Schmitt v. Lalancette

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Schmitt v. Lalancette (2001-453); 175 Vt. 284; 830 A.2d 16

2003 VT 24

[Filed 21-Mar-2003]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 2003 VT 24

                                No. 2001-453


  Paul F. Schmitt	                         Supreme Court

                                                 On Appeal from
       v.	                                 Orange Superior Court


  Richard Lalancette, P.E. and Home	         September Term, 2002
  Inspection Consultants of Central 
  Vermont, Inc.  


  Stephen B. Martin, J.

  Andrea L. Gallitano of Otterman and Allen, P.C., Barre, for
    Plaintiff-Appellant. 

  Timothy L. Taylor and William H. Meub of Meub Associates, Inc.,
    Rutland, for Defendants-Appellees.


  PRESENT:  Amestoy, C.J., Dooley, Morse (FN1), Johnson and Skoglund, JJ.

        
       ¶  1.  JOHNSON, J.  This appeal challenges a court order limiting
  discovery and independent investigation before trial.  Appellant Paul
  Schmitt appeals from a jury verdict finding that appellee Richard
  Lalancette was not liable to Schmitt in connection with a house inspection
  that Lalancette performed for Schmitt.  Schmitt claims Lalancette's
  inspection failed to identify serious structural flaws in the house and
  that Lalancette was liable for both breach of contract and violation of
  Vermont's Consumer Fraud Statute, 9 V.S.A. §§ 2451-2480g.  During
  discovery, Schmitt requested the names of other customers referred to
  Lalancette by the realtor who brokered Schmitt's home purchase.  The trial
  court not only denied Schmitt's discovery request, but issued a protective
  order preventing Schmitt from contacting former customers of Lalancette
  whose names Schmitt obtained through independent investigation. 

       ¶  2.  Schmitt seeks a new trial on the grounds that (1) the
  protective order limiting discovery and precluding independent
  investigation imposed by the trial court was an abuse of discretion, and
  (2) the trial court improperly granted Lalancette's motion for directed
  verdict on Schmitt's consumer fraud claim.  Because we agree with appellant
  that the trial court abused its discretion in issuing the protective order,
  we reverse and remand for a new trial.  In light of our disposition, it is
  not necessary to reach Schmitt's claim under the Consumer Fraud Act.

       ¶  3.  In 1997, Schmitt was shown a 200-year-old home in East Corinth
  by Vermont realtor Ann Swanson, and decided to purchase the house. 
  Concerned about the extent to which the property might be in need of
  expensive repairs, Schmitt made the closing contingent upon the outcome of
  a home inspection.  He asked Swanson if she knew of any local home
  inspectors, and Swanson recommended Lalancette.  Schmitt hired Lalancette
  to inspect the property.  In his written report, Lalancette gave the home
  an overall rating of average, indicating that it was in need of only minor
  structural and mechanical repairs to some of its components.  Schmitt
  purchased the home and hired a general contractor and architect to make the
  necessary repairs.  The architect and general contractor both identified
  serious structural defects in the property that had been glossed over in
  Lalancette's written report. 
   
       ¶  4.  Schmitt spent almost $80,000 performing remedial work on his
  home.  He contacted Lalancette and demanded that Lalancette reimburse these
  costs.  Lalancette denied responsibility, and at that point, Schmitt filed
  suit seeking to recover the money he had to spend on repairs from
  Lalancette.  His amended complaint demanded damages on two grounds: (1)
  breach of contract and (2) unfair or deceptive acts or practices in
  commerce in violation of Vermont's Consumer Fraud Statute, 9 V.S.A. §§
  2451-2480g.  

       ¶  5.  During discovery, Schmitt sought to determine whether other
  home buyers had received inaccurate reports from Lalancette.  His theory
  was that there had been collusion between Lalancette and the realtor, Ann
  Swanson.  According to Schmitt's theory, Lalancette was improperly
  motivated not to issue reports that would prevent real estate closings in
  order to receive continued referrals from Swanson.  Schmitt requested
  seventeen reports that Lalancette's firm had prepared in the course of home
  inspections performed for clients referred by Swanson.  Schmitt asserted
  that the reports were relevant for two reasons.  First, examining the
  reports and interviewing the homeowners would enable Schmitt to determine
  the accuracy of the reports, which would be relevant to a determination of
  Lalancette's competency in the performance of home inspections.  Second, if
  the reports together with interviews of the former customers revealed a
  recurring pattern of under-reporting serious problems with the houses that
  would be obvious to a trained eye, Schmitt asserted that he would have
  evidence consistent with his theory that Lalancette had an improper motive
  to prepare positive reports that would facilitate a sale.  Schmitt stated
  that obtaining the reports without being able to contact the homeowners
  would be useless to his investigation because without interviewing the
  homeowners he would be unable to determine the accuracy of the reports, and
  it was the accuracy of the reports, not their comprehensiveness, that was
  at issue in his case.  
   
       ¶  6.  Lalancette at first categorically refused to release the
  reports, and then offered to provide redacted reports, with the names and
  identifying information of the homeowners deleted.  The offer was
  contingent upon Schmitt agreeing not to attempt to identify or speak to the
  homeowners of the properties in question.  Schmitt refused to agree to this
  condition, and sought full disclosure of the reports and the names of the
  homeowners.  Lalancette objected on the grounds that the reports requested
  were irrelevant to the subject matter of the dispute and beyond the scope
  of discovery.  Furthermore, Lalancette asserted that he could not disclose
  the reports because of a contractual confidentiality agreement with former
  clients, which would expose Lalancette to liability for breach of contract
  if he revealed their names to Schmitt.  Schmitt then filed a motion to
  compel Lalancette to reveal the seventeen reports in question.  Lalancette
  cross-filed a motion for a protective order prohibiting Schmitt from
  contacting any of Lalancette's former clients.   

       ¶  7.  The trial court ordered Lalancette to release the reports, but
  only after redacting the names and addresses of Lalancette's former
  clients.  To enforce its determination that the identities of the
  homeowners were not discoverable, the trial court issued a protective order
  that specifically forbid Schmitt or his agents from contacting Lalancette's
  clients.  The order prohibited Schmitt from learning the identity of
  Lalancette's former clients through independent investigation or from
  contacting any of Lalancette's former clients whom he was able to identify
  from public information. 

       ¶  8.  The order was subsequently amended to permit Schmitt to contact
  five of Lalancette's former clients who had independently sued Lalancette
  and had already been disclosed by Lalancette.  The trial court prohibited
  Schmitt, consistent with its earlier order, from contacting a former client
  of Lalancette, Tyler Yandow, of whom Schmitt had learned from his own
  investigation of the public records of the Board of Professional
  Engineering.  The case proceeded to trial on September 4, 2001.  The jury,
  presented with only the breach of contract claim after the trial court
  issued a directed verdict on Schmitt's consumer fraud claim, returned a
  verdict for Lalancette.  This appeal followed. 

       ¶  9.  The question for review is whether the trial court abused its
  discretion under V.R.C.P. 26(c) in issuing a protective order preventing
  Schmitt or his agents from independently contacting such former clients as
  they were able to identify through their own investigations. (FN2)  We
  apply a deferential standard of review to trial court rulings on discovery,
  which are left to the sound discretion of the trial judge.  See, e.g.,
  Castle v. Sherburne Corp., 141 Vt. 157, 164, 446 A.2d 350, 353 (1982)
  (discovery rulings are "necessarily entrusted to the trial court's broad
  discretion"); Med. Ctr. Hosp. of Vt., Inc. v. City of Burlington, 152 Vt.
  611, 627, 566 A.2d 1352, 1360 (1989) (discovery rulings are within the
  trial court's discretion).  As with other decisions involving the trial
  court's discretion, we will not disturb discovery rulings on appeal unless
  that discretion has been abused or withheld entirely.  Poplaski v.
  Lamphere, 152 Vt. 251, 255, 565 A.2d 1326, 1329 (1989). 

       ¶  10.  Rule 26(c) allows a trial court, upon a finding of good cause
  shown, to issue a protective order.  V.R.C.P. 26(c).  In contrast to
  26(b)(1), which is addressed to methods of discovery, subsection (c)
  permits the court in its discretion to order that access to relevant
  information not be had, or that the discovery may be had only on specified
  terms and conditions, or that its dissemination be limited.  V.R.C.P.
  26(c).  In other words, even though the information sought may be relevant
  and not privileged under 26(b)(1), the court may refuse to order a party to
  produce it.  See Seattle Times Co. v. Rhinehart, 467 U.S. 20, 33-35 (1984)
  ("[Broad discovery creates] an opportunity for litigants to obtain -
  incidentally or purposefully - information that not only is irrelevant but
  if publicly released could be damaging to reputation and privacy.  The
  government clearly has a substantial interest in preventing this sort of
  abuse of its processes.").  Thus, protective orders allow courts to limit
  the broad discovery rights established under Rule 26(a) and (b) if such
  rights are being abused.  See A. Miller, Confidentiality, Protective
  Orders, and Public Access to the Courts, 105 Harv. L. Rev. 427, 447 (1991).  

       ¶  11.  Schmitt argues that the protective order violated his
  constitutional rights to freedom of expression and association, but we
  follow our practice of refraining from deciding a constitutional question
  when it is not necessary for the disposition of a case.  State v. Goodrich,
  151 Vt. 367, 375, 564 A.2d 1346, 1351 (1989).  We decide this case on the
  basis that the trial court, which relied on Rule 26(c), exceeded its
  authority under the rule. 
   
       ¶  12.  The difficulty with the trial court's order under Rule 26(c)
  is that the rule is designed to apply solely to the discovery process
  itself.  It protects the manner in which parties have to make disclosures,
  or protects them from having to make the disclosures at all, but there is
  nothing in Rule 26(c) that implies that courts have the authority to
  prevent a party to litigation from conducting its own private investigation
  to identify witnesses or obtain desired information, without relying upon
  formal discovery.  Here, the names sought were merely former customers who
  may or may not have had the same experience with Lalancette as Schmitt. 
  This is not a situation in which any of the customers were protected by
  attorney-client privilege.  There is no allegation of intimidation or abuse
  of the customers.  The discovery sought was entirely routine.  In fact,
  Schmitt had learned of one witness, Tyler Yandow, from public records
  because Yandow had filed a professional conduct complaint against
  Lalancette, and yet the trial court prohibited Schmitt from contacting him. 
  Under these circumstances, the trial court's protective order reached far
  beyond its power under Rule 26(c). (FN3) 
   
       ¶  13.  Although we have not found any case in which a trial court
  goes quite as far in the exercise of its purported authority under Rule
  26(c) as the one before us, the United States Court of Appeals for the
  Second Circuit has held that during the pre-trial period, "[r]estrictions
  which may impede the development, presentation and determination of facts
  should be avoided wherever possible."  Int'l Bus. Mach. Corp. v. Edelstein,
  526 F.2d 37, 41 (2d Cir. 1975).  In Int'l Bus. Mach., IBM sought to
  interview persons appearing on a government witness list in a Sherman Act
  case brought by the United States.  The trial judge ordered that all
  interviews of adverse witnesses had to take place either in the presence of
  opposing counsel or with a stenographer present.  Id.  In other words, the
  interviews had to be formally taken as depositions.  IBM brought a petition
  for extraordinary relief in the nature of a mandamus action.  The Second
  Circuit held that restrictions on pre-trial interviewing established by the
  trial judge exceeded his authority.  "The[se restrictions] not only impair
  the constitutional right to effective assistance of counsel but are
  contrary to time-honored and decision-honored principles, namely, that
  counsel for all parties have a right to interview an adverse party's
  witnesses (the witness willing) in private, without the presence or consent
  of opposing counsel and without a transcript being made."  Id. at 42. 

       ¶  14.  Although the language of Rule 26(c) allows a trial judge to
  make "any order which justice requires," this power may not be used in a
  way that infringes upon a plaintiff's substantive right to investigate
  relevant facts.  The trial court, therefore, had no authority to prohibit
  Schmitt and his attorney from conducting their own investigation and from
  talking to any willing persons with information outside the discovery
  process.  To the extent that the present dispute is reformulated as a true
  discovery dispute upon re-trial of this matter, we consider whether the
  trial court had adequate justification, under Rule 26(c), to order that
  discovery not be had from Lalancette on the grounds stated by the trial
  court. 
   
       ¶  15.  Rule 26(c) provides that, upon good cause shown, a judge may
  make an order to protect a party from "annoyance, embarrassment,
  oppression, or undue burden or expense."  The trial court's findings,
  although brief, relied on the embarrassment to defendants, the potential
  significant and unjustified negative impact on defendants' business, and
  the potential for extending discovery "into expensive and unnecessary areas
  far in excess of that justified by the possible value of this lawsuit." 
  None of these reasons, in the context of this lawsuit, are sufficient to
  support an order denying otherwise relevant discovery to Schmitt under Rule
  26(c).
         
       ¶  16.  Although we have not had occasion to discuss the meaning of
  "good cause," this is well-traveled ground under the federal rules.  A
  party seeking a protective order to prevent injury to a business must
  present allegations of injury with some specificity.  Cipollone v. Liggett
  Group, Inc., 785 F.2d 1108, 1114 (3d Cir. 1986).  "Broad allegations of
  harm, unsubstantiated by specific examples or articulated reasoning, do not
  satisfy the Rule 26(c) test."  Id. at 1121; see also Joy v. North, 692 F.2d 880, 894 (2d Cir. 1982) (refusing to make protective order where
  proponent's only argument in its favor was the conclusory statement that
  disclosure of certain information would "injure the bank in the industry
  and local community"). (FN4)  Protective orders are generally not available
  to protect businesses from embarrassment: "[A]s embarrassment is usually
  thought of as a nonmonetizable harm to individuals, it may be especially
  difficult for a business enterprise, whose primary measure of well-being is
  presumably monetizable, to argue for a protective order on this ground; to
  succeed, a business will have to show with some specificity that the
  embarrassment resulting from dissemination of the information would cause a
  significant harm to its competitive and financial position."  Cipollone,
  785 F.2d  at 1121 (internal citation omitted).
                                
       ¶  17.  There are no facts alleged in this case that could amount to
  "good cause" for issuing a protective order.  According to the trial court,
  Lalancette argued that allowing Schmitt to contact his former clients
  "would cause severe embarrassment."  This broad allegation does not meet
  the requirement that a business allege a specific injury.  See id. 

       ¶  18.  Moreover, there was no unnecessary expense to Lalancette. 
  Even Lalancette does not argue that complying with the requested discovery
  was too expensive.  Rather, he argues that the evidence with respect to
  other customers' experiences will be inadmissible, or if admissible, that
  he may be put to the cost of opposing such evidence at trial, which will be
  expensive.  On the issue of inadmissibility, Rule 26(b)(1) states that
  discovery cannot be denied on the ground that the information sought will
  be inadmissible as long as the discovery request is "reasonably calculated"
  to uncover admissible evidence.  Moreover, Lalancette's argument about the
  costs of potentially having to present opposing evidence at trial is not a
  reason to deny Schmitt discovery to which he is otherwise entitled.  In
  short, Lalancette did not allege, and the trial court did not find, any
  facts that would support the notion that Schmitt's request was so abusive
  or burdensome that a protective order  was appropriate.  
   
       ¶  19.  The only remaining question is whether the trial court's
  error in this discovery ruling meets the "substantial justice" test of
  V.R.C.P. 61 for requiring a new trial.  The test requires us to consider
  whether refusing to grant a new trial would be inconsistent with the
  substantial rights of the parties.  See V.R.C.P. 61 ("[E]rror . . . in
  anything done or omitted by the court or by any of the parties is ground
  for granting a new trial [only if] refusal to take such action appears to
  the court inconsistent with substantial justice."); see also Ordinetz v.
  Springfield Family Ctr., Inc., 142 Vt. 466, 470, 457 A.2d 282, 284 (1983)
  ("The 'substantial justice' test of V.R.C.P. 61 . . . requires examination
  of just how the court's ruling affected the rights of the plaintiffs, not
  merely procedurally, but in matters truly of substance.").  The party who
  objects to the error must demonstrate that the error resulted in prejudice. 
  In re C.K., 164 Vt. 462, 468, 671 A.2d 1270, 1274 (1995) ("The burden is on
  the excepting party to demonstrate that the error resulted in prejudice.").
  We find that the test is satisfied and a new trial must be granted. 
  Without having been able to contact the former clients, Schmitt has been
  unable to fully develop his case against Lalancette.  We note that had
  Schmitt been allowed to contact the clients independently, and had the
  information turned out not to have helped Schmitt's case, then the trial
  court's error in denying discovery of the names of the former clients may
  well have proven harmless.  Under the circumstances, however, we cannot
  know what Schmitt might have discovered had he been allowed to proceed with
  his investigation.  Schmitt is entitled to a new trial. 

       Reversed and remanded for a new trial, with discovery rights granted
  to appellant in accordance with this opinion.



                                       FOR THE COURT:



                                       _______________________________________
                                       Associate Justice


------------------------------------------------------------------------------
                                  Footnotes


FN1.  Justice Morse sat in on oral argument but did not participate in this
  decision.

FN2.  The trial court issued a single ruling denying Schmitt's motion to
  compel Lalancette to disclose the names of a certain subset of his clients
  in the home inspection business and granting Lalancette's motion for a
  protective order preventing Schmitt from contacting Lalancette's clients. 
  The court's written order reads in relevant part:

    The only cause of action in this case that any of the sought
    discovery could be relevant to is whether Defendants' inspection
    of Plaintiff's home improperly failed to identify a defect.  On
    this record, neither Plaintiff's "motive" theory nor his
    "incompetence" theory support contacting the clients.  Doing so
    would clearly cause a great deal of embarrassment to Defendants,
    potentially have a significant and unjustified negative impact on
    Defendants' business, and likely extend discovery into expensive
    and unnecessary areas far in excess of that justified by the
    possible value of this lawsuit.  Plaintiff's suggestion that any
    kind of "pattern and practice" exists to demonstrate either
    "motive" or "incompetence" is speculative in the extreme, and
    could be leveraged in support of any type of discovery in any
    lawsuit. 

  On the basis of these findings, the court denied Schmitt's request to
  compel disclosure of the names from Lalancette, and further ordered that
  "neither Plaintiff nor his agents may contact Defendants' clients." 
  Although the trial court does not specify the basis for its authority to
  issue these orders, the court was impliedly invoking Rule 26(c), under
  which a trial judge, upon good cause shown, may issue a protective order
  providing that discovery not be had. V.R.C.P. 26(c).  Schmitt's brief on
  appeal discusses only the protective order prohibiting independent
  investigation, not the order denying his motion to compel discovery.  As
  the above quotation shows, however, the trial court fails to distinguish
  its reasons for denying Schmitt's motion to compel discovery from its
  reasons for issuing a protective order.  Thus, while only the part of the
  order prohibiting independent investigation is appealed, our discussion
  encompasses the discovery order in its totality. 

FN3.  Protective orders might prove necessary where there is a risk that one
  party will abuse the discovery process, as alluded to above, but these are
  exceptional situations.  The facts before us do not begin to suggest
  circumstances that could justify such extraordinary measures.  We note that
  for the most part, Rule 26(c) provides for restrictions on the rights of
  parties to disseminate information learned through discovery, not
  restrictions on the investigation process itself, but we express no opinion
  on the inherent authority of the trial court to control parties in
  situations presenting a true risk of discovery abuses. 

FN4.  We note that the good cause standard discussed herein applies to cases
  involving business losses, and that less specificity in pleading may be
  required to obtain a protective order where non-economic interests of
  private individuals are at stake.  See Dove v. Atl. Capital Corp., 963 F.2d 15, 19 (2d Cir. 1992) (deferring to the lower court's denial of a
  protective order but noting that plaintiff's argument that the discovery
  was sought mostly to gain an advantage in other litigation "in some
  circumstances might raise an inference of bad faith sufficient to support a
  protective order"); Topo v. Dhir, 210 F.R.D. 76, 78 (S.D.N.Y. 2002)
  (granting a protective order barring defendants from inquiring into
  plaintiff's immigration status without requiring pleading of a specific
  injury).

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