North Carolina Business Litigation Lawyer & Attorney : Mack Sperling : Brooks Pierce Law Firm : Greensboro, Raleigh, Winston-Salem, Charlotte

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. 

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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.

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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).

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Hilb Rogal & Hobbs Co. v. Sellars, 2008 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

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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."

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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.

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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).

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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:

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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.

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