Reichel Foods, Inc. v. Proseal America, Inc.

Background

Reichel Foods, Inc. appealed two nondispositive orders—pretrial orders that did not resolve the parties’ underlying claims—issued by Magistrate Judge Katherine M. Menendez. The first order denied Reichel’s request to modify the scheduling order and obtain permission to file a third amended complaint after the deadline. The second order denied two motions to compel discovery.

Reichel said depositions revealed two facts supporting eight proposed new claims: Defendants had uploaded a programmable logic controller code, or “kill switch,” to Reichel’s food-packaging equipment after the sale, and Proseal UK had programmed it at Proseal America’s request. The amendment deadline was September 15, 2020, but Reichel did not seek leave to file the third amended complaint until December 18, 2020.

Amendment and Scheduling Deadline

Under Federal Rule of Civil Procedure 16(b)(4), after a scheduling deadline has passed, a party must first show “good cause” to change the schedule. The primary measure of good cause is diligence. Only after that threshold is met does the court consider whether amendment should be allowed under Rule 15.

Judge Menendez found that Reichel had not acted diligently. The record showed that Reichel had known about the kill switch since at least January 2019, had received information nearly three months before the amendment deadline about remote access and programmed shutdown dates, had not sought discovery specifically concerning the kill switch or PLC code, had not taken depositions before the deadline, and had not sought another extension before the deadline expired. She also found, alternatively, that the proposed amendments would unfairly prejudice Defendants by introducing new legal theories and requiring different factual inquiries.

Judge Tostrud concluded that the finding of inadequate diligence was enough to support the ruling, so it was unnecessary to decide the alternative prejudice issue. He held that the denial of the request to modify the scheduling order was not clearly erroneous or contrary to law and affirmed the April 30, 2021 order.

Attorney-Client Privilege

Reichel sought to compel Proseal America to disclose 37 emails under the crime-fraud exception to attorney-client privilege. That exception can allow disclosure when the communications were made to further a crime or fraud and were closely related to it. Applying Minnesota law, Judge Tostrud agreed that Reichel had not made the required initial showing.

The court reasoned that Reichel’s operative claims concerned breach of contract, negligence, and breach of express and implied warranties. Those claims required proof that Defendants provided equipment that was unsuitable for its intended purpose or did not comply with the parties’ agreement; they did not require proof of fraud or that Defendants used the kill switch to collect payment. The court therefore held that the requested attorney-client communications were collateral to Reichel’s claims and that the magistrate judge did not clearly err by denying the motion to compel or declining an in-camera review.

Discovery from Proseal UK

Reichel also sought to compel Proseal UK to answer interrogatories and produce documents served in January 2021. The court determined that fact discovery had closed on October 28, 2020, subject to limited exceptions, and that Reichel filed its motion to compel seven months later.

Judge Tostrud rejected Reichel’s argument that later orders reopened discovery. He found that the scheduling orders did not extend fact discovery beyond October 28, 2020. He also agreed that Reichel had not shown diligence: it did not request documents from Proseal UK or serve a third-party subpoena before discovery closed, did not inform the court of obstacles to obtaining the discovery, and waited seven months before filing the motion. The court further agreed that the requested discovery was largely directed to issues relevant only to the proposed third amended complaint.

Disposition

The court ordered that Reichel’s Rule 72 objections to the April 30, 2021 order be overruled and that order affirmed. It also ordered that Reichel’s Rule 72 objections to the June 28, 2021 order be overruled and that order affirmed.