Opinion
No. 01 Civ. 1047 (AJP)
September 19, 2002
OPINION AND ORDER
Presently before the Court is the motion of defendant Yamaha Motor Corporation, U.S.A. ("YMUS") to strike the affidavits and testimony of two Fleet witnesses, Martha Cassidy (a fact witness) and Shawn Halladay (an expert witness). (Dkt. No. 67.) Fleet submitted affidavits from these two witnesses in opposition to YMUS's summary judgment motion on Fleet's "disguised financing" claim. For the reasons set forth below, YMUS's motion is DENIED as to Cassidy and GRANTED as to Halladay.
The parties' cross-motions for summary judgment on Fleet's conversion and contract claims (Dkt. Nos. 37 42) and YMUS's summary judgment motion on Fleet's "disguised financing" claim (Dkt. No. 56) will be addressed in separate Opinions.
BACKGROUND
Martha Cassidy is a former director of Bruedan Corporation, member of Bruedan's Audit Committee, and managing director of Madison Investment Partners, Bruedan's parent company. (Dkt. No. 52: Cassidy 1/9/02 Aff. ¶¶ 1, 4.) Ms. Cassidy's affidavit set forth facts about Bruedan's accounting for the transactions at issue, including the advice that Bruedan and/or Madison received from accountants as to whether the transactions could be accounted for as "sales" or "financing transactions" under generally accepted accounting principles ("GAAP"). (Cassidy 1/9/02 Aff. ¶¶ 8-24.)Shawn Halladay submitted an expert affidavit, dated January 18, 2002, for Fleet in opposition to YMUS's summary judgment motion on Fleet's "disguised financing" claim, in which Halladay opined that "[b]ased on general GAAP, specific accounting pronouncements, and SEC guidance, Bruedan is precluded from treating these transactions as sales because it retains substantial risks and rewards of ownership. Bruedan should, therefore, properly reflect the transactions as financings." (Dkt. No. 53: Halladay 1/18/02 Aff. ¶ 29; see also id. ¶¶ 6-28.)
YMUS seeks to strike these affidavits and preclude Cassidy and Halladay from testifying on the summary judgment motion or at trial, on the ground that they were not identified in Fleet's mandatory disclosure pursuant to Fed.R.Civ.P. 26(a). (Dkt. No. 68: YMUS 2/7/02 Strike Br. at 1-3.) Fleet concedes that it did not identify these witnesses in its Rule 26(a) mandatory disclosure, but claims that (a) YMUS knew of Cassidy's identity and level of involvement from deposition testimony, and in fact YMUS relied on memoranda written to Cassidy in its summary judgment submissions, and (b) "the time for expert disclosures has not passed." (Dkt. No. 72: Fleet 2/22/02 Strike Opp. Br. at 1-4.)
ANALYSIS
As amended effective December 2000, Rule 26(a)'s mandatory disclosure provision requires parties to provide, inter alia, "the name . . . of each individual likely to have discoverable information that the disclosing party may use to support its claims or defenses, unless solely for impeachment, identifying the subjects of the information." Fed.R.Civ.P. 26(a)(1)(A). The Advisory Committee Notes to the 2000 Amendment make clear that: "`Use' includes any use . . . to support a motion, or at trial." The 2000 Advisory Committee Notes also make clear that "Subdivision [26](e)(1) . . . requires supplementation if information later acquired would have been subject to the [Rule 26(a)(1) mandatory] disclosure requirement" and "[t]he obligation to disclose information the party may use connects directly to the exclusion sanction of Rule 37(c)(1)."
Rule 37(c) provides an almost automatic sanction for a failure to disclose under Rule 26(a):
(1) A party that without substantial justification fails to disclose information required by Rule 26 (a) or 26(e)(1), or to amend a prior response to discovery as required by Rule 26(e)(2), is not, unless such failure is harmless, permitted to use as evidence at trial, at a hearing, or on a motion any witness or information not so disclosed.
Fed.R.Civ.P. 37(c)(1). The 1993 Advisory Committee Notes make clear that "unduly harsh penalties" can and should be avoided:
Limiting the automatic sanction to violations "without substantial justification," coupled with the exception for violations that are "harmless," is needed to avoid unduly harsh penalties in a variety of situations: e.g., the inadvertent omission from a Rule 26(a)(1)(A) disclosure of the name of a potential witness known to all parties;. . . .Cassidy
It is clear that as to Ms. Cassidy, Fleet violated Rules 26(a) and 26 (e). Even if Fleet did not know at the time of its initial Rule 26(a) disclosure that it might rely on Cassidy's testimony, Fleet had an obligation under Rule 26(e) to amend its mandatory disclosure once it decided that it might rely on Cassidy's testimony. The issue is whether this failure was "harmless." Fed.R.Civ.P. 37(c)(1). YMUS concedes that it was aware of Ms. Cassidy's identity and her position at Bruedan. (See Dkt. No. 74: YMUS 2/27/02 Reply Strike Br. at 3.) YMUS claims, however, that it was lulled into not deposing her:
[B]ecause of Fleet's failure to identify Ms. Cassidy as an individual it may use to support its claims, YMUS was deprived of the notification that would have alerted it to Ms. Cassidy's potential "use" as a witness by Fleet. Such notification would have provided reason to notice her deposition, which reason was not otherwise present. Fleet's failure to disclose Ms. Cassidy as a witness it intended to use took her off the radar screen as a potential Fleet witness.
(Id. at 4.)
"In determining [whether] sanctions are to be applied, the court should look to [inter alia] the ability of the opposing party to formulate a response." 6 Moore's Federal Practice § 26.132[2] at p. 26-304. Here, YMUS had, and still has, an agreement with Bruedan that allows YMUS to interview Bruedan employees (see Dkt. No. 73: Amato 2/22/02 Aff. ¶ 5 Ex. D, ¶ 10), and Cassidy's affidavit seems largely repetitive of information found in the parties' depositions of Bruedan's employees and outside accountants. As Prof. Moore has explained, "a failure to disclose witness information is `harmless' if the other party was well aware of the identity of the undisclosed witness and the scope of their knowledge well before trial." 6 Moore's Federal Practice § 26.27[2][d] at p. 26-93.
Accordingly, while Fleet technically violated Rules 26(a) and 26(e) as to Ms. Cassidy, its error was "innocent" and harmless. The Court therefore denies YMUS's motion to strike Ms. Cassidy's testimony. Halladay
The Court's denial of YMUS's motion to strike does not mean that the Court will consider hearsay (or other inadmissible testimony) from Cassidy in ruling on the pending summary judgment motion or at trial.
In contrast, Fleet does not claim that YMUS was aware of Fleet's accounting expert, Halladay; rather, Fleet claims that "the time for expert disclosures has not yet passed in this case." (Dkt. No. 72: Fleet Strike Opp. Br. at 2; see also id. at 3-4.) Fleet's position is that the Court did not set a date for expert disclosure and therefore the "default" of ninety days before trial set by Fed.R.Civ.P. 26(a)(2)(C) applies. (Dkt. No. 72: Fleet Strike Opp. Br. at 3.) Fleet simply is mistaken — the Court did set a discovery cutoff date for all discovery.
Judge Daniels, to whom the case was then assigned, ordered that "all discovery shall be commenced in time to be completed by October 11, 2001," and set a date for summary judgment motions for one month thereafter and a trial ready date for January 7, 2002, three months after the discovery cutoff date. (Dkt. No. 15: 5/3/01 Order.) After the parties consented to my handling of the case pursuant to 28 U.S.C. § 636 (c) (Dkt. No. 31), by agreement of the parties I extended the discovery cutoff and summary judgment motion dates. (See, e.g., Dkt. Nos. 33, 34, 36.) None of those requests, or the Court's orders, "carved out" expert discovery. Thus all discovery closed, pursuant to Judge Daniels' and my orders, before the filing of the summary judgment motions.
The Court notes that its practice is to complete all discovery before the filing of summary judgment motions so that, if the motion is denied, the case is ready to proceed to trial. It would make no sense here to have expert disclosure after a summary judgment motion that involves expert opinions.
Even if Fleet thought the expert cutoff applied only to fact discovery and the ninety day before the trial ready date "default" mechanism of Rule 26(a)(2)(C) applied, Fleet is incorrect that no trial ready date was set. See Dkt. No. 72: Fleet Strike Opp. Br. at 3.) Judge Daniels' May 3, 2001 Scheduling Order set a trial ready date of January 7, 2002. (Dkt. No. 15: 5/3/01 Order ¶ 8.) That date was never requested to be extended by the parties nor extended by the Court. Thus, the "default" deadline for expert reports, not coincidentally, would have been the original October 2001 discovery cutoff date, long before the January 18, 2002 date of Halladay's expert affidavit (Dkt. No. 53).
YMUS was deprived of a chance to take the deposition of Fleet's expert or to retain an expert of its own to rebut Fleet's accounting expert. YMUS clearly was prejudiced, and thus Fleet's failure to disclose that it had an expert and the substance of his testimony was not harmless. See e.g., 6 Moore's Federal Practice § 26.27[2][d] at p. 26-92 ("Thus, if party's failure to disclose that an expert witness would testify to a certain opinion would cause the other parties prejudice because of a lack of time to prepare to refute the opinion . . ., the nondisclosure is not `harmless,' and exclusion of the opinion is proper."). Moreover, preclusion is not too harsh a remedy, since Halladay's expert opinion is not crucial to Fleet's case (to the extent accounting treatment is relevant to the issues before the Court, the advice that Bruedan received from its accountants is much more significant than a similar, after-the-fact expert opinion).
In short, Fleet's argument as to expert discovery fails as a matter of fact and as a matter of common sense. Since Fleet's error as to Halladay was not harmless, his testimony is precluded.
CONCLUSION
For the reasons stated above, YMUS's motion to disqualify and strike (Dkt. No. 67) is DENIED as to Cassidy and GRANTED as to Halladay.
SO ORDERED.