Credo Salon & Spa, Inc. v. Liberty Vill. I, LLC

• Decision Date: 02 May 2022
• Docket Number: A21-1037
• Parties: Credo Salon and Spa, Inc., Appellant, v. Liberty Village I, LLC, et al., Respondents.
• Court: Minnesota Court of Appeals

Credo Salon and Spa, Inc., Appellant, v. Liberty Village I, LLC, et al., Respondents.

No. A21-1037

Court of Appeals of Minnesota

May 2, 2022

This opinion is nonprecedential except as provided by Minn. R Civ. App. P. 136.01, subd. 1(c).

Washington County District Court File No. 82-CV-20-2724

Christopher L. Olson, Peter J. Frank, GDO Law, White Bear Lake, Minnesota (for appellant)

Jack E. Pierce, Bernick Lifson, P.A., Minneapolis, Minnesota (for respondents)

Considered and decided by Bryan, Presiding Judge; Jesson, Judge; and Wheelock, Judge.

BRYAN JUDGE

Appellant challenges the district court's decisions to grant respondents' motion for summary judgment, to deny appellant's motion to amend the complaint, and to deny appellant's motion to compel additional discovery. We affirm the district court's decision to grant summary judgment because the materials submitted to the district court in connection with this motion did not contain evidence that could create a genuine issue of material fact regarding damages. We affirm the denial of appellant's motion to amend the complaint because we conclude that the district court did not abuse its discretion in determining that permitting the requested amendment after the close of discovery would prejudice respondents. Finally, we affirm the denial of appellant's motion to compel additional discovery because we conclude that the district court did not abuse its discretion in determining that respondents had provided sufficient disclosures in response to appellant's discovery requests.

FACTS

On July 7, 2020, appellant Credo Salon and Spa, Inc. (Credo) filed a civil lawsuit against respondents^[1] stemming from a commercial lease. The following facts are not contested. Liberty Village owns various units in the common interest community Liberty Village Lofts (hereinafter the property). The units at the property are subject to a common interest community declaration, pursuant to Minnesota Statutes section 515B.1-101 (2020). The declaration provides, among other things, that the units on the second floor of the property shall be used and occupied "exclusively for office purposes." The declaration also provides that units on the first floor are to be used for "office, commercial retail," and other uses permitted by the zoning code.

In May 2012, Credo entered into a lease with respondent Liberty Village under which terms Credo would operate a salon spa business for a term of 11 years. At the time of executing the lease, Credo and Liberty Village agreed to a restrictive covenant prohibiting Liberty Village from leasing additional space at the property to any businesses offering services similar to those offered by Credo. In September 2015, ISA began leasing a unit from Liberty Village on the second floor of the property. ISA operates a medical spa that offers medical-grade services by a licensed physician. Prior to ISA's lease, Liberty Village and Credo discussed ISA's potential tenancy. After receiving a list of services and products offered by ISA, Credo initially indicated ISA's business would not interfere with Credo's business operations. However, Credo later learned of services that it believed were similar to its own and subsequently objected to ISA's tenancy.

In July 2020, Credo served respondents with a summons and complaint, asserting ten claims: breach of the restrictive covenant; breach of the lease; misrepresentation; violation of the Deceptive Trade Practices Act, Minn. Stat. Ch. 235D; unjust enrichment; tortious interference with a contract; tortious interference with a prospective economic advantage; violation of the declaration; breach of fiduciary duty; and a claim that respondents Liberty Village I, LLC and Liberty Village II, LLC were alter egos of respondent Michael Oreck. For each and every count, Credo provided a generalized estimate of damages, repeating the same statement: "Credo has been damaged in an amount in excess of $50, 000, the precise amount to be proven at trial, together with costs and disbursements herein."

That same month, respondents filed their answer, denying Credo's claims and asserting defenses. The parties also submitted a joint discovery plan which stated that discovery "should be completed by November 27, 2020," and in September 2020, the district court signed a scheduling order requiring that "[a]ll discovery shall be completed by November 27, 2020." The scheduling order does not mention any specific deadlines for disclosure of expert reports.

Respondents served interrogatories to Credo, specifically asking to describe in detail the damages incurred for each of the claims in the complaint. Credo generally objected, claiming attorney-client privilege, but did state that "[a]t this time damages are thought to be in excess of $50, 000 to be proven at trial. Discovery is continuing." In their discovery requests, respondents requested that Credo "produce all documents reflecting on all damages you have incurred as a result of any alleged breach of the Restrictive Covenant." In response, Credo stated the following: "All documents, to the extent they exist, are not privileged, and have not already been produced will be provided to Defendants at a time mutually convenient to the parties at the offices of GDO Law." Through depositions, respondents repeatedly questioned multiple witnesses about the damages and any impact of ISA's tenancy on Credo's business. Counsel for Credo consistently objected and the witnesses did not provide any testimony in support of the damages claimed in the complaint.

On December 31, 2020, respondents moved for summary judgment on various grounds, including that there was insufficient evidence of damages to create a genuine question of material fact on that element of each claim. Specifically, respondents argued that the disclosures made by the discovery deadline did not include evidence regarding the amount of damages, the calculation of damages, or the causal connection between these damages and ISA's tenancy. In response to the portion of the summary judgment motion regarding damages, Credo filed a memorandum of law and two affidavits with attached exhibits on January 15, 2021. Credo argued that the summary judgment motion was premature because an expert was required to offer an opinion regarding Credo's hypothetical revenues "in the absence of [respondents'] breaches of the Restrictive Covenant and the Declaration." In addition, Credo argued that disclosure of its revenues was sufficient to establish damages: "evidence of its revenues over the applicable time frames . . . is all the evidence necessary. . . . The facts that will form the basis of Credo's damages claim are its own revenues and the revenues of ISA." The affidavits and attached exhibits filed on January 15, 2021, however, do not include any tax documents, information regarding Credo's or ISA's customers, or any documents showing revenues, expenses, sales, profits, or any other financial information about Credo.

After the case was reassigned to a new district court judge, respondents refiled its summary judgment motion on February 12, 2021. Credo subsequently filed another affidavit with attached exhibits on February 26, 2021. In this supplemental affidavit, the attorney stated that Credo has retained an expert and attached "a true and correct copy of the financial records Credo is providing to [the expert]." The records attached included documents titled "Employee Service Deductions" and "Employee Retail Summary" for one employee and for the time period October 2012 through October 2020. All of the annual totals and many of the subtotals on the "Employee Service Deductions" for the time period October 2014 through October 2020 are blacked out. The attached records do not include tax documents, information regarding changes to Credo's or ISA's customers, or any documents showing annual revenues, ^[2] expenses, or profits. Respondents filed a second reply memorandum of law on March 5, 2021, objecting to the consideration of the February 26, 2021 submissions and reiterating its argument that none of the submissions to the court regarding the summary judgment motion could create a genuine issue of material fact regarding lost profits.

Before the district court issued a written decision on the summary judgment motion on May 7, 2021, Credo filed an informal request, by letter, to "reopen the summary judgment record." Credo attached an expert report, supplemental discovery responses, and an attorney affidavit to the informal request. The letter stated that the supplemental evidence was not "in existence at the time the motion was taken under advisement." The affidavit provided the following three reasons why Credo chose to wait to hire an expert until after the close of discovery and after the summary judgment motion was filed: (1) Credo's counsel advised Credo that "the Rules of Civil Procedure did not require the disclosure of expert testimony until ninety days prior to trial;" (2) the "highly specialized" facts made it difficult to find an expert; and (3) Credo "did not want to incur the cost of an expert witness and report when the parties were engaged in settlement discussions."

The four-page expert report submitted on May 7, 2021, includes three charts, labelled figures 1, 2, and 3. According to the report, the expert relied on tax documents and internal financial statements provided to the expert by Credo "The data used for Figure 1 comes from Credo's 1120S federal tax filings for the years 2013-2019. The data used for Figures 2 and 3 comes from internal financial statements generated by Credo." The expert assumed compound annual growth rates of 3.8%, 4.94%, and 8.56% to project Credo's expected revenues for 2016-2020. By comparing...