General Linen Service, Inc. v. General Linen Service Co., Inc.

Filing 57

ORDER denying 51 Motion for Sanctions re undisclosed damages evidence. So Ordered by Judge Landya B. McCafferty.(gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

General Linen Service, Inc.
v.

Civil No. 12-cv-111-LM
Opinion No. 2015 DNH 165

General Linen Services, LLC
O R D E R
General Linen Service, Inc. (“GL-N”) has sued its
competitor, General Linen Services, LLC (“GL-S”), asserting that
GL-S unlawfully accessed the GL-N computer system and obtained
information that it later used to solicit business from GL-N’s
customers.

Before the court is GL-S’s motion to exclude certain

portions of a report prepared by GL-N’s expert witness.

GL-S

claims it is entitled to such relief under Rule 37(c)(1) of the
Federal Rules of Civil Procedure.

GL-N objects.

For the

reasons that follow, GL-S’s motion to exclude is denied.
In an expert report, timely disclosed by GL-N, Anthony
Albright opined that as a result of GL-S’s unlawful acts, GL-N
suffered damages of $793,307, based upon: (1) diminished revenue
resulting from the renegotiation of contracts with several of
its customers; (2) the loss of 10 customers; and (3) the loss of
33 prospective customers.

That amount of damages is more than

$600,000 greater than any previous estimate of damages by GL-N.

GL-S does not object to GL-N’s reliance upon Albright’s opinion
on losses resulting from renegotiated contracts.

But, it

contends that evidence concerning approximately five lost
customers and all of the lost prospective customers should be
excluded, because up until GL-N disclosed Albright’s report, its
discovery responses had identified only about five, rather than
10, lost customers and said nothing about potential customers it
had lost.
The authority upon which GL-S relies for its request for
exclusion provides, in pertinent part:
If a party fails to provide information or identify a
witness 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).

GL-S does not appear to claim that

GL-N has failed to comply with Rule 26(a), which pertains to
required disclosures.

Rather, GL-S bases its argument on a

purported violation of Rule 26(e), which pertains to
supplementing disclosures and responses.

That rule provides:

A party who has made a disclosure under Rule 26(a) –
or who has responded to an interrogatory, request for
production, or request for admission – must supplement
or correct its disclosure or response:
(A) in a timely manner if the party learns that in
some material respect the disclosure or response
is incomplete or incorrect, and if the additional
corrective information has not otherwise been

2

made known to the other parties during the
discovery process or in writing; or
(B) as ordered by the court.
Fed. R. Civ. P. 26(e)(1).

GL-S does not contend that GL-N has

violated any court order, which leaves only Rule 26(e)(1)(A) in
play.
The court of appeals for this circuit has explained that
the purpose of Rule 26(e)(1) “is to avoid trial by ambush.”
Macaulay v. Anas, 321 F.3d 45, 50 (1st Cir. 2003).

To that end,

the district court typically sets temporal parameters
for the production of such information. See, e.g.,
Fed. R. Civ. P. 16(b). Such a timetable “promotes
fairness both in the discovery process and at trial.”
Thibeault v. Square D Co., 960 F.2d 239, 244 (1st Cir.
1992). When a party fails to comply with this
timetable, the district court has the authority to
impose a condign sanction (including the authority to
preclude late-disclosed expert testimony). Id. at
245.
Id.

In Macaulay, the court of appeals affirmed the district

court’s exclusion of a late-filed supplemental expert report
that “introduced a new theory of liability only days before the
anticipated trial date.”

Id. at 52.

Here, the evidence that GL-S asks the court to exclude was
produced on time, approximately four months before the close of
discovery, and more than five months before the scheduled trial
date.

Thus, the facts of this case are significantly different

from those of Macaulay and all the other cases in which parties

3

have sought the exclusion of evidence that had been produced
after the time for doing so had expired.

In light of that,

GL-S’s theory is not that Albright’s report was disclosed late
but that it contains evidence concerning lost customers and a
theory concerning lost prospective customers that GL-N was
obligated to disclose earlier than it did.

That is, GL-S

contends that GL-N violated Rule 26(e) by failing to supplement
its discovery responses at some point before it disclosed
Albright’s report.
For that theory, GL-S relies upon Oracle USA, Inc. v. SAP
AG, 264 F.R.D. 541 (N.D. Cal. 2009).

In Oracle, the court

precluded the plaintiffs from introducing evidence at trial
concerning three categories of damages that were first
identified by the plaintiffs in a supplemental disclosure filed
before the close of discovery, but after two years of discovery
had already taken place “at a cost of millions of dollars to
each side.”

264 F.R.D. at 551.

According to the court, the

plaintiffs in Oracle violated Rule 37 because their “discovery
responses failed without substantial justification for over two
years to inform Defendants that Plaintiffs were seeking lost
profit damages relating to [certain] customers and to revenue
from [certain] sources.”

Id. at 556-57.

4

Substantial factual distinctions between this case and
Oracle render Oracle inapposite.

To begin, in Oracle, the event

that triggered the plaintiffs’ supplemental disclosure outlining
an expanded theory of damages was the deposition testimony of
their own top executives, see 264 F.R.D. at 551, not the
findings of an expert.

That difference is significant.

The

executives’ articulation of a broader scope of damages than had
previously been claimed supports a conclusion that the
plaintiffs sat on their broader theory of damages for some
amount of time without disclosing it, all the while allowing
defendant to conduct discovery tailored to defending against the
narrower theory that plaintiffs had disclosed to them.

Indeed,

the court found that “Plaintiffs . . . possessed the necessary
information [to frame their broader claim for damages] even
before filing the complaint, and well before they served their
initial disclosures.”

Id. at 548.

subsequent disclosure untimely.

That made plaintiffs’

As the court concluded:

Plaintiffs had a duty to timely disclose basic damages
information known to its executives, well before top
executives were deposed late in the fact discovery
period, in accordance with the usual practice. Their
failure to do so was not substantially justified or
harmless.
Id. at 552.
Here, by contrast, GL-S has given the court no reason to
conclude that GL-N had any understanding of the scope of damages

5

articulated by its expert until the expert submitted his report.
And, indeed, in its responses to GL-S’s first set of
interrogatories, dated March 30, 2015, GL-N stated that “[t]he
full extent of monetary damages has not yet been fully
ascertained and may require expert testimony.”
Law, Ex. 3 (doc. no. 51-4), at 6.

Def.’s Mem. of

If GL-N did not know the full

extent of its damages until it had the benefit of its expert’s
report, then its disclosure of the damages to which GL-S objects
was not untimely.
timely disclosure).

See Fed. R. Civ. P. 26(e)(1)(a) (requiring
If GL-N’s disclosure was timely then,

necessarily, the Rule 37 exclusion sanction is not warranted.
There is another significant distinction between this case
and Oracle.

The plaintiffs in Oracle affirmatively disclaimed,

on several occasions, the forms of damages they later attempted
to claim.

See 264 F.R.D. at 547, 548, 550.

Here, while GL-S

notes that Albright’s report describes more extensive damages
than those identified in GL-N’s earlier discovery responses, GLS identifies no previous affirmative disclaimer by GL-N of the
damages later described in Albright’s report.

Finally, the

decision in Oracle describes various forms of conduct by the
plaintiffs that deprived the defendant of discovery concerning
the forms of damages plaintiffs later claimed.
51.

See id. at 550-

GL-S has identified no such conduct in this case.

6

For all of the foregoing reasons, the court concludes
that unlike the plaintiffs in Oracle, GL-N has not violated Rule
26(e).

Accordingly, GL-S is not entitled to the exclusion of

evidence related to either lost customers or losses of potential
customers.
However, even if GL-N did violate Rule 26(e), any such
violation was harmless.

When assessing the question of whether

a Rule 37 sanction is warranted for a violation of Rule 26(e),
the court
must consider a multiplicity of pertinent factors,
including the history of the litigation, the
proponent’s need for the challenged evidence, the
justification (if any) for the late disclosure, and
the opponent’s ability to overcome its adverse
effects. Thibeault, 960 F.2d at 244; Johnson v. H.K.
Webster, Inc., 775 F.2d 1, 7–8 & n.7 (1st Cir. 1985).
Surprise and prejudice are important integers in this
calculus. Thibeault, 960 F.2d at 246; Johnson, 775
F.2d at 7 n. 7. So too is an assessment of what the
late disclosure portends for the court’s docket.
Salgado v. Gen. Motors Corp., 150 F.3d 735, 742 (7th
Cir. 1998).
Macaulay, 321 F.3d at 51.

Here, for reasons already noted, the

surprise factor does not weigh in favor of GL-S.

In late March

of 2015, GL-N alerted GL-S to the potential importance of its
expert’s report in determining the scope of its damages.

Two

months after doing so, GL-N disclosed Albright’s report.

Under

the circumstances of this case, allowing GL-N to introduce
evidence of the damages described in Albright’s report creates

7

no danger of a trial by ambush.

As for prejudice, GL-N

disclosed Albright’s report with nearly four months remaining in
the discovery period, and the court has already granted GL-S an
extension of the deadline for disclosing its expert reports.
Should the need for more time arise, the court is prepared to
entertain a motion to make reasonable adjustments to the trial
schedule.

In short, if GL-N violated Rule 26(e) in the first

instance, its violation has not harmed GL-S in a way that
justifies imposition of the Rule 37 exclusion sanction.
For the reasons detailed above, GL-S’s motion to exclude,
document no. 51, is denied.
SO ORDERED.

__________________________
Landya McCafferty
United States District Judge

August 27, 2015
cc:

Sara Yevics Beccia, Esq.
Dennis J. Kelly, Esq.
James F. Laboe, Esq.
Laura Witney Lee, Esq.
Paul R. Mastrocola, Esq.
Joseph Gardner Mattson, Esq.
Jeffrey C. Spear, Esq.

8