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.