Arris Grp., Inc. v. CyberPower Sys. (USA), Inc., 2017 NCBC 57.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION DURHAM COUNTY 16 CVS 4050
ARRIS GROUP, INC.,
Plaintiff,
v.
CYBERPOWER SYSTEMS (USA), INC., et al., ORDER AND OPINION ON MOTION TO COMPEL Defendants,
and
DELTA PRODUCTS CORPORATION,
Respondent.
1. This ancillary proceeding requires the Court to determine whether
Respondent Delta Products Corporation (“Delta”) must search for and produce
documents for use in an Illinois lawsuit between ARRIS Group, Inc. (“ARRIS”) and
CyberPower Systems (USA) Inc. (“CyberPower”). Delta, which is not a party to that
litigation, appears in this proceeding only because CyberPower has moved to compel
(“Motion”) Delta to respond to a subpoena duces tecum served in North Carolina. The
Court, after reviewing the Motion, the briefs supporting and opposing the Motion,
and the parties’ arguments at the hearing on June 14, 2017, GRANTS in part and
DENIES in part CyberPower’s Motion. Kennon Craver, PLLC by Joel M. Craig, and Williams, Bax & Saltzman, P.C. by Douglas W. Bax, for Defendants.
Womble Carlyle Sandridge & Rice, LLP by David R. Boaz, and Pepper Hamilton LLP by Thomas F. Fitzpatrick, for Respondent.
Conrad, Judge. I. BACKGROUND
A. The Illinois Litigation
2. The Illinois litigation concerns modules used as part of Verizon
Communications, Inc.’s (“Verizon”) fiber optic service, or FiOS, for internet,
telephone, and television. (CyberPower Systems USA’s Mem. of Law in Supp. of Its
Am. and Restated Mot. to Compel Delta Products Corp. to Comply with Subpoena
Duces Tecum 4 [“CyberPower Mem.”].) Each FiOS module consists of two
components: an optical network terminal and a power supply. (CyberPower Mem.
Ex. 1 ¶¶ 23–24.) The optical network terminal “converts a fiber optic signal into
usable TV, internet, and phone services.” (CyberPower Mem. 4; see also CyberPower
Mem. Ex. 1 ¶ 23.) The power supply “plugs into the home’s wall-outlet” to provide
power for the optical network terminal and also includes a battery backup component,
which provides power “in the event of a power outage.” (CyberPower Mem. 4; see also
CyberPower Mem. Ex. 1 ¶ 24.)
3. ARRIS manufactures FiOS modules by making the optical network
terminals and pairing them with power supplies provided by a vendor. (CyberPower
Mem. 4, Ex. 1 ¶ 13.) ARRIS sells the completed modules to Verizon, which then
installs the modules in the homes of its customers. (CyberPower Mem. 4.) 4. In 2006, Verizon received reports of malfunctioning power supplies.
(CyberPower Mem. 4.) Verizon asked ARRIS and other module manufacturers to
identify partners to develop new, replacement power supplies. (CyberPower Mem. 4–
5.) ARRIS initially selected Delta as a vendor, and at least one other manufacturer
selected CyberPower. (CyberPower Mem. 5.) In 2006, Verizon approved
CyberPower’s power supplies, and in 2007 ARRIS began purchasing them instead of
Delta’s. (CyberPower Mem. 5.)
5. In 2012, ARRIS determined that CyberPower’s power supplies were failing
prematurely. (CyberPower Mem. 5.) According to ARRIS, the battery backup
components had a design defect: certain capacitors overheated when used in Verizon’s
specified operating conditions, causing them to degrade prematurely. (CyberPower
Mem. 5–6, Ex. 1 ¶ 37.) As a result, ARRIS ended its relationship with CyberPower
and began purchasing power supplies from Delta. (CyberPower Mem. 5.)
6. In 2013, ARRIS sued CyberPower in Illinois, asserting claims for breach of
express and implied warranties. ARRIS alleges that CyberPower provided power
supplies with battery backup components that failed “to conform to product
specifications, express contractual requirements, and express and implied
warranties.” (CyberPower Mem. Ex. 1 ¶ 1.)
B. The North Carolina Subpoena
7. In August 2016, CyberPower served Delta—a nonparty—with a subpoena
in North Carolina. CyberPower sought a wide range of documents and
communications related to the design, development, and testing of Delta’s power supplies. (See CyberPower Mem. Ex. 2.) Delta refused to produce documents and
objected that the requests were overbroad, unduly burdensome, and called for the
production of trade secrets and confidential information to a direct competitor. (See
CyberPower Mem. Ex. 3.)
8. After discussions between counsel, CyberPower revised the subpoena.
(CyberPower Mem. Ex. 4.) The revised subpoena includes nine requests for
production, with no defined time period, that break down into four categories:
a. The agreement between ARRIS and Delta for the sale of power supplies
or battery backup components.
b. All specifications for Delta’s power supplies or battery backup
components.
c. All communications with ARRIS or Verizon regarding actual or
anticipated operating conditions for the power supplies; testing or analysis of the
temperature levels of the power supplies and any component parts; and the
expected or actual operating life of the power supplies.
d. All documents relating to the determination, calculation, or analysis of
the operating life of the power supplies.
(See CyberPower Mem. Ex 4; see also CyberPower Mem. 10.)
9. Although the revised requests were more limited in scope than the original
subpoena, Delta maintained its objections. CyberPower filed a motion to compel in
Durham County in November 2016. A few months later, CyberPower abandoned this
motion in favor of filing a motion to compel ARRIS to produce a similar set of documents in the Illinois litigation. (CyberPower Mem. Exs. 8, 9.) In February 2017,
the Illinois court issued an order compelling ARRIS to provide the responsive
documents in its possession, custody, or control. (CyberPower Mem. Ex. 10.) ARRIS
produced some documents but represented that, due to standard document retention
procedures, it had not retained other documents related to Delta’s power supplies.
(See CyberPower Mem. 14.)
10. Believing that it had exhausted alternative avenues for obtaining the
requested information, CyberPower renewed its demand that Delta respond to the
revised subpoena. Delta refused, and CyberPower filed the Motion on April 26, 2017.
The proceeding was designated as a mandatory complex business case on May 18,
2017, assigned on May 22, 2017, and is now fully briefed and ripe for determination.
II. ANALYSIS
11. The decision to grant or deny a motion to compel discovery lies within the
“sound discretion” of the trial court. Sessions v. Sloane, 789 S.E.2d 844, 853–54 (N.C.
Ct. App. 2016) (quoting Patrick v. Wake Cnty. Dep’t of Human Servs., 188 N.C. App.
592, 595, 655 S.E.2d 920, 923 (2008)). Here, the issue is whether a nonparty (Delta)
must search for and produce documents, including trade secret and confidential
information, to its direct competitor (CyberPower) for use in out-of-state litigation.
A. Legal Standard
12. The North Carolina Rules of Civil Procedure contemplate and permit
discovery as to nonparties. A foreign litigant, such as CyberPower, may serve a
domestic subpoena on a nonparty in North Carolina, such as Delta, that commands the production, inspection, and copying “of designated records, books, papers,
documents, electronically stored information, or tangible things in the possession,
custody, or control of” the nonparty. N.C. R. Civ. P. 45(a)(1)(b); see also N.C. Gen.
Stat. § 1F-3. This language, and the scope of permitted discovery, is similar to the
terms of discovery permitted between parties under Rule 26. See N.C. R. Civ. P.
26(b)(1).
13. A subpoena to a nonparty therefore poses a concrete, one-sided burden with
no corresponding benefit. Nonparties, by definition, have no direct stake in litigation.
For that reason, “Rule 45 affords greater protection to nonparties than Rule 26
provides to parties.” Bank of Am. Corp. v. SR Int’l Bus. Ins. Co., 2006 NCBC LEXIS
17, at *16 (N.C. Super. Ct. Nov. 1, 2006); accord SciGrip, Inc v. Osae, 2015 NCBC
LEXIS 89, at *14, (N.C. Super. Ct. Sept. 28, 2015). Indeed, “[t]he courts have an
obligation to protect nonparties from burden and expense imposed without sufficient
justification.” Bank of Am. Corp., 2006 NCBC LEXIS 17, at *16 (emphasis added).
14. For example, the issuing party must “take reasonable steps to avoid
imposing an undue burden or expense on a person subject to the subpoena.” Id. at
*11 (quoting N.C. R. Civ. P. 45(c)(1)). In addition, “[t]he court shall quash or modify
the subpoena if” the recipient demonstrates the existence of any enumerated grounds
for objection, including privilege, unreasonableness, and undue burden. N.C. R. Civ.
P. 45(c)(5); see also N.C. R. Civ. P. 45(c)(3); Bank of Am. Corp., 2006 NCBC LEXIS
17, at *11. Where the subpoena requests trade secrets or other confidential
information, Rule 45 provides additional safeguards: the court may “quash or modify the subpoena” unless the issuing party “shows a substantial need for the testimony
or material that cannot otherwise be met without undue hardship.” N.C. R. Civ. P.
45(c)(7) (emphasis added).
15. Federal courts have also stressed the “distinction between a party and
nonparty” in applying the Federal Rules of Civil Procedure. Beinin v. Ctr. for the
Study of Popular Culture, No. C 06-2298 JW (RS), 2007 U.S. Dist. LEXIS 22518, at
*6 (N.D. Cal. Mar. 16, 2007). Although parties to litigation must accept the “travails
[of discovery] as a natural concomitant of modern civil litigation,” “[n]on-parties have
a different set of expectations.” Papst Licensing GmbH & Co. KG v. Apple, Inc., No.
6:15-cv-1095, 2017 U.S. Dist. LEXIS 51274, at *9 (N.D. Ill. Apr. 4, 2017). Accordingly,
“the fact of nonparty status may be considered by the court in weighing the burdens
imposed in the circumstances.” Katz v. Batavia Marine & Sporting Supplies, Inc.,
984 F.2d 422, 424 (Fed. Cir. 1993); see also Intermec Techs. Corp. v. Palm, Inc., No. C
09-80098 MISC WHA, 2009 U.S. Dist. LEXIS 132759, at *7 (N.D. Cal. May 15, 2009)
(holding that protections apply “doubly when the respondent is a non-party”).
B. CyberPower’s Motion
16. CyberPower seeks to compel production of a wide range of communications
and technical information, reaching back more than a decade. Delta argues that the
requested discovery is “highly confidential, irrelevant to any claim or defense, and
unduly burdensome.” (Delta Products Corp.’s Opp’n to CyberPower USA’s Am. and
Restated Mot. to Compel 3 [“Delta Mem.”].) 17. The Court disagrees with Delta that the requested information is irrelevant.
The information sought simply needs to be “reasonably calculated to lead to the
discovery of admissible evidence.” N.C. R. Civ. P. 26(b)(1); see also Hy-Ko Prods. Co.
v. Hillman Grp., Inc., No. 5:09-MC-32, 2009 U.S. Dist. LEXIS 94713, at *3 (E.D.N.C.
Oct. 8, 2009) (relevance in discovery differs from trial phase). CyberPower requests
information concerning the product ARRIS selected to replace CyberPower’s allegedly
defective power supplies. At a minimum, this information is likely relevant to issues
of merchantability and industry standards disputed by ARRIS and CyberPower.
Furthermore, the Illinois court implicitly reached this conclusion when it compelled
ARRIS to produce documents in response to a substantially similar set of requests.
(See CyberPower Mem. Ex. 10.) Although that order is not binding for purposes of
this ancillary proceeding, it deserves due weight, given the Illinois court’s far greater
familiarity with the substantive issues in the underlying litigation. Delta’s relevance
objection is therefore unpersuasive. See Hy-Ko Prods. Co., 2009 U.S. Dist. LEXIS
94713, at *4 (“The burden of showing that the requested discovery is not relevant to
the issues in litigation rests on the party resisting discovery.”).
18. Delta’s other objections have more merit, particularly given its status as a
nonparty. CyberPower’s requests vary in scope, and many of them pose distinct and
unwarranted burdens on Delta. The Court addresses them in turn.
Agreement Between ARRIS and Delta (RFP No. 1)
19. In its first request for production, CyberPower seeks a copy of “[t]he
agreement between ARRIS and Delta for the sale or supply of Power Supplies or [battery backup components].” (CyberPower Mem. Ex. 4.) This request does not pose
an undue burden to Delta. It is discrete, targeted to a specific written agreement,
and does not seek more voluminous or sensitive information associated with the
agreement, such as communications regarding negotiations with ARRIS. See Carter
v. Archdale Police Dep’t, No. 1:13CV613, 2014 U.S. Dist. LEXIS 61265, at *12
(M.D.N.C. May 2, 2014) (stating that undue burden factors include “the breadth of
the document request” and “the particularity with which the documents are
described” (quotation marks omitted)).
20. It is unclear, however, whether any such agreement exists. Though not
discussed in Delta’s briefing, its counsel represented at the hearing that ARRIS and
Delta’s relationship is not governed by an agreement responsive to CyberPower’s
request. Accordingly, to the extent Delta possesses responsive documents that define
the terms of the relationship between ARRIS and Delta for the sale of the products
in question, it shall produce them, and to the extent there are no such documents,
Delta shall certify that they do not exist.
Specifications for Delta’s Power Supplies (RFP No. 2)
21. CyberPower’s second request for production requests “[a]ll documents
constituting specifications for the Power Supplies or [battery backup components].”
(CyberPower Mem. Ex. 4.) The request as written is ambiguous because the term
“specifications” is not defined. In its briefing, CyberPower clarifies that it seeks two
categories of specifications: (1) operating specifications imposed by Verizon and ARRIS and provided to Delta; and (2) technical specifications created by Delta. (See
CyberPower USA’s Reply in Supp. of Its Mot. to Compel 5.)
22. The Court agrees that CyberPower is entitled to any specifications that
Delta received from Verizon or ARRIS. Although the subpoena includes no relevant
time period, the documents were likely provided in 2006 (when both CyberPower and
Delta were first creating power supplies) and in 2012 (when ARRIS decided to replace
CyberPower’s products with Delta’s). It would not be unduly burdensome for Delta
to identify and produce these specific documents to the extent such documents still
exist. And there is no indication in the record that these specifications, which were
created by others, include Delta’s confidential information.
23. Delta’s own technical specifications are a different matter, and the Court
denies CyberPower’s request to obtain them. Delta argues, and the Court agrees,
that technical specifications of this type are highly confidential and likely the subject
of trade secret protection. (See Delta’s Mem. 9; Chang Aff. ¶ 12.) They are the crown
jewels—essentially a blueprint of Delta’s power supplies. It would take a strong
showing of “substantial need” to warrant compelling a nonparty to provide such
information to a direct competitor. N.C. R. Civ. P. 45(c)(7); see also, e.g., In re
Vitamins Antitrust Litig., 267 F. Supp. 2d 738, 741–42 (S.D. Ohio 2003); Coca-Cola
Bottling Co. of Shreveport v. Coca-Cola Co., 107 F.R.D. 288, 293 (D. Del. 1985).
24. CyberPower has made no such showing. CyberPower should have taken all
reasonable measures to obtain the discovery it needs before seeking to compel the
disclosure of highly confidential information by a nonparty and direct competitor. Delta argues, for example, that CyberPower could obtain much of the needed
information by acquiring and testing ARRIS’s current products, which incorporate
Delta’s power supplies. (See Delta Mem. 15.) CyberPower argues that the products
are not available, but it is unclear, after full briefing and argument, whether
CyberPower has even tried to obtain representative product samples from ARRIS.
The Court is not convinced that it did so and, accordingly, finds no substantial need
sufficient to warrant production of Delta’s product specifications.
25. In addition, CyberPower’s request is overbroad. Delta has apparently
produced multiple generations of power supplies for ARRIS and Verizon. (See Chang
Aff. ¶ 5.) Yet CyberPower’s request contains no temporal limitation, no model
numbers, and no other limitation on the scope of the requested specifications.
CyberPower’s demand for all specifications for every generation of Delta’s power
supplies is overbroad.
26. For these reasons, the Court exercises its authority under Rule 45 to modify
the subpoena, limiting the request to specifications received by Delta from Verizon or
ARRIS. Delta shall produce any such specifications within its possession, custody, or
control.
Communications Between Delta and ARRIS or Verizon (RFP Nos. 3-8)
27. CyberPower also requests “[a]ll documents constituting communications”
between Delta and ARRIS or Verizon regarding “the actual or anticipated operating
conditions for the Power Supplies or [battery backup components],” “testing or
analysis of the temperature levels of the Power Supplies or [battery backup components] and any component parts,” and “the expected or actual operating,
service or useful life of the Power Supplies or [battery backup components].”
(CyberPower Mem. Ex. 4.)
28. These requests, which include no temporal limitation, are facially
overbroad. They would require Delta to pore over a decade’s worth of
communications, not specific to any employee or custodian. According to the affidavit
of Delta’s Sales Manager Charles Chang, the effort would entail reviewing “millions
of communications,” requiring “hundreds of hours” and “extensive legal fees.” (Chang
Aff. ¶ 20.) Delta, as a nonparty, should not be subject to such burdens. See
Heidelberg Ams., Inc. v. Tokyo Kikai Seisakusho, Ltd., 333 F.3d 38, 41–42 (1st Cir.
2003) (noting “significant” burden imposed by request for “a decade’s worth of
materials”); Wiwa v. Royal Dutch Petroleum Co., 392 F.3d 812, 818 (5th Cir. 2004)
(“A court may find that a subpoena presents an undue burden when the subpoena is
facially overbroad.”).
29. Two additional points bear mention. First, it is unclear that these
communications would do anything more than amplify the information contained in
the specifications that Verizon and ARRIS sent to Delta. CyberPower speculates that
the communications would help it better understand any descriptions of anticipated
operating conditions provided by Verizon or ARRIS, but this appears to be, at best,
an incremental benefit far outweighed by the massive burden imposed on Delta. See
Carter, 2014 U.S. Dist. LEXIS 61265, at *12 (stating that courts may consider
relevance, need, and breadth in determining undue burden). 30. Second, apart from the burden on Delta, some responsive communications
would likely encompass confidential information regarding testing, analysis, and
component selection for Delta’s products. (See Chang Aff. ¶¶ 12–14.) Delta attests
that such communications are protected by nondisclosure agreements. (See Chang
Aff. ¶ 21.) CyberPower has not demonstrated a substantial need for this confidential
information at least because it has not shown that it made any effort first to obtain
representative products from ARRIS and test them.
31. The Court denies the Motion as to the third through eighth requests for
production.
Documents Related to Power Supplies’ Useful Life (RFP No. 9)
32. Finally, CyberPower’s ninth request for production requests “[a]ll
documents relating to the determination, calculation or analysis of the operating,
service or useful life of the Power Supplies or [battery backup components].”
(CyberPower Mem. Ex. 4.) This request appears to be a catch-all, using the broad
phrase “relating to.” It exhibits no clear scope, has no temporal limitation, is facially
overbroad, and would impose an undue burden on Delta. In addition, the responsive
information would include the confidential and likely trade-secret information
discussed above, for which CyberPower has failed to demonstrate a substantial need.
The Court denies the Motion as to the ninth request for production.
III. CONCLUSION
33. For all these reasons, the Court GRANTS in part and DENIES in part
the Motion as follows: a. Delta shall produce any agreement between ARRIS and Delta responsive
to the first request for production that is within its possession, custody, or control.
If such an agreement does not exist, Delta shall certify to that effect.
b. Delta shall produce any specifications that Delta received from Verizon
or ARRIS that are responsive to the second request for production and within its
possession, custody, or control.
c. The motion to compel responses to the third through ninth requests for
production is denied.
d. Neither party requested an award of costs incurred in pursuing or
defending against the Motion. The Court determines, in its discretion, that the
parties shall bear their own costs.
This the 11th day of July, 2017.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases