the Rules, you aren't going to get your extension. That's the message of a short ruling today in Velocity Fiber Broadband, LLC v. Lang Management, Inc., in which the required consultation hadn't occurred.  Judge Jolly, in denying the plaintiff's motion to respond to a counterclaim, stated "notwithstanding that the . . . reporting requirements of Rule 9.2 of the Business Court Rules may be viewed by some as merely a technicality and not substantive, the requirements are clear and simple, and compliance with them promotes efficiency in case administration by the court and counsel."

There are hyperlinked Business Court Rules available on the sidebar of this blog.  By hyperlinked, I mean that you can click on a section of the table of contents of the Rules and you'll get taken to the particular Rule, and then you can click back again.

Electronically Stored Information: New Sedona Principles On Preservation Of ESI

The small Arizona town of Sedona is one of the centers of the e-discovery universe, and the Sedona Conference's Best Practices for dealing with electronic discovery issues have been favorably referenced by many Courts, including the North Carolina Business Court (see here and here).

Now, the Conference has put out a Commentary on Preservation, Management and Identification of Sources of Information that are not Reasonably Accessible.  Why should you care about that?

The answer is that the term "reasonably accessible" is contained in Rule 34 of the Federal Rules of Civil Procedure, governing document production, which says that "a party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost."  (North Carolina Rule 34, last amended twenty-one years ago with a quill pen, contains no such language).

The new Commentary contains detailed guidelines for determining how to make the determination of accessibility, and when electronic information should be preserved.  The Guidelines themselves are below, from the Electronic Discovery Law blog (which is a great resource for court decisions on e-discovery matters) but the Commentary itself contains many useful examples and case citations and is worth reading.   

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Judge Tennille On Ethical Issues In Electronic Discovery

There was an article in the ABA Journal a few months ago about the Judges who are the "rock stars" of electronic discovery issues.  Two of those Judges, Paul Grimm of the District of Maryland and David Waxse of the District of Kansas, formed a "rock star trio" with Judge Tennille on an ABA panel earlier this year.

The subject was ethical issues in e-discovery.  You can download the whole presentation on the ABA website for a more than nominal fee.  But if you don't want to do that, here's some of what Judge Tennille had to say:

As Judge Tennille sees it, the "most important rule for lawyers' from an ethical perspective is Rule 1.1, which is "Competence."  That Rule requires "the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation."  According to Judge Tennille, state court judges are looking to the lawyers and expecting them to present solutions to e-discovery issues.  As he put it, Judges are saying “I expect you to have the knowledge to handle this problem. I expect you to meet and confer with each other and tell me how you’re going to solve this problem.”

Judge Tennille referenced a Business Court case where the lawyers for a party turned over a mirrored hard drive to opposing counsel, and then had to scramble when it turned out that there were privileged documents on the hard drive.  Using that example, Judge Tennille said “You really have a very basic obligation to be compeltent in this area. And in my view, being competent does not mean turning your client’s hard drive over to the other side.”  So, reaching agreement in advance to deal with this type of situation, and including a clawback provision providing for the return of privileged documents, is a part of that competence.  (Although Judge Tennille didn't name the case, it is Judge Diaz' opinion in International Legwear Group, Inc. v. Legassi International Group, Inc.)

The seminar turned to a discussion of the California case (Qualcomm) sanctioning lawyers for their failure to turn over a substantial quantity of emails and misrepresenting the situation to the Court, and Rule 3.3's duty of "Candor Toward The Tribunal."  Judge Tennille said “I think the best rule for you to keep in mind is not to follow the old suggestion that it is easier to ask foregiveness than permission. If you have a question, you ask for permission first. Because it’s really not worth risking your law license to ask for foregiveness later.

On the subject of lawyers who play fast and loose with e-discovery, Judge Tennille said: “I think judges generally try to look at it from the standpoint of when we’re trying to determine if somebody is gaming the system, we look at process and motivation and if you’ve got a good process and we don’t have any question about your motivation, you’re not going to be in trouble. If you haven’t used a good process or we have any question about your motivation or the client’s motivation and what they did, chances are that we’re going to determine that you were gaming the system and your client will suffer from that, 99 times out of a 100.

And then Judge Tennille said something that seems so easy to understand: "The best test is your common sense. And if you use it you’ll stay out of trouble. if you don’t, there’s going to be a judge somewhere who will penalize you for not using your common sense.”

Judge Tennille has written two Business Court opinions on the subject of e-discovery, Analog Devices, Inc. v. Michalski, 2006 NCBC 14 (N.C. Super. Ct. Nov. 1, 2006) and Bank of America Corporation v. SR International Business Insurance Company, Ltd., 2006 NCBC 15 (N.C. Super. Ct. Nov. 1, 2006), but that is still a largely uncharted territory in North Carolina's state courts.

The image at the top is from, edited.

North Carolina Discovery Sanctions Order Leads to $107 Million Malpractice Action

An Order granting discovery sanctions in the Western District of North Carolina is the basis for a $107 million malpractice lawsuit against a New York law firm.

The discovery Order was entered two years ago in a multidistrict proceeding formerly pending in Charlotte.  The case, just recently settled, involved the alleged price fixing of polyester staple fiber. 

The law firm of Kaye Scholer represented CNA Holdings, Inc. and Celanese Americas in that litigation.  Judge Vorhees sanctioned Celanese for failing to produce a significant quantity of responsive documents. 

According to the Amended Complaint filed on June 25th against Kaye Scholer, Judge Vorhees ruled from the bench that:

[T]he efficient disposition of a case like this one depends on full and candid discovery and [Celanese has] withheld that compliance with their obligations . . . . The efforts by [Celanese] do not meet the requirements of the discovery rules or the court’s directives . . . . The court is not unmindful of the positions urged by [Celanese], but in the context of the trove of documents it held in the wings just out of sight of the non-class plaintiffs, these positions can’t be seen as coherent or compelling. And they don’t encourage the court to rely on the good faith of [Celanese]. . . . The efforts by [Celanese] to play cat and mouse with the court and with the non-class plaintiffs since at least 2004 is unbecoming . . . to say the least.

The sanction entered by the Court in the antitrust litigation was that Celanese had to pay opposing counsel's attorneys' fees in pursuing the discovery motion, which were more than $100,000, and that the Court would consider further sanctions.  Shortly after that, Celanese fired Kaye Scholer.

New counsel then conducted a comprehensive review of Celanese's records which resulted in the production of hundreds of thousands of additional documents.  The Plaintiffs in the North Carolina case responded by asking for an array of additional sanctions, including (a) a default judgment against Celanese, (b) a finding of fact that Celanese had engaged in “bad faith, willful and deliberate discovery misconduct,” (c) instructions to the jury that this misconduct reflected consciousness of guilt, and (d) adverse inferences against Celanese on claims that it engaged in an illegal price-fixing conspiracy.

Judge Vorhees withheld ruling on the sanctions requested by Plaintiffs, but stated that he "did not take lightly the allegation that material false written and oral misrepresentations were knowingly and intentionally made" to the Court and the Plaintiffs. 

Celanese settled the antitrust claims in May 2008 for $107 million.  In the new lawsuit, Celanese says it was forced to pay this substantial settlement because "[t]he North Carolina Federal Court's sanctions rulings and the threat of additional severe sanctions at trial resulting from Kaye Scholer's conduct materially changed Celanese's likelihood of success at trial."  As Celanese put it, "the inflated $107 million settlement forced by Kaye Scholer's misconduct was essential to avoid the potentially devestating impact of sanctions that would have undermined Celanese's defense on the merits and would have exposed Celanese to catastrophic treble antitrust damages."

Celanese is seeking from Kaye Scholer a return of the legal fees it paid the firm, plus the difference between the $107 million settlement and what it claims would have been a "nominal settlement" in the absence of the discovery issues.  Celanese bases its claim that the antitrust claims had minimal value on memoranda in which Kaye Scholer opined that the case presented little risk.

The lawsuit is pending in federal court in Texas.  Kaye Scholer has filed its own lawsuit in the Southern District of New York seeking the recovery from Celanese of unpaid legal fees, and a declaration that its legal work was properly performed. 


Information Obtained At Interview, And Interview Notes, Protected By Work Product Privilege

The only place that you are likely to find a written opinion from a North Carolina Court on a discovery issue is from the Business Court.  Those kinds of interlocutory issues just don't get addressed by appellate courts. 

So, here's a post about a (very) short June 10, 2008 Order in Harco National Insurance Co. v. BDO Seidman, LLP, on an interesting work product issue.

In Harco, the general counsel of the Defendant, an accounting firm, sent a representative to interview one of the key players in the audit that was at issue in the lawsuit. 

The Plaintiff deposed both the interviewer and the person interviewed.  The Defendant balked, however, when Plaintiff's counsel asked the interviewer questions about the objectives of the interview and whether certain questions had been asked at the interview.  The Defendant also refused to produce the interviewer's notes.  The Defendant contended that all of this information was protected by the work product privilege.  Plaintiff filed a Motion to Compel.

According to Defendant's Brief in opposition to the Motion, some of the objectionable questions were whether the interviewer had conducted the interview with particular questions in mind, whether she had focused on particular areas of the audit, whether she showed the interviewee particular documents, and what conclusions she reached after the interview.

Judge Tennille denied the Motion, holding that the interviewer (Ms. Lister):

declined to answer questions which called for her mental impressions and litigation strategy based upon attorney-client privilege and work product. Ms. Lister conducted the interview at the direction and under the supervision of the General Counsel of BDO in order to prepare BDO’s defense to the claims asserted in the lawsuit. The Court concludes that the limited amount of information withheld by Ms. Lister was protected as attorney work product under N.C. R. Civ. P. 26(b)(3). Harco elicited testimony about what was said and done at the interview. The information it now seeks relates to impressions and opinions Ms. Lister formed and conveyed to BDO’s General Counsel. Harco has not demonstrated any hardship as it has obtained discovery of the underlying facts. Harco’s Motion to Compel is denied.

Plaintiff's Brief in support of its Motion isn't available because it was filed under seal, but its Reply Brief is here.  The link to Defendant's Brief is above.


Protective Order Entered Over Objection Of The North Carolina Department of Revenue

The Court granted a Motion for Protective Order yesterday in Delhaize America, Inc. v. Hinton.  There's nothing particularly remarkable about the entry of a Protective Order, which usually happens by consent, but this Protective Order may set some precedent in future Business Court cases.

The case involves the type of tax refund litigation which is within the Business Court's mandatory jurisdiction under N.C. Gen. Stat. § 7A-45.4(a)(7).  The Order was entered against the North Carolina Department of Revenue over its objection. 

The Department of Revenue had sought extensive information regarding Delhaize's business activities which Delhaize offered to produce subject to a Protective Order. 

The Department, in its Brief, raised a series of objections to the information being kept confidential.  It said that:

Delhaize was "attempt[ing] to cloak its tax refund litigation in a veil of secrecy;"

A Protective Order would "violate the public's right of access [to the courts] under state and federal law," including the First Amendment;

The North Carolina Public Records Act compelled public disclosure of the information requested; and

Delhaize's request for a refund operated as a waiver of its rights under the North Carolina "Taxpayer Bill of Rights."

All of these objections were effectively rejected by the Court's entry of the Order.  The Order itself contains no discussion of the basis for the ruling and is a fairly standard Protective Order.

Delhaize's Brief, setting out the reasons why a Protective Order was appropriate, is here.  (My partners Reid Phillips, Bill McNairy, and Andy Haile represent Delhaize in this case).





There's A Danger In "General Objections" To Discovery Requests

Hilb Rogal & Hobbs Co. v. Sellars2008 NCBC 12 (N.C. Super. Ct. June 6, 2008)(Diaz)

It is very common to get discovery responses which have "General Objections" up front, followed by specific objections to each of the numbered discovery requests.

There's a danger in responding that way, based on Judge Diaz's opinion today in Hilb Rogal & Hobbs Co. v. Sellars.

In Hilb, Defendant's responses to interrogatories contained general objections "on grounds of relevancy, scope, and undue burden."   Plaintiff moved to compel on particular responses which it contended were not adequate.  Defendant argued that the information sought wasn't relevant, but he hadn't included that as an objection to the responses at issue.

The Court cast doubt on whether the objection had been properly presented.  The Court first held that the Rules of Civil Procedure require a party to state its objections in response to each interrogatory:

Rule 33 of the North Carolina Rules of Civil Procedure requires that each interrogatory “be answered separately and fully in writing under oath, unless it is objected to, in which event the reasons for objection shall be stated in lieu of an answer.” N.C. Gen. Stat. § 1A-1, Rule 33 (2007). Moreover, “[a]n objection to an interrogatory shall be made by stating the objection and the reason therefore either in the space following the interrogatory or following the restated interrogatory.” N.C. Gen. Stat. § 1A-1, Rule 33 (2007) (emphasis added).

The Court then stated what it said was the ruling of most federal courts on the subject of general objections:

'objections stated at the beginning of the response to the interrogatories, are ineffective and are an abuse of the discovery process because such objections block discovery without explaining why and to what extent.' Waters Edge Living, LLC v. RSUI Indem. Co., 2008 U.S. Dist. LEXIS 33049, at *11 (N.D. Fla. Apr. 22, 2008).

Although the Court considered the objection as to relevancy anyway (and found it to be without merit and based on a "crabbed" reading of the interrogatories), there's clearly a risk in presenting general objections in the manner at issue in the Hilb case


Compliance With Business Court Rule 18.6 Is Essential Before Filing A Discovery Motion

The Business Court is serious about lawyers complying with their meet and confer obligations before filing discovery motions. 

This week, in Wicks v. Moody, the Court denied the Plaintiff's Motion for a Protective Order because of counsel's failure to comply with the certification requirements of Business Court Rule 18.6.  Judge Tennille held that "this reason alone is sufficient for the Court to deny Plaintiff's motion."

This isn't the first case in which the Business Court has summarily denied a discovery motion for this reason.  In a July 2007 case, International Legwear Group, Inc. v. Legassi International Group, the Court struck a Motion to Compel, even though the moving party had attached substantial correspondence showing an effort to resolve the issues.  Judge Diaz held:

while the Motion contains a 23-page attachment purporting to summarize the various discussions of the parties relating to their discovery dispute, it does not contain the certificate of compliance contemplated by Business Court Rule 18.6(a). The purpose of the certificate is to have the moving party succinctly set out what was done to resolve the dispute short of judicial intervention—the Court has no interest in, nor should it be burdened with, sifting through 23 pages of correspondence to determine whether the parties have complied with its rules.

In Latigo Investments II, LLC v. Waddell & Reed Financial, Inc., a January 2008 case, the Court held that the Rule 18.6 applies even when the discovery at issue is being sought from a non-party. 

North Carolina Business Court Rule 18.6(a) says that "the Court will not consider motions and objections relating to discovery unless moving counsel files a certificate that, after personal consultation and diligent attempts to resolve differences, the parties are unable to reach an accord. The certificate shall set forth the date of the conference, the names of the participating attorneys, and the specific results achieved. It shall be the responsibility of counsel for the movant to arrange for the conference and, in the absence of an agreement to the contrary, the conference shall be held in the office of the attorney nearest to the Court where the case was originally filed. Alternatively, at any party’s request, the conference may be held by telephone."


Right To Discovery Regarding Expert Witness Trumps Attorney-Client Privilege

This short Order has a valuable nugget on the discoverability of communications between lawyers and their expert witnesses.

One of the Defendants moved to compel discovery from the Plaintiff to obtain documents exchanged between the Plaintiff's lawyers and their expert. 

The expert, however, was also the President of the client and the central fact witness.  Plaintiff resisted production on the grounds of attorney-client privilege. 

It made no difference to the Court that the expert was also the client.  It held:

"Plaintiff’s assertion of the attorney client privilege to shield discovery of any communications with counsel involving his expert opinions is misplaced. Expert witnesses are subject to specific rules of discovery under the North Carolina Rules of Civil Procedure. N.C.R. Civ. P. Rule 26(b). Generally, the facts known to and the opinions held by an expert are discoverable as well as the materials the expert relied upon in coming to his or her opinion. See id. at Rule 26(b)(4), 26(b)(1). If [the expert's] opinions are based upon any information supplied to him by counsel that information is discoverable and Plaintiff is required to make disclosures of that information."

There are no cases cited in the Court's Order, but Defendant's Brief contains references to a number of cases on the issue of discovery of communications between attorneys and their expert witnesses.

The earlier post on this case, Azalea Garden Board & Care v. Vanhoy, involved an issue of discoverability of settlement agreements.

Settlement Agreements Are Discoverable

Today, Judge Tennille issued a very short order in Azalea Garden Board & Care, Inc. v. Vanhoy, granting a defendant's Motion to Compel production of a settlement agreement entered into between the plaintiff and another defendant. 

I'm mentioning the case only because this is an issue that recurs with some frequency.  There's often a non-party which might have been a defendant but for a pre-litigation settlement, or a co-defendant, like in Azalea Garden, who settles during the course of the litigation.  It seems pretty clear that the terms of such a settlement are discoverable, even if a confidentiality provision is included. 

The Order was limited to the discoverability of the agreement, and expressly states that it was not a ruling on the admissibility of evidence.

There was a more detailed opinion, by Judge Diaz, on the discoverability of settlement agreements in Media Network, Inc. v. Mullen Advertising, Inc., 2006 NCBC 6 (N.C. Super. Ct. April 21, 2006).


Deponent Can Materially Change Deposition Testimony During The Reading And Signing Process

Bueche v. Noel, April 17, 2008 (Diaz)(unpublished)

How extensively can a deponent change her deposition testimony during her post-deposition review of the transcript?  Pretty extensively, it turns out, according to an opinion yesterday from the Business Court.

In Bueche v. Noel, a non-party deponent made fifteen pages of changes and additions to her deposition testimony on errata sheets. The defendant moved to strike the changed and added testimony. Among other things, the defendant argued in its brief that the deponent had used the deposition as a "take home exam" to write answers on which its counsel had no opportunity to cross-examine her.  (Links to the briefs are at the bottom of this post)

The federal courts are split on the scope of a deponent's right to correct or add to her deposition answers, as demonstrated by the parties' briefs.  There was no North Carolina appellate court precedent on the issue.

The Court looked to Rule 30(e) of the North Carolina Rules of Civil Procedure, which authorizes changes "in form or substance" to the deposition testimony, so long as the deponent signs "a statement reciting such changes and the reasons given . . . for making them."  The Court held that a deponent has the freedom to make any type of correction, whether as to form or substance, so the changes and additions were allowed. 

The new testimony didn't replace the previous testimony, however.  The Court held that the original answers would remain part of the record and could be used for impeachment or any other relevant purpose.  The Court also permitted the defendant to reopen the deposition on the limited subjects of the corrections made on the errata sheet, the reasons for those changes, and any reasonable follow-up questions.

The Court also ruled on another first impression issue of North Carolina deposition procedure:

Continue Reading...

Plaintiff Entitled To Know Amount Of Coverage Remaining Under Defendant's Insurance Policy

Harco Nat'l Ins. Co. v. Grant Thornton LLP, 2008 NCBC 5 (N.C. Super. Ct. March 4, 2008)(Tennille)

Plaintiff sent discovery regarding the Defendant accounting firm's insurance coverage.  In addition to obtaining information on the face amount of the policy, plaintiff also sought information on the other claims made under the policy and the amount of coverage left under the policy.  The Court rejected the argument that plaintiff was entitled to discovery on the other claims, because it would "lead to unnecessary argument over the policy limits."

The Court ruled, however, that plaintiff was entitled to the information regarding the coverage remaining, because "when it comes time to negotiate, the amount of liability coverage available to a defendant should be disclosed to the plaintiff." A plaintiff is entitled to the "true facts" about the amount of coverage, which means the actual amount remaining to be paid under the policy.

The Court also observed that a refusal to provide accurate information about liability insurance coverage at the time of mediation would not be mediating in good faith.