Feeassco, LLC v. Steel Network, Inc.

• Citation: 826 S.E.2d 202,264 N.C.App. 327
• Decision Date: 19 March 2019
• Docket Number: No. COA18-739,COA18-739
• Parties: FEEASSCO, LLC, and JW Company, LLC, Plaintiff, v. The STEEL NETWORK, INC., Defendant.
• Court: Court of Appeal of North Carolina (US)

264 N.C.App. 327

826 S.E.2d 202

FEEASSCO, LLC, and JW Company, LLC, Plaintiff,

v.The STEEL NETWORK, INC., Defendant.

No. COA18-739

Court of Appeals of North Carolina.

Filed: March 19, 2019

Bugg & Wolf, P.A., Durham, by William R. Sparrow and Joseph R. Shuford, for Plaintiffs-Appellees.

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro, by Clint S. Morse, for Defendant-Appellant.

COLLINS, Judge.

Defendant appeals from three discovery orders entered in Durham County Superior Court. The underlying case involves a sales commission dispute between Plaintiffs and Defendant over commissions allegedly owed to Plaintiffs by Defendant. In the first order (November Order), the trial court granted Plaintiffs’ motion to compel discovery. In the second order (Sanctions Order), the trial court granted Plaintiffs’ motion for sanctions based on Defendant's failure to comply with the November Order. In the third order (Denial Order), the trial court denied Defendant's motion to compel discovery and motion for sanctions.

The November Order did not unreasonably expand the manner of discovery production, and the trial court did not abuse its discretion in entering that order. Moreover, the trial court did not abuse its discretion by striking Defendant's answer and entering judgment for Plaintiffs on liability pursuant to the Sanctions Order, and the order did not violate Defendant's due process rights. Finally, the Denial Order is an interlocutory order that does not affect a substantial right and we dismiss Defendant's appeal from that order.

I. Procedural History and Factual Background

In 2015, Feeassco, LLC, and JW Company, LLC, (Plaintiffs) entered into separate contracts with The Steel Network, Inc., (Defendant) wherein Plaintiffs would sell and solicit orders for Defendant's products within assigned territories. The contracts included a two-tiered commission structure, which paid different rates for "Basic Commission" and "Growth Commission." Plaintiffs commenced this action on 12 December 2016, asserting claims for breach of contract, quantum meruit, unfair and deceptive trade practices, and attorneys’ fees. Plaintiffs alleged, amongst other things, that over the nearly two years under the contract, Defendant improperly calculated commissions payments, stopped paying commissions, and failed to provide contractually required commissions statements and sales reports.

Also on 12 December 2016, Plaintiffs served Defendant with a "First Set of Interrogatories" and a "First Requests for Production of Documents." Defendant objected to each interrogatory as "overly broad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence[,]" and provided minimal information for some interrogatories.

Defendant objected to each request for production as follows:

[Defendant] objects to this request as overly broad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. Subject to and without waiving the foregoing objections, [Defendant] will produce or make available for inspection and copying nonprivileged documents responsive to this request within its possession at a mutually convenient time and place after entry of an appropriate confidentiality agreement and protective order.

Defendant filed an Answer on 13 February 2017.

On 13 March 2017, Defendant responded to the First Requests for Production of Documents with a one-page spreadsheet entitled "Sales Rep Summary - December 2016." On 8 May 2017, Defendant produced three more documents, one of which was a copy of the "Sales Rep Summary - December 2016." Defendant produced 430 documents on 19 June 2017.

The parties attempted mediation in September 2017, but were unable to reach an agreement. Plaintiffs filed a motion to compel discovery on 3 October 2017. In late October and early November 2017, Defendant produced approximately 19,000 pages of documents. The trial court heard Plaintiffs’ motion to compel on 2 November 2017. At the conclusion of the hearing, the trial court granted Plaintiffs’ motion, ordering Defendant to restate its responses to the First Set of Interrogatories without objection, except as to privilege, and to comply fully with Plaintiffs’ First Requests for Production by 20 November 2017. This November Order required Defendant to produce, amongst other things: correspondence related to Plaintiffs; all "customer orders, invoices, sales confirmations and return forms for Plaintiffs’ territories"; commission statements and sales reports; Defendant's state and federal tax returns for 2015 and 2016; and financial statements for 2015 and 2016.

"As part of complying fully with Plaintiffs’ First Requests for Production," the November Order also required Defendant to submit to an audit of its sales data within its electronic sales and accounting systems by an independent accounting firm selected by Defendant on or before 20 November 2017. It further required Defendant to make someone available to guide the auditor through Defendant's electronic systems. The November Order allowed Plaintiffs’ counsel to be present at the audit, but prohibited other Plaintiffs’ representatives from being present. In auditing the electronic systems, the auditor was to have "access to all information that is ‘reasonably calculated to lead to the discovery of admissible evidence’ within the meaning of Rule 26 of the NC Rules of Civil Procedure." The scope of the audit was "limited to data, documents[,] and information regarding or related to the product categories identified in the Plaintiffs’ sales representative agreements and to sales recorded from 2014 through the date of the audit in Plaintiffs’ sales territory only."

On 19 December 2017, Defendant moved to compel Plaintiffs’ answer to Defendant's interrogatory number 3 for failure to provide a complete damages calculation. Defendant also moved for sanctions, asserting Plaintiffs had not targeted discovery to the needs of the case and sought discovery disproportionately large to any amount in controversy.

On 28 December 2017, Plaintiffs moved for an order sanctioning Defendant for violations of the November Order. Following an 8 January 2018 hearing on the parties’ motions, the trial court granted Plaintiffs’ motion for sanctions (Sanctions Order) and denied Defendant's motion to compel and motion for sanctions (Denial Order). Defendant appeals.

II. Issues

Defendant raises four issues on appeal: (1) the trial court erred when it ordered Defendant to submit to an audit of its electronic systems in the November Order; (2) the trial court's findings of fact and conclusions of law do not support the entry of the Sanctions Order; (3) the Sanctions Order violated Defendant's due process rights; and (4) the trial court erred by denying Defendant's motion to compel and motion for sanctions.

III. Jurisdiction

We first address our jurisdiction to hear the appeals from the November Order, Sanctions Order, and Denial Order as all three orders are interlocutory. See Veazey v. Durham , 231 N.C. 357, 362, 57 S.E.2d 377, 381 (1950) (noting that an interlocutory order "does not dispose of the case, but leaves it for further action by the trial court in order to settle and determine the entire controversy"). Generally, an appeal from an interlocutory order will be dismissed by this Court unless the trial court has entered certification under N.C. Gen. Stat. § 1A-1, Rule 54(b), or the appeal affects a substantial right which would be jeopardized absent a review prior to a final determination on the merits. In re Pedestrian Walkway Failure , 173 N.C. App. 254, 262, 618 S.E.2d 796, 802 (2005) (citation omitted).

Generally, a discovery order, including an order compelling discovery, is not immediately appealable. Id . (citation omitted). However, when a discovery order is enforced by sanctions pursuant to N.C. Gen. Stat. § 1A-1, Rule 37(b), the order affects a substantial right and is immediately appealable. Id. (citation omitted). The appeal tests the validity of both the discovery order and the sanctions imposed. Id. (citation omitted). Moreover, although it is interlocutory, a party may appeal from an order imposing sanctions by striking its answer and entering judgment as to liability. Vick v. Davis , 77 N.C. App. 359, 360, 335 S.E.2d 197, 198 (1985).

Here trial court's Sanctions Order struck Defendant's answer and entered judgment for Plaintiffs as to liability as sanctions pursuant to Rule 37(b) for alleged violations of the November Order compelling discovery. Accordingly, the November Order as enforced by the Sanctions Order, and the Sanctions Order striking Defendant's answer, affect a substantial right and are immediately appealable, and this appeal testing the validity of both the November Order and the Sanctions Order is properly before us. Id.

The Denial Order denies Defendant's motion to compel and motion for sanctions. Again, "[d]iscovery orders are generally not immediately appealable because they are interlocutory and do not affect a substantial right that would be lost if the ruling were not reviewed before final judgment." Stokes v. Crumpton , 369 N.C. 713, 719, 800 S.E.2d 41, 45 (2017) (quotation marks, brackets, and citations omitted). However, orders denying discovery are immediately appealable when "the desired discovery would not have delayed trial or have caused the opposing party any unreasonable annoyance, embarrassment, oppression or undue burden or expense, and if the information desired is highly material to a determination of the critical question to be resolved in the case." Id. (quotation marks and citations omitted).

Information desired is highly material to the determination of the critical question where the information is "essential" to proving the elements of a claim, cf. Harbor Point Homeowners’ Ass'n v. DJF Enters. , 206 N.C. App. 152, 163, 697 S.E.2d 439, 447 (2010), and withholding that information would "effectively preclude[ ]" the...