Case Spotlight: Terramar Retail Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D June 21, 2002

Case Spotlight: Terramar Retail Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D June 21, 2002, 2018 WL 6331622 (Del. Ch. Dec. 4, 2018) (Laster, V.C.)

Defendant (the “Trust”) is an investment vehicle affiliated with non-party Michael Cohen.  The Trust holds a 25% member interest in Seaport Village Operating Company, LLC, a Delaware limited liability company, which operates a specialty shopping center and tourist attraction in San Diego, California.  Plaintiff holds a 75% interest in the Company.  After forming the Company in Delaware, the parties entered into an operating agreement that named plaintiff as the sole manager of the Company and gave plaintiff the right to request that the other members buy out its member interest at fair market value (the “Put Right”).  Plaintiff also had the right to dissolve the Company and receive a contractually determined payout if the other members did not purchase plaintiff’s interest within six months of exercising the Put Right.  In 2015, plaintiff exercised its Put Right.  After more than six months had passed and its membership interest had not been bought out, plaintiff filed this action seeking declarations that it properly exercised the buy-out provision of the operating agreement and that it has the right to dissolve the Company and sell the Company’s property and assets.

During discovery, defendant produced a very limited number of self-serving documents while relying upon vague and rote general and specific objections to plaintiff’s document requests.  Once the substantial completion date had passed and the primary 30(b)(6) deposition had been taken, defendants produced a document dump only days before the fact discovery cut-off date.  Due to this misconduct, the Court found that an evidence-preclusion order would be a fitting sanction.  While a more serious sanction may have been justified and would have helped to restore the balance between the parties, the Court only imposed the sanction that had been requested by plaintiff.  The Court found that a lesser sanction, such as postponing the trial date to permit additional time for discovery, would only give defendant the delay it had clearly been trying to achieve.  Therefore, the Court held that defendant would be barred from entering into evidence any documents produced after the 30(b)(6) deposition, while plaintiff would be permitted to use these documents solely for the purpose of impeachment.

Counsel should be mindful of the serious consequences that can result from using meaningless or confusing general and specific objections to document requests, as they could be deemed to be the equivalent to a refusal to produce.  In addition, this case is a reminder that scheduling orders are not guidelines and that parties must abide by them.