Edison v. Acuity Healthcare Holdings, Inc.

2016 NCBC 82

• Court: North Carolina Business Court
• Decided: November 2, 2016
• Docket: 15-CVS-2745
• Status: Published

Opinion

Edison v. Acuity Healthcare Holdings, Inc., 2016 NCBC 82.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF MECKLENBURG 15 CVS 2745

CARMITA A. EDISON, ) ) Plaintiff, ) ) v. ) ORDER & OPINION ON DEFENDANTS ) ACUITY HEALTHCARE HOLDINGS, ACUITY HEALTHCARE HOLDINGS, ) INC. AND ACUITY HEALTHCARE, L.P.’S INC.; ACUITY HEALTHCARE, L.P.; ) MOTION FOR PROTECTIVE ORDER and MERCY RESTORATIVE CARE ) HOSPITAL, INC., ) ) Defendants. ) )

1. THIS MATTER is before the Court on Defendants Acuity Healthcare

Holdings, Inc. and Acuity Healthcare, L.P.’s (collectively, “Acuity”) Motion for

Protective Order (“Motion”), in which Acuity moves for a protective order under North

Carolina Rule of Civil Procedure 26(c) to prevent Plaintiff from deposing Gwen

Babson, who is both general counsel and vice president of compliance and risk

management for Acuity. For the reasons stated below, the Motion is DENIED, and

the deposition may proceed, consistent with this Order & Opinion.

Maloney Law & Associates, PLLC, by Margaret Behringer Maloney, for Plaintiff Carmita A. Edison.

Ogletree, Deakins, Nash, Smoak & Stewart, P.C., by Parker R. Himes and Brandon M. Shelton, for Defendants Acuity Healthcare Holdings, Inc. and Acuity Healthcare, L.P.

Nexsen Pruet, PLLC, by C. Grainger Pierce, Jr., for Defendant Mercy Restorative Care Hospital, Inc.

Gale, Chief Judge. I. BACKGROUND

2. Plaintiff Carmita A. Edison alleges that, from July 27, 2009, to August

8, 2014, she worked as a respiratory therapist and respiratory-care supervisor at

Carolinas Specialty Hospital (“CSH”), a long-term acute-care hospital in Charlotte,

North Carolina, where she was jointly employed by Acuity and Mercy Restorative

Hospital, Inc. (“Mercy”). (Compl. ¶¶ 27–28.) According to Plaintiff, Mercy and Acuity

“own or owned, control or controlled, and operate or operated [CSH].” (Compl. ¶ 6.)

3. Plaintiff claims that her employment at CSH was wrongfully terminated

after she filed a formal complaint with the North Carolina Respiratory Care Board

on July 15, 2014, regarding poor patient care, wrong ventilator settings, false

documentation, and management failures at CSH. (Compl. ¶¶ 91, 97.)

4. Plaintiff filed the Verified Complaint in this matter on February 10,

2015, alleging claims of wrongful termination, negligent supervision, negligent

retention, and negligent infliction of emotional distress. (Compl. ¶¶ 108–51.)

Plaintiff later voluntarily dismissed all claims except her claim of wrongful

termination in violation of public policy.

5. On March 13, 2015, Acuity filed a notice of designation pursuant to N.C.

Gen. Stat. § 7A-45.4(a)(1) (2015). The Chief Justice designated the case a mandatory

complex business case on March 16, 2015, and the matter was assigned to the

undersigned on March 18, 2015.

6. The Motion arises as a result of Plaintiff’s request to depose Ms. Babson.

Ms. Babson is employed both as general counsel and as vice president of compliance and risk management for Acuity. (Acuity’s Mot. Protective Order ¶ 2.) In that role,

Ms. Babson “provides general legal advice and counsel to Defendants and legal advice

and counsel regarding legal compliance and management of legal risk.” (Acuity’s

Mot. Protective Order ¶ 2.) It further appears, however, that Ms. Babson’s

responsibilities may include involvement in Acuity’s business affairs.

7. In the March 11, 2016 deposition of Acuity’s Rule 30(b)(6) designee,

Gayle Long, vice president of human resources for Acuity, Ms. Long identified Ms.

Babson as the person capable of answering questions on topics relevant to this

dispute about which Ms. Long had no knowledge. (Pl.’s Mem. Opp’n Acuity’s Mot.

Protective Order Ex. E.) For example, Ms. Long testified that Ms. Babson is the

person at Acuity responsible for the relationship with the vendor that manages

Acuity’s Healthcare Ethics and Compliance Hotline. (Acuity 30(b)(6) Dep. 145:1–3.)

8. Plaintiff served a notice of deposition of Ms. Babson on June 6, 2016, for

a deposition to be held on June 24, 2016. (Pl.’s Mem. Opp’n Acuity’s Mot. Protective

Order Ex. G.) Acuity objected. Plaintiff filed an amended notice of deposition of Ms.

Babson on July 29, 2016, for a deposition to be held on August 10, 2016. (Acuity’s

Mot. Protective Order Ex. A.) Acuity again objected. On August 8, 2016, Acuity filed

the Motion for Protective Order, seeking to preclude Plaintiff from deposing Ms.

Babson. Pursuant to Business Court Rule 15.4(a), the Court decides the Motion

without hearing or oral argument. II. ANALYSIS

9. Rule 26 allows parties to “obtain discovery regarding any matter, not

privileged, which is relevant to the subject matter involved in the pending action.”

N.C. Gen. Stat. § 1A-1, Rule 26(b)(1) (2015). The Court has discretion to enter a

protective order limiting discovery when “justice requires to protect a party or person

from unreasonable annoyance, embarrassment, oppression, or undue burden or

expense.” Id. § 1A-1, Rule 26(c).

10. Acuity contends that justice demands a protective order to preclude Ms.

Babson’s deposition because any and all knowledge that Ms. Babson might have

pertaining to the issues in this lawsuit is privileged from disclosure under the

attorney–client privilege and the work-product doctrine. As a result, Acuity argues,

a deposition of Ms. Babson would consist of no more than a series of objections and

instructions to Ms. Babson not to answer and would needlessly increase litigation

costs.

11. Acuity seeks to support its Motion by invoking a rule established by

Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir. 1986), known as the

“Shelton rule.” Shelton sets out three criteria for determining whether an attorney

deposition should be permitted to go forward.

12. The Shelton rule, established primarily in response to efforts to depose

opposing trial counsel, requires a party to demonstrate that “(1) no other means exist

to obtain the information than to depose opposing counsel; (2) the information sought

is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case.” Id. at 1327. The rule’s stringency stems from the long-discouraged

“practice of forcing trial counsel to testify as a witness.” Id. (citing Hickman v. Taylor,

329 U.S. 495, 513, 516 (1947)). As the Shelton court explained, “[t]aking the

deposition of opposing counsel not only disrupts the adversarial system and lowers

the standards of the profession, but it also adds to the already burdensome time and

costs of litigation.” Id. Further, “the practice of deposing opposing counsel detracts

from the quality of client representation” and has a “‘chilling effect’ . . . on the truthful

communications from the client to the attorney.” Id.

13. Only the Sixth and Eighth Circuits have definitively adopted the

Shelton rule. See Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 628–29

(6th Cir. 2002) (adopting Shelton); Pamida, Inc. v. E.S. Originals, Inc., 281 F.3d 726,

729–30 (8th Cir. 2002) (applying Shelton). Neither North Carolina’s appellate courts

nor the Fourth Circuit has expressly adopted the Shelton rule, but the rule has been

applied by federal district courts in North Carolina, see, e.g., CTB, Inc. v. Hog Slat,

Inc., No. 7:14-CV-157-D, 2016 U.S. Dist. LEXIS 39024, at *16–19 (E.D.N.C. Mar. 23,

2016); N.F.A. Corp. v. Riverview Narrow Fabrics, Inc., 117 F.R.D. 83, 85–86

(M.D.N.C. 1987), and in a decision from this Court, see Blue Ridge Pediatric &

Adolescent Med., Inc. v. First Colony Healthcare, LLC, No. 11-CVS-127, 2012 NCBC

LEXIS 46, at *26–29 (N.C. Super. Ct. Aug. 9, 2012) (Murphy, J.).

14. The majority of courts appear to reject a rigid application of the Shelton

rule in favor of a “flexible approach” that allows the court to “take[ ] into consideration

all of the relevant facts and circumstances to determine whether the proposed deposition would entail an inappropriate burden or hardship.” In re Subpoena Issued

to Friedman, 350 F.3d 65, 72 (2d Cir. 2003); see also N.F.A. Corp., 117 F.R.D. at 85

(noting that most courts that have allowed an opposing party’s attorney to be deposed

have required the party seeking the deposition to “establish a legitimate basis for

requesting the deposition and demonstrate that the deposition will not otherwise

prove overly disruptive or burdensome”). But cf. CTB, Inc., 2016 U.S. Dist. LEXIS

39024, at *17 n.5 (“Because the court finds that [the defendant] meets the more

stringent Shelton test, it need not consider whether other tests would yield different

results or be better suited to the instant facts.”).

15. In some instances, courts have declined to apply the Shelton rule when

the deponent is in-house counsel. See, e.g., Buyer’s Direct, Inc. v. Belk, Inc., No. 5:10-

CV-65-H, 2012 U.S. Dist. LEXIS 113226, at *8–9 (E.D.N.C. Aug. 10, 2012) (finding

the Shelton rule inapplicable where the attorney whom the plaintiff sought to depose

was the defendants’ assistant general counsel and where the subject matter of the

deposition was not intended to elicit information relating to litigation strategy);

United States v. Philip Morris Inc., 209 F.R.D. 13, 17 (D.D.C. 2002) (declining to apply

Shelton where deponents were in-house counsel with “substantial non-legal, non-

litigation responsibilities, including corporate, business, managerial, public relations,

advertising, scientific, and research and development responsibilities” who were

being deposed about “non-privileged, pre-litigation factual matters separate and

apart from [the] litigation strategy”). 16. Rather than applying a bright-line rule based on a deponent’s status as

in-house counsel, courts that have declined to apply the Shelton rule to depositions

targeting in-house counsel have recognized that the policy underlying the rule

becomes less forceful when the deponent is shown to have knowledge of relevant,

nonprivileged, factual information. See, e.g., Sadowski v. Gudmundsson, 206 F.R.D.

25, 26–27 (D.D.C. 2002) (allowing trial counsel to be deposed on nonprivileged, factual

information); N.F.A. Corp., 117 F.R.D. at 85 n.2 (noting that an attorney’s deposition

is “both necessary and appropriate” when the attorney is also a fact witness). The

Court rejects Plaintiff’s argument that the Shelton rule should never apply to in-

house counsel. The Court discerns no policy reasons that should prevent the Shelton

rule from extending to in-house counsel when a deposition targets only litigation

strategies rather than necessary, factual information. See Evans v. United Servs.

Auto. Ass’n, 142 N.C. App. 18, 32, 541 S.E.2d 782, 791 (2001) (noting that “the

protection given to communications between attorney and client apply equally to in-

house counsel” (first citing Upjohn Co. v. United States, 449 U.S. 383, 394–95 (1981);

then citing Shelton, 805 F.2d at 1326 n.3)).

17. After due consideration, the Court finds, in its discretion, that the

Shelton rule should not bar Ms. Babson’s testimony in the circumstances here

because the subject matter of the deposition is not targeted solely at eliciting

information relating to Acuity’s litigation strategy, and the deposition would not

necessarily result in undue burden or expense. See Buyer’s Direct, Inc., 2012 U.S.

Dist. LEXIS 113226, at *9. Ms. Babson serves not only as Acuity’s general counsel but also as vice president of compliance and risk management, and did so during the

facts at issue in this litigation. Further, there is no evidence showing that Ms. Babson

has been substantially involved with overseeing the litigation in this matter. Acuity’s

30(b)(6) designee, Ms. Long, named Ms. Babson as the person who could best speak

to certain clinical care standards and to consistency among Acuity’s hospitals.

18. Accordingly, the Court concludes that a blanket order prohibiting

Plaintiff from deposing Ms. Babson is not justified. To the extent that Ms. Babson

has been involved with the litigation, if at all, Acuity may take appropriate steps

during the deposition to prevent Ms. Babson from waiving privilege on questions

extending to matters relating to the litigation. But the mere possibility that

Plaintiff’s inquiries to Ms. Babson might infringe on privileged matters does not

justify a prohibition on Plaintiff’s inquiries into the relevant, nonprivileged, factual

information that Ms. Long has suggested Ms. Babson possesses. The Court thus

concludes that Ms. Babson’s deposition should be permitted to proceed, and Acuity

may assert the attorney–client privilege on a question-by-question or subject-by-

subject basis, as appropriate, during the deposition. See Armada (Sing.) Pte Ltd. v.

AMCOL Int’l Corp., 160 F. Supp. 3d 1069, 1070–71 (N.D. Ill. 2016) (“Questions of

privilege must be assessed on a question by question basis and cannot be resolved

fungibly even before the deposition begins.”). III. CONCLUSION

19. For the reasons stated in this Order & Opinion, and in its discretion, the

Court DENIES Acuity’s request for a protective order and allows the deposition of

Ms. Babson to be taken in a manner consistent with this Order & Opinion.

SO ORDERED, this the 2nd day of November, 2016.

/s/ James L. Gale James L. Gale Chief Business Court Judge