Court Weighs Questions On Scope Of Discovery

TMJ Grp., LLC v. IMCMV Holdings

In this fraudulent inducement claim, the magistrate considered the permissible scope of discovery for the parties’ cross-motions to compel.

This case began when the plaintiff, collectively referred to as “TMJ,” invested in two Margaritaville restaurants. TMJ alleged that the defendant, collectively “IMC,” misrepresented the restaurants’ financial information to fraudulently induce that investment. Additionally, TMJ claimed that IMC “altered financial figures” to convince a bank to approve TMJ’s financing.

Both parties moved to compel additional discovery.

IMC sought a second deposition for one witness due to a late document production. Shortly before the discovery deadline, TMJ produced 2,625 pages of documents. It then produced another 694 pages on the last day of scheduled discovery.

IMC argued that due to that last-minute disclosure, it “did not have all relevant documents” during the first deposition. Tellingly, in its deposition IMC had expressed “concern that not all [bank] documents had been produced despite TMJ’s insistence that they had been.” Thereafter, TMJ indeed produced additional bank documents and communications.

TMJ did not object to the second deposition generally. It argued, though, that it should be limited in scope to documents produced after the first deposition. IMC countered that the scope should include those documents produced on the eve of the first deposition. Those documents, it argued, were provided so close to the deposition that it had insufficient time to review them.

The magistrate noted that, at the time of her opinion, the deadline to complete discovery had already passed. She held that should the district judge grant an extension, she would permit the deposition. The magistrate largely limited the scope of that re-deposition to documents produced after the first deposition. Still, she allowed the parties to explore other documents that would “give context to [or] provide clarification of” the late production.

IMC also sought to depose “one or more former [bank] representatives” who it had not previously noticed for deposition. IMC argued that it did not seek depositions earlier because it did not have all of the bank documents. However, it “revisit[ed] this decision” in light of the eventual document production. TMJ objected that this request was untimely, “given that trial is imminent,” and that further depositions would be prejudicial.

The magistrate noted that there was “no real dispute” that these depositions were within the scope of allowable discovery. Provided that the district court extended discovery, she granted the motion for at least one deposition of a bank representative.

TMJ also moved to compel additional discovery. First, it requested the financial records of “all of IMC’s other Margaritaville restaurants.” It argued that these would be relevant to show the true financial forecast for the disputed restaurants. IMC objected that these records would be “irrelevant and disproportional” to the claims here.

The magistrate denied this motion, noting that TMJ already had “the key performance indicators extracted from those financials.” She agreed that the records were insufficiently relevant and “too tangential to justify the burden” of their production.

Next, TMJ moved for production of certain financial records in Excel format rather than the PDFs IMC had provided. The magistrate denied this request, finding that converting the documents to Excel would pose an excessive burden. However, she did order both parties to “work together to provide the documents in their native format,” if possible.

Finally, TMJ sought text messages between IMC and TMJ representatives, arguing that “TMJ frequently corresponded with IMC via text message.” IMC responded that it no longer had some text messages, as two specific employees had left its employment and taken their phones with them. The magistrate determined that “there is nothing further that can be done to attempt to retrieve” those lost messages.

As to the text messages of employees still with IMC, IMC objected that searching those texts would be “unduly burdensome.” The magistrate disagreed. She noted that the messages TMJ sought would be relevant. Further, they were “not so voluminous or difficult to obtain” as to be disproportionate.

After this opinion, the district court did extend the period of discovery. The parties ultimately reached a settlement.

Takeaways on Scoping Discovery

This opinion was necessary because the parties failed to agree early on about the appropriate scope of discovery. As to the financials, it isn’t clear why IMC provided PDFs rather than usable spreadsheets. However, both parties should have discussed and negotiated the form of discovery at their initial Rule 26(f) conference. The text messages similarly warranted earlier discussion. Don’t wait until the close of discovery to realize that you have a dispute!

Questions about how to prepare for discovery negotiations? We’re here to help you understand your data so that you can be fully prepared for productive discovery conferences from the start of every case.

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