Columbia Casualty Company v. Neighborhood Risk Management Corporation

Filing 151

ORDER. By letter dated August 27, 2015, plaintiff seeks to preclude defendant from offering certain damages evidence in connection with its counterclaim. Because I conclude that all the relevant factors warrant the result, defendant is precluded from relying upon or offering evidence in support of its contention that its inability to access its self insured retention surplus has lead to a loss of members that is so severe that defendant's existence is threatened. (Signed by Magistrate Judge Henry B. Pitman on 1/14/2016) Copies transmitted to: All Counsel. (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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COLUMBIA CASUALTY COMPANY,
Plaintiff,
-against-

:
:

14 Civ. 48 (AJN)(HBP)

:
ORDER

NEIGHBORHOOD RISK MANAGEMENT
CORPORATION,

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:

Defendant.
:
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PITMAN, United States Magistrate Judge:

By letter dated August 27, 2015, plaintiff seeks to
preclude defendant from offering certain damages evidence in
connection with its counterclaim.1

Specifically, plaintiff seeks

to preclude defendant from relying on or offering evidence in
support of the following damages theory:
Unable to draw upon the unexhausted portion of its
[self-insured retention], NRMC has been losing members
-- generally those with the stronger loss control
programs and fewer losses. This has impacted the NRMC
program on several levels. Administrative costs get
spread over fewer member[s]. More importantly, the
exit of stronger performing members has: (i) driven up

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The allegations giving rise to this action are set forth in
Judge Nathan's opinion denying defendant's motion to dismiss the
amended complaint. Columbia Cas. Co. v. Neighborhood Risk Mgmt.
Corp., 14 Civ. 48 (AJN)(HBP), 2015 WL 3999192 (S.D.N.Y. June 29,
2015). The reader's familiarity with that opinion and with my
Order in this matter dated December 4, 2015 (Docket Item 146) is
assumed.

the financial burden on the remaining members to fund
each year's [self-insured retention]; and (ii) driven
up per unit losses and, accordingly, premiums -- a
phenomenon that tends to prompt more exits as time goes
by and a deepening "spiral." Presently, these damages
are fairly estimated at $1,000,000 -- but they threaten
to escalate exponentially.
(NRMC's Supplemental Answer to Columbia Casualty Company's
Interrogatory 2, dated Aug. 16, 2015, at 2, annexed as Exhibit A
to Plaintiff's Letter to the Undersigned, dated Aug. 27, 2915
(Docket Item 117)).

Plaintiff seeks preclusion on the ground

that the damages theory set forth above (the "Existential Damages
Theory") was not disclosed until approximately eight months after
the December 2014 discovery deadline, and plaintiff has not,
therefore, had the opportunity to conduct discovery concerning
this theory.
After reviewing letter briefs submitted by the parties
and hearing oral argument, I issued an Order on December 4, 2015
in which I concluded that defendant had not meaningfully disclosed its Existential Damages Theory in a timely manner.
Nevertheless, because the parties' submissions did not address
the factors relevant to ruling on a motion seeking preclusion
based on a failure to disclose, I directed the parties to make
further submissions addressing those factors.

After considering

the parties' supplemental submissions, I conclude that defendant

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should be precluded from relying on its Existential Damages
Theory.
Federal Rule of Civil Procedure ("Rule") 26 requires
the exchange of initial disclosures.

Rule 26(a)(1)(A)(iii)

provides, in relevant part, that:
a party must, without awaiting a discovery request,
provide to the other parties . . . a computation of
each category of damages claimed by the disclosing
party -- who must also make available for inspection
and copying as under Rule 34 the documents or other
evidentiary material, unless privileged or protected
from disclosure, on which each computation is based,
including materials bearing on the nature and extent of
injuries suffered.
"A party must make its initial disclosures based on the information then reasonably available to it [and] is not excused from
making its disclosures because it has not fully investigated the
case."

Fed.R.Civ.P. 26(a)(1)(E).

Further, the disclosing party

must timely supplement or correct its initial disclosures if it
subsequently learns that the information provided was either
"incomplete or incorrect."

Fed.R.Civ.P. 26(e)(1)(A).

"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) (Koeltl, D.J.) (citations
omitted); accord Agence France Presse v. Morel, 293 F.R.D. 682,
683 (S.D.N.Y. 2013) (Nathan, D.J.).

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A party that fails either to obey a court order concerning discovery or to comply with its Rule 26(a) disclosure
obligations may be sanctioned under Rule 37.

A court may sanc-

tion a party for failing to provide or supplement information or
to identify a witness as Rules 26(a) and 26(e) require by prohibiting the offending party from "us[ing] that information . . . to
supply evidence on a motion, at a hearing, or at a trial, unless
the failure was substantially justified or is harmless."
Fed.R.Civ.P. 37(c)(1).

The party against whom sanctions are

sought bears the burden of establishing that its noncompliance
was either substantially justified or harmless.

Williams v.

Boulevard Lines, Inc., 10 Civ. 2924 (DF), 2013 WL 5652589 at *3
(S.D.N.Y. Sept. 30, 2013) (Freeman, M.J.); Design Strategies,
Inc. v. Davis, 367 F. Supp. 2d 630, 635 (S.D.N.Y. 2005) (Marrero,
D.J.), aff'd, 469 F.3d 284 (2d Cir. 2006).

"A district court has

wide discretion to impose sanctions, including severe sanctions,
under Federal Rule of Civil Procedure 37."

Design Strategy, Inc.

v. Davis, 469 F.3d 284, 294 (2d Cir. 2006).
The Court of Appeals for the Second Circuit has identified four factors to be considered in determining whether preclusion is an appropriate sanction for a party's failure to comply
with its disclosure obligations:

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(1) the party's explanation for the failure to comply
with the [disclosure obligation]; (2) the importance of
the . . . precluded [evidence]; (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.
Patterson v. Balsamico, 440 F.3d 104, 117 (2d Cir. 2006), citing
Softel, Inc. v. Dragon Med. & Scientific Commc'ns, Inc., 118 F.3d
955, 961 (2d Cir. 1997).
to justify preclusion.

A showing of bad faith is not necessary

469 F.3d at 296.

Design Strategy, Inc. v. Davis, supra,

Because "preclusion of evidence is a 'harsh

remedy,'" it "should be imposed only in rare situations."
Ritchie Risk-Linked Strategies Trading (Ir.), Ltd. v. Coventry
First LLC, 280 F.R.D. 147, 156 (S.D.N.Y. 2012) (Marrero, D.J.)
(adopting Report and Recommendation); accord Granite State Ins.
Co. v. Clearwater Ins. Co., 09 Civ. 10607 (RKE), 2014 WL 1285507
at *11 (S.D.N.Y. Mar. 31, 2014) (Eaton, D.J.), aff'd, 599 F.
App'x 16 (2d Cir. 2015).
Application of these four factors demonstrates that
preclusion is appropriate.
Defendant's Explanation for Its Delayed Disclosure Defendant does not offer a substantial explanation for its
delayed disclosure of its Existential Damages Theory.

The

closest defendant comes is its contention that its damages "were,
and continue to be, evolving" (Letter from William F. Costigan,

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Esq. to the undersigned, dated Dec. 18, 2015 (Docket Item 147)
("Costigan Ltr.") at 3).

Defendant does not, however, claim that

it was unaware of the allegedly "deepening 'spiral'" that threatens its existence until August, 2015, when it first disclosed its
Existential Damages Theory.

To the contrary, comments made by

defendant's counsel at oral argument on November 2, 2015 suggest
that defendant's inability to access its self insured retention
surplus had an impact on the number of members who renewed in
April, 2014 and April, 2015 (Transcript of Proceedings held on
Nov. 2, 2015 (Docket Item 148) at 33).

Defendant does not

explain why disclosure was not made until August 2015 -- approximately 16 months after the April 2014 decline in renewals.
To the extent defendant suggests that plaintiff could
have learned of the Existential Damages Theory if plaintiff had
asked more searching deposition questions, defendant is improperly attempting to shift the burden imposed by Rule
26(a)(1)(A)(iii).

The party seeking damages has an affirmative

obligation under that Rule to disclose "a calculation of each
category of damages claimed."

Even if I assume that plaintiff

was not as thorough as it might have been in discovery, an
adversary's lack of thoroughness in discovery does not alter the
obligation imposed by Rule 26(a)(1)(A)(iii).
egy, Inc. v. Davis, supra, 469 F.3d at 293-94.

See Design Strat-

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Thus, the lack of compelling explanation weighs in
favor of preclusion.
The Importance of the Evidence - This is a breach of
contract action and the evidence at issue relates to one category
of damages; its admission or exclusion may alter the amount of
damages, but it will not affect liability.

Even if evidence

regarding the Existential Damages Theory is excluded, defendant's
remaining damages total approximately $700,000.

Although defen-

dant claims that its Existential Damages are greater than its
direct damages, it offers no explanation for this statement nor
does it even attempt to quantify its Existential Damages.

Thus,

defendant has not demonstrated the potential impact of its
Existential Damages Theory on any award of damages.
Thus, this factor also weighs in favor of preclusion.
Prejudice to Plaintiff & the Possibility of Continuance
- I address these two factors together because they are logically
connected; the former can frequently be ameliorated by the
latter.
Permitting defendant to assert the Existential Damages
Theory would prejudice plaintiff and the length of the continuance that would be necessary to mitigate that prejudice would be
unreasonable.

To prove its Existential Damages, the parties

would be required to depose at least some of the former members
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that have chosen to leave defendant and ascertain why they left;
the mere fact that certain members chose to leave defendant would
not inform a fact finder of the reason(s) for their departure.
Defendant itself states that the "damages stemming from the loss
of membership cannot be fully appraised until on or about April
1, 2016 . . ." (Costigan Ltr. at 4).
Thus, the depositions could not even start for another 90 days.
Although defendant suggests that this discovery could be completed in 30 days, I believe that estimate is overly optimistic
and that 60 or 90 days is more likely, meaning that discovery
would not be complete until the end of May or June of this year.
This delay also weighs in favor of preclusion.

Because I conclude that all the relevant factors
warrant the result, defendant is precluded from relying upon or
offering evidence in support of its contention that its inability
to access its self insured retention surplus has lead to a loss

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of members that is so severe that defendant's existence is
threatened.
Dated:

New York, New York
January 14, 2016

SO ORDERED

).~./~
PI~

HENRY
United States Magistrate Judge
Copies transmitted to:
All Counsel

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