Bradshaw v. Maiden,
2018 NCBC 44.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 14 CVS 14445
JAMES W. BRADSHAW; CARLA O.
BRADSHAW; RESORT RETAIL
ASSOCIATES, INC.; E.C.
BROADFOOT; CHRISTINA DUNN
CHANDRA; THOMAS F. EGAN;
CHARLES EGGERT; MARK P.
GARSIDE; DR. JAMES J. GREEN,
JR.; ROBERT K. GRUNEWALD;
RONALD HOLMES; DAVID
LAUCK; CURT W. LEMKAU, JR.;
EVAN MIDDLETON; JOSHUA M.
NELSON; CHRISTIAN C. NUGENT;
REGINA H. PAKRADOONI, as
Executrix of the Estate of PETER B.
PAKRADOONI, deceased; FORD
PERRY; MARCELLO G. PORCELLI;
ADAN RENDON; RICHARD H.
STEVENSON; PAUL STOKES;
LAWRENCE J. THEIL; R.
MITCHELL WICKHAM; WILLIAM ORDER AND OPINION ON
H. WILLIAMSON, III; WILLIAM K.
WRIGHT, JR.; ALEX M. WOLF; PLAINTIFFS’ MOTION FOR
CHAFFIN FAMILY LIMITED SANCTIONS
PARTNERSHIP; and SOLARIS
CAPITAL LLC,
Plaintiffs,
v.
STEPHEN E. MAIDEN; MAIDEN
CAPITAL, LLC; and SS&C
TECHNOLOGIES, INC.; successor
by merger to SS&C FUND
ADMINISTRATION SERVICES,
LLC (a/k/a SS&C FUND
SERVICES),
Defendants.
SS&C TECHNOLOGIES, INC.;
successor by merger to SS&C FUND
ADMINISTRATION SERVICES,
LLC,
Third-Party Plaintiff,
v.
MAIDEN CAPITAL OPPORTUNITY
FUND, LP,
Third-Party Defendant.
1. THIS MATTER is before the Court upon Plaintiffs’ Motion for Sanctions
Against Defendant SS&C Technologies, Inc. Pursuant to N.C. R. Civ. P. 37 (the
“Motion”) in the above-captioned case. Having considered the Motion, the arguments
of counsel at the September 22, 2017 hearing on the Motion, and the briefs in support
of and in opposition to the Motion, the Court hereby GRANTS the Motion, ENTERS
the following FINDINGS OF FACT and CONCLUSIONS OF LAW, and ORDERS
as follows.
Lewis & Roberts, PLLC, by Gary V. Mauney and James A. Roberts, III,
for Plaintiffs James W. Bradshaw, Carla O. Bradshaw, Resort Retail
Associates, Inc., E.C. Broadfoot, Christina Dunn Chandra, Thomas F.
Egan, Charles Eggert, Mark P. Garside, Dr. James J. Green, Jr., Robert
K. Grunewald, Ronald Holmes, David Lauck, Curt W. Lemkau, Jr., Evan
Middleton, Joshua M. Nelson, Christian C. Nugent, Regina H.
Pakradooni, as Executrix of the Estate of Peter B. Pakradooni, deceased,
Ford Perry, Marcello G. Porcelli, Adan Rendon, Richard H. Stevenson,
Paul Stokes, Lawrence J. Theil, R. Mitchell Wickham, William H.
Williamson, III, William K. Wright, Jr., Alex M. Wolf, Chaffin Family
Limited Partnership, and Solaris Capital, LLC.
Alston & Bird, LLP, by Ryan P. Ethridge, Michael A. Kaeding, and
Jessica P. Corley, for Defendant SS&C Technologies, Inc.
Bledsoe, Judge.
I.
FINDINGS OF FACT
2. The Court has previously discussed the claims and allegations involved in
this action in the Court’s Order and Opinion on SS&C’s Motion to Dismiss, reported
at Bradshaw v. Maiden, 2015 NCBC LEXIS 80 (N.C. Super. Ct. Aug. 10, 2015) (the
“Motion to Dismiss Opinion”). This case arises from an alleged multi-million dollar
“Ponzi scheme” run by Defendant Stephen A. Maiden (“Maiden”) through a hedge
fund titled the Maiden Capital Opportunity Fund, LP (the “Fund”). Defendant SS&C
Technologies, Inc. (“SS&C”) was the Fund’s administrator from approximately 2007
through the Fund’s collapse in 2013. Plaintiffs were investors in the Fund.
3. Plaintiffs’ allegations against SS&C center on SS&C’s performance of its
administrative duties. To give three examples, Plaintiffs contend that SS&C did not
follow standard GAAP procedures, did not obtain reasonable documentation to verify
the accuracy of information provided to SS&C by Maiden, and continued issuing
capital statements to Plaintiffs despite SS&C’s knowledge of record inaccuracies.
Bradshaw,
2015 NCBC LEXIS 80, at *16, *22–23. As a result of these practices,
Plaintiffs allege that SS&C communicated false information to Plaintiffs and caused
Plaintiffs to suffer financial loss by allowing Maiden’s Ponzi scheme to continue
unnoticed.
Id. at *9–10.
4. In an effort to discover relevant information about the policies and
procedures SS&C had in place while it was administering the Fund, Plaintiffs served
SS&C with Plaintiffs’ First Set of Interrogatories and First Requests for Production
of Documents (the “Requests for Production”) on August 21, 2015. Of those requests,
Requests 20–22 and 35 sought the following:
20. All writings, recordings, and photographs that relate or refer to SSC’s
policies, standards, and practices from 2006 to 2015 with respect to hedge
fund administration.
21. All writings, recordings, and photographs that relate or refer to SSC’s
policies, standards, and practices from 2006 to 2015 that apply to SSC’s
accounting work for hedge funds.
22. All writings, recordings, and photographs that relate or refer to SSC’s
policies, standards, and practices from 2006 to 2015 that apply to SSC’s
record keeping for hedge funds.
....
35. All writings, recordings, and photographs that relate or refer to SSC’s
policies, procedures, and standards from 2006 to 2015 for entering into
administrative and/or accounting engagements with hedge funds.
(Pls.’ Br. Supp. Mot. Sanctions Ex. 2, at 8–9, 11, ECF No. 128.2.)
5. In response to Plaintiffs’ Requests for Production, SS&C agreed to produce
all the documents SS&C contended it had that “relate[d] directly to its work for the
Fund.” (Mem. Law Opp’n Pls.’ Mot. Compel Disc. Def. 12, ECF No. 68.) SS&C
objected to Plaintiffs’ Requests 20–22 and 35, however, arguing that these requests
were vague, unduly burdensome, overly broad, and not reasonably limited in
temporal scope. (Mem. Law Opp’n Pls.’ Mot. Compel Disc. Def. Ex. 2, at 31–35, 46–
48 [hereinafter “Answers to Requests”], ECF No. 71.) In addition, SS&C contended
that Requests 20–22 and 35 were not relevant to any remaining claims or defenses in
the case as a result of the Court’s Motion to Dismiss Opinion. (Answers to Requests
31–35, 46–48.)
6. The Motion to Dismiss Opinion altered the course of this case in several
ways. Plaintiffs brought claims against SS&C for breach of fiduciary duty, aiding
and abetting common law fraud, gross negligence, grossly negligent
misrepresentation, aiding and abetting constructive fraud, violation of N.C. Gen.
Stat. § 78A-52(c)(2), civil conspiracy, and punitive damages. Bradshaw, 2015 NCBC
LEXIS 80, at *10. With respect to Plaintiffs’ claim for breach of fiduciary duty, the
Court concluded that SS&C’s duties were limited under North Carolina law to the
duties SS&C was obligated to perform under the agreement between SS&C and the
Fund. Id. at *36. Consequently, and because Plaintiffs had failed to plead that
Plaintiffs reposed confidence in SS&C or that SS&C had occupied a position of
dominance over Plaintiffs, no fiduciary duty existed between SS&C and Plaintiffs.
Id. Accordingly, the Court dismissed Plaintiffs’ claim for breach of fiduciary duty.
Id. The Court also dismissed, for unrelated reasons, Plaintiffs’ claim for aiding and
abetting common law fraud. Id. at *38.
7. With respect to Plaintiffs’ claim for gross negligence, the Court concluded
SS&C’s motion to dismiss should be denied in a limited capacity:
[T]he Court concludes that SS&C’s Motion to Dismiss Plaintiffs’ gross
negligence claim . . . should be denied insofar as Plaintiffs’ claim is based on
allegations that SS&C knowingly and willfully disseminated false and
inaccurate information to Plaintiffs, knowingly and willfully failed to utilize
GAAP and/or other applicable accounting standards required of SS&C under
the [agreement with the Fund] in preparing the financial information SS&C
provided to Plaintiffs, knowingly and willfully manipulated the Fund’s
accounting, and all other willful and knowing acts Plaintiffs plead that were
in violation of SS&C’s duties under the [agreement with the Fund] and
applicable law.
Id. at *23–24. The Court also limited Plaintiffs’ claim for grossly negligent
misrepresentation in this manner:
[T]he Court will allow the claim to proceed at this early stage and will assume
for purposes of this Motion that a claim for grossly negligent
misrepresentation is properly stated by alleging the elements of a claim for
negligent misrepresentation, together with allegations of willful and wanton
conduct, similar to the allegations necessary to support Plaintiffs’ claim for
gross negligence as discussed above.
Id. at *26. The Court allowed Plaintiffs’ claims for aiding and abetting constructive
fraud, violation of section 78A-56(c)(2), civil conspiracy, and punitive damages to
proceed to discovery. Id. at *48.
8. In responding to Plaintiffs’ Requests 20–22 and 35, SS&C relied on the
above-quoted portions of the Motion to Dismiss Opinion to assert, in essence, that
“any SS&C internal policies, standards and practices applicable to [the information
sought by Requests 20–22 and 35] are not relevant to the remaining claims” because
those claims “are strictly limited to knowing and willful violations of the standards
and duties imposed on SS&C under the terms of the [agreement with the Fund].”
(Answers to Requests 32, 34–35, 47.) As a result, SS&C argued, it was not required
to produce further documents in response to Requests 20–22 and 35.
9. Not satisfied with SS&C’s answers and objections, Plaintiffs filed a motion
to compel (the “Motion to Compel”). Plaintiffs countered SS&C’s arguments by
contending that Requests 20–22 and 35 sought relevant information because “a
pattern of noncompliance with policies and standards is a relevant factor in the
determination of willful or wanton negligence.” (Pls.’ Reply Br. Supp. Mot. Compel
Disc. 10, ECF No. 90.)
10. At the April 27, 2016 hearing on the Motion to Compel, the Court questioned
counsel for SS&C as follows:
All right. [Counsel for SS&C], let me ask you, for example, with No.
22, he’s asking for documents that relate to the policies, standards, and
practices that apply to SS&C’s recordkeeping for hedge funds. It seems
beyond dispute that SS&C had a recordkeeping obligation under the
[agreement with the Fund]. So is SS&C’s position that there are no such
policies, standards, and practices?
(Pls.’ Br. Supp. Mot. Sanctions Ex. 10, at 32 [hereinafter “Tr.”], ECF No. 128.10.) In
response, counsel for SS&C stated, “There are no documents, correct.” (Tr. 32.) SS&C
took the position that there were no documents to be produced pursuant to Plaintiffs’
discovery requests because SS&C allegedly had no written policies, standards, and
practices that related to the work it did for the Fund. (Tr. 32–33.)
11. After further discussion on this point between the Court and SS&C’s
counsel, counsel for Plaintiff interjected:
Your Honor, here’s the problem that I’ve got with, you know, how we’re
approaching this. They’re making a relevancy determination on what policies
and procedures apply to what they were supposed to be doing for the [Fund].
I mean, we’re in the discovery stage. . . .
. . . [T]o have them say we made this relevancy determination without
having an opportunity ourselves to look at the documents seems a little
unfair, particularly at the discovery stage.
(Tr. 33–34.)
12. Following this statement from Plaintiffs’ counsel, the Court attempted to
clarify SS&C’s position by asking whether SS&C had policies, standards, and
practices that related to hedge fund administration, accounting, or engagement in
general. (Tr. 34–37.) SS&C stated that there we no documents responsive to those
broad inquiries either. (Tr. 34–37.) In light of SS&C’s representations, the Court
stated it “would be inclined to grant the Plaintiffs’ motion as to [Requests 20–22 and
35].” (Tr. 37.) The Court further remarked, “It appears that’s no skin off [SS&C’s]
back because you say there are no such policies, practices, standards. And I suppose
if you all engage in further discovery . . . [and] you think that that’s not an accurate
statement, then I guess we’ll come back here.” (Tr. 37.)
13. The Court memorialized its oral ruling in the Order on Motions1 to Compel
entered May 20, 2016 (the “Order Compelling Production”). In the Order Compelling
Production, after noting SS&C’s contentions, the Court concluded that Plaintiffs’
Requests 20–22 and 35 were reasonably calculated to lead to the discovery of
admissible evidence and granted Plaintiffs’ Motion to Compel as to those requests:
Plaintiffs’ Requests No. 20–22 and 35 seek: “Documents that refer or
relate to SS&C’s policies, standards, and practices that apply to: (1) SS&C’s
work in hedge fund administration (RPD 20), (2) SS&C’s accounting work for
hedge funds (RPD 21), and (3) SS&C’s record keeping for hedge funds (RPD
22). Plaintiffs also requested documents that refer or relate to SS&C’s
policies and standards for entering into administration or accounting
engagements with hedge funds (RPD 35).” Defendants contend that these
requests are irrelevant because the Court’s August 10 Order determined that
the duties SS&C owed to Plaintiffs were largely constrained by the
[agreement] entered into between SS&C and the Fund. Defendants also take
the position that there are no responsive documents that have not already
been produced. The Court concludes that these requests are reasonably
calculated to lead to admissible evidence, and the Court therefore grants
Plaintiffs’ Motion as to Requests 20–22 and 35. 2
(Order Mots. Compel 4, ECF No. 102 (emphasis omitted) (citations omitted).)
1 The Court also ruled on a motion to compel brought by SS&C. The details of that motion
are irrelevant to the current matter before the Court.
2 Rule 26 of the North Carolina Rules of Civil Procedure permits “[p]arties [to] obtain
discovery regarding any matter, not privileged, which is relevant to the subject matter
involved in the pending action.” N.C. R. Civ. P. 26(b)(1). “To be relevant for purposes of
discovery, the information [sought] need only be ‘reasonably calculated’ to lead to the
discovery of admissible evidence.” Shellhorn v. Brad Ragan, Inc., 38 N.C. App. 310, 314,
248
S.E.2d 103, 106 (1978)
14. Approximately one year later, in June 2017, SS&C conducted its depositions
of expert witnesses retained by Plaintiffs. Plaintiffs’ experts were prepared to testify
that SS&C lacked relevant policies and procedures. In questioning these experts,
counsel for SS&C referred to SAS 70 or SOC-1 reports (“SAS 70-type audits”) and
asked how the existence of those reports would influence the experts’ opinions. (Pls.’
Br. Supp. Mot. Sanctions Ex. 14, Dep. Joseph P. Belanger 278–81, Dep. Frank
Buckless 207, ECF No. 128.14.) SAS 70s or SOC-1s are reports prepared by third
parties on policies and procedures placed in operation at service organizations like
SS&C. (Pls.’ Br. Supp. Mot. Sanctions Ex. 6, ECF No. 128.6.) At least one of SS&C’s
previous deponents, George Schnell, had mentioned these audits were done, but
SS&C had not indicated prior to the depositions of Plaintiffs’ experts that SS&C
believed the audit documents were relevant to Plaintiffs’ experts’ opinions regarding
SS&C’s policies and procedures. SS&C contends that it did not so indicate because
it was unaware that Plaintiffs’ experts were going to offer opinions based on SS&C’s
alleged failure to have policies or procedures in place.
15. Following the depositions, SS&C produced 417 pages of SAS 70-type audits
covering SS&C’s administration and accounting policies and procedures for the years
2008–12. These documents purportedly lent credence to SS&C’s case. During a later
deposition, SS&C’s expert witness testified that although he had already formed the
majority of his opinions, reviewing SS&C’s SAS 70-type audits reinforced and
provided further support for those opinions.
16. Plaintiffs also discovered, through their own efforts, additional SAS 70-type
audits for the years 2006 and 2007. Later still, Plaintiffs obtained policy and
procedure manuals generated by SS&C’s Investor Relations business unit through a
search of New York courthouse records.
17. Following these developments, Plaintiffs initiated a Business Court Rule
(“BCR”) 10.9 request for a telephone conference. In light of the nature of the issues
reported by Plaintiffs, the Court exercised its discretion under BCR 10.9(b)(1) and
ordered Plaintiffs to file a formal motion and brief concerning the matters discussed
in their 10.9 statement. Plaintiffs then filed the Motion, asking the Court to strike
SS&C’s answer and affirmative defenses or enter judgment by default against SS&C.
18. The Motion is fully briefed, a hearing has been held, and the Motion is ripe
for determination.
II.
CONCLUSIONS OF LAW
19. Rule 37(b) of the North Carolina Rules of Civil Procedure permits a court to
order a variety of sanctions against a party who fails to obey a court order regarding
discovery. See F.E. Davis Plumbing Co. v. Ingleside W. Assocs., 37 N.C. App. 149,
152,
245 S.E.2d 555, 557 (1978). These sanctions include, but are not limited to, the
establishment of facts, the exclusion of evidence, the striking out of pleadings or parts
thereof, or the dismissal of an action. N.C. R. Civ. P. 37(b)(2).
20. “The imposition of sanctions under Rule 37 ‘is in the sound discretion of the
trial judge and cannot be overturned absent a showing of abuse of that discretion.’”
In re Pedestrian Walkway Failure,
173 N.C. App. 237, 246,
618 S.E.2d 819, 826 (2005)
(quoting Bumgarner v. Reneau,
332 N.C. 624, 631,
422 S.E.2d 686, 690 (1992)). The
trial court will only be held to have abused its discretion “where the court's ruling is
manifestly unsupported by reason or is so arbitrary that it could not have been the
result of a reasoned decision.” E. Brooks Wilkins Family Med., P.A. v. WakeMed,
244
N.C. App. 567, 578,
784 S.E.2d 178, 185 (2016).
21. Upon motion by a party, and in lieu of dismissal or other severe sanctions,
or in addition to them, Rule 37(b)(2) provides that the trial court shall “require the
party failing to obey the [discovery] order to pay the reasonable expenses, including
attorney’s fees, caused by the failure, unless the court finds that the failure was
substantially justified or that other circumstances make an award of expenses
unjust.”
Id. at 578, 784 S.E.2d at 185–86 (quoting N.C. R. Civ. P. 37(b)(2)). Because
awarded expenses are required to be “reasonable, the record must contain findings of
fact to support the award of any expenses, including attorney’s fees.” Benfield v.
Benfield,
89 N.C. App. 415, 422,
366 S.E.2d 500, 504 (1988).
22. Plaintiffs contend the newly discovered and produced documents prove
SS&C disobeyed the Order Compelling Production. In particular, Plaintiffs argue
that the existence of the SAS 70-type audits necessarily means SS&C must have
written policies and procedures a third party can audit—policies and procedures that
have not been produced. Plaintiffs also argue SS&C’s failure to turn over the SAS
70-type audits earlier and SS&C’s failure to produce the recently discovered policy
manuals at any time are direct violations of the Court’s Order Compelling Production.
23. In response, SS&C asserts that it did not violate the Order Compelling
Production. SS&C argues that the Court did not compel the production of audit forms
or policy manuals because Plaintiffs’ discovery requests sought “SS&C’s policies
governing the services SS&C provide[d] to clients like the . . . Fund” and SS&C “did
not have other written policies or procedures governing these services.” (Pls.’ Br.
Supp. Mot. Sanctions Ex. 16, ECF No. 128.16.) SS&C now acknowledges that some
of its business units that SS&C claims did not work with the Fund do have written
policies and procedures. These include the policy manuals Plaintiffs obtained. SS&C
maintains that it was not required to produce these policies or procedures, however,
because they were not applicable to SS&C’s Fund Services NY unit—the unit that
worked on the Fund. (See Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions 9, ECF No.
132.) SS&C further argues that the SAS 70-type audit documents, which SS&C
acknowledges did apply to SS&C’s Fund Services NY unit, were not required to be
produced because they “are an independent auditor’s opinion regarding its
examination of SS&C’s internal controls” and “are not SS&C’s own written policies
or procedures.” (Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions 7.)
24. Based on its review of the record and the arguments of counsel, the Court
cannot agree with SS&C. To the contrary, the Court concludes that SS&C failed to
comply with the Order Compelling Production and that Plaintiffs are entitled to
reasonable expenses, including attorneys’ fees, directly attributable to that failure.
25. Repeatedly throughout this dispute, SS&C has maintained that it was only
required to produce written policies or procedures relating to the work it contends it
did for the Fund. While a selective reading of the April 27, 2016 hearing transcript
can be used to support SS&C’s argument, the larger context of the discussion at that
hearing and the plain language of both Plaintiffs’ Requests for Production and the
Court’s Order Compelling Production demonstrate SS&C’s real discovery obligations
were broader.
26. The fact the Order Compelling Production was not limited to the written
policies and procedures SS&C contends are applicable to its work for the Fund should
have been apparent to counsel for SS&C following the April 27, 2016 hearing. SS&C
points to one statement by the Court at this hearing to support SS&C’s limited view
of its obligations: “[I]t seems to me the Plaintiff is entitled to receive any policies,
standards, and practices that exist for the services that the Defendant provided.” (Tr.
33.) While this quote is accurate, it was not offered as a final determination. Indeed,
almost immediately thereafter Plaintiffs’ counsel voiced concerns that SS&C was
narrowly interpreting Plaintiffs’ discovery requests and was “making a relevancy
determination on what policies and procedures appl[ied] to what [SS&C was]
supposed to be doing for the [Fund].” (Tr. 33.) That concern prompted the Court to
inquire “are there policies, standards, and practices that relate to hedge fund
administration that SS&C believes exist that control and govern their conduct,
but . . . just don’t control and govern their conduct in this particular representation?”
(Tr. 34.) In other words, the Court directly and specifically inquired as to whether
SS&C had policies and procedures that were followed in other hedge fund
representations generally but not the one at the center of this litigation. In response,
counsel for SS&C stated, “I believe the answer to that is no.” (Tr. 34.) The Court
asked similar questions with respect to SS&C’s other obligations and received
negative answers to each. (Tr. 35–37.)
27. At one point during this exchange, SS&C reframed its answers: “Policies
and procedures related to the work we did here, recordkeeping, administration . . . do
not exist.” (Tr. 35 (emphasis added).) This caused Plaintiffs’ counsel to interject
again:
But, your Honor, the problem is he’s saying we’re making a
determination as to what relates to the work we did here. I mean, we’ve got
a different -- a vastly different view of what [SS&C’s] obligations were as the
administrator for the [Fund]. . . . [D]on’t let them determine in the discovery
phase of this case what is a relevant policy or procedure.
(Tr. 35.) The Court then stated, “I thought that, you know, [that] hedge fund
administration was probably the broadest description, and [SS&C] is saying they
don’t have any,” referring to the Court’s previous question about policies, standards,
and practices relating to hedge fund administration. (Tr. 35–36.) Counsel for SS&C
then responded that unless the requests “related to . . . fund[] administration as
anything [SS&C does], meaning all of our documents,” there were “no documents that
fit that description” for the requested time period.3 (Tr. 36.)
3 SS&C repeats this argument in its brief, asserting that “[t]aken literally, [Plaintiffs’]
Requests seek almost every document at SS&C.” (Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions
3.) While the Court is certain SS&C is correct that it has “written policies governing certain
aspects of its business (everything from human resources to cybersecurity),” (Def.’s Mem.
Law Opp’n Pls.’ Mot. Sanctions 2), the Court is likewise confident—and SS&C’s subsequent
document productions since the September 22, 2017 hearing confirm—that certain
documents at SS&C refer or relate to the hedge fund administration, accounting, and
recordkeeping parts of SS&C’s business and that these documents are distinguishable from
those that do not.
28. Plaintiffs’ complaints about SS&C’s attempts to limit requested discovery to
what SS&C considered applicable, and the Court’s questions about a wider range of
documents than those concerning policies and practices SS&C alleges were applicable
to the Fund, make SS&C’s continued practice of interpreting the Court’s Order
Compelling Production in a narrow manner unjustifiable. The plain language of the
Order Compelling Production shows Plaintiffs requested—and the Court ordered—
that SS&C produce:
[d]ocuments that refer or relate to SS&C’s policies, standards, and practices
that apply to: (1) SS&C’s work in hedge fund administration (RPD 20), (2)
SS&C’s accounting work for hedge funds (RPD 21), and (3) SS&C’s record
keeping for hedge funds (RPD 22) . . . [as well as] policies and standards for
entering into administrative or accounting engagements with hedge funds.
(Order Mots. Compel 4 (emphasis added).) The Order Compelling Production was not
limited to written copies of policies SS&C contends were applicable to the finite
number of services provided to the Fund by one of SS&C’s business units, nor was it
limited to documents written by SS&C employees. The scope of the Order Compelling
Production included documents referring to or relating to several general categories
of services that SS&C offers to hedge fund clients. The objections SS&C initially
made to Plaintiffs’ Requests 20–22 and 35 suggest SS&C understood the breadth of
these general categories. (Answers to Requests 32, 34–35, 47.) SS&C’s apparent
belief that the Order Compelling Production somehow limited SS&C’s obligations
under Plaintiffs’ requests is unsupported.
29. Further, neither the Court’s statement at the April 27, 2016 hearing—that
the oral ruling would be “no skin off [SS&C’s] back”4—nor the Order Compelling
Production acknowledged, as SS&C contends they did, (see Def.’s Mem. Law Opp’n
Pls.’ Mot. Sanctions 7), that SS&C had produced all necessary responsive documents
as of the hearing. Instead, the statements acknowledged only that SS&C had
repeatedly represented to the Court that no responsive documents existed and, thus,
that SS&C would not be required to make further productions if it was indeed true
that all responsive documents encompassed by Plaintiffs’ requests had already been
produced.
30. Finally, any confusion resulting from the colloquy between the Court and
SS&C at the hearing should have been completely resolved by the express wording of
the Order Compelling Production, which contained unambiguous and unequivocal
language. To the extent SS&C believed the Court’s oral ruling and the Order
Compelling Production were inconsistent, or in the event SS&C discovered it had
documents it previously characterized as nonexistent, SS&C’s recourse was to file a
motion for clarification or reconsideration of the Order Compelling Production.
Instead of taking this course, SS&C unilaterally created a limitation on the scope of
its obligations arising from the Order Compelling Production.
4 “One party’s need for information must be balanced against the likelihood of an undue
burden imposed upon the other.” Willis v. Duke Power Co., 291 N.C. 19, 34,
229 S.E.2d 191,
200 (1976). The Court’s “no skin off your back” statement reflected the Court’s conclusion—
based on SS&C’s counsel’s representations that no responsive documents remained to be
produced—that ordering SS&C to produce the requested documents relating to its general
hedge fund services would not impose an undue burden on SS&C.
31. Plaintiffs have now belatedly obtained, through both SS&C’s and Plaintiffs’
efforts, documents referring to or relating to policies, procedures, and practices that
apply to SS&C’s administration, accounting, and recordkeeping services for hedge
funds. Some of these documents allegedly apply to business units other than those
working with the Fund. Some—such as the SAS 70-type audit documents—refer to
the policies and procedures of the specific business unit SS&C contends worked for
the Fund. Almost all refer or relate to policies or procedures applicable to SS&C’s
work regarding hedge funds. The Court finds that, in failing to timely produce these
and related documents, SS&C failed to comply with the Order Compelling
Production. For the reasons explained above, this failure was not substantially
justified.
32. While nothing in the record leads the Court to conclude at this time that
SS&C’s conduct was motivated by bad faith, a lack of bad faith does not shield SS&C
from all possible sanctions. Rather, when “a party compelled to provide discovery
[fails] to do so, an award of reasonable costs is mandatory” unless the failure is
substantially justified or an award would be unjust due to other circumstances.
Caruso v. Hennessy, No. COA06-646, 2007 N.C. App. LEXIS 578, at *8–9 (N.C. Ct.
App. Mar. 20, 2007) (citing Kent v. Humphries,
50 N.C. App. 580, 590,
275 S.E.2d 176,
183 (1981)); see N.C. R. Civ. P. 37(b)(2) (stating “the court shall require” payment of
expenses, including attorneys’ fees, “unless the court finds that the failure was
substantially justified” or that the award is unjust because of the circumstances). The
provisions of Rule 37 that mandate an award of reasonable expenses are not meant
to punish but to reimburse a successful movant. See Benfield,
89 N.C. App. at 422,
366 S.E.2d at 504. Here, the Court concludes Plaintiffs are entitled to this
reimbursement.
33. SS&C’s failure to comply with the Court’s Order Compelling Production
relates to a key issue in this case. As a result of SS&C’s failure, Plaintiffs have spent
a significant amount of their own time and money looking into the existence and
location of responsive documents—in particular, by attempting to address SS&C’s
discovery deficiencies through inquiries in multiple depositions and by paying for the
investigation and evaluation of a significant number of records. While the Court has
no reason to believe that SS&C’s counsel intentionally defied the Court’s Order
Compelling Production, the Court is nonetheless troubled by SS&C’s failure to comply
with its obligations to search for and produce documents responsive to the Requests
for Production and subject to production under the Order Compelling Production,
given the plain terms of each.
34. Accordingly, Plaintiffs shall be permitted to recover reasonable expenses,
including attorneys’ fees, directly attributable to SS&C’s failure to produce the
requested documents following the Order Compelling Production. See WakeMed,
244
N.C. App. at 579,
784 S.E.2d at 186 (affirming the trial court’s award of fees
“attributable to the [defendants’] efforts related to [the plaintiff’s] deficient
discovery”); American Tel. & Tel. Co. v. Griffin,
39 N.C. App. 721, 727,
251 S.E.2d
885, 888 (1979) (affirming the trial court’s award of reasonable expenses caused by a
failure to comply with a discovery order); Kornegay v. Aspen Asset Grp., LLC,
2007
NCBC LEXIS 5, at *17 (N.C. Super. Ct. Feb. 28, 2007) (“At a minimum, however, the
Court ‘shall require the party failing to obey the order to pay the reasonable expenses,
including attorney’s fees, caused by the failure[.]’” (quoting N.C. R. Civ. P. 37(b)(2))),
aff’d,
204 N.C. App. 213,
693 S.E.2d 723 (2010).
35. The Court has considered Plaintiffs’ request for more severe sanctions—in
particular, that the Court strike SS&C’s answer and affirmative defenses or enter
judgment by default against SS&C—and concludes that such relief is not appropriate
on the current record, which lacks evidence of SS&C’s participation in intentional
evasion or other bad faith behavior. The Court will not hesitate to impose more severe
sanctions, however, should SS&C fail to abide by the Court’s orders hereafter or if
the Court later becomes convinced that SS&C fully understood its obligations under
the Order Compelling Production yet failed to produce its responsive documents.
36. As a final argument, SS&C claims that Plaintiffs brought this dispute to the
Court before fulfilling their meet-and-confer obligation under BCR 10.9(b). As stated
by SS&C, Plaintiffs initiated a conference regarding this dispute to address the
existence of unproduced documents before submitting a BCR 10.9 statement to the
Court. (Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions 5.) At that conference, counsel
for Plaintiffs asserted that there must be written policies and procedures that had
not been produced, arguing that the third party creating the SAS 70-type audits could
not have audited unwritten policies. (Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions 5.)
SS&C’s counsel disagreed but stated it would ask SS&C to confirm that the SAS 70-
type audits did not, “in fact, reference written policies and procedures applicable to
the [Fund] engagement.” (Def.’s Mem. Law Opp’n Pls.’ Mot. Sanctions 5–6.) Because
Plaintiffs did not wait for SS&C to conduct this inquiry, SS&C believes Plaintiffs’
Motion should be denied.
37. The Court disagrees that Plaintiffs failed to follow the procedures set out
in BCR 10.9(b). Plaintiffs initiated a conference with SS&C prior to submitting their
BCR 10.9 e-mail to the Court in an attempt to avoid bringing this discovery dispute
for judicial resolution. When Plaintiffs asked about policies and procedures referred
to in the SAS 70-type audits, they received SS&C’s familiar denial that written
policies or procedures applicable to the Fund representation existed. This was the
same answer that Plaintiffs had taken issue with at the prior hearing—an answer in
which SS&C unilaterally altered the scope of Plaintiffs’ requests in a manner
contrary to the Court’s Order Compelling Production. Plaintiffs were not required to
wait while SS&C confirmed an answer that was not a response to Plaintiffs’ query.
III.
CONCLUSION
38. WHEREFORE, the Court, in the exercise of its discretion, hereby
ORDERS as follows:
a. As to the requested documents:
i. The parties are currently engaged in ongoing discussions
regarding the production of documents responsive to Plaintiffs’
Requests 20–22 and 35 pursuant to the Court’s September 22,
2017 oral order, the October 16, 2017 Order to Meet and Confer,
and multiple subsequent orders imposing similar obligations and
narrowing and focusing the scope of the required production
under the Order Compelling Production. The provisions of the
Court’s September 22, 2017 oral order, the October 16, 2017
Order to Meet and Confer, and all subsequent orders imposing
similar obligations, including, most recently, the April 2, 2018
Order to File Joint Report, are incorporated into this Order and
shall control the production of these responsive documents.
ii. SS&C shall make witness(es) available for a Rule 30(b)(6)
deposition concerning the newly produced documents at SS&C’s
expense, should Plaintiffs wish to conduct such a deposition.
b. As to Plaintiffs’ expenses:
i. SS&C shall pay to Plaintiffs their reasonable expenses, including
their reasonable attorneys’ fees, directly attributable to SS&C’s
failure to comply with the Order Compelling Production that were
incurred between the entry of the Order Compelling Production
and SS&C’s final, above-ordered production.
ii. SS&C shall not, however, be required to pay Plaintiffs their
expenses attributable to other aspects of Plaintiffs’ prosecution of
this action, including, in particular, Plaintiffs’ expenses
attributable to written, document, or deposition discovery to the
extent that discovery would have occurred regardless of SS&C’s
compliance with the Order Compelling Production.
iii. Plaintiffs shall have through and including May 25, 2018 to file
all evidence and materials in support of Plaintiffs’ request for
reasonable expenses, including attorneys’ fees, as well as a
supporting brief of no more than 2,500 words.
iv. SS&C may agree to satisfy Plaintiffs’ request for expenses by
filing a document to that effect, and any payment by agreement
shall be made by SS&C on or before June 8, 2018 or at such time
as the parties may agree.
v. In the event SS&C does not agree with Plaintiffs’ request for
expenses, SS&C shall file its brief in opposition to the amount of
Plaintiffs’ requested expenses, including Plaintiffs’ attorneys’
fees, together with any supporting materials, no later than June
8, 2018. That brief shall be of no more than 2,500 words.
vi. Plaintiffs will be permitted to file a reply brief in further support
of its request for expenses no later than June 18, 2018. That brief
shall be of no more than 1,250 words.
vii. All briefs shall otherwise comply with BCR 7.8.
viii. If necessary, the Court will set a hearing on Plaintiffs’ request for
reasonable expenses by separate order.
SO ORDERED, this the 9th day of May, 2018.
/s/ Louis A. Bledsoe, III
Louis A. Bledsoe, III
Special Superior Court Judge
for Complex Business Cases
