Sandra Jean Engel, Respondent, vs. Jake Reeve Ryan, Appellant.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1558

 

Sandra Jean Engel,
Respondent,
 
vs.
 
Jake Reeve Ryan,
Appellant.

 

Filed July 20, 2004

Affirmed

Wright, Judge

 

Dakota County District Court

File No. CX-01-10784

 

Todd J. Kenyon, Gempeler, Kenyon & Butwinick, 601 Carlson Parkway, Suite 1050, Minnetonka, MN  55305 (for appellant)

 

Mark A. Olson, Olson Law Office, 2605 East Cliff Road, Burnsville, MN  55337 (for respondent)

 

            Considered and decided by Kalitowski, Presiding Judge; Toussaint, Chief Judge; and Wright, Judge.

U N P U B L I S H E D   O P I N I O N

Respondent brought an action against appellant for fraud and conversion.  Based on appellant's noncompliance with discovery, the district court struck appellant's answer and entered default judgment.  Appellant contends that the district court abused its discretion by imposing this sanction.  We affirm.

 

FACTS

 

            On November 29, 2001, respondent Sandra Jean Engel brought actions for fraud and conversion against appellant Jake Reeve Ryan.  According to Engel, Ryan claimed that her employer was being investigated for a drug trafficking conspiracy.  Ryan told Engel that, unless Engel divested herself of all her assets, she would be implicated in the conspiracy and prosecuted.  Responding to a combination of persuasion and threats, Engel subsequently transferred more than $225,000 in assets to Ryan.

            To prevent Ryan from disposing of the controverted assets, Engel obtained an      ex parte order and order to show cause on December 6, 2001.  The order also required Ryan to make a full accounting of activity on three enumerated bank accounts and "[a]ny other accounts that you have deposited monies into" over the past year.

An initial hearing was held on December 19, 2001.  Ryan made an incomplete accounting, which showed that, for two of the enumerated accounts, he withdrew approximately $171,000 over the prior three months.  Following the hearing, the district court granted a preliminary order for attachment of the enumerated accounts.  Pursuant to this order, the district court scheduled another hearing on January 14, 2002, to identify other accounts subject to attachment.

Ryan did not appear before the district court again until late March 2002.  The matter was continued several times due to Ryan's purported treatment for hand and shoulder injuries.  In the meantime, the district court extended its preliminary order for attachment until a final determination of the case.  When Ryan next appeared on March 22, 2002, the district court ordered Ryan to submit bank account records and the title to a Chevrolet Blazer.

Engel attempted informal discovery in early March 2002.  On May 10, 2002, Engel proceeded to formal discovery, serving interrogatories and a request for production of documents.  On July 2, 2002, the parties agreed to a continuance to complete discovery.  Ryan would not respond to discovery until July 2003. 

On July 18, 2002, the district court ordered the seizure of the Blazer and other personal property.  It further directed Ryan to account for all money received from Engel, including that "formerly located" in the enumerated accounts, upon threat of contempt.  Another hearing was scheduled for August 5, 2002.

            This hearing did not take place due to Ryan's purported hospitalization.  When the matter was rescheduled for later in August, neither Ryan nor his counsel appeared.  On August 26, 2002, in an apparent ex parte communication, a legal assistant for Ryan's counsel sent a letter to the district court stating:

Please be advised that [counsel for Ryan] is in possession of a list regarding the disposition of the property in [this] matter.  He . . . will compile this list and fax it to your attention as soon as possible.

 

Ryan next appeared on November 25, 2002.  Based on this hearing, the district court issued another order on December 11, 2002.  Reiterating its July 18 order, the district court ordered Ryan to account for the funds he received from Engel by December 20, 2002.  The parties were also ordered to complete discovery by January 31, 2003.

On March 19, 2003, the parties appeared for another pretrial hearing.  Following this hearing, the district court found that Ryan failed to disclose the location of any funds he had received from Engel, held Ryan in contempt, and stayed imposition of the sentence until April 2, 2003, on the condition that Ryan make a "detailed and accurate accounting, including supporting documentation," of the funds.  The district court ordered the parties to complete discovery by May 30, 2003.

On April 2, 2003, Ryan submitted an unsigned, unsworn affidavit that allegedly set out the disposition of funds he received from Engel.  Exhibits accompanying the affidavit documented activity in two of the enumerated accounts from November 2001.  But this information had already been disclosed in December 2001.  Ryan claimed that he was unable to provide records for a third enumerated account because he was not the primary account holder.[1]  Regarding the final disposition of the funds, Ryan added:

[G]ifts of money . . . were either returned to [Engel] in cash (exact amounts unknown), spent by [the parties] (exact amounts unknown), used to pay attorneys fees (amount protected by attorney/client privilege), or used to repay loans from Frances Schweiger to [Ryan].

 

The district court set a hearing in early June 2003 to evaluate whether this affidavit satisfied the contempt condition.

            On July 11, 2003, Ryan executed sworn answers to interrogatories, approximately sixteen months after the interrogatories were served and more than five weeks after the parties were ordered to complete discovery.  Ryan was unable to recall (1) more than one home address from the last twenty years, (2) more than two employers from the last ten years, or (3) any specific disposition of funds received from Engel.  He denied ownership of any closely held corporation but also admitted establishing two corporations.  He refused to disclose any details about his outstanding debts or about any accounts or trusts where he was not the named beneficiary.  Ryan never responded to Engel's request for production of documents. 

The next hearing took place July 14, 2003, during which the district court ordered Engel to prepare a Rule 37 motion for discovery sanctions.  Shortly thereafter, Engel brought a motion for Rule 37 sanctions and specifically requested default judgment.

In his responsive memorandum, Ryan opposed the sanction of default judgment, arguing that he had substantially complied with discovery and that any discovery violations "go not to the merits of this case but to the whereabouts of assets should [Engel] prevail."  Ryan also argued that he had substantially complied with the district court's orders, having already submitted all bank account records to which he had access.

Following a hearing on the motion for discovery sanctions, the district court ruled that Ryan failed to disclose the disposition of assets from the enumerated accounts, violating the orders from December 6, 2001; March 22, 2002; July 18, 2002; December 11, 2002; and March 19, 2003.  In reaching this determination, the district court found that the answers to interrogatories were not only after the final discovery deadline but "evasive, vague and incomplete."  The district court concluded that Engel "would be extremely prejudiced at trial."  As a result, the district court struck Ryan's answer, granted default judgment, and awarded Engel approximately $218,000 in damages.  This appeal followed.

D E C I S I O N

 

            We review a district court's discovery sanctions for an abuse of discretion.  See Chicago Greatwestern Office Condo. Ass'n v. Brooks, 427 N.W.2d 728, 730 (Minn. App. 1988).  Although a district court has broad discretion to enforce rules of court and ensure the efficient disposition of cases, we give greater scrutiny when its sanction denies a party a trial on the merits.  Firoved v. General Motors Corp., 277 Minn. 278, 284, 152 N.W.2d 364, 369 (1967).

            If a party fails to provide or permit discovery, the district court has authority to impose sanctions.  Minn. R. Civ. P. 37.02(b).  Some of these sanctions may operate as a final judgment on the merits, including default judgment or dismissal with prejudice.  See Minn. R. Civ. P. 37.02(b)(3).  To determine whether these sanctions are appropriate, we consider several factors.  Our guiding consideration is the prejudice to the parties.  See Beal v. Reinertson, 298 Minn. 542, 544, 215 N.W.2d 57, 58 (1974).  Other factors include the effect of and reasons for delay, Firoved, 277 Minn. at 283-84, 152 N.W.2d at 368-69, and whether a party has a pattern of misconduct, Williams v. Grand Lodge of Freemasonry AF&AM, 355 N.W.2d 477, 480 (Minn. App. 1984), review denied (Minn. Dec. 20, 1984).

            In the instant case, Ryan's failure to comply with discovery caused significant prejudice to Engel.  Every delay made it less likely that Engel could track down the funds from the enumerated accounts, much less protect them from dissipation.  Ryan never offered any meaningful justification for his delays, and his late efforts at discovery were evasive and incomplete.  The district court repeatedly ordered discovery by a date certain, and it specifically ordered Ryan to produce answers and documents.  The district court did not itself threaten the sanction of default judgment.  Rather, Engel moved for this remedy.  Ryan knew that Engel sought this remedy and opposed it by memorandum.

            Relying on Jadwin v. City of Dayton, Ryan argues that the district court must give a clear warning of default judgment before using it as a sanction.  379 N.W.2d 194, 196-97 (Minn. App. 1985).  But in reaching its holding that the district court abused its discretion, the Jadwin court relied on Sudheimer v. Sudheimer, which held that such a warning is not a requirement but only a "significant factor" in determining whether default judgment is appropriate.  372 N.W.2d 792, 795 (Minn. App. 1985).  We note that prior Minnesota Supreme Court cases do not support a warning requirement.  Indeed, some have upheld defaults or dismissals based solely on a party's intransigence.  See Breza v. Schmitz, 311 Minn. 236, 247, 248 N.W.2d 921, 922 (1977); O'Neil v. Corrick, 307 Minn. 497, 497, 239 N.W.2d 230, 230 (1976); see also State by Humphrey v. Ri-Mel, Inc., 417 N.W.2d 102, 109-10 (Minn. App. 1987) (disregarding the clear warning requirement of Jadwin), review denied (Minn. Feb. 17, 1988).

            The primary consideration here is prejudice.  Although the district court did not expressly warn Ryan of default judgment, it did so implicitly by requesting a formal motion for which default judgment was an anticipated sanction.  Thus, the district court's failure to warn caused minimal prejudice to Ryan because Ryan had actual notice of the remedy, and it is unlikely that an express warning would have affected Ryan's conduct.  By contrast, Ryan's intransigence caused significant, and probably irreparable, prejudice to Engel's case.  Based on the facts presented here, we conclude that it was not an abuse of discretion for the district court to grant default judgment as a discovery sanction.

            On notice of review, Engel argues that the district court erroneously failed to grant remedies that she pleaded in her complaint.  Because the district court was divested of jurisdiction of these issues before it could reach a decision on the merits, we decline to consider them here.  See First Nat'l Bank of Deerwood v. Gregg, 556 N.W.2d 214, 218 n.5 (Minn. 1996).

            Affirmed.

[1]          The primary account holder, Frances Schweiger, is Ryan's mother.