Kelley v. BMO Harris Bank N.A., as successor to M&I Marshall and IIsley Bank

Background

This bankruptcy-related case concerns claims arising from a Ponzi scheme involving Petters Company, Inc. The trustee of the BMO Litigation Trust alleges that BMO Harris was complicit through its dealings with Petters, the company, and the company’s bank account. Four claims remained: violation of the Minnesota Uniform Fiduciaries Act, breach of fiduciary duties, aiding and abetting fraud, and aiding and abetting breach of fiduciary duties.

BMO Harris filed a motion seeking a case-management conference and order before trial. It asked the court to address review of evidence-destruction sanctions imposed by the bankruptcy court, reopen fact discovery concerning losses allegedly sustained by investors, and establish deadlines for pretrial motions.

Spoliation sanctions

The bankruptcy court had found that BMO Harris intentionally destroyed and failed to preserve email backup tapes containing electronically stored information from before March 2005, acted in bad faith, and intended to deprive the trustee of the evidence. It imposed three sanctions: an instruction allowing the jury to draw an adverse inference, permission for the trustee to present evidence about the destruction, and a prohibition on BMO Harris objecting to certain pre-March 2005 materials produced by third parties.

BMO Harris argued that the district court had to review the bankruptcy court’s factual findings anew and hold an evidentiary hearing. The court rejected that argument. It held that the sanctions were subject to review for abuse of discretion, not de novo review, and that the bankruptcy court had authority to impose the non-dispositive discovery sanctions even though the district court would conduct the jury trial. The court denied BMO Harris’s request for a pretrial evidentiary hearing and stated that it would resolve the pending challenge on written submissions in a later order.

Reopening discovery

BMO Harris sought additional discovery about losses sustained by eight investors. The bankruptcy court had denied similar discovery requests in September 2017, finding them overbroad and irrelevant, and BMO Harris had not timely appealed those orders. The district court held that any challenge to those discovery decisions was untimely and procedurally improper.

The court also noted that BMO Harris had not filed a proper motion to modify the pretrial scheduling order. It treated BMO Harris’s requests as requests for permission to file such a motion and denied them. Under the rule governing scheduling orders, a party must show good cause, with the main consideration being diligence. The court found that BMO Harris had not acted diligently, had waited years to renew the request, and had not shown a significant change in circumstances. The court further found that reopening discovery would concern irrelevant losses, cause delay and expense, and be futile.

Order

The court granted in part and denied in part BMO Harris’s motion for a case-management conference and order. Specifically, it denied the request for a case-management conference; denied the request for a pretrial evidentiary hearing on the spoliation-sanctions challenge; and denied the requests for permission to file a motion to modify the scheduling order to reopen discovery. The court set July 1, July 22, and July 29, 2022 deadlines for the parties’ opening, response, and reply filings concerning motions to exclude expert testimony. It stated that other pretrial deadlines would be addressed later and ordered the parties to contact Magistrate Judge David T. Schultz to schedule a September 2022 settlement conference.