United States of America, ex rel. v. Carolina Liquid Chemistries, Corp.

Background

The parties had a protective order limiting the use of protected information to prosecuting, defending, or trying to settle the litigation. It also limited the people who could receive that information and required a receiving party to notify the designating party, try to retrieve unauthorized copies, notify the recipient of the protective order's terms, and request the recipient's agreement to be bound if an unauthorized disclosure occurred.

Before a November 2020 settlement conference, Carolina Liquid Chemistries produced confidential financial information about its ability to pay a settlement. A lawyer later gave the relators a high-level summary of that information. On November 2, 2020, relator Randy Reagan emailed a summary to John Domalavage, a former Carolina Liquid Chemistries employee. The email discussed the company's claimed revenues, costs, and profits.

Carolina later learned of the email through a document production and sought sanctions. The court ordered Carolina to present the request as a formal motion. Carolina requested attorney fees and costs and an order limiting discovery to the period from March 9, 2009, through February 2014.

Protective-order violation

The court explained that Rule 37 of the Federal Rules of Civil Procedure allows sanctions for violating a discovery order, including a protective order. Reagan did not dispute that he disclosed the confidential information. He argued that he disclosed it for a proper settlement-related purpose and that Domalavage was an authorized recipient under section 7.2(g) of the protective order.

The court accepted that Reagan had a proper purpose because he was seeking help estimating Carolina Liquid Chemistries' ability to pay in connection with settlement. But the court found that Domalavage was not authorized to receive the specific financial information in the email. Domalavage testified that he had not had access to company-wide financial information of that kind while working for Carolina Liquid Chemistries and had previously told Reagan that he did not have such information.

The court also rejected Reagan's claim that he reasonably believed Domalavage had possessed the information. It found that Reagan had not taken reasonable steps to verify that belief, such as asking Domalavage. The court therefore concluded that Reagan violated section 7.2 of the protective order. It also concluded that he violated section 10 because he did not notify Carolina Liquid Chemistries, try to retrieve unauthorized copies, inform Domalavage of the protective order's terms, or request Domalavage's agreement to be bound.

Remedies and ruling

Carolina Liquid Chemistries requested $12,026.30 in attorney fees and costs. The court found the requested expenses reasonable and caused by the protective-order violation. It also found that the violation was not substantially justified and that no other circumstances made an award unjust. Because the motion sought fees and costs only against Reagan, the court did not consider awarding them against Reagan's counsel.

The court awarded Carolina Liquid Chemistries $12,026.30 in fees and costs against Reagan. It denied the request to restrict discovery because that request concerned the relevance and time period of discovery, not a remedy caused by Reagan's protective-order violation. The court stated that any separate dispute about the proper discovery period could be presented through a joint discovery letter brief.

Judge Thomas S. Hixson concluded that Carolina Liquid Chemistries' motion for sanctions was granted in part and denied in part.