Discovery Obligations for Non-Party Affiliates

What Discovery Obligations Does a Non-Party Affiliate Have in Minnesota?

A non-party affiliate owes no answers to your opponent’s interrogatories or document requests, because those tools run only between parties. It can be compelled to produce records or testify through a subpoena. Your company’s own duty can reach further, to affiliate records your company controls.

The party-to-party limit is written into each rule. Minn. R. Civ. P. 33.01(a) provides: “Any party may serve written interrogatories upon any other party.” Minn. R. Civ. P. 34.01 opens the same way: “Any party may serve on any other party a request within the scope of Rule 26.02.” For anyone else, Rule 34.03(a) provides: “As provided in Rule 45, a nonparty may be compelled to produce documents and electronically stored information and to permit an inspection.”

The words that matter for a group of companies come later in Rule 34.01, which describes items “that are in the possession, custody or control of the party upon whom the request is served.” A request served on your company can therefore reach a file your company does not physically hold. The rest of this page covers when that happens, what your company’s answers and witnesses must cover, and what the other side can demand from the affiliate itself. For the wider sequence of a case, see my overview of civil discovery for a Minnesota business defendant and my business litigation practice.

How Can Records at an Affiliate Fall Within Your Company’s Control?

Records held by an affiliate fall within your company’s duty when they are in its “possession, custody or control,” and Rule 34.01 does not define control. Because the word is undefined, I suggest working through your company’s own facts about access before you answer any request.

The same phrase governs the disclosures your company makes without being asked. Minn. R. Civ. P. 26.01(a)(1)(B) requires “a copy - or a description by category and location - of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment.”

The questions below are my guidance, not a test from a Minnesota appellate decision. Each one bears on whether your company can get the records when it wants them:

• Shared systems. Does your company’s email server, accounting software, or shared drive hold the affiliate’s files?
• Shared people. Do your company’s officers also run the affiliate, so that a request from your company would simply be honored?
• Contract rights. Does a services agreement, an intercompany agreement, or an operating agreement give your company a right to the records?
• Shareholder rights. A shareholder of “a corporation that is not a publicly held corporation” has “an absolute right, upon written demand, to examine and copy, in person or by a legal representative, at any reasonable time” the share register and the records listed in subdivision 2, such as records of shareholder and board proceedings “for the last three years,” articles, bylaws, and required financial statements, and “the corporation shall make available within ten days after receipt by an officer of the corporation of the written demand.” Minn. Stat. § 302A.461, subd. 4(a). For “other corporate records,” subd. 4(b) grants the right “only if the shareholder, beneficial owner, or holder of a voting trust certificate demonstrates a proper purpose for the examination.” These rights reach a Minnesota corporation, which Minn. Stat. § 302A.011, subd. 8 defines as a corporation, “other than a foreign corporation, organized for profit and incorporated under or governed by this chapter.”
• LLC member rights. In a member-managed Minnesota limited liability company, a member may, on reasonable notice, inspect and copy “any record maintained by the company regarding the company’s activities, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties under the operating agreement or this chapter.” Minn. Stat. § 322C.0410, subd. 1(1). In a manager-managed or board-managed company, subd. 2(1) provides that those rights “apply to the managers or governors and not the members,” and members get a narrower route on written demand. Under subd. 7, the company “may impose reasonable restrictions and conditions on access to and use of information to be furnished under this section.”

If your company is in federal court, Fed. R. Civ. P. 34(a)(1) uses the same words, reaching “the following items in the responding party’s possession, custody, or control.”

Control has an outer edge too. When I advised one client whose records sat on a work computer and systems the opposing company held, I explained that a party produces only documents in its possession, custody, or control. A document that existed only on the other side’s systems was not the client’s to produce, and the written response could say so.

What Must Interrogatory Answers and a Company Witness Cover About Affiliates?

Your company’s sworn interrogatory answers and its designated deposition witness must cover what is available to the company, which can be more than one signer remembers. When the people or files with the answers sit at an affiliate your company can reach, that information is part of the inquiry.

For interrogatories, Minn. R. Civ. P. 33.01(d) provides: “Answers to interrogatories shall be stated fully in writing and shall be signed under oath or penalty of perjury by the party served or, if the party served is the state, a corporation, a partnership, or an association, by any officer or managing agent, who shall furnish such information as is available.”

For a deposition of your company, Minn. R. Civ. P. 30.02(f) requires the company to “designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf.” Before or promptly after the notice or subpoena is served, “the serving party and the organization must confer in good faith about the matters for examination.” The rule adds: “The persons designated must testify about information known or reasonably available to the organization.” Initial disclosures follow the same idea under Rule 26.01(a)(5): “A party must make its initial disclosures based on the information then reasonably available to it.”

I suggest the officer who signs the answers, or the witness your company designates, talk with the affiliate personnel who handled the events before signing or testifying, because each answer is given for the company and under oath. The duty continues after service. Rule 26.05(a) requires a party to supplement a response “in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.”

How Should Your Company Respond to a Request That Reaches Affiliate Records?

Rule 34.02 requires your company to respond item by item, give specific grounds for any objection, and say whether anything is withheld on that objection. Where affiliate records are easier to get from the affiliate itself, or the request is out of proportion to the case, the rules give your company grounds to narrow it.

The form of the response comes from Minn. R. Civ. P. 34.02(c)(2): “The response shall state, with respect to each item or category, either that inspection and related activities will be permitted as requested, or state with specificity the grounds for objecting to the request, including the reasons.” Rule 34.02(c)(3) adds: “An objection must state whether any responsive materials are being withheld on the basis of that objection.” A position that your company lacks control over certain affiliate records belongs in that written response.

Three tools can narrow a request for affiliate records:

1. Proportionality. Under Minn. R. Civ. P. 26.02(b), discovery must be “relevant to any party’s claim or defense and proportional to the needs of the case.” The listed factors include “the parties’ relative access to relevant information” and “whether the burden or expense of the proposed discovery outweighs its likely benefit.”
2. A better source. Rule 26.02(b)(3) provides that discovery “shall be limited by the court if it determines that” the discovery “is obtainable from some other source that is more convenient, less burdensome, or less expensive.”
3. A protective order. Rule 26.03(a) allows an order “Upon motion by a party or by the person from whom discovery is sought, and for good cause shown,” including an order “that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way.” I explain that motion in my article on a protective order for confidential business documents.

If your company withholds an affiliate document as privileged, Rule 26.02(f)(1) requires that “the party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the privilege or protection.”

A demand for affiliate records can also arrive by letter before formal discovery starts. Before records go out in response, I suggest checking whether they are also at issue in another proceeding, such as a subpoena or an agency matter. What your company sends in answer to the letter should be consistent with what it provides in that proceeding.

When Does the Other Side Have to Subpoena the Affiliate Instead?

When records sit with an affiliate your company does not control, the other side’s route is a subpoena to the affiliate under Rule 45. The affiliate then has a nonparty’s protections, including a right to object and, where Rule 45.03(d) applies, a right to be paid for its time. Rule 45.02(b) provides that “a subpoena may be served at any place within the state of Minnesota.”

A subpoena reaches what the affiliate holds. Under Minn. R. Civ. P. 45.01(a)(3), it commands production of designated materials, including “tangible things in the possession, custody or control of that person.” Rule 45.03(b)(2) lets the person commanded to produce, “within 14 days after service of the subpoena or before the time specified for compliance if such time is less than 14 days after service, serve upon the party or attorney designated in the subpoena written objection to producing any or all of the designated materials or inspection of the premises.” I suggest checking the current rule text against the date of service. After an objection, the serving party needs a court order, and “Such an order to compel production shall protect any person who is not a party or an officer of a party from significant expense resulting from the inspection, copying, testing, or sampling commanded.”

Payment comes from Rule 45.03(d). Subject to Rules 26.02 and 26.03, it provides that “a witness who is not a party to the action or an employee of a party [except a person appointed pursuant to Rule 30.02(f)] and who is required to give testimony or produce documents relating to a profession, business, or trade, or relating to knowledge, information, or facts obtained as a result of activities in such profession, business, or trade, is entitled to reasonable compensation for the time and expense involved in preparing for and giving such testimony or producing such documents.” Rule 45.02(d) adds: “The party serving the subpoena shall make arrangements for reasonable compensation as required under Rule 45.03(d) prior to the time of commanded production or the taking of such testimony.”

The issuing party must make what the affiliate produces available to your company. Rule 45.04(a)(5) provides: “The party issuing a subpoena for production or inspection shall make available to all parties any books, papers, documents or electronically stored information obtained from any person following issuance of a subpoena to that person.” The affiliate’s own steps, from objections to a motion to quash, are covered in my article on how a nonparty objects to a subpoena.

How Do Shared Officers and Employees Change the Rules?

A person who works for both your company and an affiliate can be treated as your company’s person. The rules hold a party responsible for its officers, directors, employees, and managing agents, and three nonparty protections leave out a party’s officers or employees.

Enforcement runs through the party. Under Minn. R. Civ. P. 37.02(b), the court may sanction a failure when “a party or an officer, director, employee, or managing agent of a party or a person designated in Rule 30.02(f) or 31.01 to testify on behalf of a party fails to obey an order to provide or permit discovery.” Rule 37.04 covers the same group of people when one “fails (1) to appear before the officer who is to take the deposition, after being served with a proper notice.”

The nonparty protections are narrower:

• Travel. Rule 45.03(c)(1)(B) requires the court, on timely motion, to quash or modify a subpoena that “requires a person who is not a party or an officer of a party to travel to a place outside the county where that person resides, is employed or regularly transacts business in person,” with an exception for trial. An officer of your company does not fit that description.
• Expense. The significant-expense protection in Rule 45.03(b)(2) also runs only to “any person who is not a party or an officer of a party.”
• Payment. Rule 45.03(d) leaves out “an employee of a party [except a person appointed pursuant to Rule 30.02(f)].”

Before a shared officer answers a notice or subpoena, I suggest settling which company the person is appearing for, because the answer changes which of these rules apply.

What Preservation Duty Covers Records Held by an Affiliate?

Your company’s duty to preserve evidence begins when litigation is reasonably foreseeable. In one Minnesota Supreme Court case, plaintiffs who failed to preserve the product they claimed was defective lost the use of their expert’s evidence. I suggest extending your litigation hold to every affiliate whose records your company can reach.

The Minnesota Supreme Court described when the duty starts in Miller v. Lankow, 801 N.W.2d 120 (Minn. 2011): it arises “whenever a party knows or should know that litigation is reasonably foreseeable.” In Miller, a homeowner who had removed stucco before suing was sanctioned. The Supreme Court held that the lower courts applied the wrong test for whether his notice to the other side was sufficient. It wrote, “we reverse and remand for further proceedings consistent with this opinion,” and left the district court to “determine whether imposition of sanctions for spoliation is appropriate.”

An earlier case shows what a failure to preserve the evidence itself can cost. In Patton v. Newmar Corp., 538 N.W.2d 116 (Minn. 1995), a motor home design-defect case, the manufacturer asked to inspect the vehicle and was told its location was not known. The trial court found the plaintiffs “knew or should have known that the remains of the vehicle were important and relevant evidence which should have been preserved” and excluded the evidence derived from their retained expert’s investigation. The Supreme Court upheld that ruling. It noted that the expert’s need to remove components he later lost “attests to the inadequacy of the photographs as a foundation for expert testimony.” It reinstated summary judgment for the manufacturer because the plaintiffs’ “failure to preserve the evidence eliminates their ability to demonstrate that the defect was present at the time of or caused the fire.”

Electronic records carry their own rule. Minn. R. Civ. P. 37.05 applies “If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery.” The court then “upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice.” The harsher measures, including an adverse presumption, dismissal, or default, come “only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation.”

Because Rule 37.05 asks about your company’s reasonable steps, a litigation hold that stops at your company’s own walls can leave affiliate systems unprotected. One example is email deleted on an affiliate’s routine schedule, and I explain how lost email can become spoliation in Minnesota.

What Happens If Your Company Holds Back Records It Controls?

Withholding records your company controls, or answering as though they do not exist, invites a motion to compel and an expense award. If a court order follows and is not obeyed, sanctions can reach dismissal or default. Under Rule 37.03(a), a party that fails to provide information required by Rule 26.01 or 26.05 “is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” The same rule provides that, “In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard,” “may inform the jury of the party’s failure” and “may impose other appropriate sanctions, including any of the orders listed in Rule 37.02.”

On a motion to compel, an incomplete response counts as no response. Minn. R. Civ. P. 37.01(c) provides: “For purposes of this subdivision an evasive or incomplete disclosure, answer, or response is to be treated as a failure to disclose, answer, or respond.” That opens the door to a motion to compel.

Disobeying the resulting order is worse. Rule 37.02(b) lists the possible orders, including “(3) An order striking pleadings or parts thereof, staying further proceedings until the order is obeyed, dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party.” It also provides that “the court shall require the party failing to obey the order or the attorney advising that party or both to pay the reasonable expenses, including attorney fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.”

Where your company has a good-faith position that it lacks control over certain affiliate records, I suggest stating that position in the written response, because Rule 34.02(c)(3) already requires disclosure of what is withheld and a stated position gives the court something concrete to evaluate.

Managing Discovery Across a Group of Companies

For a Minnesota company that is a party, the affiliate question comes down to three things: what your company controls, what your company knows or can reasonably learn, and what it must preserve. For anything outside those lines, the other side must look to the affiliate itself, which as a nonparty may be compelled to produce documents as provided in Rule 45. More on how discovery fits into a larger case is on my litigation practice page. If your company is a party to a Minnesota lawsuit and a related company holds records the other side wants, email [email protected] with a brief description. Please wait for an intake and conflict check before sending discovery requests, responses, or any confidential documents.