United States District Court, E.D. California
ALLISON CLAIRE, Magistrate Judge.
Plaintiffs James Lennane and JC Produce, LLC bring suit against Defendant American Zurich Insurance Company for breach of contract, breach of the implied covenant of good faith and fair dealing, unfair business practices in violation of California Business and Professions Code § 17200, and conversion. This matter is on for defendant's motion for sanctions. ECF No. 19. Defendant requests that the court disqualify plaintiffs' only expert witness because plaintiffs have failed to submit a timely expert report.
FACTUAL AND PROCEDURAL BACKGROUND
On April 1, 2006, Plaintiff JCP purchased a workers' compensation insurance policy ("the Policy") from Defendant. Under the Policy, Defendant agreed to pay the benefits required of Plaintiff JCP by the California workers' compensation laws. The Policy required Plaintiff JCP to reimburse Defendant for each claim, up to the deductible amount of $250, 000. Plaintiff JCP collateralized its deductible by providing Defendant with a $25, 000 "loss fund" and two standby letters of credit, in the aggregate amount of $780, 000 (the "Standby Letters"). Bank of the West (the "Bank") issued the required Standby Letters to Defendant. The Bank required Plaintiff Lennane to personally guarantee repayment of the Standby Letters, in the event that Plaintiff JCP failed to repay the Bank.
At some point in 2006, the Bank declined to renew the Standby Letters, which were set to expire. In approximately December 2006, Defendant "exercised its rights under the... Policy to present to Bank the [Standby Letters] for payment, and monetized the amount of $780, 000." Consequently, Defendant had possession of $805, 000, which it allegedly held "in trust" for Plaintiffs' benefit. Plaintiff Lennane subsequently reimbursed the Bank for its funding of the Standby Letters. In October 2008, Plaintiff JCP's business failed.
Previously, in October 2006, Hugo Arreola ("Arreola") filed a claim under the California workers' compensation laws against Plaintiff JCP. This claim was subject to the Policy, as Arreola claimed to have suffered an injury while working for Plaintiff JCP. Defendant paid "significant sums of money" to Arreola and his health care providers, under the Policy, until August 2010. Between October 2006 and December 2006, Defendant billed Plaintiff JCP under the deductible provision of the Policy for Arreola's claim. After Defendant monetized the Standby Letters in December 2006, Defendant continued to make payments to Arreola from the $805, 000 fund held by Defendant.
In June 2010, Plaintiff Lennane obtained records that suggested Arreola had concealed a prior injury which would have impacted his workers' compensation claim. Plaintiff Lennane shared the information with Defendant, which then proceeded to investigate Arreola's claim. Defendant had allegedly failed to conduct a proper investigation at the time of Arreola's original claim. On September 20, 2010, Defendant "shared with Plaintiffs, for the first time, that they had obtained sufficient information to believe Arreola was a fraudster."
ECF No. 15 at 2-4 (citations to plaintiffs' state court complaint omitted).
On September 18, 2013, plaintiffs filed a complaint in California Superior Court, Sacramento County. ECF No. 1-2 at 2-14. On November 6, 2013, defendant removed the action to this court. ECF No. 1. On January 9, 2014, the court issued a pretrial scheduling order. ECF No. 12. That scheduling order required that expert witness disclosures be made by December 5, 2014. Id. at 3. The order further states that
Failure of a party to comply with the disclosure schedule as set forth above in all likelihood will preclude that party from calling the expert witness at the time of trial absent a showing that the necessity for the witness could not have been reasonably anticipated at the time the disclosures were ordered and that the failure to make timely disclosure did not prejudice any other party. See Fed.R.Civ.P. 37(c).
Id. The scheduling order also required that all discovery be complete by February 6, 2015, and all dispositive motions be filed by April 18, 2015. Id. at 2, 3. The order also schedules the final pre-trial conference for June 12, 2015, and the trial for July 20, 2015. Id. at 4, 5.
On February 10, 2014, the court dismissed three of plaintiffs' causes of action without leave to amend, leaving breach of contract, breach of the implied covenant of good faith and fair dealing, unfair business practices in violation of California Business and Professions Code § 17200, and conversion as the remaining causes of action. ECF No. 15. On December 5, 2014, defendant served plaintiffs with its disclosure of expert witnesses and expert witness reports. ECF No. 19 at 2. On the same day plaintiffs served defendant with their own disclosure of expert witnesses, but neglected to provide expert witness reports. ECF No. 19 at Ex. A. Plaintiffs' expert witness designation included two individuals, "Malcom Morgan, CPA" and "Eric E. Frye, Esq." Id.
On January 27, 2015, defendant filed the instant motion for sanctions, requesting that the court disqualify plaintiffs' expert witness for failure to produce a timely expert report. ECF No. 19 at 1. Defendant argues that plaintiffs' experts should be stricken because by failing to file expert reports alongside their expert witness disclosures plaintiffs have violated both Rule 37 and the court's scheduling order. Id. at 4-5. On January 30, 2015, plaintiffs filed an opposition arguing that defendant's motion for sanctions should be denied for failure to comply with Local Rule 230. ECF No. 21. On February 6, 2015, the court directed plaintiffs to respond to defendant's motion in accordance with Local Rule 251(e), not Local Rule 230, and continued the hearing set for defendant's motion. ECF No. 24.
On February 11, 2015, plaintiffs filed an opposition conceding that they failed to produce timely expert reports in violation of Federal Rule 37 and the court's scheduling order. ECF No. 26 at 8. According to plaintiffs, they failed to timely produce these expert reports because of a computer error that erased all reminders of upcoming deadlines for this case. Id. at 7. Plaintiffs' opposition argues that its failure was (1) substantially justified in light of the unavoidable and unexpected computer error that caused it, and (2) harmless because this matter is not set for trial until July 20, 2015, leaving the ...