Proactive Imaging, LLC d/b/a Minnesota Radiology, Plaintiff,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-1130

Proactive Imaging, LLC d/b/a Minnesota Radiology,
Plaintiff,

Dr. Gail Tasch, et al.,
Appellants,

vs.

Timothy J. Peters, et al.,
Respondents.

Filed May 6, 2019
Reversed
Jesson, Judge

Hennepin County District Court
File No. 27-CV-17-3924

Scott A. Johnson, Todd M. Johnson, Johnson & Johnson Law LLP, M innetonka,
Minnesota (for appellants)

Steven W. Kranz, Peters Law Firm, PLC, Minneapolis, Minnesota; and

Rhett A. McSweeney, McSweeney/Langevin, Minneapolis, Minnesota (for respondents)

Considered and decided by Johns on, Presiding Judge; Ross, Judg e; and Jesson,
Judge.

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U N P U B L I S H E D O P I N I O N
JESSON, Judge
Appellants Dr. Gail Tasch and Clarence Ramsey challenge the district court’s order
awarding attorney fees to respondents Timothy J. Peters and Pet ers Law Firm, PLC as a
discovery sanction under Minnesota Rule of Civil Procedure 37.01(d)(2). The district court
denied appellants’ motion to compel respondents to produce bill ing records related to a
claim of aiding and abetting fraud, and it found that their req uest was not substantially
justified. Because the district court clearly erred in finding that appellants’ discovery
request was not substantially justified, we conclude the distri ct court’s decision was an
abuse of discretion and reverse.
FACTS
Appellants Dr. Gail Tasch and Clarence Ramsey purchased Proactive Imaging LLC
(Proactive) in April 2013. Pro active is a diagnostic imaging s ervice company previously
owned by Physicians First Choice LLC (Physicians First), which was owned by Patrick
Bartner and Angel Soto.1
During the three years before the sale, Proactive was a defenda nt in a civil lawsuit
(the AAA litigation) in which it was accused by AAA Auto Club o f participating in a
Medicare and Medicaid insuranc e fraud scheme involving illegal kickbacks in exchange
for patient referrals as well as theft by swindle. But the AAA litigation was settled on
February 1, 2013. The settlement was acknowledged by the court on February 4, 2013,

1 Bartner and Soto are not parties to this appeal.

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and the parties signed a formal, written settlement agreement i n late March 2013. The
terms of the settlement required Proactive to pay the AAA plain tiffs $100,000 and waive
its right to payment of all outstanding invoices.
Prior to purchasing Proactive in April 2013, appellants learned of the existence of
the AAA litigation. 2 According to appellants, they were told that the lawsuit was not
against Proactive, but instead against Bartner and Soto personally, and that all claims had
been settled.
In March 2013, appellants and Physicians First executed a purch ase agreement for
all membership units of Proac tive for $2.5 million. Respondent s, attorney Timothy J.
Peters and Peters Law Firm, PLC, represented Physicians First in the sale and finalized the
amended purchase agreement after receiving a draft from appella n t s ’ a t t o r n e y s . I t i s
undisputed that respondents knew of the AAA litigation as of January 22, 2013 because on
that day respondents received a disc from Proactive’s AAA litigation counsel that included
the pleadings, discovery, deposition transcripts, and court rulings in the AAA litigation.
Paragraph 16(k) of the amended purchase agreement, drafted by r espondents,
contained the following language:
No litigation is pending, or has been threatened, against the
Company and no claims of a legal or equitable nature have
been asserted or, to their knowledge, threatened against the
Company or any assets owned by the Company, nor are there
any proceedings involving the Company threatened by or
pending before any federal, state or municipal government, or
any department, board, body or agency thereof.

2 The sales packet about Proactive included a statement that a legal action was pending or
threatened, with no further explanation.

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(Emphasis added.)
Appellants contend that they inte rpreted this statement to be a n assurance that no
prior litigation had ever been asserted against Proactive. Res pondents maintain that the
representation was truthful and therefore did not constitute a breach of duty or a violation
of disclosure laws.
The sale closed in late April 2013. Proactive’s revenues declined after the sale, and
in November 2014 appellants initiated a lawsuit against Bartner, Soto, and Physicians First
alleging fraud and negligent misrepresentation in the sale of P roactive. Among other
allegations, they asserted that Proactive’s revenues were infla ted by the fraud scheme
outlined in the AAA litigation and that Proactive’s owners had misrepresented the litigation
as a personal lawsuit rather than a lawsuit against the company.
In April 2016, appellants settled their lawsuit against Bartner, Soto, and Physicians
First. But a year later, they sued respondents for legal malpr actice, fraud, breach of
fiduciary duties, and negligent misrepresentation with regard t o the sale of Proactive,
contending that respondents know ingly assisted Bartner, Soto an d Physicians First in
misrepresenting and concealing the nature of the AAA litigation during the sale. Central
to their claim was paragraph 16(k) of the amended purchase agreement. In July 2017, the
district court dismissed all of appellants’ claims against resp ondents except for the claim
of aiding and abetting fraud.
During the pendency of this law suit appellants served discovery requests on
respondents that asked for pro duction of billing statements, in voices, time sheets, and
descriptions of work respondents performed for Bartner, Soto, a nd Physicians First from

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January 1, 2010 through June 1, 2014. Respondents objected to the production of such
documents from before the sale of Proactive, claiming that the discovery sought was
irrelevant or privileged. Appellants moved to compel discovery on a significantly
narrowed portion of the documents, which consisted of just one year of billing statements
related to the sale of Proactive.
In a January 2018 order, the district court denied appellants’ motion to compel
discovery, deeming the documents irrelevant to their claims bas ed on Minnesota Rule of
Civil Procedure 26.02. Specifically, the district court determined that the billing statements
would not help prove that respondents had knowledge of the AAA litigation prior to closing
the Proactive sale, and therefore could have little or no importance in resolving any issues
in this case. The district court then found that the motion to compel was not substantially
justified under Minnesota Rule of Civil Procedure 37.01(d)(2) a nd ordered appellants to
pay respondents $5,739.50 in attorney fees and costs incurred in opposing the motion. This
appeal follows.
D E C I S I O N
The sole issue before us is whether the district court abused i ts discretion when it
found that appellants’ motion to compel a year of respondents’ billing records lacked
substantial justification. We review a district court’s decisi on to award attorney fees for
an abuse of discretion. Brickner v. One Land Dev. Co., 742 N.W.2d 706, 711 (Minn. App.
2007), review denied (Minn. Mar. 18, 2008). And we further note that “a district c ourt
abuses its discretion by making findings unsupported by the evidence, misapplying the law,

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or reaching a clearly erroneous conclusion that is contrary to logic and the facts on record.”
Johnson v. Johnson, 902 N.W.2d 79, 84 (Minn. App. 2017).
Minnesota Rule of Civil Procedure 37 empowers district courts t o issue orders
compelling discovery and impose sanctions if those orders are not followed. Minn. R. Civ.
P. 37.01, .02. And rule 37.01 requires the district court to a ward reasonable attorney fees
to the nonmoving party for defending against a motion to compel discovery if the court
denies the motion and finds that it was not substantially justi f i e d . M i n n . R . C i v . P .
37.01(d)(2).3 The rule states:
If the motion is denied, the cou rt . . . shall, after affording an
opportunity to be heard, requi re the moving party or the
attorney filing the motion or both of them to pay to the party or
deponent who opposed the moti on the reasonable expenses
incurred in opposing the motion, including attorney fees,
unless the court finds that the making of the motion was
substantially justified or that other circumstances make an
award of expenses unjust.

Id.
Here, the district court’s finding that appellants’ request was not substantially
justified, and its subsequent im position of sanctions, hinged o n its underlying ruling that
the documents appellants sought—one year of billing statements—were not relevant. They
were not relevant, the district court determined, because they were sought to prove
respondents’ knowledge of the AAA litigation but respon dents had already admitted thi s
was the case: before drafting paragraph 16(k) of the purchase a greement—which stated

3 A discovery request is substantially justified when it is “jus tified to a degree that could
satisfy a reasonable person.” Pierce v. Underwood, 487 U.S. 552, 565, 108 S. Ct. 2541,
2550 (1988).

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that no legal claims had been threatened or asserted—respondent s knew of the AAA
litigation.
This relevancy determination, which is at the heart of the dist rict court’s sanction,
is based upon an erroneous view of the law. Minnesota Rule of Civil Procedure 26.02(b)
allows parties to “obtain discovery regarding any nonprivileged matter that is relevant to
any party’s claim or defense and proportional to the needs of the case.” Relevant evidence
is “evidence having any tendency to make the existence of any fact that is of consequence
to the determination of the action more probable or less probable than it would be without
the evidence.” Minn. R. Evid. 401.
How are the billing records argua bly relevant? We begin with t h e p r e m i s e t h a t
appellants had a colorable claim for aiding and abetting fraud based upon the alleged
misrepresentation in paragraph 16(k), which respondents drafted. That is why the district
court dismissed appellants’ other legal claims, but not this on e.4 And to establish a claim
for aiding and abetting the tortio us conduct of another, “(1) t he primary tortfeasor must
commit a tort that causes an injury to the plaintiff; (2) the d efendant must know that the
primary tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must
substantially assist or encourage the primary tortfeasor in the achievement of the breach.”

4 The district court further recognized in its order granting re spondents’ motion for
summary judgment that appellants had a colorable argument regarding the meaning of the
terms in the purchase agreement. The only language at issue was paragraph 16(k). While
the district court concluded th at appellants’ interpretation of p a r a g r a p h 1 6 ( k ) w a s “ n o t
reasonable,” it stated that this conclusion did not make the argument “frivolous.” We note
that appellants did not appeal the district court’s grant of su mmary judgment and this
appeal is limited to the assessment of attorney fees against th em for seeking the billing
records.

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Witzman v. Lehrma n, Lehrman & Flom , 601 N.W.2d 179, 187 (Minn. 1999) (emphasis
added).
It is the third element necessary to prove aiding and abetting the tortious conduct of
another—substantial assistance—that makes the billing records relevant. Did respondents
“substantially assist or encourage” Bartner and Soto’s alleged fraud? Appellants asserted
before the district court that the billing records could lead to information about the number
of times respondents met with Bartner and Soto during the draft ing of paragraph 16(k);
how many phone conferences they had; how long the calls lasted; and whether Bartner and
Soto were billed for creating multiple drafts of the paragraph. This information could tend
to prove, they asserted, whether respondents substantially assisted Bartner and Soto in the
perpetration of the alleged fraudulent representation of the status of the AAA litigation.
We agree with appellants. The d istrict court narrowly focused on the proof of
respondents’ knowledge of the AAA litigation. It did not addre ss the potential relevance
of the billing records to the ele ment of providing substantial assistance to the alleged
fraudulent behavior. Because the billing-statements request could reasonably have led to
the admissibility of relevant evidence, it was substantially justified.
Still, respondents argue that the request for billing records w as not substantially
justified because respondents had already admitted to knowledge of the AAA litigation in
deposition testimony. But this t estimony wavered in respect to how much respondents
knew about the AAA litigation. Spe cifically, respondent Peters admitted in a deposition
to knowledge that “claims of a legal nature” had been asserted against Proactive prior to
the April 2013 sale, but then later stated that “[n]o claims ha d been asserted” against

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Proactive. Similarly, respondent Peters claimed in deposition testimony and in affidavits
to the district court that no one at Peters Law Firm had review ed the AAA litigation
documents provided by Proactive’s counsel in January 2013, but later admitted to
reviewing the summary-judgment briefs.
But whether respondent Peters’ testimony about his knowledge wa vered is beside
the point. Regardless of whether or not respondents had defini tively admitted to
knowledge of the existence and substance of the AAA litigation, and while the billing
records would perhaps be cumulative evidence of such knowledge, they remain clearly
relevant to proving the substantia l assistance element of aidin g and abetting fraud.
Accordingly, the district court erred in awarding attorney fees based on a finding that
appellants’ request was not substantially justified.
Reversed.