Feeassco, LLC v. Steel Network, Inc.
826 S.E.2d 202
N.C. Ct. App.2019Background
- Plaintiffs (Feeassco, LLC and JW Company, LLC) sued The Steel Network, Inc. for unpaid commissions and related claims, alleging improper commission calculations, missed payments, and failure to provide commission statements and sales reports.
- Plaintiffs served initial interrogatories and requests for production; Defendant responded minimally, objected broadly, and produced limited documents over many months.
- The trial court granted Plaintiffs’ motion to compel (November Order), requiring full interrogatory answers, production of sales records, tax returns, financial statements, and an onsite audit of Defendant’s electronic sales/accounting systems by an independent accountant.
- Defendant missed the audit selection deadline, delayed payment of assessed expenses, limited auditor access, withheld documents produced to the auditor, and designated nearly every produced document confidential.
- The trial court issued sanctions (Sanctions Order) striking Defendant’s answer and entering judgment as to liability under Rule 37(b) for failure to obey the November Order; the court also denied Defendant’s motions to compel and for sanctions (Denial Order).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trial court erred by ordering an onsite audit of Defendant’s electronic systems | Audit was a permissible means to obtain requested documents and inspect electronically stored information | No Rule 34(a)(ii) request was made; court lacked authority to compel entry/audit of electronic systems | Court: Audit within discretion; Rule 34 production may be compelled via alternative means; November Order affirmed |
| Whether sanctions (striking answer and entering liability) were an abuse of discretion | Sanctions justified by repeated noncompliance, missed deadlines, obstructive conduct, and withholding of auditor-produced materials | Sanction was excessive; findings did not support violation of the November Order | Court: Findings (unchallenged) show repeated violations; court considered lesser sanctions; sanction not an abuse of discretion |
| Whether sanctions violated Defendant’s due process rights | Sanctions proportionate to discovery abuses; applicable precedents permit striking answer where discovery order disobeyed | Striking answer violates due process absent bad-faith presumption (Hammond Packing) or specific relation to discovery subject | Court: Proper application of Rule 37 supports presumption; sanction specifically related to claims at issue; no due process violation |
| Whether denial of Defendant’s motion to compel Plaintiffs’ damages details and denial of sanctions is immediately appealable | Plaintiffs argued requested damages info was not essential because information for calculations resided with Defendant | Defendant argued it was entitled to detailed damages calculations and sanctions | Court: Denial Order interlocutory and not affecting substantial right (Defendant had access to needed data); appeal dismissed |
Key Cases Cited
- Veazey v. Durham, 231 N.C. 357 (N.C. 1951) (interlocutory discovery orders generally not immediately appealable)
- Stokes v. Crumpton, 369 N.C. 713 (N.C. 2017) (standards for interlocutory appealability of discovery orders)
- Ins. Corp. of Ir. v. Compagnie Des Bauxites De Guinee, 456 U.S. 694 (U.S. 1982) (Rule 37 sanctions and due process; presumption/support for default where discovery withheld)
- Hammond Packing Co. v. Arkansas, 212 U.S. 322 (U.S. 1909) (upholding striking answer/default where party disobeyed discovery order)
- Essex Grp., Inc. v. Express Wire Servs. Inc., 157 N.C. App. 360 (N.C. Ct. App. 2003) (review standard for striking answer/default as discovery sanction)
- Badillo v. Cunningham, 177 N.C. App. 732 (N.C. Ct. App. 2006) (Rule 37 sanctions, including default or striking pleadings, are authorized and require consideration of lesser sanctions)