Update (August 28, 2017): Hypothetical: A Co. contracts to sell B Inc. lumber. A knew of B’s plan to chop this wood and sell it as firewood after the transaction. However, the contract only references price and quantity, not suitability as firewood. The lumber sold is “green” (unsuitable as firewood for 2 years) and B feels that A deceived B.

It might be difficult to prove fraud or intentional deceit. A could argue that it was unaware that B wanted to chop and sell the firewood right away. Or A could argue that B should have specified “fire-ready” if it required it.

Could B Inc. attack A Co. from a different angle with a claim of breach of the covenant of good faith and fair dealing? Could B argue, in effect, that A knew B was buying the lumber for firewood and had an implicit duty to disclose that the lumber sold was unsuitable for firewood for two years?

This question is not easily answered. Minnesota law on what constitutes a breach of the covenant of good faith and fair dealing is unclear.

Take the recent description of the covenant in Nat. Union Fire Ins. Co. v. Donaldson (an insurance coverage dispute that has gone on for several years (discussed below). (The dispute does not appear to have gone very well for the insured, Donaldson Company, a Minnesota based “filtration” company.) 

Under Minnesota law, every contract includes an implied covenant of good faith and fair dealing requiring that one party not ‘unjustifiably hinder’ the other party’s performance of the contract….In other words, the covenant of good faith and fair dealing ‘requires a party in a contractual relationship to refrain from arbitrary and unreasonable conduct that has the effect of preventing the other party to the contract from receiving the fruits of the contract.’

What we find interesting and ambiguous about this passage is the linking clause, “In other words….” Normally the clause functions as an “equal sign.” The two statements on either side of the clause are supposed to have the same meaning. Here, though, they don’t.

Going back to our lumber example, there is no doubt that A Co. did not “hinder B’s performance of the contract.”

On the other hand, A’s conduct, in theory, might be considered “unreasonable” and having “the effect of preventing B from receiving the fruits of the contract.”

The bottom line is that there is some “play in the joints” in the covenant of good faith and fair dealing — some uncertainty as to when it applies and how it applies. This is frustrating for lawyers and, even moreso for their clients, who pay loads of money clarification of legal uncertainty. But, on the other hand, application of such amorphous values “good faith” and “fairness” will never be clear-cut.

Original Post (May 10, 2013) (under the headline: Thoughts About Relevance & A Rare Deviation from the “Extreme Deference” Given to A Magistrate Judge’s Discovery Ruling?): Imagine for a moment that you are a trial lawyer and under the rules in United States courts (state and federal), you are entitled to get documents from your adversary to prove your client’s case or to help with your client’s defense.

(a) Would you knowingly seek irrelevant documents from your adversary?

Imagine for a moment that you are trial lawyer, you represent a client, and your adversary requests documents from your client that seem irrelevant to you and your client.

(b) Assuming the documents were readily available and not particularly voluminous, would you fight (and that means PAY MONEY (it means that to your client, anyhow)) to keep from producing these pointless documents?

I would respectfully suggest the answers to those questions may be: (a) No. and (b) No.

As extremely common as these standard objections to discovery are — “irrelevance” and “not reasonably calculated to lead to the discovery of admissible evidence” — they are also in a sense extremely odd.

One must ask oneself why the  party is seeking the discovery if it is, in fact, irrelevant or not reasonably calculated to lead to the discovery of admissible evidence.

Absent some indication that the discovery is sought to harass or, alternately, that it has some overwrought logical attenuation – in other words if the request is “hare-brained” or an impermissible “fishing expedition” – I would suggest common practice, the case law, and the rules of civil procedure make clear that these objections based on “irrelevance” are normally weak at best.

This is one reason why this week’s ruling by U.S. District Court Judge John R. Tunheim (D. Minn.) overruling a discovery order by U.S. Mag. Judge Arthur J. Boylan and finding a discovery request to have been seeking “irrelevant” documents was surprising.

In an insurance coverage dispute, Judge Tunheim ruled that discovery sought by Donaldson Co. (the insured) (who happens to be represented by extremely capable lawyers with considerable expertise in insurance law) from plaintiff insurers was “irrelevant.”

This is all the more surprising in that Judge Tunheim, to reach that result, had to reverse Mag. Judge Boylan, where review, under the rules and case law, as all Minnesota litigators know, is said to be “extremely deferential.”

The take-away from the order would appear to be this:  if you are litigating in a complex subject matter such that you might serve a discovery request that, on its face, is not very clearly related to claims and defenses in the case — that is, the antithesis of a defendant in a personal injury case requesting medical records of the injured plaintiff — for example, if you are seeking insurance underwriting files to investigate intent with regard to the inclusion of a Batch Clause Endorsement in an umbrella insurance policy — you may need to walk the Court very carefully through your logic for why this discovery matters, why it is relevant.

“Why would I ask for it if it is irrelevant?” holds no persuasive force.  “Why, if it is so irrelevant, won’t the resisting party just hand it over?” holds no persuasive force.  And, it seems, substantially more is may be required in such circumstances.  (To be clear, Donaldson’s counsel did not rely on such ipse dixit arguments, of course.)

Leave a Reply

Your email address will not be published. Required fields are marked *