OSI RESTAURANT PARTNERS, LLC f/k/a OSI RESTAURANT PARTNERS, INC. and OUTBACK STEAKHOUSE, INC.; BONEFISH GRILL, LLC f/k/a BONEFISH GRILL, INC.; CARRABBA'S ITALIAN GRILL, LLC f/k/a CARRABBA'S ITALIAN GRILL, INC.; CHEESEBURGER IN PARADISE, LLC; OS SOUTHERN, LLC f/k/a OS SOUTHERN, INC.; OSI/FLEMING'S, LLC f/k/a OUTBACK/FLEMING'S, LLC; and OUTBACK STEAKHOUSE OF FLORIDA, LLC f/k/a OUTBACK STEAKHOUSE OF FLORIDA, INC., Plaintiffs,
OSCODA PLASTICS, INC. and ALLIED COMPANIES, LLC f/k/a THE ALLIED COMPANIES INTERNATIONAL, LLC and its successors in interest and/or related entities ALLIED INDUSTRIES INTERNATIONAL, INC.; ALLIED FLOORING PRODUCTS, INC.; ECO-GRIP CENTRAL, LLC; ECO-GRIP EAST, LLC; ECO-GRIP FLOORING, LLC; ECO-GRIP FLOORING GULF COAST, LLC; and ECO-GRIP GREAT LAKES, LLC, Defendants.
in the Court of Appeals 27 March 2019.
by defendant Oscoda Plastics, Inc. from order entered 10
April 2018 by Judge Robert H. Hobgood in Wake County No. 13
CVS 9159 Superior Court.
Moore and Henderson, P.A., by Christopher A. Page and
Jonathan L. Crook, for plaintiffs-appellees.
Poe Adams & Bernstein LLP, by Kevin L. Chignell and
Collier R. Marsh, for defendant-appellant Oscoda Plastics,
Oscoda Plastics, Inc. appeals from the portion of the trial
court's order imposing discovery sanctions in the form of
striking its answer to Plaintiffs' claims for negligence,
breach of implied warranty, and breach of express warranty.
Because Defendant was not given notice that sanctions might
be imposed, we reverse that portion of the trial court's
are several restaurants operated under the parent company OSI
Restaurant Partners, LLC (collectively,
"Plaintiffs"). Defendant is a manufacturer of
commercial flooring products, which Plaintiffs purchased and
installed in 130 of their restaurants across the United
States. Plaintiffs initiated the instant action against
Defendant on 5 July 2013, alleging that the flooring they
purchased from Defendant had "completely failed at
numerous restaurants, requiring complete replacement of the
flooring products at numerous of the Plaintiffs'
locations," as well as "costly repairs."
Specifically, Plaintiffs alleged that the problems included
"seam separation, seam distortion, bubbling under the
flooring, flooring detachment from the substrate, and water
ponding beneath the flooring." In their complaint,
Plaintiffs asserted claims for negligence, breach of implied
warranty, breach of express warranty, strict liability,
negligent misrepresentation, and breach of consumer
discovery, Plaintiffs sought to learn the extent of
Defendant's knowledge of the alleged defects in its
flooring. Plaintiffs requested that Defendant produce,
inter alia, all documents that referred or related
to (1) "the design, testing, or manufacture of" its
flooring, (2) "any issues with or complaints about"
the flooring, and (3) "any attempt to repair or
otherwise correct the issues with or complaints about"
the flooring. Following Plaintiffs' first motion to
compel, Defendant indicated that it had certain "backup
tapes" that might potentially contain responsive emails
September 2015, the trial court ordered Defendant to produce
"all responsive, non-privileged documents contained on
the backup tapes for the time period from 2006 through
2009." On 9 October 2015, Defendant filed a motion for
reconsideration, contending that it had "obtained new
information . . . that indicates that recovery of the backup
tapes will be far more expensive and time consuming . . .
than [Defendant] initially expected." However, after two
orders extending Defendant's deadline to produce the
backup tapes, Defendant returned to court, this time
representing that it was unable to access the documents due
to the fact that the backup tapes were encrypted.
March 2016, the trial court entered an order (the
"Spoliation Order"), concluding that Defendant had
"intentionally encrypted emails and . . . intentionally
failed to retain the electronic ability to retrieve the
subject emails, with knowledge of their relevance and
materiality for this case," and that Defendant had
"suppressed its knowledge of this encryption for several
months prior to it being revealed for the first time by
forensic experts." The trial court ordered that
Defendant be sanctioned with a "spoliation instruction
to the jury unless, not less than 120 days prior to the
trial, [Defendant] provide[d] Plaintiffs the subject emails
in an unencrypted form."
thereafter, Defendant represented that it had discovered a
means by which it could gain access to the documents on its
backup tapes, and on 14 October 2016, Defendant produced more
than 5, 000 pages of those documents. When Plaintiffs
reviewed the documents, they discovered a potential reference
to the existence of flooring testing data. Plaintiffs
requested that Defendant further supplement its document
production to include those related materials, and after
Plaintiffs filed a second motion to compel, Defendant
produced additional documents. Defendant also indicated that
it did not possess any additional responsive documents
requested by Plaintiffs, but that such documents were in the
possession of its sister company, Duro-Last. The trial court
thus ordered Defendant to "use reasonable efforts to
encourage the voluntary production of the Duro-Last Documents
produced 1, 054 pages of documents on 13 July 2017. At that
point, Defendant maintained that the terms of the Spoliation
Order had been "fully satisfied," and on 13
November 2017, Defendant filed a motion to set aside the
to Plaintiffs, however, the documents that they received from
Duro-Last contained several highly relevant emails that would
have been stored on Defendant's backup tapes, but
nevertheless were not included within the 5, 000 pages of
documents that Defendant produced from the tapes. In
particular, Plaintiffs emphasized an email sent from
Defendant's technical sales manager to a Duro-Last
representative, in which the manager stated, "we have
been doing some testing on our vinyl flooring . . . . ...