At Least Make Sure You’re Still in the Water if you Must Try It

Sometimes, when discovery in a commercial case has been a mess, a party that imposes unusual roadblocks upon an adversary can successfully shield from the court most of the scuffling that caused consternation. Miriam Equities, LLC v. LB-UBS 2007-C2 Millstream Road, LLC, 2021 NCBC 71, is not one of those cases. Citing a “significant” record of noncompliance with discovery obligations and court orders, Judge Earp blasted plaintiff’s discovery tactics as “specious” and “bait-and-switch behavior” deserving of meaningful sanction.

Plaintiff sued over the failed closing on a commercial property in Guilford County, alleging that defendant’s refusal to provide access for purposes of a needed appraisal scotched the financing. ¶¶ 2-3. Over a lengthy and tortuous discovery process, plaintiff repeatedly asserted that access to the property was needed in connection with securing financing from a commercial lender. Id. ¶¶ 3, 7-8. Yet, at the end of an extended discovery period, plaintiff’s corporate deponent testified that the inspection access was not for a bank appraiser, but for that of a different, private financial source – the father of a principal in Miriam Equities and his business partner. Id. ¶ 3.

The Court noted that access rights to the property were a central issue in the case, and that the identity of plaintiff’s funding source and the appraiser had been unfairly shielded from the defendant. Judge Earp took pains to note that the Court had even provided an extended period for plaintiff to obtain replacement counsel and “a last opportunity to provide Defendant any information Plaintiff contends should be considered in support of its claims[.]” Id. ¶ 11. The Court adopted Abraham Lincoln’s guidance against swapping “horses in midstream” on material matters, noting its propriety only lies in exceptional settings. See Whiteacre P’ship v. Bio Signia, Inc., 358 N.C. 1, 26 (2004). Judge Earp put plaintiff’s maneuvers well beyond that standard (¶ 30):

“Here, the attempted horse-swapping is not occurring midstream. Instead, and worse, the horse-swapping is being attempted after the horses have reached the far bank of the stream.”

Predictably enough, plaintiff galloping off into the sunset after the eleventh-hour swap was a non-starter. Judge Earp joined the consistent refrain from the Business Court bench that emphasizes “[t]he purpose of discovery is to remove surprise from trial preparation and enable the parties to obtain evidence necessary to evaluate and resolve their dispute.” ¶ 20 (quoting Dove v. Harvey, 168 N.C. App. 687, 693 (2005)).

The Court honed in on a pattern of noncompliant conduct that appeared to obscure that plaintiff, all along, had a different plan for financing than it disclosed. Judge Earp noted failures to respond to discovery, delays in appearing for a Rule 30(b)(6) deposition, and briefings and affidavits that maintained plaintiff’s funding was tied to a commercial lender.

A sanction under Rule 37, the Court found, was best crafted to prevent plaintiff from “chang[ing] its position at this late stage.” Id. ¶ 26. Thus, the Court barred plaintiff from introducing any evidence of alternative funding that departed from its oft-repeated claim that a commercial lender, Ameris Bank, was both the source and the entity needing access to the property for appraisal. Id. An evidence preclusion sanction is not unusual in the Business Court, particularly in instances of repeated discovery failures. Earlier this year, in Lunsford v. JBL Communications, LLC, 2021 NCBC 14, Judge Conrad took a similar stance. We wrote about it here.

Takeaways

• As the Business Court builds its sanctions jurisprudence, it is confronting increased instances of discovery intransigence and reminds that “[w]illfulness, bad faith, or prejudice to another party can impact the trial court’s discretion when identifying the proper sanction.” Id. ¶ 31.
• Judge Earp suggested that, even when a party is caught in a discovery vortex of its own making, taking an affirmative, visible step to right the ship might help stem a sanctions tide. The Court noted that plaintiff, “[a]t the very least . . . had a duty to supplement its previous responses to include” updated and accurate information. ¶ 23.

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