e-Discovery Sanctions
A Legal Moment

Harsh Sanctions for e-Discovery Shenanigans

   Two recent opinions by the North Carolina Court of Appeals suggest that North Carolina trial court judges are getting comfortable with the idea of imposing severe sanctions on litigants who fail to abide by the rules regarding electronic discovery.

   While battles over electronic discovery (“e-discovery”) have been raging elsewhere in the country since at least the early 2000s ‒ with headline-grabbing sanctions being imposed on litigants who flaunt the rules ‒ North Carolina federal and state courts on the whole have appeared more forgiving.  As revealed by a pair of recent appellate decisions, those days may be over.

   In Walsh v. Cornerstone Health Care, PA, arising in Davidson County Superior Court, Judge Jeffery K. Carpenter ordered that the Defendant’s Answer be struck as a sanction for abusing its e-discovery obligations.  In a dispute between two physicians and their former practice, the practice initially stated that it did not have any documents responsive to one of the Plaintiff’s written questions (“interrogatories”).  After a series of back-and-forth discovery motions, the Court appointed a professional 3rd party vendor to search for and collect evidence from Defendant’s database, only then revealing that Defendant had “intentionally withheld a vast number of highly relevant and damaging documents.”  Plaintiffs subsequently filed a motion seeking mandatory sanctions under Rule 26(g) of the North Carolina Rules of Civil Procedure.  Following a hearing on the motion, the trial court concluded that the Defendant had indeed “hid the pickle,” and ordered that its Answer be struck, leaving Defendant literally defenseless in the suit, with only the issue of Plaintiff's damages to be calculated.
   A Superior Court judge in Wake County, Robert H. Hobgood, reached a similar conclusion in Osi Restaurant Partners, LLC v. Oscoda Plastics, Inc.  There the Plaintiff ‒ alleging that the Defendant had installed faulty flooring in many of Plaintiff’s restaurants ‒ asked the defendant for any documents relating to any design and testing of the defendant’s flooring, along with any other complaints the defendant received regarding its flooring.  After defendants did not produce any responsive documents, the Plaintiff filed a motion to compel, at which time the defendant admitted it might have some relevant documents in its “backup tapes.”  The defendant later represented to the court that it could not access those documents because the files on the backup tapes were encrypted.  After reviewing the situation, however, Judge Hobgood concluded that the Defendant had intentionally encrypted the documents to render them inaccessible.
   Notably, Judge Hobgood gave the Defendant a chance to set things right, ordering only that a “spoliation” instruction1 would be given to the jury unless Defendant produced the subject documents.  Confronted with the prospect of such a dire sanction, miraculously the Defendant was able to access its documents, producing 5,000 pages!  In the course of reviewing those documents, however, the Plaintiff later learned that the Defendant had intentionally suppressed production of documents that constituted a proverbial “smoking gun” to prove Plaintiff’s claims.  This was too much for the trial court which then, like the judge in Walsh, struck the Defendant’s Answer and entered a default against the Defendant, leaving open only the issue of calculating damages.
   Harsh sanctions have always been available to ‒ and used by ‒ courts to punish litigants who violate the discovery rules where paper documents and other physical evidence are concerned.  Up until now, however, one senses that North Carolina judges were giving litigants what amounts to a judicial break where electronic discovery is concerned because lawyers on par are not “whiz kids” when it comes to computer technology, and the sheer volume of data, and the various places it may be found, were overwhelming.
   What is remarkable about these two cases, therefore, is that the “break” appears over.  For plaintiffs and defendants alike, the object lesson is that one must play by the rules ‒ including preserving and producing relevant e-discovery ‒ or risk great peril for failing to do so.
   As it turns out, the appellate panel in both cases reversed the decisions of the trial court judges but not because the sanctions were too harsh.  Rather, they did so on purely procedural “due process” grounds; namely, that neither defendant was properly informed of the risk of being sanctioned for its discovery abuses ahead of the actual hearings involving consideration of sanctions, and that they were therefore ill-prepared to defend the charges against them. That may be cold comfort to the sanctioned parties as the trial courts may, on remand, get a second “bite at the apple” at imposing sanctions after giving the litigants the opportunity to explain and defend their behavior at the requisite hearing.

   1A “spoliation instruction” involves the judge informing the jury that it has been determined that the offending party has intentionally destroyed, or improperly failed to preserve and produce relevant evidence on a given issue, and that the jury can infer that the evidence would have been unfavorable to that party.


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Philip Roth is a founding shareholder at Marshall, Roth & Gregory, PC. One of the firm's principal litigators, Philip's practice involves myriad issues involving community associations.

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