General Steel Domestic Sales, LLC v. Chumley et al

Filing 536

ORDER; Defendants Ethan Chumley and Armstrong Steel Corporations (sic) Motion to Strike Plaintiff General Steels Untimely Supplemental Expert Disclosure of Gregory B. Taylor, or for Alternative Relief 511 is DENIED, by Magistrate Judge Kathleen M. Tafoya on 6/2/15.(morti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Kathleen M. Tafoya
Civil Action No. 13BcvB00769BMSKBKMT

GENERAL STEEL DOMESTIC SALES, LLC, d/b/a GENERAL STEEL CORPORATION, a
Colorado limited liability company,
Plaintiff,
v.
ETHAN DANIEL CHUMLEY, individually,
ATLANTIC BUILDING SYSTEMS, LLC, a Delaware corporation, doing business as
ARMSTRONG STEEL CORPORATION,
PRQ INTERNET KOMMANDITBOLAG (LIMITED PARTNERSHIP) doing business as PRQ
INET KB, and
GOTTFRID SWARTHOLM, individually,
Defendants.

ORDER
This matter is before the court on “Defendants’ Ethan Chumley and Armstrong Steel
Corporation’s (sic) Motion to Strike Plaintiff General Steel’s Untimely Supplemental Expert
Disclosure of Gregory B. Taylor, or for Alternative Relief” (“Mot.”) [Doc. No. 511] filed April 7,
2015. “Plaintiff General Steel’s Response to Defendants’ Motion to Strike General Steel’s
Supplemental Expert Disclosure of Gregory B. Taylor, or for Alternative Relief (CM-ECF # 511)”
(“Resp.”) [Doc. No. 526] was filed on May 1, 2015 and Defendants’ Reply was filed on May 18,
2015. [Doc. No. 529.]

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General Steel timely disclosed its accounting/financial expert, Gregory B. Taylor, on May
14, 2014. (Mot., Ex. A.) In his initial report Mr. Taylor set forth his opinion regarding General
Steel’s claimed remedy of disgorgement of profits. Mr. Taylor relied upon, among other things,
Armstrong’s disclosed profits for 2012, estimated profits for 2013 and 2014, and Mr. Chumley’s
disclosed compensation for 2012 and estimated compensation for 2013 and 2014. (Mot., Ex. A,
Sch. 4.) The report also included a category of damages for a search engine optimization
employee to work for General Steel to remediate Defendants’ alleged false advertising. (Mot.,
Ex. A, ¶ 14.) Mr. Taylor requested review of certain other financial documents from Atlantic
Building Systems, Mr. Chumley and Armstrong Steel, also set forth on Schedule 4. (Id.) On
May 27, 2014, Armstrong Steel satisfied some of Mr. Taylor’s requests including provision of its
profit & loss and balance statements for January 2013 through March 2014 and general ledger
statements for October 2013 through May 2014. (Mot. at 3.) On November 7, 2014, Armstrong
Steel produced updated profit and loss statements and balance sheets “before Armstrong’s Rule
30(b)(6) deposition on Armstrong’s financials.” (Id.)
It is not clear from this statement whether the November documents were produced in this
case as supplemental or voluntarily produced financial information or in Armstrong Steel/General
Steel case 14-cv-01932-REB-CBS, or both cases. Later in the motion Armstrong Steel avers
that Mr. Taylor’s supplemental report calculating Armstrong’s profits for 2012-2014 and
estimated profits for 2015 and calculating Mr.Chumley’s compensation for these same time
periods relies on “general ledgers, P&L statements, and balance sheets produced in other litigation
involving General Steel and Armstrong in this Court, Case No. 14-cv-1932.” (Mot. at 3-4.) Since
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the information would be the same regardless of the case, the court infers the information was
produced pursuant to discovery obligations in both cases. Material affecting damages is
obviously relevant pursuant to Fed. R. Civ. P. 26, and parties have a duty to supplement not only
documentary discovery responses, but also testimonial evidence such as that given by a Rule
30(b)(6) witness on Defendants’ financials.
Mr. Taylor’s May 2014 expert report explicitly expressed the expert’s intent to update his
calculations as future information became available. The report states
Based on the limited information produced by Armstrong Steel in its 2013 general
ledgers, we are unable to determine at this time the approximate profits for 2013
and 2014 that would need to be disgorged . . . . We expect to update such
calculations when information is provided by the defendants.
(Mot., Ex. A at 7, ¶ 13; see id. at 8, “We will update these computations if we receive additional
information concerning this matter.”) On February 24, 2015, such an updated supplemental
report was produced by Mr. Taylor. (Mot., Ex. B.)
Armstrong Steel now seeks to strike the supplemental report claiming it was untimely and
that the untimely production was neither substantially justified nor harmless. As an alternative to
striking the expert, Armstrong Steel seeks leave to depose Mr. Taylor and/or to disclose a new
rebuttal expert to the supplemental information and/or to file a Rule 702 motion, all to ameliorate
the prejudice it claims.
Federal Rule of Civil Procedure 26(e)(2) provides
For an expert whose report must be disclosed under Rule 26(a)(2)(B), the party’s
duty to supplement extends both to information included in the report and to
information given during the expert’s deposition. Any additions or changes to this
information must be disclosed by the time the party’s pre-trial disclosures under
Rule 26(a)(3) are due.
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Fed. R. Civ. P. 26(a)(3)(B) provides, “Unless the court orders otherwise, these disclosures must be
made at least 30 days before trial.” Further, pursuant to D.C.COLOLCivR 26.1(b), “Disclosures
under Fed. R. Civ. P. 26(a)(3) shall be made in the proposed final pretrial order . . . .” Chief Judge
Krieger has not yet set a final pretrial conference in this case and therefore no final pretrial order is
yet due. Likewise, Chief Judge Krieger has not set this matter for trial. Therefore, the
supplemental report is timely under the Rules.
Rule 26(e)(1) permits -- indeed requires -- that an expert supplement his report and
disclosures in certain circumstances. Those circumstances are when the party or expert learns the
information previously disclosed is incomplete or incorrect in some material respect. See Fed. R.
Civ. P. 26(e); Jacobsen v. Deseret Book Co., 287 F.3d 936, 953–54 (10th Cir. 2002). This
provision is “not intended to provide an extension of the expert designation and report production
deadlines” and may not be used for this purpose. Metro Ford Truck Sales, Inc. v. Ford Motor
Co., 145 F.3d 320, 324 (5th Cir.1998). Permissible supplementation under the Rules instead
“means correcting inaccuracies, or filling the interstices of an incomplete report based on
information that was not available at the time of the initial disclosure.” Cook v. Rockwell Intern.
Corp., 580 F. Supp. 2d 1071, 1169 (D. Colo. 2006)(citing Keener v. United States, 181 F.R.D. 639,
640 (D. Mont. 1998)); Beller v. United States, 221 F.R.D. 689, 694–95 (D.N.M. 2003). A party
may also be ordered by the court to supplement or correct an expert’s disclosure to include
information thereafter acquired. See Fed. R. Civ. P. 26(e); Cook, id.
“A plain reading of Fed. R. Civ. P. 26(e)(1) suggests that a supplemental expert report
should be based upon additional or corrective information that was not available at the time of the
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expert’s original report.” SEC v. Nacchio, No. 05–cv–00480–MSK–CBS, 2008 WL 4587240, at
*3 (D. Colo. Oct.15, 2008) (citing Minebea Co. v. Papst, 231 F.R.D. 3, 6 (D.D.C. 2005) (stating
that Rule 26(e)(1) “permits supplemental reports only for the narrow purpose of correcting
inaccuracies or adding information that was not available at the time of the initial report”)). See
also Scholl v. Pateder, Case No. 09-cv-02959-PAB-KLM, 2012 WL 2360542, *3 (D. Colo. June
20, 2012)
Mr. Taylor is Plaintiff’s accounting or economic expert not only in this action but also in
Civil Action No. 14-cv-01932-REB-CBS, and was Plaintiff’s expert in Civil Action
10-cv-01398-PAB-KLM, now concluded. In all three of these cases, Mr. Taylor offers expert
opinion testimony concerning the proper amount of disgorgement damages General Steel should
be awarded if it prevails on Langham Act claims in this, or in the other, active federal case.
Plaintiff asserts that Mr. Taylor’s methodology was and is the same in all three cases (Resp. at 2),
and the court’s side-by-side comparison of the May 14, 2014 initial report with the February 24,
2015 supplement confirms that Mr. Taylor continues to use the same general theory for calculation
of damages and has only updated the raw data provided by Defendant for recent time periods in the
supplemental report. The updated February 2015 report therefore simply substitutes Armstrong
Steel’s reported financial information for that which was merely estimated in May of 2014 and
incorporates factual events transpiring subsequent to his May 2014 report.
Even if the information provided by Armstrong Steel to General Steel in November 2014
was only submitted in 14-cv-01932-REB-CBS, rather than in both cases, this court finds the
argument to be one of form over substance. Both cases involve the same parties, the same
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attorneys, the same issues, the same damages and the same expert witness for General Steel. The
supplemental expert report at issue here was submitted by Mr. Taylor in February 2015 in case
14-cv-01932-REB-CBS as well as in this case. Both reports in both cases are identical, except for
the cover page. (Mot. at 4.) Mr. Taylor’s May 2014 report filed in this case was based upon
information provided in discovery and would be subject to a requirement of supplementation in
any event to calculate potential damages as of the date of trial. Defendants do not and cannot
assert that the information they provided in 14-cv-01932-REB-CBS was somehow different in that
case compared to this case; the financial and tax data of the Defendants simply is what it is.
The court finds that the Defendants have suffered no prejudice by the filing of Mr. Taylor’s
supplemental report in this case and therefore no remedies are appropriate. It appears that
Defendants declined to depose Mr. Taylor after his initial May 2014 report was filed. The court
finds that Defendants’ instant claim of prejudice is simply gamesmanship to allow them a chance
to now depose Mr. Taylor long after the time for such a deposition has passed. Further, if the
defendants designated a rebuttal expert as a result of Mr. Taylor’s disclosure in May 2014, that
expert might be able to file his or her own supplementation, if otherwise appropriate. However,
to allow Defendants to suddenly disclose a wholly new rebuttal expert is not appropriate.
The court is puzzled by the Defendants’ request to file a Fed. R. Evid. 702 motion even if
there were any prejudice found by the court. The expert is the same person as was originally
disclosed, applying the same methodology to the financial data provided by the defendants. His
preparation of a supplemental report reflecting updated financial data provided by the defendants
does not trigger anything new. Defendants’ right to challenge this expert through Fed. R. Evid.
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702 remains unchanged by the supplemental report. However, the Trial Preparation Order in this
case issued by Chief Judge Krieger [Doc. No. 158] provides, “The deadline in the Scheduling
Order for the filing of dispositive motions shall also be the deadline for parties to file motions
challenging the foundational requirements of opinion testimony under Fed. R. Evid. 702.” (Id. at
2.) The dispositive motion deadline in this case was February 13, 2015. (Minutes of January 14,
2015 [Doc. No. 478].) The defendants did not file a Rule 702 challenge to Mr. Taylor or his
methodology underlying his opinions on or prior to that date.
In conclusion, the court’s inspection of Mr. Taylor’s supplemental report demonstrates that
the review of Armstrong Steel’s and Ethan Chumley’s business and tax records and inclusion of
the information stated therein in a supplemental report was not only reasonable, but also required
by Rule 26(e)(2). The information came into Mr. Taylor’s possession legitimately and had the
same value and relevance to the same issues in both cases. The expert was therefore compelled to
prepare a supplemental report with the newly acquired evidence. See, e.g., Pease v. Lycoming
Engines, No. 4:10–cv–00843, 2012 WL 162551, at *8 (M.D. Pa. Jan.19, 2012) (finding an
obligation to supplement initial disclosures with tax returns demonstrating “lost earning
capacity”); In re EBW Laser, Inc., Bankr.No. 05–10220C–7G, 2010 WL 2382940, at *7
(M.D.N.C. June 14, 2010) (finding diligence when counsel acted promptly by obtaining tax
returns, providing returns to expert witnesses, and providing supplemental reports and tax returns
to opposing counsel within six months); Harris Wayside Furniture Co. v. Idearc Media Corp., No.
06–cv–392–JM, 2008 WL 7109357, at *4 (D.N.H. Dec. 22, 2008) (accepting tax returns as basis
for supplemental expert report regarding decrease in sales).
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The noted deficiencies of information in Mr. Taylor’s May 2014 report under these
circumstances is precisely what Rule 26(e) is intended to correct. The corresponding need for an
adjustment to the calculations in the initial report arising from the passage of time and the actual
financial condition of the Defendants is properly achieved by supplementation pursuant to Rule
26(e), particularly because the more current financial information was not available at the time of
the initial report.
Therefore, it is ORDERED
“Defendants’ Ethan Chumley and Armstrong Steel Corporation’s (sic) Motion to Strike
Plaintiff General Steel’s Untimely Supplemental Expert Disclosure of Gregory B. Taylor, or for
Alternative Relief” [Doc. No. 511] is DENIED.
Dated this 2d day of June, 2015.

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