Reed Construction Data Inc. v. The McGraw-Hill Companies, Inc.
OPINION AND ORDER re: 172 MOTION to Preclude Plaintiff's Untimely Customer Declarations filed by The McGraw-Hill Companies, Inc. For the foregoing reasons, McGraw-Hill's motion to preclude the Ross and Brennan Declarations from consideration in the pending summary judgment motion is GRANTED. The Clerk of the Court is directed to terminate the motion at docket number 172. (Signed by Judge J. Paul Oetken on 6/5/2014) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
REED CONSTRUCTION DATA INC.,
THE MCGRAW-HILL COMPANIES, INC., et al, :
09 Civ. 8578 (JPO)
OPINION AND ORDER
J. PAUL OETKEN, District Judge:
This is a discovery-related dispute in a business tort case. The parties are corporate rivals:
Plaintiff, Reed Construction Data Inc. (“Reed”), and Defendant, The McGraw-Hill Companies,
Inc. (“McGraw-Hill”), offer competing construction project information databases (“CPI
databases” or “databases”) to subscribers, such as general contractors and architects who use the
databases to find leads for construction-industry work. Reed alleges that McGraw-Hill
committed business torts and anti-competitive acts in violation of state and federal laws. After
several years of intensive discovery, McGraw-Hill moved for summary judgment (Dkt. No. 149).
That motion was accompanied by the present motion to preclude certain declarations from this
Court’s review of the summary judgment motion (Dkt. No. 172). For the reasons that follow,
McGraw-Hill’s motion to preclude is granted.
The gravamen of this case is Reed’s claim that McGraw-Hill’s agents unlawfully
accessed Reed’s database to gather data that McGraw-Hill used to construct misleading
marketing materials comparing McGraw-Hill favorably against Reed. 1 To prevail on its claims,
Reed must demonstrate that customers relied on the challenged marketing materials when
evaluating Reed’s database and that the marketing had a material impact on customers’ choice of
database. 2 Reed pursued such evidence throughout the four-year discovery process, which ran
from 2010 until March 1, 2013. This motion seeks to preclude two customer declarations that
Reed obtained after the close of formal discovery and which Reed now seeks to use to defend
against summary judgment.
In early 2010, at the start of discovery, Reed identified 221 customers whose purchasing
decisions were allegedly materially impacted by McGraw-Hill’s marketing tactics; these
customers (“the original customers”) were named in an amended complaint filed on December
10, 2009. (Dkt. No. 20.) At the time, Reed’s theory of damages focused on revenue that was
lost as a result of the original customers’ decision not to purchase Reed’s database (“lost-sales”
At the close of fact discovery on July 27, 2012, Reed maintained the same list of 221
customers who were impacted by the contested marketing. In a March 1, 2013 filing, however,
Reed eliminated 198 customers from its case, leaving only 23 of the original customers. Reed
The contested marketing materials include side-by-side screen shots taken from Reed and
McGraw-Hill databases; the screen shots were designed to show that when similar searches were
run on the two databases, McGraw-Hill’s database produced better results. McGraw-Hill could
not have produced this type of advertising without access to Reed’s database. Reed alleges that
these searches were manipulated to highlight McGraw Hill’s strengths and were ultimately
The term “customer,” as used in this opinion, refers to potential CPI database customers,
including actual and potential customers of Reed and McGraw-Hill during the relevant time
simultaneously attempted to add 26 new customers who had not previously been identified (“the
new customers”). McGraw-Hill objected to the addition of the new customers and ultimately
prevailed on its motion to preclude Reed from seeking damages based on lost sales to those 26
new customers. In a April 15, 2013 Order granting that motion, Magistrate Judge Pitman applied
Federal Rule of Civil Procedure 37(c)(1) to preclude Reed from seeking lost-sale damages based
on the 26 new customers. 3
Subsequently, in May and June of 2013, Reed produced three declarations from
representatives of the precluded new customers, including the two declarations at issue in this
motion, which were submitted on behalf of Alyssianne Curry Brennan, a former employee for
Siemens Energy & Automation (“Siemens”) (“Brennan Declaration”), and Jeremy Ross, an
Account Manager for K Ross Company (“Ross”) (“Ross Declaration”). McGraw-Hill objected
to all three declarations and moved to preclude their use in this case. Judge Pitman denied that
request on July 15, 2013 because the declarations had not yet been offered for any purpose and
thus, “the dispute [was] not yet ripe for resolution.” July 15, 2013 Order at 2. Reed now seeks
to use the Ross and Brennan Declarations (“Declarations”) to defend against McGraw-Hill’s
summary judgment motion, and McGraw-Hill has renewed its motion to preclude the
The April 15, 2013 Order also precluded Reed from adding a new theory of damages:
specifically, Reed was barred from recovering “lost seat charges,” or fines that it would have
charged had it known that customers were granting McGraw-Hill affiliates access to Reed’s
database without purchasing additional subscription codes, or “seats,” for these users. April 15,
2013 Order at 4, 7.
Rule 37 and the Design Strategy Factors
Federal Rule of Civil Procedure 37 provides that “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 . . . unless the failure was substantially
justified or is harmless.” 4 “The purpose of the rule is to prevent the practice of ‘sandbagging’ an
opposing party with new evidence.” Ebewo v. Martinez, 309 F. Supp. 2d 600, 607 (S.D.N.Y.
2004). Generally, preclusion is a “drastic remedy and should be exercised with discretion and
caution.” Id. In Design Strategy, Inc. v. Davis, the Second Circuit established a four-factor test
for determining when evidence should be precluded under Rule 37. 469 F.3d 284, 296 (2d Cir.
2006). Courts must consider:
(1) the party’s explanation for the failure to comply with the [disclosure
requirement]; (2) the importance of the testimony of the precluded witness[es]; (3)
the prejudice suffered by the opposing party as a result of having to prepare to meet
the new testimony; and (4) the possibility of a continuance.
Id. (internal quotations omitted).
Application of the Design Strategy Test in Prior Orders
Judge Pitman applied the Design Strategy test in his April 15, 2013 Order. Analyzing the
first factor, he found that because Reed became aware of the new customers while it was
conducting depositions, and could have initiated bilateral discovery regarding the new customers
during the designated discovery period, “there is little justification for [Reed’s] failure to identify
Federal Rule of Civil Procedure 26(a) covers required disclosures while 26(e) covers
these lost customers in a timely manner.” 5 April 15, 2013 Order at 8. Second, Judge Pitman
assigned relatively little weight to Reed’s interest in adding the new customers to its claim
because Reed’s additional lost-sales damages from those customers would have comprised less
than six percent of Reed’s overall damages. Id. at 8-9. In contrast, after analyzing the third
factor, Judge Pitman found that McGraw-Hill would suffer significant prejudice and expense if
the new customers joined the case. Id. at 9. (“[D]efendants will have to perform a new review of
their own documents to locate potentially relevant documents. . . . In addition, permitting the
amendments will require revision of the expert reports, and perhaps, a new round of expert
depositions.”) Fourth and finally, Judge Pitman discounted the possibility of a continuance
given the numerous extensions and extraordinary delays that had already distended the timeline
of this case.
In his July 15, 2013 Order, Judge Pitman noted that “it is impossible to assess the second
and third factors” of the Design Strategy test “[w]ithout knowing the specific purpose for which
evidence is being offered.” However, his finding on the first factor (that Reed’s breach of Rule
26 was unjustified) remains in force regardless of the particular purpose for which the new
evidence is offered. See July 15, 2013 Order at 3 (“This Order does not, of course, modify my
April 15, 2013 Order in this matter.”) (internal citation omitted). Furthermore, regarding the
fourth factor, given Judge Pitman’s concern with the delays that have already plagued discovery
in this case, the appropriateness of a continuance only diminishes with time. Ultimately, the July
15, 2013 Order left only the closely related second and third Design Strategy factors open for
Implicit in Judge Pitman’s application of the Design Strategy test is the conclusion that Reed’s
failure to name the new customers prior to the close of fact discovery was in fact a violation of
Rule 26 and therefore triggered Rule 37 preclusion analysis. Despite Reed’s arguments to the
contrary, there is no basis for this Court to reexamine this preliminary inquiry now.
later analysis. 6 Accordingly, this Court must weigh the importance of the Ross and Brennan
Declarations to Reed against the prejudice to McGraw-Hill of having to address the new
Application of the Design Strategy Test to the Declarations
Both the Ross and Brennan Declarations support Reed’s theory of the case. The Brennan
Declaration states that in July 2004, Siemens signed a two-year subscription contract with Reed,
but during the contract’s trial period Brennan terminated its $80,608-per-year Reed subscription
and switched to a $171,950-per-year McGraw-Hill subscription because a salesman used the
contested marketing materials to convince her that McGraw-Hill had a superior database that
was worth the price premium. The Ross Declaration states that in 2008, Ross orchestrated a
downward bidding war between Reed and McGraw-Hill, with Reed dropping its price quote
from $4,900 to $3,600 and McGraw-Hill dropping its quote from $8,642 to $3,837. Ross
Law of the case doctrine provides that “when a court has ruled on an issue, that decision should
generally be adhered to by that court in subsequent stages in the same case.” United States v.
Uccio, 940 F.2d 753, 758 (2d Cir. 1991) (citing Arizona v. California, 460 U.S. 605, 618
(1983)). This prudential doctrine helps to “maintain consistency and avoid reconsideration of
matters once decided during the course of a single continuing lawsuit.” Wright & Miller, 18B
Fed. Prac. & Proc. Juris. § 4478 (2d ed.). Here, the parties have not presented any of the
extraordinary circumstances that would warrant a departure from the law of the case. See
Laurent v. PriceWaterhouseCoopers LLP, 963 F. Supp. 2d 310, 314 (S.D.N.Y. 2013) (“Under
law of the case doctrine, the principal bases for departure from a prior ruling include ‘an
intervening change of controlling law, the availability of new evidence relating to the issue in
question, or the need to correct a clear error or prevent manifest injustice.’”) (quoting Doe v.
New York City Dep’t of Soc. Servs., 709 F.2d 782, 789 (2d Cir. 1983)) (internal amendments
The essence of this inquiry thus mirrors the types of evidentiary balancing that trial courts
routinely make under Federal Rule of Evidence 403. (“The court may exclude relevant evidence
if its probative value is substantially outweighed by a danger of . . . unfair prejudice, confusing
the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative
declares that “although he initially indicated that [he] would select the lowest priced service, [he]
accepted the [contested marketing materials] as true and relied on them in deciding to purchase
[McGraw-Hill’s] Network instead of Reed Connect.” (Ross Declaration, at 3.)
The Declarations’ Importance to Reed (Design Strategy Factor 2)
Reed seeks to use the Ross and Brennan Declarations to establish genuine questions of
material fact regarding issues of materiality and reliance that are “at the very heart of liability in
this case.” (Dkt. No. 176, “Pl. Opp. Brief,” at 21). In addition to using the declarations to
support liability, Reed uses them to develop a new theory of damages. Reed’s “price-effects”
damages reflect the theory that McGraw-Hill’s actions changed the market for CSI databases
such that Reed was forced to lower its prices in order to stay competitive, while McGraw-Hill
was able to charge supra-competitive prices. Reed seeks recovery based upon both its allegedly
depressed prices and McGraw-Hill’s allegedly inflated prices. The price-effects theory is based
on McGraw-Hill’s alleged monopoly power in the market for nationwide CSI databases. (Dkt.
No. 161, “Warren-Boulton Declaration.”) The Court separately analyzes the importance of the
Declarations as to each of these two purposes.
First, the importance of the Declarations to Reed’s liability case is a double-edged sword.
Reed’s briefings downplay the importance of the Declarations in order to preserve its argument
on summary judgment that genuine questions of liability exist even absent the Declarations.
Likewise, McGraw-Hill argues against interest that the Declarations are Reed’s only evidence of
materiality and reliance (and therefore, quite important to Reed’s case); this argument preserves
McGraw-Hill’s stance in its summary judgment motion that, absent the Declarations, no genuine
dispute exists as to those questions. Since the parties’ positions on the importance of these
Declarations appear to be largely strategic, the Court conducts its own analysis.
With respect to the issues of materiality and liability, the Declarations apparently provide
direct proof in favor of Reed’s position. However, they are not Reed’s only evidence of such
matters. See, e.g. Opp. Brief, at 20 n.5 (listing additional evidence in Reed’s favor on the same
liability issues). Moreover, it bears recalling that over the course of discovery, Reed and
McGraw-Hill collectively plumbed the records of their interactions with at least 247 customers.
Given that volume, the marginal importance of two additional Johnny-come-lately declarations
should be diminishing to the point of insignificance. At summary judgment, Reed is tasked with
showing that issues of materiality and reliance are at play. Either these two declarations are
unnecessary because there is similar testimony from at least one of the other 245 customers, or
they should be viewed as suspect because, in addition to being elicited outside the normal
discovery process, they contradict the position of the remaining 245 customers. In any event,
few inferences can be validly drawn from two declarations reflecting just .8 percent of the
customers that were targeted in this case. This is especially true where those declarations have
not been subject to the normal rigors of bilateral discovery.
Second, the importance of the Declarations to Reed’s price-effects damages claim is
dubious. Ross was not a customer in the national database market and Reed does not allege
price-effect damages in local markets. 8 Therefore, the Ross Declaration offers little assistance in
establishing Reed’s price-effects claim. 9 In contrast, the Brennan Declaration pertains to the
national market. But it includes very little substance to support the price-effects claim. As an
Reed could not allege price-effect damages in local markets without demonstrating that
McGraw-Hill had monopoly power in those markets as well. (“Warren-Boulton Declaration.”)
To the contrary, it could be interpreted to undermine the price-effects claim because it
demonstrates that even in the absence of McGraw-Hill’s monopoly power, Reed was willing to
lower its prices to remain competitive.
initial matter, it is unclear that Brennan was the relevant decision-maker to depose at Siemens.
(Dkt. No. 175, Def. Support Brief at 11.) Furthermore, unlike the Ross Declaration, the Brennan
Declaration does not include shifting price quotes. Brennan merely states that McGraw-Hill’s
marketing materials convinced her to pay the premium for their product. This, standing alone, is
not strong evidence for a sprawling theory of antitrust damages. The Declarations add little to
Reed’s claim for price-effects damages.
The importance of contested evidence is a factor in the Design Strategy test; however, so
long as the result is not unfair, this factor is not dispositive even when the evidence is so
important that precluding it would alter the final disposition of the case. See, e.g., Design
Strategy, 469 F.3d at 296-97 (excluding evidence “[a]lthough the second . . . factor favors
Design because . . . all of the other factors weigh heavily in favor of exclusion”); Haas v.
Delaware & Hudson Ry. Co., 282 F. App’x 84, 86 (2d Cir. 2008) (affirming preclusion of an
affidavit despite its “obvious importance for Haas’s claim”); Ebewo, 309 F. Supp. 2d at 608
(“Preclusion of Dr. Robles’ affidavit prevents the plaintiff from raising an issue of triable fact
and will require that the action be dismissed. However, in this case that result is not unfair to the
plaintiff.”). Here, even if the Declarations were critically important for sustaining Reed’s claims,
allowing Reed to proceed with its case based solely on the strength of the Declarations, which
were obtained after the close of fact discovery and after a court had already found Reed in
violation of Rule 26 for failure to disclose in a timely manner the identity of the very customers
who provided these Declarations, would violate the core purpose of Rule 37’s preclusion
provision. Given these considerations, the Declarations’ importance to Reed does not decide this
motion, and the Court proceeds to the next factor.
Prejudice to McGraw-Hill of Meeting the Evidence (Design Strategy
In his April 15, 2013 Order, Judge Pitman recognized that McGraw-Hill would be
severely prejudiced by Reed’s addition of new customers because the burden of rebutting the
new damages claims would be substantial. The burden of rebutting the new customers’
Declarations in a summary judgment motion would also be weighty. Particularly in the context
of a summary judgment motion, where the goal is to ferret out genuine disputes of material facts,
rather than spurious disputes manufactured from imbalanced discovery tactics, the Court must be
wary. To effectively rebut the allegation that a declaration places an issue in dispute, McGrawHill would have to engage in a costly and time-consuming backward leap. Document discovery
would need to be re-opened, subpoenas would have to be issued for depositions, 10 experts may
want to revisit their opinions, and motions may need to be re-briefed. Given the sprawling scale
of this case, 11 the prejudice of returning to square one and essentially re-litigating this case in a
second bout of discovery would be unduly burdensome. On balance, this prejudice to McGrawHill, together with Judge Pitman’s findings regarding Reed’s lack of justification for violating
Rule 26 (factor 1) and the inappropriateness of a continuance at this late stage of litigation (factor
4), outweigh the importance of two customers’ Declarations to Reed, which has investigated at
least 245 other customers in this case.
Although McGraw-Hill attempted to reach out to Brennan and Ross, Brennan would not
voluntarily cooperate with McGraw-Hill’s attempts to obtain a signed declaration from her and
Ross could not be reached. (Def. Support Brief, at 12.)
Tens of thousands of documents were produced in connection with depositions during
discovery (Pl. Opp. Brief, at 5); over a thousand pages of materials were submitted in connection
with the summary judgment motion.
For the foregoing reasons, McGraw-Hill’s motion to preclude the Ross and Brennan
Declarations from consideration in the pending summary judgment motion is GRANTED.
The Clerk of the Court is directed to terminate the motion at docket number 172.
Dated: June 5, 2014
New York, New York
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