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.


In what Judge Tennille described as a "close case," the Business Court reconsidered and reversed the prior dismissal of a breach of fiduciary duty claim, but the principles it outlined should not give litigants high hopes for reconsideration motions in general.

Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank, N.A. involved an investor suing its advisors over investments gone bad.  The Hospital Authority asserted a number of claims against Wachovia, including a breach of fiduciary duty claim that the Court dismissed last October on a Rule 12(b)(6) motion.

Discovery ensued, and at the end of discovery Plaintiff moved to reconsider the dismissal of the fiduciary duty claim under Rule 54(b).  Several points from the order are worth noting.

First, the Court adopted the federal Rule 54(b) standard, which allows for reconsideration of interlocutory orders at any time before final judgment, but which has judicially-created, policy-based limitations to situations:  "(1) where there has been an intervening change in controlling law; (2) where there is additional evidence that was not previously available; or (3) where the prior decision was based on clear error or would work manifest injustice.”

Second, the plaintiff did not argue an intervening change in controlling law, but instead asserted a new legal theory — that as a federally registered investment adviser, one of the Wachovia defendants was a fiduciary as a matter of law.  Rather than new law, this argument was based on a 1963 U.S. Supreme Court case and a 2003 decision from the Eastern District of Virginia.  The Court was troubled by the assertion of a new theory on a motion to reconsider:

Motions for reconsideration do not serve as an avenue for a party to “present a better and more compelling argument that the party could have presented in the original briefs.”   Madison River Mgmt. Co. v. Bus. Mgmt. Software Corp., 402 F. Supp. 2d 617, 619 (M.D.N.C. 2005).  Generally, when a party “fails to present his strongest case in the first instance,” he loses the “right to raise new theories or arguments in a motion to reconsider.”  Duke Energy Corp., 218 F.R.D. at 474.  Nonetheless, had Plaintiff presented this newly raised argument initially, it would have affected the Court’s decision.  Metropolitan’s status as a federally registered investment advisor provides the strongest case for asserting clear error of law in the Court’s October 9, 2010 Order.  However, the fact that a party did not make its strongest and best case on prior submissions will not, standing alone, justify reconsideration.

Third, Plaintiff also asserted that newly discovered facts justified reconsideration.  The Court did not believe Plaintiff’s argument that the defendant’s status as a federally registered investment advisor was a fact not available until discovery.  On the other hand, Plaintiff provided facts adduced during discovery that demonstrated the existence of a special relationship of trust and confidence.

The Court was troubled by the fact that discovery occurred on a dismissed claim, but determined that justice required reconsideration and reversal of the dismissal:

This Court is not inclined to encourage parties to conduct discovery on claims that have already been eliminated in hopes of finding grounds for reconsideration.  Litigation is complex and expensive enough as it is without conducting discovery on claims that have already been dismissed.  Furthermore, viewing Plaintiff’s position charitably, many of the “new” facts adduced could have related to Plaintiff’s breach of contract claim as well as its breach of fiduciary duty claim.

However, the newly discovered facts, if true, would have impacted the Court’s earlier decision.  These new facts contradict the facts on which the Court previously relied.  The Court, therefore, will set aside the concerns expressed herein and hold fast to its ultimate responsibility—reaching “the correct judgment under law.”

In reconsidering the dismissal, however, the Court noted the inequity of allowing Plaintiff to take discovery on the dismissed claim while Defendants relied on the dismissal by not seeking discovery relevant to that claim.  To remedy the situation, the Court ordered discovery by Plaintiff to be closed, but allowed Defendants a 90-day period to conduct discovery on the revived fiduciary duty claim.

Full Order

[Ed. note:  The Business Court has been busy this week issuing orders at a rate faster than your humble author has been able to comment upon them.  Stay tuned for more posts in the coming days on some other recent orders of interest.]