UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
February 18, 2011
UNITED NATIONAL MAINTENANCE, INC., A NEVADA CORPORATION,
TESTIMONY OF PATRICK KENNEDY CORPORATION, INC., A CALIFORNIA CORPORATION,
The opinion of the court was delivered by: Hon. Anthony J. BattagliaU.S. Magistrate Judge United States District Court
ORDER GRANTING MOTION IN
LIMINE TO EXCLUDE FUTURE DAMAGES THEORY AND OPINION SAN DIEGO
CONVENTION CENTER [Doc. No. 136]
Defendants filed a motion in limine seeking to exclude Plaintiff's expert, Patrick Kennedy, from submitting a report or providing testimony regarding future lost profits on the grounds that the testimony is: 1) untimely disclosed and 2) unreliable, flawed and contrary to law. The Plaintiff filed an opposition and Defendants filed a reply. The hearing on the motion was held on February 17, 2011 before Judge Battaglia. Appearing on behalf of the Plaintiff was Jacob Slania and Joseph Ergastolo and Andrew Schouten appeared on behalf of Defendants. Based upon the parties moving papers, arguments made during the hearing and for the reasons set forth below, the Defendants' motion in limine to exclude the future damages opinion and testimony of Dr. Kennedy is hereby GRANTED.
Relevant Procedural Background
The instant action was filed in this Court on November 13, 2007. [Doc. No. 1.] The Court issued a Scheduling Order, [Doc. No. 64], on January 27, 2009, which set the following deadlines: Expert Reports due September 9, 2009, Rebuttal Expert Reports due September 30, 2009; Fact Discovery Cut Off August 10, 2009; Expert Discovery Cut-Off November 11, 2009; and the Pre-Trial Conference was set for April 12, 2010.
On August 21, 2009, the parties filed a joint motion for amended scheduling order. [Doc. No. 83.] The Joint Motion was granted and the following deadlines extended: Plaintiff's Expert Disclosure deadline was extended to September 30, 2009; Defendants' Expert Disclosure deadline was extended to October 21, 2009; Rebuttal Expert disclosure deadline was extended to November 12, 2009; Fact Discovery Cut-Off was extended to September 15, 2009*fn1 ; and the Expert Discovery Cut-Off was extended to December 18, 2009. [Doc. No. 84.]
On March 26, 2010, the parties filed a joint motion to vacate the pre-trial conference date, [Doc. No. 108], which was granted, [Doc. No. 109], and the pre-trial conference was reset for August 2, 2010. On June 17, 2010, the parties filed a second motion to vacate the pre-trial conference date, [Doc. No. 115], which was granted, [Doc. No. 116], and the pre-trial conference was reset for December 6, 2010.
An amended scheduling order [Doc. No. 121], was issued by the Court on August 9, 2010, which reset the pre-trial conference for November 1, 2010. The parties submitted a joint motion to continue the deadline to meet and confer pursuant to Local Rule 16.1(f)(4) from October 12, 2010 to October 25, 2010.
The parties consented to Magistrate Judge jurisdiction on October 5, 2010, [Doc. No. 127], and submitted a joint motion for order scheduling pre-trial matters on October 14, 2010, [Doc. No. 128], which was granted in an order on October 21, 2010, [Doc. No. 129], which set the pre-trial conference for February 4, 2010 and the trial date for March 21, 2011.
Under Rule 26(a)(2)(B), a party using an expert witness must disclose a report containing, inter alia, "a complete statement of all opinions to be expressed and the basis and reasons therefor." Fed. R. Civ. P. 26(a)(2)(B). The purpose of the rule is to eliminate "unfair surprise to the opposing party." Sylla-Sawdon v.Uniroyal Goodrich Tire Co., 47 F.3d 277, 284 (8th Cir.1995).
Under Federal Rule of Civil Procedure 37(c)(1), a party who fails to provide information required to be disclosed under Rule 26(a), which includes expert reports, is not allowed to use that information at a trial, unless the failure is substantially justified or is harmless.*fn2 As amended in 1993, this rule provides for automatic exclusion of expert information that was not disclosed despite the existence of an independent duty to disclose under Rule 26(a) and 26(e)(1). See Advisory Committee Notes, 146 F.R.D. 682, 691 (1993). This new sanction was "intended to put teeth into the mandatory initial disclosure requirements added by the 1993 amendments." 8A Charles Alan Wright, Arthur Miller & Richard Marcus, Federal Practice and Procedure: Civil 2d § 2289.1, at 704. A district court's decision to admit or exclude evidence under these rules is reviewed for abuse of discretion.*fn3
In ruling on the Defendants' motion in limine, the Court must consider 1) the timeliness of and explanation for the failure to disclose the evidence; 2) the potential prejudice to the opposing party in allowing the evidence; and 3) the importance of the evidence and the availability of a continuance.
I. Timeliness of Disclosure and Plaintiff's Explanation for the Failure to Disclose
Defendants argue that Patrick Kennedy's report and testimony regarding
future lost profits is untimely because: 1) Plaintiff did not mention
the future lost profits theory in its initial or supplemental
disclosures pursuant to Federal Rule of Civil Procedure 26(a)(1) or in
its initial or supplemental responses to Defendants discovery
requests; 2) future lost profits were not mentioned in any of the
three prior reports by this expert*fn4 or during his
deposition of December 23, 2009. During his deposition, the expert said, that his scope of work on the case had not changed, that
he did not anticipate offering any additional opinions*fn5
and stated that all that remained to be done was general
trial preparation and demonstrative evidence;*fn6 3)
Plaintiff did not disclose future lost profits theories in its
pretrial disclosures pursuant to Federal Rule of Civil Procedure
26(a)(3) which were due January 6, 2011; and 4) the Plaintiff's Expert
Disclosures were due on or before September 30, 2009, Rebuttal Expert
disclosure were due on or before November 12, 2009, and the Expert
Discovery Cut-Off was December 18, 2009. [Doc. No. 84.]
The Plaintiff contends that it complied with its disclosure and discovery obligations, however, the record does not support this contention. The Expert Discovery Cut-Off in this case was December 18, 2009 and Plaintiff's Expert Reports were due on or before September 30, 2009. The first mention of future lost profits that can be reliably*fn7 cited by the Plaintiff appears on the December 17, 2010, in Memorandum of Contentions of Fact and Law, [Doc. No. 133, at 27], almost a full year after the close of expert discovery. Despite Plaintiff's arguments to the contrary, production of the future lost profits report for the first time on February 1, 2011 does not comply with the disclosure standard set by Rule 26(a)(2)(B), which requires "a complete statement of all opinions to be expressed and the basis and reasons therefor." Fed. R. Civ. P. 26(a)(2)(B). At a bare minimum, the concept should have been clearly articulated, the methodology discussed and some preliminary projections of loss or the components thereof provided. Suggesting that the defense should have inferred these losses from a general statement of "lost profits" without more, would unfairly shift the burden of disclosure. Based upon the scheduling orders and deadlines set by this Court, [Doc. Nos. 64 and 84], the Court finds Plaintiff's February 1, 2011 disclosure of the Expert Report by Patrick Kennedy on Plaintiff's future lost profits was not timely.
The Plaintiff has not provided much by way of explanation for the failure to disclose the future lost profits opinion of Dr. Kennedy. The Plaintiff's contend that had Dr. Kennedy been preparing future damages estimates at the same time that he provided his first three reports,*fn8 he would have had to continually update and change his future damages estimate's start date. The Plaintiff argues that the better and more reasoned approached was to wait to perform the calculations for future lost profits until a trial date was certain. The parties were provided with a trial date on October 21, 2010, [Doc. No. 129, at p. 2], and the Plaintiff has failed to explain why they then waited until February 1, 2011 to provide the future lost profits opinion. The Court finds Plaintiff's contention that it somehow needed to wait until a trial date was set to provide this opinion to be wholly without merit. Dr. Kennedy provided an opinion on lost profits which he updated twice to take into account trade shows that occurred during the course of this litigation. The Court sees absolutely no reason why the same could not have been done for future lost profits, since Dr. Kennedy used the same methodology in calculating future lost profits as he used in his three prior reports to calculate lost profits. Since the methodology is the same, the Court sees no rational explanation for why the future lost profits opinion could not, and should not have been rendered timely.
The Plaintiff's statement that it never said is wasn't seeking future lost profits is perhaps the most telling.*fn9 Failing to articulate a basis upon which the Plaintiff plans to seek damages does not comport with the disclosure requirements of Rule 26. The federal rule is clear, as is the case law interpreting the rule. A party may not simply retain an expert and then make whatever disclosures that expert is willing or able to make notwithstanding the known requirements of Rule 26. The adverse party should not be placed at a disadvantage or be deprived of the full benefits of Rule 26 by the selection of an expert who cannot or will not make the required disclosures. The selection and retention of an expert witness is within the control of the party employing the expert. To the extent that there is a disadvantage created by the expert's failure to disclose, it must be borne by the party retaining the expert witness.
II. Plaintiff Must Demonstrate the Failure to Disclose Was Substantially Justified or Harmless
If a party fails to provide information as required by Rule 26(a) or (e), the party 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 harmless. Fed. R. Civ. P. 37(c)(1). The burden is on the party facing sanctions to prove the failure to disclose was substantially justified or harmless. Yeti By Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1108 (9th Cir. 2001).
A. Plaintiff's Justification for the Failure to Disclose
The Plaintiff argues that Dr. Kennedy could not have provided the future lost profits opinion and report sooner because the calculations begin with the trial date. However, the Court finds Plaintiff's argument preposterous because such calculations are undertaken regularly in these types of cases with only an estimated trial date and supplemented thereafter as needed if dates change. Trial dates are not typically set until the final pre-trial conference and this is true in the majority of cases in this and other districts. Not having a trial date until that time is not an extraordinary occurrence sufficient to justify the Plaintiff's failure to disclose its future lost profits theory. This argument is even less persuasive because, as set forth above: 1) Dr. Kennedy could have simply update this opinion as he did with his other opinions; and 2) the parties were provided a trial date on October 21, 2010 and the Plaintiff has not explained why they then waited until February 1, 2011 to provide the opinion. If the Court were to accept Plaintiff's justification, it would completely eviscerate the disclosure requirements of Rule 26. Based upon the foregoing, the Court finds that the Plaintiff has not demonstrated substantial justification for its untimely disclosure of Dr. Kennedy's future lost profits opinion and testimony.
It is also important to note that the February 1, 2011 report, [Doc. No. 136-2, Ex. F, at p. 133], states: "I am informed by counsel for UNM that the Court may find for UNM regarding liability but not issue an injunction against SDCC. I therefore extended my damage projections into the future, assuming that SDCC continues to operate in the manner that it has since approximately July 2007." This clearly indicates a change of position in the experts scope of work that either occurred recently or went undisclosed far too long. In either event, it cannot be substantially justified.
B. Plaintiff's Failure to Disclose Was Not Harmless
Implicit in Rule 37(c)(1) is that the burden is on the party facing sanctions to prove harmlessness. Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1107 (9th Cir. 2001). The Plaintiff contends that this late disclosure is harmless because Dr. Kennedy employed the same methodology from his previous reports for his February 1, 2011 report, so there was effectively no new methodology or unfair surprise to Defendants. The Defendants, however, argue that they have conducted no discovery with regard to prospective damages and would be severely prejudiced unless discovery were reopened to allow additional discovery concerning Plaintiff's business operations and future profitability. Defendants also state that they would request leave to obtain additional experts to rebut Dr. Kennedy's opinion and opine on trends in the convention and trade show industry. Defendants' argue that the Plaintiff's cannot show that its failure to timely disclose was substantially justified or harmless and the prejudice to Defendants is significant as there isn't time in the current schedule to complete this additional discovery and the future lost profits sought more than doubles the total damages sought by the Plaintiff.
While the Plaintiff's argument during the hearing that the additional
discovery requested by Defendants to alleviate prejudice was over
stated is not without merit, the surprise and prejudice inflicted by
Plaintiff's extremely late disclosure of this opinion cannot in any
way be categorized as harmless. This case is currently set for trial
on March 21, 2011. In the remaining 32 days between now and then, the
Court has numerous pre-trial matters yet to resolve.*fn10
This trial is expected to last at a minimum two months and
the Court has already arranged its calendar to make that time
available. Given the foregoing, there is no time to complete the
additional discovery requested by Defendants as well as the reciprocal
discovery Plaintiff has stated it would request, without continuing
the trial and interference with a trial schedule is not harmless. Wong
v. Regents of Univ. of Cal., 410 F.3d 1052, 1062 (9th Cir.
III. Importance of the Evidence and Defendants' Contention that the Opinion is Unreliable, Flawed and Contrary to Law
The Defendants have also move to exclude the future lost profits expert testimony from Dr. Kennedy as unreliable, flawed and contrary to law on the grounds that: 1) his report contains no analysis or explanation of the assumptions he made in support of his damages opinion; 2) the opinion is based upon historical records and does not make any adjustments for inflation; 3) assumes that market conditions, including the conduct of other market participants, will remain static; and 4) assumes the past three years performance would continue for the next nine years. Defendants argue that such an approach is speculative and would overestimate Plaintiffs future profits.
While the Court notes problems with the opinion, such as a complete failure to disclose the discount factor, the Court need not reach this issue as the Plaintiff's untimely disclosure is harmful and not substantially justified. The Court also noted for the record that this evidence is only of arguably marginal importance because if the Plaintiff's prayers are answered an injunction will in all likelihood issue effectively eliminating future lost profits. Finally, the potential that Plaintiff may have to file prospective lawsuits if they prevail in this case, and if they fail to receive injunctive relief from defendant's policy, while a possibility, is by plaintiff's own doing, and does not warrant or overcome the equities otherwise discussed herein.
For the reasons set forth above, Defendants' motion in limine to exclude the future damages opinion and testimony of Dr. Kennedy is hereby GRANTED and Dr. Kennedy's opinion and testimony regarding future lost profits is excluded pursuant to Federal Rule of Civil Procedure 26(a)(2)(B) and 37(c)(1).
IT IS SO ORDERED.
K:\COMMON\BATTAGLI\CASES\united national\Order.MIL.Kennedy.wpd 8 07cv2172