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Best Buy Stores, Inc. v. Developers Diversified Realty Corporation et al.: US District Court : DISCOVERY - reopened discovery as sanction, vs. adverse inference; timing

Civil No. 05-2310(DSD/JJG)
Best Buy Stores, L.P.,
Developers Diversified Realty
Corporation, DDR GLH, LLC.;
Benderson-Wainberg Associates, LP;
DDR MDT Cool Springs Point LLC;
DDRA Ahwataukee Foothills, LLC;
DDR Flatiron LLC; DDRA Community
Centers Four, LP; DDR MDT Lakepointe
Crossing, LP; DDR MDT Great Northern,
LLC; DDR MDT Shoppers World, LLC;
DDR MDT Riverdale Village Outer Ring,
LLC; DDR Hendon Nassau Park II, LP;
DDRC PDK Salisbury LLC,
Thomas C. Mahlum, Esq., Mpatanishi S. Tayari Garrett,
Esq. and Robins, Kaplan, Miller & Ciresi, 2800 LaSalle
Plaza, 800 LaSalle Avenue, Minneapolis, MN 55402 and
Robert A. Machson, Esq., 7 White Birch Ridge, Weston, CT
06883, counsel for plaintiff.
Amanda A. Kessler, Esq., Jennifer M. Burke, Esq., Dena M.
Kobasic, Esq., Steven Kaufman, Esq. and Thompson Hine,
LLP., 3900 Key Center, 127 Public Square, Cleveland OH
44114 and D. Charles Macdonald, Esq., Martin S. Chester,
Esq. and Faegre & Benson, 2200 Wells Fargo Center, 90
South Seventh Street, Minneapolis, MN 55402, counsel for
This matter is before the court upon plaintiff Best Buy
Stores, L.P.s (Best Buy) objection to the Report and
1 The magistrate judge couched her order as a Report and
Recommendation. As discussed below, however, the sanctions
ordered by the magistrate judge are nondispositive and subject to
a deferential standard of review in the district court.
2 The court denies Best Buys request for oral argument.
Recommendation1 of Magistrate Judge Jeanne J. Graham dated February
14, 2008, in which the magistrate judge granted in part defendants
motion for sanctions and granted Best Buys motion to modify the
pretrial scheduling order.2
Best Buy, a commercial tenant, brings this action against
sixteen of its landlords and the landlords property manager
(collectively defendants). The genesis of Best Buys claims are
materially similar provisions in seventeen lease agreements that
require defendants to procure insurance. In addition to paying a
fixed rent, the lease agreements require Best Buy to pay additional
rent to cover, among other things, its proportionate share of the
insurance. Best Buy alleges that defendants obtained insurance for
claims in excess of 0,000 but maintained a self-funded program
to cover lesser claims. Best Buy asserts that defendants breached
the lease agreements by not obtaining proper insurance, breached
their fiduciary duties by misallocating Best Buys additional rent
3 Through letters to the court, the parties dispute whether
defendants timely responded to Best Buys objection. The parties
agree that defendants had ten days, excluding weekends and
holidays, from February 29 to respond pursuant to Local Rule 72.2,
and that because defendants served Best Buy electronically, Best
Buy had three additional days pursuant to Federal Rule of Civil
Procedure 6(d). The parties dispute, however, whether the
additional three day period includes weekends. The court
determines that the three-day period is distinct from the ten-day
period and therefore weekends and legal holidays are excluded
pursuant to Rule 6(a)(2) in computing defendants time to respond.
Cf. Treanor v. MCI Telecomms. Corp., 150 F.3d 916, 918 (8th Cir.
1998) (suggesting the three additional days be treated as distinct
from the initial ten). Accordingly, defendants timely responded to
Best Buys objection on March 19, 2008.
and committed fraud by falsely asserting that they had properly
procured insurance when they were actually maintaining a selffunded
Since Best Buy filed this action in September 2005, the
parties have engaged in lengthy and contentious fact discovery
resulting in defendants motion for sanctions due to Best Buys
alleged failure to comply with the magistrate judges discovery
orders. On February 14, 2008, the magistrate judge granted
defendants motion in part. Best Buy timely objected on February
29, 2008.3
I. Standard of Review
A motion for sanctions based on alleged discovery violations
is nondispositive unless imposition of the sanction would be
dispositive of a partys claim or defense. 14 James Wm. Moore et
al., Moores Federal Practice 72.02(7)(b) (3d ed. 2008); see also
Phinney v. Wentworth Douglas Hosp., 199 F.3d 1, 6 (1st Cir. 1999)
(Motions for sanctions premised on alleged discovery violations
... ordinarily should be classified as nondispositive.); Thomas E.
Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990).
Because the magistrate judges ordered sanctions in this case are
nondispositive, the court reviews the order under an extremely
deferential clearly erroneous or contrary to law standard. See
Reko v. Creative Promotions, Inc. 70 F. Supp. 1005, 1007 (D. Minn.
1999); 28 U.S.C. 636(b)(1)(A); Fed. R. Civ. P. 72(a); D. Minn.
L.R. 72.2(a). But cf. Rottlund Co. v. Pinnacle Corp., Civ. No. 01-
1980, 2005 U.S. Dist. LEXIS 4263, at *6 n.1 (D. Minn. Feb. 17,
2005) (applying de novo review of magistrate judges sanctions
order because sanctions based partly on district courts inherent
II. Sanctions
Federal Rule of Civil Procedure 37(b)(2)(A) permits a district
court broad discretion to impose sanctions for a partys failure to
comply with a discovery order. See United States v. Big D.
Enters., 184 F.3d 924, 936 (8th Cir. 1999). Generally, sanctions
may be triggered simply by noncompliance with an underlying
discovery order.... Thus, a finding of willfulness or contumacious
conduct is not necessary to support sanctions that are less severe
than dismissal or entry of a default judgment. 7 Moore, supra,
37.50(2)(b). Moreover, prejudice is not an essential
prerequisite for the imposition of [Rule 37(b)] sanctions. Id.
Rule 37 sanctions are intended to penalize those whose
conduct may be deemed to warrant such a sanction [and] to deter
those who might be tempted to such conduct in the absence of such
a deterrent. NHL v. Metro. Hockey Club, 427 U.S. 639, 643 (1976)
(per curiam). In fashioning a sanction, a court need not impose
the least onerous sanction available, but may exercise its
discretion to choose the most appropriate sanction under the
circumstances. Keefer v. Provident Life & Accident Ins. Co., 238
F.3d 937, 941 (8th Cir. 2000) (citation omitted). Such discretion,
however, is bounded by the requirement of Rule 37(b)(2) that the
sanction be just and relate to the claim at issue in the order to
provide discovery. Avionic Co. v. Gen. Dynamics Corp., 957 F.2d
555, 558 (1992) (citation omitted).
A. Evidentiary Sanction
1. Violation of Discovery Order
On September 5, 2007, the magistrate judge ordered Best Buy to
produce any documents that explain the policies underlying its
self-funded escrow or captive insurance programs. (Order of Sept.
5, 2007, [Doc. No. 434] at 11.) The order further required Best
Buy to supply documents that substantively explain how internal
escrow or captive insurance programs are funded, including any
documents that supply guidance about appropriate funding levels.
In response to the September 5 order, Best Buy produced fortynine
high level documents from its captive insurer CCL Insurance
Co. (CCL) on October 5, 2007. These documents explained CCLs
insurance policies and CCLs calculation, funding and allocation of
premiums. (Deegan Aff. 5-6.) Concerned about the limited scope
of Best Buys response, counsel for defendants requested production
of emails and documents relating to the formation, implementation
and creation of [Best Buys] captive insurance company(ies),
including materials relating to how the captive premiums are
priced. (Fleming Aff., Ex. C.) Best Buy maintained that it had
satisfied its production requirements but nevertheless responded on
October 24 with additional documents. These documents included the
insurance policies issued by CCL, a study explaining Best Buys
rationale for creating a captive insurer, CCLs audited financials,
descriptions of CCLs involvement in Best Buys property coverages
and an application to the State of Vermont that contained a
business plan. (Deegan Aff. 7.)
After the October 24 production, the parties continued to
dispute whether Best Buy had satisfied its production obligations
with respect to captive insurance. On November 16, Best Buys
counsel wrote to defendants counsel inquiring what [defendants]
hope[d] to prove regarding the captive, so that we can focus the
issues under discussion and attempt to reach a mutually agreeable
compromise. (Fleming Aff. Ex. L.) Unable to resolve the dispute,
defendants moved for an order to show cause and for sanctions on
December 14. At the January 15, 2008, hearing on the motion,
counsel for Best Buy offered to produce a disc of documents
ostensibly to preempt any claim of prejudice by defendants. The
magistrate judge ordered immediate production of the disc, which
contained 1,000 documents including e-mails, internal memoranda,
board meeting minutes and various other documents related to Best
Buys captive insurer. (Kessler Decl. 11-15.)
The magistrate judges February 14, 2008, order determined
that Best Buys production with respect to its captive insurance
and self-insurance program was inadequate. Specifically, the
magistrate judge found immaterial the October 24 production because
it was not included in the record, concluded that under any
reasonable interpretation of the September 5 order, Best Buy had
ample reason to know its production was deficient, and determined
that Best Buys production of the disc at the hearing appeared to
be a calculated effort to avoid sanctions rather than a meaningful
effort to comply with the September 5 order. (Order of Feb. 14,
2008, [Doc. No. 593] at 14-15.)
Best Buy first argues that the magistrate judge erred by
focusing on the quantity instead of the quality of the produced
documents. The September 5 order, however, did not limit Best
Buys production requirement to high level documents. Rather,
the order mandated production of all documents that explain the
policies underlying Best Buys self-funded escrow or captive
insurance programs and documents explaining the funding for those
programs. Therefore, the magistrate judges focus on the number of
documents produced by Best Buy was not clearly erroneous.
Second, Best Buy argues that the magistrate judge incorrectly
assumed the immateriality of the October 24 production. As an
initial matter, it was not clearly erroneous for the magistrate
judge to determine that evidence not in the record was immaterial.
Moreover, even if the magistrate judge had considered the October
24 production, Best Buys subsequent production of responsive
documents at the January 15 hearing establishes the inadequacy of
Best Buys earlier productions.
Finally, Best Buy argues that it did not willfully violate the
September 5 order because its production satisfied a reasonable
interpretation of the order. Although the magistrate judges
February 14 order indicates that a finding of willfulness is
required before sanctions are appropriate, (Order of Feb. 14, 2008,
at 3.), such a finding is only necessary for imposition of
sanctions that result in an entry of default or dismissal. See,
e.g., Hairston v. Alert Safety Light Prods., 307 F.3d 717, 718-19
(8th Cir. 2002) (The court should resort to the sanction of
dismissal only when the failure to comply has been due to
willfulness, bad faith, or any fault of petitioner. (citations and
quotations omitted)); Chrysler Corp. v. Carey, 186 F.3d 1016, 1019
(8th Cir. 1999) (sanction resulted in default judgment); Shelton v.
Am. Motors Corp., 805 F.2d 1323, 1330 (8th Cir. 1986) (default
judgment as sanction). Because the magistrate judge did not order
such sanctions, a finding of willfulness is not required.
Therefore, the court determines that the magistrate judges
conclusion that Best Buy engaged in sanctionable conduct by
violating the September 5 order is neither clearly erroneous nor
contrary to law.
2. Sanction
As a sanction for Best Buys failure to comply with the
September 5 order, the magistrate judge recommends that it be
conclusively presumed that Best Buy has withheld evidence about its
captive insurance program; and from this presumption, a factfinder
may take negative inferences about Best Buys knowledge of
insurance practices in commercial leases. (Order of Feb. 14,
2008, at 15.) Best Buy urges that such an adverse inference
instruction is not the most appropriate sanction under the facts of
this case, and the court agrees.
Adverse inference instructions are typically given as
sanctions when a party has intentionally destroyed evidence to
suppress the truth. See, e.g., Johnson v. Ready Mixed Concrete
Co., 424 F.3d 806, 811 (8th Cir. 2005); Morris v. Union Pac. R.R.
4 In light of the parties dispute as to whether all
responsive documents have now been produced, the court admonishes
them to be reasonable in their requests for production and
responses to those requests. The parties and the court have
already spent an inordinate amount of time on discovery in this
Co., 373 F.3d 896, 901 (8th Cir. 2004); Stevenson v. Union Pac.
R.R. Co., 354 F.3d 739, 746 (8th Cir. 2004). Here, defendants do
not contend that Best Buy has destroyed relevant documents.
Rather, defendants argue that Best Buy has not produced all of the
relevant documents and that because discovery is closed their
ability to show Best Buys knowledge and sophistication on
commercial insurance matters, such as captive insurance, has been
prejudiced. (Def. Br. at 8.) However, responsive documents have
not been destroyed in this case, and the admissibility at trial of
evidence related to Best Buys captive insurance program is subject
to legitimate dispute. Therefore, the most appropriate sanction is
to reopen fact discovery for the limited purpose of allowing
defendants to request and Best Buy to produce all responsive
documents.4 For these reasons, the court sustains Best Buys
objection to the ordered sanction. Best Buy shall be responsible
for all costs associated with this limited reopening of discovery.
Moreover, the court determines that the potential assessment of
5 The February 14 order indicates that a determination of the
fees and costs to be awarded, if any, shall be committed to the
Magistrate Judge. (Order of Feb. 14, 2008, at 20.) Best Buy
objects to any inference that such a fee award would be final.
(Def. Br. at 14.) To avoid any misunderstanding, the court
clarifies that any fee award granted by the magistrate judge is
subject to this courts review.
reasonable expenses against Best Buy and its counsel pursuant to
Rule 37(b)(2)(C) satisfies the punitive and deterrent purposes of
B. Other Sanctions
The magistrate judge also ordered Best Buy to make each of
four specified individuals available for seven hours of depositions
and three other individuals for three hours, all without
limitations. The court has carefully reviewed the magistrate
judges order and Best Buys objections with respect to the
additional depositions and finds that the magistrate judges order
is not clearly erroneous or contrary to law. Therefore, the court
overrules Best Buys objections.
III. Expert Discovery
Pursuant to the magistrate judges order, defendants have
fourteen days from the date of this order to disclose their
rebuttal expert reports, and Best Buy has thirty-five days from the
date of this order to respond. Best Buy objects because the order
decreases its time for expert discovery from the amount of time
initially contemplated in the June 2007 scheduling order. The
court finds no support for Best Buys objection and overrules it
Therefore, IT IS HEREBY ORDERED that:
1. Best Buys objection [Doc. No. 594] to the magistrate
judges Report and Recommendation [Doc. No. 593] is sustained in
2. Defendants motion to show cause and for sanctions [Doc.
No. 550] is granted in part;
3. Best Buys motion to extend the expert discovery deadline
[Doc. No. 561] is granted consistent with the magistrate judges
4. Defendants are permitted to request and Best Buy is
required to produce all remaining responsive documents related to
Best Buys self-funded escrow or captive insurance programs as
required by the magistrate judges September 5, 2007, order;
5. Best Buy shall comply with the additional depositions
ordered by the magistrate judge; and
6. Defendants shall file an affidavit with the magistrate
judge itemizing reasonable fees and costs that are compensable
pursuant to their motion for sanctions no later than twenty-eight
days from the date of this order.
Dated: June 12, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court


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