Business Court Awards $38,000 In Fees For Opposing Party's Failure To Comply With Discovery Order

by Brooks Pierce

Have you ever billed a client nearly $65,000 for pursuing a motion to compel? Maybe you routinely handle mega-cases and you aren't goggled by the size of that kind of fee  But that was the amount of the fee sought last month, in Out of the Box Developers, LLC  v. Logicbit Corp. following Plaintiff's win on a motion for sanctions growing out of a discovery dispute. It was sizeable enough to catch my attention.

The case is about the Defendants' alleged theft of Plaintiff's customizations to its case management software. The Defendants' product, aimed at use by bankruptcy attorneys, is marketed under the name HoudiniEsq. During discovery, Plaintiff requested production of the version of HoudiniEsq used by one of the Defendants in May 2010, which would have allowed Plaintiff to isolate the customization to the software as of that time.

Despite an April 12, 2013 Order from the Court directing the production of that version of the software, the two Defendants at which the Order was directed -- The Doan Law Firm and Doan Law, LLP -- failed to comply.  Judge Gale ruled in 2013 NCBC 32 that there was no justifiable reason for the noncompliance. Op. ¶41. He found it egregious enough to warrant the "severe sanctions" allowed by Rule 37(b)(2) of the North Carolina Rules of Civil Procedure. Op. ¶44.

Instead of imposing those severe sanctions -- like striking pleadings or barring the Defendants from defending against a claim as allowed by Rule 37(b)(2) -- Judge Gale ruled that the Plaintiff should be reimbursed its "reasonable costs and expenses" associated with the several motions to compel made necessary by the Doan Defendants' failure to produce the software.

The issue of the reasonableness of the costs and expenses was decided by the Business Court in 2013 NCBC 34. Plaintiff's lead counsel had filed an Affidavit requesting an award of $63,714.57. That was based on fees the fim had billed for three motions to compel and the hearing for sanctions which led to the Court's final discovery ruling.

Judge Gale sliced about $25,000 off that request, awarding $38,919.07 in fees and expenses. He did, however, find the hourly rates sought by Plaintiff's counsel as fair and reasonable. He ruled that:

because of the complexity of the issues involved, it was reasonable and appropriate that efforts be undertaken by Mr. Sasser, who is the senior litigator for Plaintiff, rather than by his delegating the matter to less experienced attorneys as might be the case for more routine issues or less complex discovery matters.

The court is familiar with rates in comparable litigation based on its consideration of fee requests submitted in other matters. The court is further specifically aware of the experience and competency of counsel for the Parties in the litigation, including their experience and familiarity with litigation involving trade secrets and technology of the type at issue here. The court has significant personal experience in litigation in Wake County involving matters of comparable complexity.

The court is aware of the range of hourly rates charged in Raleigh and other North Carolina municipalities for complex litigation, including, among other sources, from fee applications filed with this court. The court finds that the hourly rates set forth in [the] affidavit. . . are fair and reasonable, and conform to or are less than hourly rates charged in and around Wake County by firms with comparable experience in matters of comparable complexity.

Op. ¶¶7-9.

Those rates? $495 an hour for the partner overseeing the litigation, $260 an hour for the senior associate, $250 per hour and $220 per hour for two other asssociates, and from $85 to $130 an hour for legal assistants. Op. ¶11.

You might think that the Defendants had been sufficiently cowed to keep silent on the Court's ruling, but they weren't. They filed a motion asking the Court to reconsider its ruling. They said that the bills should be futher reduced due to "block billing," that some of the work was unnecessary, and that the hourly rates were too high. They also argued that the Doan Defendants couldn't pay their $30,000 share of the award promptly and still have the means to simultaneously defend against the Plaintiff's claims.

Judge Gale didn't reduce the award, but he did provide some limited relief to the Doan Defendants. He ruled in a July 29th Order that payment of the amount due would be deferred untl trial, and would be included as a part of the judgment to be entered.

That didn't sit well with the Plaintiff, who said in a subsequent filing that there was no evidence that the Defendants couldn't pay the award and still defend the case.

No ruling on that Motion yet, but given the intensity of the motion practice in this case, my guess is that we eventually will see a ruling from the NC Court of Appeals on fees under Rule 37. Stay tuned.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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