Statements made in the course of settlement negotiations are inadmissible at trial, per Rule 408 of the NC Rules of Evidence.  But does that dead end to admissibility protect against the production of such items during discovery?

No, said Judge Bledsoe, in his Opinion late last month in Duke Energy Carolinas, LLC v. AG Insurance SA/NV, 2018 NCBC 38.  He could have rejected Defendant Duke’s claim that communications regarding settlement of ther cases weren’t subject to production on this principle:

Our courts have long recognized that ‘[t]he relevancy test for discovery is not the same as the relevancy test for admissibility into evidence.  To be relevant for purposes of discovery, the information [sought] need only be ‘reasonably calculated’ to lead to the discovery of admissible evidence.’  Shellhorn v. Brad Ragan, Inc., 38 N.C. App. 310, 314, 248 S.E.2d 103, 106 (1978); see also N.C. R. Civ. P. 26(b)(1); Lowd v. Reynolds, 205 N.C. App. 208, 214, 695 S.E.2d 479, 483 (2010).  If this test is met, a party may not object to a discovery request merely because ‘the information sought will be inadmissible at the trial.’  N.C. R. Civ. P. 26(b)(1).

Op. ¶15.

But Defendant Duke argued for a "settlement privilege," which has been recognized by some courts.  Well, Duke didn’t push for a full-blown privilege but something short of that, urging the Court to "require that a “heightened standard of relevance” be met before documents prepared for and communications made during settlement negotiations can be discovered."  Op. ¶19.

The danger of not adopting its position, said Duke, was that "“[p]arties are unlikely to propose the types of compromises that most effectively lead to settlement unless they are confident that their proposed solutions” will not be used for some purpose in later litigation“ by some future third party.”  Op. ¶20.

Judge Bledsoe disagreed, and said that Duke’s argument that settlement negotiations should get special protection in discovery "has been widely criticized and rejected by the majority of federal courts that have considered the issue." Op. ¶22.

Although Judge Bledsoe refused to give accord a blanket privilege to the previous settlement negotiations, he did an in camera review of the documents which Duke sought to protect from discovery.  He denied Duke’s Motion for a Protective Order to the extent that the documents involved concerned "coal combustion residuals" (i.e. coal ash) or the power plants at issue in the case.  He granted the Motion as to documents he deemed "not reasonably calculated to the discovery of admissible evidence.  These documents concerned asbestos litigation or power plants not involved in the lawsuit before him.                

The Business Court has previously held that settlement agreements are discoverable.

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.

 

Continue Reading In-House Counsel’s Worst Nightmare: A Subpoena In A Case To Which The Company Is Not A Party

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.

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!]

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.

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.

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.

 

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.

 

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.

 

 

 

 

 

 

 

 

 

 

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.