State of Minnesota, Respondent, vs. Jimmie Bivins, Appellant.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480 A. 08, subd. 3 (1996).

STATE OF MINNESOTA
IN COURT OF APPEALS
C0-98-437

Brian D. Lynch, et al.,
Respondents,

vs.

The Spaghetti Shop, Inc.,
Defendant,

James A. Teaters,
Appellant.

Filed August 25, 1998
Affirmed
Thoreen, Judge*

Hennepin County District Court
File No. 966370

Mary M.L. O'Brien, Jeffrey M. Thompson, Meagher & Geer, P.L.L.P., 4200 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402-3788 (for respondent)

Judith M. Rush, Galtier Plaza, Suite 780, 175 East Fifth Street, Box 15, St. Paul, MN 55101 (for appellant)

Considered and decided by Harten, Presiding Judge, Forsberg,** Judge, and Thoreen, Judge.

U N P U B L I S H E D   O P I N I O N

THOREEN, Judge

Appellant James Teaters appeals from the default judgment entered against him for his failure to comply with a discovery order. Because we conclude the district court did not abuse its discretion in entering the order or imposing the sanction against Teaters, we affirm.

FACTS

Teaters is the former CEO and majority shareholder of the Spaghetti Shop, Inc. On February 22, 1996, Franchise Solutions, Inc. and its owner, Brian Lynch, sued the Spaghetti Shop to recover unpaid salary and commissions and Teaters individually for fraud, improper use of corporate assets for personal expenses, and various other claims. This appeal follows protracted discovery in the action against Teaters.

Lynch and Franchise Solutions sought personal and corporate financial records. Despite serving a formal discovery request on March 18, 1996, and twice reiterating their document requests, they did not receive any documents from Teaters until they brought a motion to compel on June 19, 1996, three months after their discovery request. Teaters, then CEO of the corporation, claimed that the acrimonious divorce between himself and his wife, Spaghetti Shop's corporate secretary and controller, and the relocation of the corporate offices into their separate residences prevented him from producing all the documents requested.

Respondents served a second discovery request on July 3, 1996. After the deadline for Teaters's response had passed, the Spaghetti Shop filed for bankruptcy, automatically staying the action against the corporation. Teaters unsuccessfully argued the stay also applied to him and finally delivered one box of documents to opposing counsel without an accompanying responsive pleading on September 26, 1996. Respondents claimed deficiencies in the production. A few days after respondents brought a second motion on October 26, 1996, the bankruptcy court removed Teaters from his CEO position at the Spaghetti Shop.

On November 11, 1996, one day before the motion hearing, Teaters served a responsive pleading claiming that (1) his wife Julie had possession of all Spaghetti Shop's financial books and records and had not provided them despite his repeated requests and (2) his records were "in the process of being transferred" to the bankruptcy trustee. In a letter provided to the district court, Julie (Teaters) Warner denied Teaters's claims, maintained that he had received copies of responsive documents on February 26, 1997, by certified mail, and attached the certified mail receipt. The district court granted respondents' motion to compel and ordered Teaters to produce the requested documents by December 12, 1996, or face a possible default judgment for noncompliance. On December 3, 1996, however, the bankruptcy court stayed the action against Teaters. Two months later, the bankruptcy court dissolved the stay, but Teaters neither informed the district court nor served any documents pursuant to the discovery order. Lynch and Franchise informed the district court of the stay's dissolution in June 1997.

On June 13, 1997, over a year after the lawsuit against Teaters was originally filed, Lynch and Franchise brought a motion for terminating sanctions. Five days before the motion hearing, Teaters's attorney delivered one box of documents to opposing counsel. At the July 30, 1997, hearing, the district court granted respondents' motion for terminating sanctions, but gave Teaters another week to substantially comply "to avoid the harsh reality of a default judgment." The court also stated that respondents should review documents at the home of Teaters's ex-wife, but that such a visit did not relieve Teaters from substantially complying if responsive documents were not in his ex-wife's possession. At the follow-up hearing on September 9, 1997, the district court concluded Teaters did not substantially comply with its August 1, 1997, order. After a default prove-up hearing, the district court entered default judgment against Teaters in the amount of $329,872.74 with interest, plus attorney fees and costs in the amount $39,127.17 to both Lynch and Franchise.

D E C I S I O N

I.

The trial judge has wide discretion to issue discovery orders and, absent clear abuse of that discretion, an appellate court will not disturb a discovery order. Shetka v. Kueppers, Kueppers, Von Feldt & Salmen, 454 N.W.2d 916, 921 (Minn. 1990). Teaters argues that the district court's discovery order issued after his removal as CEO of the Spaghetti Shop is invalid because it compelled production of corporate documents not in his possession, custody, or control, in contravention to Minn. R. Civ. P. 34.01. We disagree. The district court's discovery orders only compelled production consistent with the second set of requests made by Lynch and Franchise before Teaters's removal. In addition to corporate records, the requests also contemplate documents such as personal expense receipts, tax records or pay stubs. In addition, at the time the district court issued its order, it had evidence that Teaters had received copies of responsive documents from his ex-wife that had not yet been produced. Indeed, in response to the second document requests, Teaters himself stated he "will today [November 11, 1996] serve a request for production of documents on Julie Teaters." The district court could thus reasonably conclude that Teaters had or would soon have responsive documents in his possession, custody or control. Accordingly, we do not find that the district court clearly abused its discretion in issuing the discovery order.

II.

If a party fails to cooperate in the discovery process or comply with a discovery order, a trial court may impose a sanction, including rendering a judgment by default. Minn. R. Civ. P. 37.02(b)(3). The choice of a sanction for failure to comply with a discovery order is a matter within the trial court's discretion. Chicago Greatwestern Office Condominium Ass'n v. Brooks, 427 N.W.2d 728, 730 (Minn. App. 1988). Absent an abuse of discretion, this court will not reverse a trial court's decision to grant default judgment as a sanction. Id.

An order compelling discovery should contain two elements: (1) a date certain by which compliance is required, and (2) a warning of potential sanctions for noncompliance. Jadwin v. City of Dayton, 379 N.W.2d 194, 196-97 (Minn. App. 1985). Sanctions for failure to comply with a discovery order should not be imposed in the absence of either of these elements. Id. In addition, when imposing default judgment as a sanction, the district court should consider several factors, including the nature of the noncompliance and prejudice to the moving party, particularly how the absence of the nonproduced evidence impairs the moving party's ability to establish its case. See id.; Chicago Greatwestern, 427 N.W.2d at 730-31.

Both the November 12, 1996, order granting plaintiffs' motion to compel and the August 1, 1997, order conditionally granting terminating sanctions against Teaters contained clear deadlines for compliance and warned Teaters that noncompliance would result in default judgment. When finally imposing terminating sanctions, the district court considered respondents' "repeated and unsuccessful attempts" to obtain discovery from Teaters and Teaters's failure to substantially comply with its discovery order. The court determined that to the extent Teaters did comply "it was not done in good faith." It also noted that the documents sought were "key" to respondents' action against Teaters.

Consistent with the district court's findings, we concur that default judgment was warranted. If a party refuses to comply with discovery orders without justification or excuse and continues to refuse to cooperate with the court, the party forfeits its right to a trial on the merits. State v. Ri-Mel, Inc., 417 N.W.2d 102, 110 (Minn. App. 1987) (upholding $581,000 default judgment when party refused to produce documents despite district court's discovery orders); see also Firoved v. General Motors Corp., 277 Minn. 278, 283-84, 152 N.W.2d 364, 368 (1967) (under extraordinary circumstances, a dismissal on procedural grounds is justified even without a showing of prejudice). Teaters had possession and/or legal control of the requested documents for eight months before the bankruptcy court removed him from the company and yet did not produce them. Despite his claims of nonpossession, Teaters consistently managed to produce documents on the eve of two motion hearings. Teaters, without adequate justification, failed to either produce the documents pursuant to the district court's discovery order after his stay was lifted or, at the very least, inform the district court of the stay's dissolution. In view of Teaters's multiple chances to comply with discovery requests and the district court's discovery order, we do not find the district court clearly abused its discretion in entering default judgment.

Affirmed.

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

** Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.