Glass Dimensions, Inc. v. State Street Bank & Trust Co.
Judge Joseph L. Tauro: ORDER entered. MEMORANDUM and ORDER(Geraldino-Karasek, Clarilde)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
GLASS DIMENSIONS, INC., on behalf of the
GLASS DIMENSIONS, INC. PROFIT
SHARING PLAN AND TRUST, and all others
STATE STREET BANK & TRUST CO.,
STATE STREET CORPORATION, and
STATE STREET GLOBAL ADVISORS,
Civil Action No. 10-10588-JLT
January 14, 2013
Plaintiff is the fiduciary for the Glass Dimensions, Inc. Profit Sharing Plan and Trust
(“Glass Dimensions Plan”). Plaintiff brings suit on behalf of the Glass Dimensions Plan and a
class of other ERISA retirement plans that invested in collective trust funds offered and managed
by Defendants. Plaintiff asserts that Defendants breached their fiduciary duty, in violation of
ERISA, by engaging in self-dealing transactions and taking unreasonable compensation for
securities lending services. Several motions are before this court. For the reasons set forth
below, Goodyear’s Motion to Intervene [# 129] is DENIED; Defendants’ Motion to Strike
Plaintiff’s Untimely Expert Reports [#106] is ALLOWED IN PART and DENIED IN PART; and
Plaintiff’s Motion to Strike Defendants’ Prohibited Transaction Exemption 2006-16 Defense
and/or Preclude Defendants from Offering Evidence of Related Rebates [#132] is ALLOWED IN
PART and DENIED IN PART.
Goodyear Trustees’ Motion to Intervene
The Trustees (“Goodyear Trustees”) of the Retirees of the Goodyear Tire and Rubber
Company Health Care Trust (“Goodyear Plan”), move for permissive intervention under Federal
Rule of Civil Procedure 24(b).1 Goodyear Trustees seek to assert claims against Defendants
similar to those brought by Plaintiff, including violations of ERISA § 404(a) and § 406.2
Goodyear Trustees state that they learned of their interest in this action in late 2011.3 They then
filed a motion to intervene on July 12, 2012.
Under Rule 24(b), a court may allow permissive intervention if the application is timely
and the applicant’s claims shares a common question of law or fact with the main action.4
“Permissive intervention is ‘wholly discretionary,’ and a court should consider whether
intervention will prejudice the existing parties or delay the action.”5 For intervention, “timeliness
is ‘of first importance.’”6 The First Circuit has set forth four factors for determining the timeliness
of a motion to intervene: “(1) the length of time the applicant knew or should have known of his
Goodyear’s Mot. Intervene 1, 3 [#129].
Goodyear’s Mot. Intervene 2, Ex. 1.
Goodyear’s Mot. Intervene 2, Ex. 2 (Decl. Thomas F. Duzak) ¶ 2.
Fed. R. Civ. P. 24(b)(1).
In re Bos. Scientific Corp. ERISA Litig., 254 F.R.D. 24, 33 n.82 (D.Mass. 2008)
(quoting In re Sonus Networks, Inc. Sec. Litig., 229 F.R.D. 339, 345 (D.Mass. 2005)).
Id. at 33 (quoting Caterino v. Barry, 922 F.2d 37, 40 (1st Cir. 1990)).
interest before moving to intervene; (2) prejudice to existing parties due to the applicant’s delay;
(3) prejudice to the applicant if intervention is denied; and (4) any ‘unusual circumstances
mitigating for or against intervention.’”7 This court considers these four factors in turn and finds
that Goodyear Trustees’ motion is not timely.
Length of Time
Goodyear Trustees waited at least seven months between learning of their interest in this
litigation in late 2011 and moving to intervene on July 12, 2012.8 Goodyear Trustees knew of
their interest in this litigation before the close of fact and expert discovery. They could have
moved to intervene before those deadlines. Instead, Goodyear Trustees waited over seven
months and filed this motion six months after the close of fact discovery, six months after the
deadline to join additional parties, three months after the close of expert discovery, and two
weeks after the deadline for summary judgment motions. This delay is simply too long in the
context of this litigation.9
Prejudice to Existing Parties
Intervention would cause substantial prejudice to the existing parties to this suit. It
appears that the Goodyear Plan is not a member of the certified class. On August 22, 2012, this
Id. (quoting Caterino, 992 F.2d at 40).
Defendants also present evidence that Goodyear Trustees should have known of their
interest in this litigation before late 2011. In particular, Defendants point to information regarding
this litigation that was publicly available in the form of public filings, media interviews, and press
releases. Defs.’ Opp’n to Goodyear’s Mot. Intervene 4 n.2 [#140-1].
See R & G Mortg. Corp. v. Fed. Home Mortg. Corp., 584 F.3d 1, 8-9 (1st Cir. 2009);
Narragansett Indian Tribe v. Ribo, Inc., 868 F.2d 5, 7 (1st Cir. 1989) (“Parties having knowledge
of the pendency of litigation which may affect their interests sit idle at their peril.”).
court certified the class to include ERISA plans that invested in a “Collective Trust.”10 The
Goodyear Plan, in contrast, invested in a “Common Trust.”11 As a result, intervention would
require amendment of the class or creation of a second class. Intervention would also require reopening fact and expert discovery and re-briefing summary judgment. This case has been ongoing
for over two years. The parties have spent too much time and expense in bringing this complex
litigation to its current state to now take three steps backwards by allowing intervention.
Prejudice to Goodyear Trustees
Because the Goodyear Plan is not a member of the class, it will suffer little prejudice by a
denial of intervention. Goodyear Trustees have represented that if their motion is denied, they
intend to immediately bring their own class action.12 Goodyear Trustees can protect their
interests and assert their rights by doing just that.
Finally, there are no apparent unusual circumstances favoring intervention. On the other
hand, the complex nature and advanced stage of this litigation mitigate against intervention.
In sum, all of the timeliness factors favor Defendants. If Goodyear Trustees wish to
pursue claims against Defendants, they may file another action individually or on behalf of a class.
Goodyear Trustees’ Motion to Intervene is DENIED.
Mem. & Order 9 [#156].
Am. Decl. Charles E. Cullinane Supp. Defs.’ Resp. Pl.’s Letter May 31, 2012 Regarding
Goodyear VEBA & Supplemental Authority ¶¶ 3-8 [#170-1]. Counsel also admitted at oral
arguments that the Goodyear Plan invested in a Common Trust.
Goodyear’s Mot. Intervene 7.
Defendants’ Motion to Strike Plaintiff’s Untimely Expert Reports
This court’s Scheduling Order [#31] required Plaintiff to serve expert reports by February
24, 2012, Defendant to serve expert reports by March 23, 2012, and Plaintiff to serve reply
reports by April 13, 2012. Plaintiff did not serve any affirmative expert reports.13 Defendants
timely served the expert reports of Erik Sirri and Edmon Blount.14 On April 13, 2012, Plaintiff
served the expert reports of Jessica Flores, Steve Pomerantz, and Gregory Harmon.15
Defendants move to strike the Pomerantz Report and Sections III, IV, and V (¶¶ 30, 31)
of the Harmon Report on the ground that these reports exceed the scope of proper rebuttal and
are therefore untimely affirmative reports served under the guise of rebuttal reports. Defendants
further claim that they have been prejudiced by Plaintiff’s untimely disclosures because their
experts did not have the opportunity to respond to Pomerantz and Harmon. In opposition,
Plaintiff argues that the Pomerantz Report and the Harmon Report directly rebut Blount.
Under Rule 26(a)(2)(D)(ii), an expert report qualifies as a rebuttal report if it “is intended
solely to contradict or rebut evidence on the same subject matter identified” by the opposing
party’s expert report.16 A rebuttal expert may cite new evidence and data so long as the new
evidence and data is offered to directly contradict or rebut the opposing party’s expert.17
Defs.’ Mem. Supp. Mot. Strike 2 [#107-1].
Defs.’ Mem. Supp. Mot. Strike 2.
Defs.’ Mem. Supp. Mot. Strike 2.
Fed. R. Civ. P. 26(a)(2)(D)(ii).
See Desert Mgmt. Corp. v. United States, 97 Fed. Cl. 272, 274 (2011); In re
Genetically Modified Rice Litig., 2010 WL 4483993, at *3 (E.D.Mo. Nov. 1, 2010) (“An expert
may introduce new methods of analysis in a rebuttal report if they are offered to contradict or
Here, Defendants’ expert Blount opined at length as to the reasonableness and marketcompetitiveness of the 50% fee, a subject for which Defendants bear the burden of proof under
the Prohibited Transaction Exemption 2006-16 affirmative defense.18 Plaintiff was therefore
entitled to submit expert reports to rebut Blount’s opinions and evidence on the subject matter of
the 50% fee. In doing so, Plaintiff’s experts were free to support their contrary opinions with
data not cited by Blount, so long as the new data directly rebutted Blount.
The Pomerantz Report is an untimely affirmative report.
The Pomerantz Report falls outside the scope of proper rebuttal. In his Report,
Pomerantz does not purport to respond to Blount or even refer to Blount. Although the
Pomerantz Report is on the same general “subject matter” as the Blount Report (the
reasonableness of the 50% fee), Pomerantz does not directly “contradict or rebut” Blount, as
required by Rule 26(a)(2)(D)(ii). For instance, in paragraphs eight through thirteen of his report,
Pomerantz appears to calculate damages. Pomerantz calculates the “excess paid” by Lending
Fund clients, such as class members, under alternative scenarios entitled “Alt A,” “Alt B,” and
“Alt C.”19 In contrast, Blount does not opine or offer evidence on damages. Pomerantz also
compares State Street’s fee for Lending Funds to their fee for ETFs. Blount, however, does not
rebut another party’s expert.”); Kirola v. City & Cnty. of S.F., No. 07-3685-SBA, 2010 WL
373817, at *2 (N.D.Cal. Jan. 29, 2010); MMI Realty Servs, Inc. v. Westchester Surplus Lines
Ins. Co., No. 07-00466-BMK, 2009 WL 649894, at *2 (D.Haw. Mar. 10, 2009) (“Under this
rule, Holland is free to support his opinions with evidence not cited in Westchester’s reports so
long as he rebuts the ‘same subject matter’ identified in those reports.”).
See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 601 (8th Cir. 2009); Howard v.
Shay, 100 F.3d 1484, 1488 (9th Cir. 1996); Elmore v. Cone Mills Corp., 23 F.3d 855, 864 (4th
Cir. 1994); Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1215 (2d Cir. 1987).
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. C ¶¶ 10-13 [#108].
offer any opinions or evidence on ETFs or even refer to ETFs in his report.
Finally, Pomerantz does not directly rebut Blount on the topic of Agency Lending. Blount
opines that it is “inappropriate” to compare the fees for Lending Funds to the fees for Agency
Lending.20 Blount opines that a number of significant factors distinguish Lending Funds from
Agency Lending, such that a flat comparison of two is rendered “meaningless.”21 On the other
hand, Pomerantz offers no rebuttal of Blount’s opinion on the impropriety of comparing these
types of funds. Rather, Pomerantz, without explanation, engages in a flat comparison of the fees
for Lending Funds and the fees for Agency Lending. This comparison is not responsive to
Blount’s arguments. Because Pomerantz does not directly “contradict or rebut” Blount, the
Pomerantz report is more appropriately characterized as an untimely affirmative expert report.
The Harmon Report is a proper rebuttal report.
The Harmon Report, in its entirety, falls within the scope of proper rebuttal. At the outset
of his report, Harmon declares his intention to respond to Blount. Harmon then engages in a
point-by-point rebuttal of the Blount Report. The sections of the Harmon Report challenged by
Defendants – Sections III, IV, and V (¶¶ 30, 31) – directly rebut Blount. For instance, as
discussed above, Blount opines that it is inappropriate to compare the fees for the Lending Funds
to the fees for Agency Lending. In response, Harmon opines that the Lending Funds and Agency
Lending share a number of common features such that a comparison of the two is proper.22
Harmon then presents Agency Lending data that, in his opinion, Blount should have considered
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. B ¶¶ 18, 75-78.
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. B ¶ 77.
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. D ¶¶ 17, 20, § V. (4).
and that contradicts Blount’s findings.
Blount further opines that the 50% fee was “not uncommon” in the industry and was
comparable to fees negotiated at arm’s-length.23 In support of his opinions, Blount compares the
50% fee to the fees charged by competitors.24 In rebuttal, Harmon points to data that Blount
omitted from his analysis.25 Harmon also opines that, contrary to the opinions of Blount, the 50%
fee was uncommon in the industry and unlike fees negotiated at arm’s-length.26 Harmon supports
his opinions with industry data that refutes Blount’s findings.
Because Harmon’s evidence and opinions directly “contradict or rebut” Blount, the
Harmon Report is a proper and timely rebuttal report. As a result, Defendants’ motion to strike
the Harmon Report is denied.
The Proper Sanction
This court must now decide the proper sanction for Plaintiff’s untimely disclosure of an
affirmative expert report, the Pomerantz Report. Under Rule 37(c)(1), the standard sanction for a
disclosure violation is preclusion of the untimely evidence, unless the violation was substantially
justified or harmless.27 Preclusion, however, is not automatic or mandatory.28 A district court has
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. B ¶¶ 18, 44.
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. B ¶ 44.
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. D ¶¶ 20-23, 30-31.
Decl. Sara N. Raisner Supp. Defs.’ Mot. Strike Ex. D ¶ 24.
Fed. R. Civ. P. 37(c)(1); Harriman v. Hancock Cnty., 627 F.3d 22, 29 (1st Cir. 2010).
Santiago-Diaz v. Laboratorio Clinico Y De Referencia Del Este, 456 F.3d 272, 276 (1st
Cir. 2006) (“Still, preclusion is not a strictly mechanical exercise; district courts have some
discretion in deciding whether or not to impose that onerous sanction.”).
discretion to craft an alternative remedy, such as a continuance, if the prejudice caused by the
untimely disclosure can be cured before trial.29 The First Circuit has set forth several factors for
determining the proper sanction: (1) the party’s justification for the late disclosure; (2) the
opposing party’s ability to overcome any prejudice; (3) the impact on the court docket; (4) the
party’s history of litigation abuse; and (5) the party’s need for the late evidence.30
Although Plaintiff does not offer a substantial justification for its untimely disclosure, there
is no history of litigation abuse by Plaintiff and no indication that Plaintiff acted in bad faith.
Because this case is complex and relies heavily on financial data and calculations, Plaintiff
demonstrates a need for Pomerantz’s report and testimony. Most importantly, this case is months
from trial. As a result, this court can cure any prejudice to Defendants by allowing one of
Defendant’s experts the opportunity to respond to the Pomerantz Report. This court therefore
finds that the proper remedy for Plaintiff’s untimely disclosure is to give Defendants one month to
supplement one of their expert reports to reply to the Pomerantz Report.
Plaintiff’s Motion to Strike Defendants’ Prohibited Transaction Exemption 2006-16
Defense and/or Preclude Defendants from Offering Evidence of Related Rebates
Plaintiff moves for sanctions against Defendants on the ground that Defendants failed to
disclose relevant rebate data during fact discovery. Plaintiff argues that the rebate data is clearly
relevant to Defendants’ Prohibited Transaction Exemption 2006-16 affirmative defense.31
Id.; Samos Imex Corp. v. Nextel Commc’ns, Inc., 194 F.3d 301, 305 (1st Cir. 1999).
Harriman, 627 F.3d at 30.
Pl.’s Mot. Strike 1 [#132]; Pl.’s Mem. Supp. Mot. Strike 1-3 [#133].
Plaintiff further argues that Defendants failed to disclose this data as part of their initial
disclosures under Rule 26(a) and failed to supplement their disclosures to include the data under
Rule 26(e).32 Instead, Defendant produced the rebate data on June 15, 2012, six months after the
close of fact discovery and just two weeks before the summary judgment deadline.33 Plaintiff
argues that it has been prejudiced by Defendants’ untimely disclosure because it was deprived of
the opportunity to obtain expert analysis of the rebate data.34
Rule 26(a)(1)(A) provides that “a party must, without awaiting a discovery request,
provide to the other parties: . . . (ii) a copy – or a description by category and location – of all
documents, electronically stored information, and tangible things that the disclosing party has in
its possession, custody, or control and may use to support its claims or defenses, unless the use
would be solely for impeachment.”35 Additionally, Rule 26(e)(1) requires a party to supplement
its initial disclosures “if the party learns that in some material respect the disclosure or response is
incomplete or incorrect.”36
This court finds that Defendants failed to timely disclose the rebate data in violation of
Rule 26.37 The rebate data is clearly relevant to Defendant’s Exemption defense. Yet, Defendants
Pl.’s Mem. Supp. Mot. Strike 2-3, 8 n.6. Plaintiff also argues that Defendants failed to
produce the data despite Plaintiff’s 2011 request for all documents related to the Exemption
Pl.’s Mot. Strike 1-2; Pl.’s Mem. Supp. Mot. Strike 6.
Pl.’s Mem. Supp. Mot. Strike 11.
Fed. R. Civ. P. 26(a)(1)(A).
Fed. R. Civ. P. 26(e)(1).
This court’s Modified Discovery Order [#19] required Defendants to not only disclose
but also exchange all documents subject to Rule 26(a)(1). Defendants’ failure to produce the
did not provide a copy or sufficient description of the rebate data as part of their initial
disclosures.38 Nor did Defendants supplement their disclosures to identify or produce this data
during over a year of fact discovery.
As stated above, under Rule 37(c), preclusion is the standard sanction for a disclosure
violation, unless the untimely disclosure was substantially justified or harmless.39 A court need
not, however, exclude evidence if an alternative remedy would cure the prejudice to the opposing
party before trial.40 Here, as with Plaintiff’s disclosure violation discussed above, the balance of
factors weighs against preclusion. First, although Defendants do not offer a substantial
justification for their late disclosure,41 there is no history of litigation abuse by Defendants.
Second, this court cannot conclude on the current record that Defendants acted in bad faith.
Third, Defendants have a need for the data in order to demonstrate compliance with the
Exemption defense. Fourth, trial is months away and thus there is ample time to cure any
Finally, the sanctions of preclusion and striking a defense are inappropriate in light of
Plaintiff’s failure to file a motion to compel. Although a motion to compel is not require to
rebate data during fact discovery also violates this Order.
Decl. Todd S. Collins Supp. Pl.’s Mot. Strike, Ex. 1 [#136-1]
Fed. R. Civ. P. 37(c)(1); Harriman v. Hancock Cnty., 627 F.3d 22, 29 (1st Cir. 2010).
Samos Imex Corp. v. Nextel Commc’ns, Inc., 194 F.3d 301, 305 (1st Cir. 1999).
Contrary to Defendants’ argument, the fact that Plaintiff did not specifically request
rebate data during discovery is not a substantial justification. Rule 26(a)(1)(A)’s disclosure
requirements are automatic and do not require a discovery request.
trigger Rule 37(c)(1),42 this court specifically instructed Plaintiff to file a motion to compel at the
Scheduling Conference on December 7, 2010, after Plaintiff expressed concern over deficient
disclosures.43 In light of these factors, the proper remedy for Defendants’ untimely disclosure is
to allow Plaintiff the opportunity to obtain expert analysis of the data. Plaintiff shall have one
month to submit the rebate data to one of its experts and serve a supplemental expert report on
For the above-stated reasons, Goodyear’s Motion to Intervene [# 129] is DENIED;
Defendants’ Motion to Strike Plaintiff’s Untimely Expert Reports [#106] is ALLOWED IN
PART and DENIED IN PART; and Plaintiff’s Motion to Strike Defendants’ Prohibited
Transaction Exemption 2006-16 Defense and/or Preclude Defendants from Offering Evidence of
Related Rebates [#132] is ALLOWED IN PART and DENIED IN PART.
AN ORDER HAS ISSUED.
/s/ Joseph L. Tauro
United States District Judge
Ortiz-Lopez v. Sociedad Espanola de Auxilio Mutuo Y Beneficiencia de P.R., 248 F.3d
29, 33 (1st Cir. 2001).
Tr. Scheduling Conf. 12:21-24, Dec. 7, 2010 [#25].
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