Kenneth E. Nelson, Plaintiff-Appellant,
Bruce R. Schultz and Jon K. Rodgers, Defendants-Appellees.
November 15, 2017
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 15 C 8560 - Harry
D. Leinenweber, Judge.
WOOD, Chief Judge, and Manion and Kanne, Circuit Judges.
Nelson sued two former business partners, Bruce Schultz and
Jon Rodgers, for breach of contract and several torts. During
discovery Schultz and Rodgers asked Nelson to produce various
bank statements and tax returns, which, the defendants said,
they needed to defend against his claims. After Nelson
refused, the district court granted the defendants'
motion to compel their production and warned him, twice, that
it would dismiss the case if he did not produce the documents
or provide an affidavit documenting a diligent search for
them. Nelson did neither, and the judge dismissed the case
for want of prosecution. On appeal Nelson argues that the
district judge erred by not assessing whether his misconduct
justified dismissing the case. Because the judge sufficiently
evaluated this matter and did not abuse his discretion by
dismissing the suit after multiple warnings, we affirm.
dispute began when Nelson, Schultz, and Rodgers formed an LLC
to develop a property in Downtown Chicago. In mid-2005 they
created 664 N. Michigan, LLC, which, according to Nelson,
they formed in order to develop the Ritz-Carlton Residences,
a mixed-use luxury skyscraper on the Magnificent Mile. The
LLC's operating agreement provided that development fees
would be divided among the LLC's managers "as they
mutually agree" and that a manager of the LLC could be
removed for cause by a majority vote of the LLC's owners.
According to Nelson, the LLC's managers were Nelson
Hotels, Inc. (Nelson was its president) and Prism
Construction Management, owned by Schultz and Rodgers.
2005, Rodgers and Schultz voted to remove Nelson Hotels, Inc.
as an LLC manager, which, according to Nelson, caused his
company lose out on $1.13 million when the Ritz-Carlton
Residences was built. Nelson asserts that Schultz and Rodgers
removed his company as a manager to enrich themselves; they
justified their decision, however, on grounds that he had a
negative $15 million net worth that prevented the LLC from
getting financing for the development.
years later Nelson sued Schultz and Rodgers for breach of
contract, unjust enrichment, breach of fiduciary duty, and
conversion. After Nelson's lawsuit survived the
defendants' motion to dismiss, the parties proceeded to
and Rodgers sought to gather evidence to support their
defense that Nelson's company had been removed as an LLC
manager for cause-Nelson's poor finances obstructed the
project's financing-and to examine whether Nelson
mitigated his damages from the alleged contract breach. They
asked Nelson to produce his and his company's tax returns
for the previous ten years as well as his and his
company's loan applications and financial statements
between 2004 and 2008. Nelson refused, arguing that he did
not guarantee his "creditworthiness" when his
company became one of the LLC's managers and that many of
the requested documents fell outside of the relevant period
for mitigating damages. On the defendants' motion, the
judge compelled the disclosure of the requested documents.
The judge reasoned that until he ruled on these
documents' relevance, the defendants should receive them
so that they could prepare their defense.
response Nelson stated that, for almost all of the requested
documents, he "believed" that they had been
produced and that he was "not in possession" of
them. The defendants then moved for sanctions under Federal
Rule of Civil Procedure 37(b)(2)(A)(v), asking the judge to
dismiss the case because Nelson's reply was
"non-responsive and evasive." On the day before the
hearing on the defendants' sanctions motion, Nelson sent
the defendants copies of his tax transcripts (partial records
of his tax returns) for 2006 through 2011.
first hearing on their sanctions motion, the defendants
asserted that Nelson's tax transcripts were inadequate
substitutes for his tax returns and that they still had not
received the requested bank statements. The judge agreed and
told Nelson that he had "one more chance" to
produce the requested documents or else he was "going to
probably dismiss it for want of prosecution." The judge
added that if Nelson did not have some of the requested
documents, he should provide "a crystal-clear
affidavit" stating the actions that he and his attorney
took to locate them.
the next production deadline, Nelson produced only one of the
requested tax documents and provided a declaration that
largely copied his response to the defendants' first
production request. This declaration included Nelson's
assertion that the requested documents "in possession,
custody, or control of Nelson from 2004-2008 are believed to
have been produced. For these years, Nelson is not in
possession of these documents."
second hearing on their sanctions motion, the defendants
argued that Nelson's declaration, like his response to
their first production request, was self-contradictory-Nelson
said that he produced the requested documents but also that
he did not have them. Nelson's counsel responded that he
misinterpreted the judge's previous order to produce the
documents. The judge then gave Nelson five additional weeks
either to produce the requested documents or provide an
affidavit stating that he did not have them despite a
diligent search. The judge closed the hearing with a second
warning: "If you don't show a very, very, very
substantial effort to comply, then I'm going to probably
dismiss the complaint for want of prosecution."
did not produce any documents by the next deadline. One month
after the deadline, Nelson forwarded the defendants an email
he had received from his company's bank, which said that
it kept records going back only seven years. Nelson also