Champion Foodservice, LLC v. Vista Food Exchange, Inc. et al
Filing
683
Memorandum Opinion and Order: Defendants' motions to exclude evidence of Champion's lost profits claim with respect to the OAFB 2013 and 2014 summer backpack programs, and OAFB 2014 summer IMD program, as a sanction for plaintiff 9;s failure to fulfill its obligations under the Federal Rules and for its violations of the Court's order regarding lost profits discovery, are granted. Accordingly, Champion is precluded from making any reference to, or presenting at trial any testimony, evidence, or argument, concerning alleged lost profits and/or damages with respect to any of the OAFB contracts at issue in this case. (Related Doc # 539 , 545 ). Judge Sara Lioi on 8/23/2016. (P,J)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
CHAMPION FOODSERVICE, LLC,
PLAINTIFF,
vs.
VISTA FOOD EXCHANGE, INC., et
al.,
DEFENDANTS.
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CASE NO. 1:13-cv-1195
JUDGE SARA LIOI
MEMORANDUM OPINION AND
ORDER
This matter is before the Court on the amended motion of defendants Vista Food
Exchange, Inc. (“Vista”) and Joshua Newman (“Newman”) (collectively, “Vista
defendants”) to exclude evidence of the lost profit claims of plaintiff Champion
Foodservice, LLC (“plaintiff” or “Champion”). (Doc. No. 5451 [“Vista Mot.”].)
Defendants Matthew Gibson (“Gibson”) and Innovative Foods, LLC (“Innovative”)
(collectively, “Gibson defendants”) joined Vista’s motion. (Doc. No. 539 [“Gibson
Mot.”].) Champion opposed the motions of both the Vista and Gibson defendants (Doc.
Nos. 560 [“Opp’n to Vista Mot.”] and 562 [“Opp’n to Gibson Mot.”]), and defendants
replied. (Doc. Nos. 574 [“Vista Reply”] and 581 [“Gibson Reply”].)
1
In accordance with the Court’s instructions, defendants’ motion to exclude plaintiff’s lost profit claims is
included with the motion for summary judgment on plaintiff’s second amended complaint. This
Memorandum Opinion only addresses defendants’ motion to exclude plaintiff’s lost profit claims.
Defendants’ motions seek a serious sanction as a consequence of plaintiff’s
persistent and pervasive refusal to fulfill its discovery obligations with respect to its lost
profits damages computation. Champion is adamant that it fully complied with its
damages discovery obligations as required by the Federal Rules. Throughout this
litigation, however, Champion’s purported “compliance” has been based on its own selfserving definition of evidence and information that supports its damages computation,
and of what constitutes relevant discovery under the Federal Rules. By applying its own
contrived interpretation of what the discovery rules require, Champion has refused to
produce evidence and information that is clearly relevant and required under the federal
rules, perhaps because such discovery would appear to be unfavorable to plaintiff’s
damages claim.
Our system of justice, aimed at resolving cases on the merits, hinges on the goodfaith and honest participation of all parties in the discovery process as required by the
Federal Rules. In this memorandum opinion, the Court examines in detail several
representative examples of Champion’s deliberate and willful withholding of clearly
relevant and discoverable documents and evidence, which spawned numerous discovery
disputes that delayed resolution of this case on the merits and wasted judicial resources.
If parties are permitted to abuse or manipulate the discovery process based upon their
own self-serving interpretation of the Federal Rules, our system of justice will not work.
Thus, for the reasons that follow, defendants’ motions are granted.
2
I. BACKGROUND
A. Factual
The background of this case has been extensively detailed in orders and opinions
previously issued by the Court, and familiarity therewith is assumed. For the purpose of
providing context for this Memorandum Opinion, the undisputed factual background
pertinent to defendants’ motions is briefly summarized here. Additional facts are
discussed in greater detail later in this opinion as relevant to the Court’s analysis.
Plaintiff Champion is an Ohio company engaged in the business of supplying
shelf-stable meals to various organizations and institutions, including the Ohio
Association of Foodbanks (“OAFB”). Defendant Gibson was hired by Tyrone Weithman
(“Weithman”) in January 2011 to work for Champion’s predecessor company—
“GoFast”—and then for Champion upon its formation later in 2011.
In 2012, Champion submitted a proposal to the OAFB for its summer backpack
program,2 and the OAFB awarded the contract to Champion. Gibson was involved in the
preparation of the 2012 proposal and administration of the 2012 contract.
Vista was Champion’s primary supplier for food products for the 2012 contract.
Vista is also in the shelf-stable pre-packaged food business, but did not submit a proposal
to the OAFB for the 2012 summer backpack program.
In February 2013, the OAFB requested bids for the 2013 summer backpack
program, which were due on March 1, 2013. Gibson resigned from Champion on
February 26, 2013. He submitted a bid on behalf of Vista on March 1, 2013. After Gibson
3
resigned, Champion requested and received an extension of time from the OAFB, and
submitted a bid for the OAFB 2013 summer backpack program within the extension
provided.
The OAFB awarded the 2013 summer backpack contract to Vista in late March
2013. Champion was selected by the OAFB for a different 2013 summer food program—
the innovative meal delivery program (“IMD”).
Champion sued Gibson in Crawford County on March 7, 2013 in connection with
his departure from Champion. On May 2, 2013, Champion amended its state court
complaint and added the other defendants to the lawsuit. The defendants then removed
the case from Crawford County to the Northern District of Ohio.
After the case was removed, plaintiff filed a second amended complaint.
Champion asserted various allegations in the second amended complaint against Gibson
and the other defendants, and set forth claims for breach of fiduciary duty,
misappropriation of trade secrets, tortious interference, conspiracy, and fraud. (See Doc.
No. 404 (Second Amended Complaint [“SAC”]).) Plaintiff claims that, as a result of
defendants’ alleged wrongful conduct, Champion was not awarded the contract for the
OAFB’s 2013 summer backpack program, or for the OAFB’s 2014 summer backpack
and IMD programs. (In fact, the 2014 OAFB summer backpack and IMD programs were
not bid out; instead, the State handled these programs in-house.) Plaintiff seeks lost
profits with respect to these three OAFB programs.
2
The OAFB’s summer backpack program is also referred to as the summer feeding program, and summer
weekends meals program.
4
Defendants’ motions seek to exclude plaintiff’s lost profit claims as a sanction on
the grounds that plaintiff failed to comply with the requirements of Rule 26 regarding
damages discovery, and failed to comply with the Court’s order regarding the same.
(Vista Mot. at 29131-33.3) Plaintiff counters that its lost profit claims are properly
supported as required by the Federal Rules, and that it fully complied with the Court’s
order. (Opp’n to Vista Mot. at 32419-25.)
B. Procedural History
This case has been fraught with disputes regarding discovery and other matters
since it was removed to the Northern District of Ohio in 2013. Relevant to defendants’
motions are the disputes regarding damages discovery, and discovery of plaintiff’s
electronically stored information (“ESI”). The Court utilized both an appointed special
master and the assigned magistrate judge to assist in addressing the myriad disputes.
1. Damages discovery
The Vista defendants first sought to exclude plaintiff’s lost profit claims in June,
2014 based on a “pattern” of discovery violations. The alleged violations included
Champion’s failure to provide documentation that supports plaintiff’s damages claim as
required by the Federal Rules, and failure to provide a Rule 30(b)(6) witness—Edwin
Nicewicz (“Nicewicz”)—who was prepared to testify regarding lost profits. (Doc. No.
201.4) In its motion, Vista cited Bessemer & Lake Erie R.R. Co. v. Seaway Marine
Transp., 596 F.3d 357 (6th Cir. 2010), for the proposition that excluding evidence of
3
Unless otherwise noted, all references to page numbers are to the page identification numbers generated
by the Court’s electronic filing system.
4
Plaintiff opposed Vista’s motion (Doc. No. 224), and Vista replied (Doc. No. 227).
5
Champion’s lost profits may be an appropriate sanction pursuant to Rule 26 and Rule 37
for failing to comply with its discovery obligations. (See Doc. 393 [“Order”] at 18803.)
The Court referred the motion to the special master. (Doc. No. 279.) In his
proposed order, the special master noted that “[b]eyond accusing each other of deceit,
concealment and fabrication, they are so factually incongruent as to make it nearly
impossible to discern the truth[]” without an evidentiary hearing. (Doc. No. 336
[“10/24/2014 Special Master Order”] at 14389.) The special master did not conduct an
evidentiary hearing, but ordered that Nicewicz be presented again, fully prepared, to
testify on behalf of Champion on the issue of damages. (Id. at 14391-92.) Specifically,
the special master ordered that:
In that deposition, the existence/production of backup documents, freight
costs, labor rates, etc., etc., and their relationship to the damages alleged
by Champion can be explored at length. In like fashion, inquiry can be
made as to how the profitability of the products in issue varies from the
overall profitability of Champion, and an inquiry can be made as to that
discrepancy. In sum, the further deposition of [Champion’s] 30(b)(6)
witness should be open as to all issues raised in this pending motion and
associated briefs. That deposition should proceed on the record, without
the additional production of any further documents. [Champion’s
witness(es)] should be fully prepared to testify on the issues that have been
developed by the briefs.
(Order at 18801-02.)
The Vista defendants objected to the special master’s order (Doc. No. 342), but
the Court overruled the objection and, in order to give Champion another opportunity to
fulfill its discover obligations, denied the motion to exclude plaintiff’s lost profits claim
without prejudice. Specifically, the Court noted that excluding Champion’s lost profits
“eventually may be an appropriate sanction[]” but, excluding damages “is an extreme
6
sanction, and the Court is reluctant to impose such a sanction without providing
Champion with an additional opportunity to properly and completely respond to Vista’s
discovery requests regarding lost profits.” ( Id. at 18803 (emphasis added).) The Court
further warned, however, that “[f]ailure of Champion to comply with this Order may
result in sanctions, up to and including dismissal of this case.” (Id. at 18805.)
The order addressed both production of documents and Champion’s Rule 30(b)(6)
witnesses. (Id. at 18804-05.) With respect to the Rule 30(b)(6) damages depositions,5
Champion produced Weithman on June 19, 2015 (Doc. No. 591 [“Weithman Dep.”]),
and Nicewicz on June 18, 2015 (Doc. No. 593-1 [“Nicewicz Dep.”]).
After the depositions, the Vista defendants renewed the motion to exclude
Champion’s lost profit claims, arguing that plaintiff failed to comply with the order to
provide documents supporting plaintiff’s lost profit claims, and failed to produce Rule
30(b)(6) witnesses prepared to testify on the noticed topics. (Doc. No. 500.)6 The Court
denied defendants’ renewed motion without prejudice and with leave to reassert the
motion in the context of defendants’ summary judgment motions. 7 (Doc. No. 525.) It is
defendants’ reasserted motion that is now before the Court.
5
Vista’s Rule 30(b)(6) notice, and Champion’s witness designations, are found at defendants’ exhibit
(“DX”) UU at the evidentiary hearing, and exhibit 120 to the Vista defendants’ motion (Doc. No. 546-17 at
30523-27.)
6
The Gibson defendants joined Vista’s renewed motion. (Doc. No. 513.)
7
The magistrate judge first issued an interim report and recommendation that the motion be denied as
prematurely asserted outside the context of the parties’ summary judgment motions (Doc. No. 517), to
which defendants objected (Doc. Nos. 520 and 521). The Court overruled defendants’ objections.
7
2. ESI discovery
Intertwined with the parties’ discovery dispute on the issue of damages is
defendants’ discovery of plaintiff’s electronically stored information (“ESI”). Champion
long resisted ESI discovery and the issue was extensively briefed by the parties on
multiple occasions. Ultimately, after repeated accusations by the defendants that the
plaintiff was not fulfilling its discovery obligations (and over the protestations of the
plaintiff), the Court ordered that plaintiff permit defendants to conduct on-site discovery
of plaintiff’s ESI by a forensic expert to be jointly selected by the parties. (Doc. No. 396.)
The inspection was performed by Matthew Curtin (“Curtin”) from InterHack in May,
2015.
Multiple disputes, spanning a period of months arose among the parties regarding
the court-ordered ESI discovery. Plaintiff sought to maintain the entire ESI discovery
under an “attorney eyes only” designation; the Court, however, refused, to permit such a
blanket designation. (Doc. No. 524.) Defendants now claim that the court-mandated ESI
discovery revealed documents relevant to Champion’s claimed lost profit claims that
were (wrongfully) not produced by Champion in discovery, and that plaintiff had outright
denied the existence of some of those documents. (See Doc. No. 649 at 48803-48988
(Transcript of June 3, 2016 evidentiary hearing [“Tr.”]) at 48853-55).) But for the courtordered access to Champion’s ESI, these discovery abuses would not have been
discovered. (See Tr. at 48881-82.)
8
3. Evidentiary hearing
The Court conducted an evidentiary hearing regarding defendants’ motions on
June 3, 2016. The hearing was concluded that day, with the exception of the testimony of
defendants’ expert, Robert Greenwald (“Greenwald”), and Nicewicz. The parties agreed
to submit Nicewicz’s Rule 30(b)(6) testimony in lieu of live testimony at the hearing, 8
and to take Greenwald’s deposition and submit it to the Court, also in lieu of live
testimony. (See Minutes of proceedings [non-document] June 3, 2016.)
Greenwald’s deposition9 and exhibits thereto were subsequently filed with the
Court (Doc. Nos. 661 and 662), as were the parties’ post-hearing briefs (Doc. Nos. 659
[“Vista Brief”]; 66010 (Declaration of Jonathan Scott [“Scott Dec.”]); 663 [“Gibson
Brief”]; 665 (Champion’s Combined Response to Vista’s and Gibson’s Brief [“Champion
Resp.”]).
In ruling on the defendants’ motions, the Court has considered the parties’
motions and post-hearing briefing and exhibits thereto, the testimony at the evidentiary
hearing and admitted exhibits, the Rule 30(b)(6) deposition of Nicewicz, and the
deposition of Greenwald.
8
See Tr. at 48957-59,
9
For purposes of the evidentiary hearing, plaintiff does not challenge Greenwald’s credentials, and
stipulates that Exhibits 1, 2 and 3 are Greenwald’s declarations that are part of the record in this case. (Doc.
No. 661-25 [“Greenwald Dep.”] at 49740.) Plaintiff’s motion in limine relative to Greenwald’s testimony at
trial regarding damages (Doc. No. 603) is not relevant to the Court’s determination of whether plaintiff
complied with the Court’s order and with its discovery obligations under the Federal Rules of Civil
Procedure.
10
Doc. No. 664 appears to be a duplicate filing of Attorney Scott’s declaration filed at Doc. No. 660.
9
II. DISCUSSION
A. Fed. R. Civ. P. 26
Rule 26 governs disclosures required “without awaiting a discovery request” with
respect to damages:
****
(iii) 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
material bearing on the nature and extent of injuries suffered[.]
Fed. R. Civ. P. 26(a)(1)(A)(iii).
This rule obliges a party claiming damages “to disclose ‘the best information then
available to it concerning that claim, however limited and potentially changing it may
be.’” Hesco Parts, LLC v. Ford Motor Co., No. 3:02-CV-736-S, 2007 WL 2407255, at *1
(W.D. Ky. Aug. 20, 2007) (quoting 6 James W. Moore, Moore’s Federal Practice §
26.22[4][c][ii] (3d ed. 2007)). Rule 26’s requirements have been described “as the
‘functional equivalent of a standing Request for Production under Rule 34.’” Bridgestone
Am., Inc. v. Int’l Bus. Mach. Corp., No. 3:13-CV-1196, 2016 WL 3211226, at *3 (M.D.
Tenn. Jan. 12, 2016) (quoting Fed. R. Civ. P. 26 advisory committee’s note to 1993
10
amendment). Moreover, Fed. R. Civ. P. 26(e)(1) requires a party to supplement or correct
its disclosures or responses.11
The documentation and evidence required by Rule 26 must be sufficient to allow
the opposing party to “independently analyze” the claim. Bessemer & Lake Erie R.R. Co.
v. Seaway Marine Transp., 596 F.3d 357, 370 (6th Cir. 2010) (summary nature of
damages documentation provides insufficient data to analyze claim for lost profits and
fails to satisfy Rule 26); Scheel v. Harris, Civil Action No. 3:11-17-DCR, 2012 WL
3879279, at *4 (E.D. Ky. Sept. 6, 2012) (quoting Bessemer, 596 F.3d at 370); see also
Silicon Knights, Inc. v. Epic Games, Inc., No. 5:07-CV-275-D, 2012 WL 1596722, at *7
(E.D.N.C. May 7, 2012) (Rule 26(a)(1)(A)(iii) and Rule 26(e) are designed to provide a
damages computation and analysis so that the opposing party “may then prepare to meet
that evidence via cross examination and via evidence in its rebuttal case (such as its own
expert witness).”) A “critical factor” in determining lost profits are avoided costs—costs
11
Fed. R. Civ. P. 26(e)(1)(A)-(B) requires that disclosures and discovery responses made under
Rule 26(a) be supplemented or corrected:
***
(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 or corrective information has not
otherwise been made known to the other parties during the discovery process or in
writing; or
(B) as ordered by the court.
11
saved by not incurring the expenses necessary to earn the revenue 12 at issue. Bessemer,
596 F.3d at 367.
In addition to failing to comply with Rule 26, defendants contend that Champion
also failed to comply with the order regarding document discovery of plaintiff’s lost
profit claims. In that order issued on March 18, 2015, the Court—echoing the language of
Rule 26—provided plaintiff “with an additional opportunity to properly and completely
respond to Vista’s discovery requests relating to lost profits[,]” and further directed
plaintiff to:
collect all of the discovery it has produced thus far regarding lost profits
from claims set forth in the first amended complaint (including a detailed
lost profit calculation), compile all supporting documents for its lost
profits claim as expanded in the anticipated second amended complaint
(including an updated detailed lost profit calculation), and provide all of
these documents, consecutively bates-numbered, to Vista’s counsel in one
orderly packet. Champion shall review the documents in this packet and
certify that complete detailed calculations and all supporting documents
have been produced. This bates-numbered packet shall be provided to
Vista no later than April 15, 2015.
(Order at 18803-04.)
12
As a separate argument, defendants contend that Champion’s lost profit claims for the 2014 OAFB
contracts is entirely speculative because, in 2014, the OAFB performed these contracts “in-house” as a cost
saving measure. Champion maintains that it was defendants’ alleged wrongful conduct that caused the
OAFB not to bid out the 2014 contracts, and challenges the contention that the OAFB saved money by
administering the contracts itself. The Court need not, and does not, address the merits of these arguments
in ruling on defendants’ motions for sanctions.
Additionally, the Court’s analysis herein focuses entirely on whether evidence of Champio’s lost
profits should be excluded because Champion failed to comply with its discovery obligations. This analysis
does not address the issue of whether such contracts would have been awarded to Champion if it were not
for defendants’ alleged wrongful conduct, or if Champion would be entitled to such damages if its loss
profits claim was not excluded as a sanction.
12
The Court’s directive did not limit Champion’s production to documents
previously produced. (Tr. at 48884-85.) On April 13, 2015, Champion certified that it
complied with the order.13 (Doc. No. 408.)
1. Champion’s damages packet
The damages packet compiled by Champion may be found in several places in the
record (“damages packet”).14 The packet was prepared by Nicewicz for purposes of
litigation. (Nicewicz Dep. at 42117-20.)
The packet is divided into four sections—(1) projected profits for the 2013 OAFB
summer backpack program; (2) projected profits for the 2014 OAFB summer backpack
program; (3) profit calculations for the 2013 OAFB IMD program that was actually
performed by Champion in 2013; and (4) projected profits for the 2014 OAFB IMD
program. The projected profits for the three OAFB contracts at issue, and the “profit
calculation” for the 2013 IMD program performed by Champion, are all presented
following the same pattern.
The first document of each section is a spreadsheet containing a sale amount,
followed by a list of expenses (food and utensils, boxes, packaging film, box label,
13
The damages packet compiled and certified by plaintiff in response to the order contained damages
documentation related to the Charlotte-Mecklenburg contract. Subsequently, plaintiff’s CharlotteMecklenburg contract damages claim in the SAC was dismissed with prejudice. (See Doc No. 499.)
14
Champion’s lost profits damages packet is found in the record at plaintiff’s exhibits (“PX”) 53, 54, 55,
and 56, and DX F from the evidentiary hearing. The packet is also found at exhibit 217 to defendants’
motion, (Doc. No. 546-23 to Doc. No. 546-27 at 31868-32280) and exhibits 96, 97, 98, and 99 (Doc. No.
563) to plaintiff’s opposition of defendants’ motions for summary judgment. The pages of the packet are
Bates numbered, and the Court will refer to the Bates number, rather than the Court’s page identification
number, because the Bates number of a page in the damages packet remains the same no matter where the
packet has been filed in the record.
13
assembly and packaging labor, delivery, plastic “T shirt” bag, 15 and administrative costs),
which is subtracted from the sales amount to produce the projected lost profit. (See
damages packet at 1, 183, 239, 324.) For each spreadsheet, the packet includes a
companion “Projected Production & Labor Cost Overview,” which states the manner by
which the expenses (avoided costs) listed on the spreadsheets were determined. (See id. at
178, 226, 316, 382.)
Each section contains documentation that Champion claims supports the
calculations on the spreadsheets. Defendants argue that this documentation is insufficient
and inadequate to enable defendants to analyze and verify plaintiff’s lost profit claims,
and thus does not comply with Rule 26 or the Court’s order.
Meal delivery costs
For example, with respect to delivery of the meals, Champion claims that it would
have made all deliveries in its own box truck.16 The overviews and spreadsheet
calculations are based on a 1.5 cent per meal delivery rate for all three contracts for
which plaintiff claims lost profits. (Id. at 178, 226, 382.) This rate is an “average” based
on Champion’s “experience.” (Tr. at 48947.) The damages packet contains no actual
documentation to support this calculation, and Nicewicz admits that no calculations were
provided.17
15
The “T shirt” bag expense is only included in the projected profits for the 2013 and 2014 summer
backpack programs, and not included in the projected profits for the 2014 IMD program.
16
Defendants challenge Champion’s assertion that it would deliver all of the meals for the three OAFB
contracts at issue. For the purpose of this analysis, the Court accepts Champion’s assertion.
17
Mr. Taft: “But he’s asking you if you produced any of those calculations.”
Deponent: “No.” (Nicewicz Dep. at 42446.)
14
Part of Champion’s damages packet is the “profit calculations” for the OAFB’s
2013 IMD program, which Champion actually performed and which Champion included
in the packet as a “baseline”18 for its projected lost profits. Although Champion actually
performed this contract, the “profit calculations” are presented in the same summary
“overview” fashion as the projected lost profits.
With respect to the cost of meal delivery for this performed contract, Champion
applies the same non-documented sum—1.5 cent per meal—to calculate profits for the
2013 IMD contract that Champion applies to project lost profits. (See damages packet at
239, 316.) Even though Champion actually performed this contract in the summer of
2013, Champion claims to not know the extent to which the meals were delivered in its
box truck or contracted out. (Tr. at 48919-20.) No documentation of cost for deliveries
made by Champion’s box truck (e.g. cost for the truck, driver cost, fuel cost, maintenance
cost, mileage, etc.), or freight bills for contracted meal deliveries, were provided by
Champion in its “profit calculation” for the 2013 IMD program. Champion asserts that
this information was not provided because “we didn’t rely on that. Again, it would have
been a semi-truck here and there going to a location. If you were to work it back, it would
be at that 1.5—a penny and a half delivery, if you work the numbers back.” (Id. at
48920.)
But there is no way to “work the numbers back.” Without actual supporting
documentation, which Champion admittedly did not provide, Champion’s meal delivery
costs cannot be independently analyzed for the completed 2013 IMD program or for the
18
Champion Resp. at 50140.
15
three OAFB contracts for which plaintiff claims lost profits. (See Greenwald Dep. at
49709, 49722-25; Doc. No. 546-1 (Supplemental Report of Robert Greenwald
[“Greenwald Supp. R.”]) at 29188, 29191.)
Production
Production capacity is another example of expenses (avoided costs) for which
plaintiff provides no documentation from which defendants may perform an independent
analysis. In the damages packet, Champion asserts a production capacity of 38,000
packaged meal kits per 8 hour shift for all three of the OAFB contracts for which plaintiff
claims lost profits, and for the 2013 IMD program that was actually performed by
Champion.19 These productivity assumptions are not based on actual production results.20
(Tr. at 48898.) Rather, Champion bases its assumption on machine specifications—not
Champion’s actual production experience. (Tr. at 48897; damages packet at 179-80.)
According to Weithman, Champion’s two packing machines operate at a speed of
40-55 units per minute. Calculated at 50 units per minute, 21,000 meals would be
produced in a shift per machine. With a total of two machines, Champion assumes that it
could package 42,000 meals per day on average. (Id. at 48895-96, 48902.) Nicewicz
testified that the best speed to run the packaging machines is at dial setting 5—50 meals a
minute. (Nicewicz Dep. at 42112-14.)
19
Damages packet at 178, 226, 316, 382. Champion also provided no plant productivity information for the
2012 OAFB summer backpack program, which Champion also performed. (Tr. at 48898-48901.)
20
According to Champion, it does not produce or maintain plant productivity reports per se, but does
maintain lot reports. (Tr. at 48865-48866.)
16
But the actual rate of production depends on the type of meal produced (Tr. at
48894-95) and the number of items in the meal being packed. (Nicewicz Dep. at 42113).
Besides production variability due to the nature and content of meals produced, there are
days when the machines jam, stop working, or run less efficiently. (Id. at 42116-17.)
Nicewicz claims that these variables were taken into account in arriving at an assumed
daily production rate of 38,000 units per shift, which Champion uses in both its lost
profits projections, and profit calculation for the 2013 IMD program. (Id. at 42117-18.)
Champion provides no documentation, however, upon which to analyze or verify this
assumption.
Champion claims it maintains inventory/lot reports but not production reports.
(Tr. at 48871; Nicewicz at 42115-16.) Champion did not produce any inventory reports,
nor did it produce an actual production report prepared in December 2014. Champion
claimed to be unaware these reports existed, even though they were maintained on
Champion’s network. (See Tr. at 48887-88, 48890-92.) The documents were discovered
by defendants during the course of the deposition of Champion’s former administrative
assistant, Linda Atkinson (“Atkinson”), and as a result of court-ordered discovery of
Champion’s ESI. (See id. at 48881, 48886.)
Even though these documents were not originally produced during the normal
course of discovery, but were belatedly discovered by chance during the Atkinson
deposition and court-ordered ESI discovery, Champion contends that it is of no
consequence because the documents are not relevant. (See id. at 48894.) According to
Champion, the December 2014 production report, which reflects production rates in the
17
range of 23,000-27,000 units per day (an amount significantly lower than that used by
Champion in its calculations), is not relevant to its lost profits calculations because:
“[T]his is December, a down time, and this wouldn’t correlate with us having 600,000 of,
you know, five different meals to run. This would be sporadic. It would be piecemeal.
Everyone’s on Christmas break. The schools are [out]. So this would not be reflective and
would not be a good sampling of what our factory is capable of.” (Id. at 48896, see also
48903-04.) Champion likewise claims that the inventory reports are not relevant because
they track lot numbers, not production. (Id. at 48929-30.) Champion’s assertion that these
documents were not produced based on plaintiff’s conclusion that the documents are not
relevant under Rule 26 reflects a recurring theme—the failure of Champion to produce
relevant documents that might contradict Champion’s unsubstantiated lost profit
projections.21
Labor costs
Closely related to plant productivity is labor cost. (Greenwald Dep. at 49699.)
Champion identified labor costs on the spreadsheets as an expense (avoided cost) to be
deducted from revenue in calculating its lost profits.
In support of Champion’s labor costs, Champion provides a “sample” of payroll
information for two line workers and for an administrative worker for a two-week period
in August, 2013. (Tr. at 48907.) From this sample, Champion determined that an hourly
rate of $9.06 per hour for line workers, and an hourly rate of $13.44 for it administrative
21
At the evidentiary hearing, plaintiff’s counsel conceded the relevance of these documents, but questioned
whether the order required their production. (Id. at 48879.) To this, the Court expressed astonishment that
these documents were not produced by Champion, but only were discovered by chance due to the Court
granting defendants extraordinary access to Champion’s ESI. (Id. at 48881.)
18
employee costs, would be applied to its lost profit calculations. (See damages packet at
181, 182.) Champion used these blanket sample rates for all three contracts for which it
claims lost profits, and for its profit calculation for 2013 IMD program. (See id. at 178,
226, 316, 382.)
Champion’s damages packet contains no documentation of actual labor costs or
payroll records (such as payroll journals and payroll tax returns). (Greenwald Dep. at
49702-03.) Champion has an electronic payroll system, but Champion did not produce
payroll records, which Nicewicz admitted were available for 2013, that could be
examined to verify labor rates. (Nicewicz Dep. at 42059; Tr. at 48863-64.)
While Champion testified that it was possible to determine accurate labor costs
for a given project from payroll (Tr. at 48864-65), no such calculations were made, either
for contracts for which lost profits were calculated, or for the 2012 summer backpack and
2013 IMD contracts that Champion actually completed. Greenwald detailed the
insufficiency of Champion’s sample two-week payroll documentation to verify pay rates
for workers over a two year period, and to verify Champion’s avoided cost calculations
for labor. (Greenwald Dep. at 49745-47; Greenwald Supp. R. at 29179, 29185.)
Food costs from inventory
For yet another example, the food pricing used by Champion to calculate its
profits for the 2013 IMD program performed by Champion is purportedly based on the
use of food contained in Champion’s inventory. (Nicewicz Dep. at 42207-11.) Nicewicz
was not entirely certain, however, about the nature and amount of the food inventory used
to perform the contract. (Id. at 42209-10.) Champion has a software program for tracking
19
food inventory (Id. at 42166; Tr. at 48939), but Champion provided no inventory
documentation from which to verify its calculations regarding food costs from inventory.
(Greenwald Supp. R. at 29184; Greenwald Dep. at 49742-43.)
2. Documents and evidence not produced by Champion
In addition to the deficiencies of the documentation provided by Champion in the
damages packet, defendants also argue that plaintiff’s lost profits disclosure is inadequate
because some avoided costs were omitted from the calculation and other information
relevant to the issue of lost profits was not produced.
OAFB 2012 summer backpack program
For example, Champion claims lost profits for the OAFB’s 2013 and 2014
summer backpack programs. The 2012 summer backpack program was actually
performed by Champion. Weithman testified that Champion’s performance of the 2012
summer backpack program would be a good case study—a good indicator—of
Champion’s expected performance of the 2013 summer backpack program. The 2012,
2013, and 2014 summer backpack programs involved 600,000 meals delivered to
foodbanks across Ohio. (Weithman Dep. at 41035-36.) Greenwald agrees with Weithman
that Champion’s performance of the 2012 summer backpack program would be probative
and useful in performing his analysis of Champion’s lost profits claim for the 2013 and
2014 summer backpack programs. (Greenwald Dep. at 49708; Doc. No. 541-5 (Dec. 7,
2015 Declaration of Robert Greenwald [“Greenwald Dec.”]) ¶¶ 7, 11.)
20
But discovery regarding the 2012 summer backpack contract was not provided,
and no analysis of the profitability of the 2012 summer backpack program was performed
by Champion in connection with its lost profit calculations.22 (Weithman Dep. at 4105455.) Champion’s reason reiterates the recurring theme—plaintiff’s performance of the
2012 contract is not relevant because plaintiff is not claiming lost profits for 2012,23 and
because “[w]e didn’t rely upon 2012 to support our lost profits calculation.”24 (Tr. at
48840.)
Regardless of whether Champion relied on the 2012 contract in calculating lost
profits for the similar 2013 and 2014 OAFB summer backpack programs, the Court
specifically ordered Champion to comply with defendants discovery requests regarding
lost profits and defendants made such request for information regarding Champion’s
performance of the 2012 contract, which both Weithman and Greenwald agreed would be
22
While working for Champion, Gibson prepared a summary of Champion’s performance of the 2012
OAFB summer backpack program (DX W), but it was not produced by Champion or included in the
damages packet because Champion asserts that it did not rely on the document for its damages calculation.
(Tr. at 48857.) The labor costs stated for performance of the 2012 contract in DX W are higher than the
labor costs projected by Champion for the 2013 backpack program in the damages packet. (Id. at 48859.)
Weithman dismissed this document as “more of a PR piece, kind of a fluff piece to say Ohio jobs were
created, local vendors that were used. So, again, we did not rely on it. So I wouldn’t rely on any of the
numbers in this.” (Id. at 48860.)But Weithman never contacted the OAFB to advise them that the numbers
provided in the report were not accurate. (Id. at 48861.)
23
Doc. No. 546-6 [“Pl. Resp. to Second Demand for Prod. of Docs.”] at 29580.
24
This assertion of plaintiff’s counsel is contrary to the Rule 30(b)(6) deposition testimony of Nicewicz,
who prepared Champion’s damages packet. Nicewicz testified that he used the labor costs for the 2012
contract, which he adjusted to account for different packing requirements, for the 2013 summer backpack
lost profit calculation. (Nicewicz Dep. at 42163.)
21
probative of Champion’s lost profit claims. Specifically, Vista’s second request for
production of documents sought this information, by requesting the following:
Documents reflecting Champion’s food costs, non-food costs, freight
costs, overhead, margin, and profit in connection with its proposal and
revised proposal for the 2012 OAF back pack program.
(Pl. Resp. to Second Demand for Prod. of Docs. at 29580.25)
Given Champion’s acknowledgement of the similarities between the 2012
contract and the 2013 and 2014 summer backpack programs for which plaintiff claims
lost profits, and the liberal construction of discovery under Rule 26, Champion’s
performance of the 2012 contract is clearly relevant.26 Yet, Champion refused and failed
to produce the documents.
In a similar fashion and notwithstanding multiple discovery requests, plaintiff
refused to produce actual documentation supporting its damages computations.27 Instead,
Champion produced only its own summary and overviews of the information, making it
impossible for the defendants to independently analyze and verify plaintiff’s damages
computation.
25
The certificate of service for Champion’s response is dated March 5, 2014.
26
Under the Federal Rules, a party may discover “any nonprivileged matter that is relevant to any party's
claim or defense[.]” Fed. R. Civ. P. 26(b)(1). “Relevance for discovery purposes is extremely broad.” Med.
Ctr. at Elizabeth Place, LLC v. Premier Health Partners, 294 F.R.D. 87, 92 (S.D. Ohio 2013) (citing Lewis
v. ACB Bus. Servs., Inc., 135 F.3d 389, 402 (6th Cir. 1998)); Malibu Media, LLC v. Ricupero, No. 2:14CV-821, 2015 WL 4273463, at *8 (S.D. Ohio July 14, 2015) (Rule 26 is liberally construed in favor of
allowing discovery) (citation omitted).
27
See, e.g., Pl. Resp. to Second Demand for Prod. of Docs., demand nos. 32 (“Backup documentation
including invoices as to any calculation of profit or damages claimed by Champion in this case, including
food costs, non-food costs and margins.”) and 33 (“Documents reflecting Champion’s food costs, non-food
costs, freight costs, overhead, margin, and profit in connection with its proposal and revised proposal for
the 2013 OAF back pack program.”).
22
Financial documents
Another example of available documents that were not produced by Champion in
connection with its lost profit calculations on the grounds of relevance28 are Champion’s
financial statements (including profit and loss statements)29 and general ledgers.30
Defendants’ expert has indicated that these standard financial documents are necessary in
in analyzing plaintiff’s lost profit claims. (See Greenwald Dep. at 49753-54; Greenwald
Supp. R. at 29184-86.) Bessemer, 596 F.3d at 368-70 (plaintiff did not disclose payroll
journals, payroll tax returns, financial statements, financial summary reports, and general
ledgers necessary to verify and analyze plaintiff’s claim for lost profits). The failure to
produce these documents prevents the defendants from being able to independently
analyze the plaintiff’s lost profit claims.
Avoided costs omitted
While Champion identified some avoided costs on its lost profit spreadsheets,
other avoided costs were omitted altogether from Champion’s lost profit calculations. See
Bessemer, 596 F.3d at 367 (avoided costs are a “critical factor” in determining lost
profits).
For example, the cost of inbound freight is not included as an expense in
Champion’s damages packet, impacting defendants’ ability to independently analyze
28
Tr. at 48931-35.
29
Champion’s profit and loss statements were not produced in connection with Champion’s damages claim
because Champion did not consider them relevant, purportedly because the damages are based on single
contracts and Champion’s profit/loss statements are for an entire year. (Tr. at 48910-11.)
30
Champion’s general ledger is prepared by an employee of BC&G, another Weithman company. (Tr. at
48913.)
23
plaintiff’s lost profit calculations. (Greenwald Supp. R. at 29179; Greenwald Dep. at
49734-35.) Inbound freight costs are shipping costs that Champion incurs with respect to
items that it orders from vendors. Champion’s tax returns reflect inbound freight costs.
(See, e.g., Doc. No. 662-3 (2013 U.S. Tax Return) at 49929 ($25,762); Doc. No. 662-2
(2012 U.S. Tax Return) at 49892 ($36,289).) Nicewicz testified that whether Champion
pays inbound freight charges for products it orders “[d]epends on the supplier.”
(Nicewicz Dep. at 42387, 42394.) Weithman also testified that Champion incurs inbound
or FOB freight charges for supplies purchased by Champion. (Tr. at 48917-18.) Champon
did not include this expense (avoided cost) in its damages calculation or
contemporaneous invoices for all of its food and supplies, thus Champion’s assertion that
shipping costs are included in the cost of these items cannot be tested.31
Also not included as an avoided cost in plaintiff’s damages packet are utility
costs, and Champion did not produce utility bills. While acknowledging that such costs
might increase at times of higher production, Champion did not list utility costs as an
expense because “[i]t would be so incidental that it’s not—we didn’t put it in, didn’t rely
on it. It would be a negligible cost.” (Id. at 48922.) Greenwald agrees that utility costs are
going to vary with production. (See Greenwald Dep. at 49712; Greenwald Supp. R. at
29188.) Without utility bills, however, Champion’s conclusion that such costs are
negligible cannot be independently analyzed.
31
If shipping is not included in the cost of the items, and Champion has not included inbound freight/FOB
charges as an expense in its lost profit calculations, then the projected lost profits are inflated by that
amount.
24
3. Rule 26 analysis
Virtually all of plaintiff’s expenses (avoided costs) listed on its lost profit
spreadsheets32 lack supporting documentation from which those costs can be verified and
analyzed. In addition, some evidence relevant to plaintiff’s lost profit claims that would
enable defendants to independently analyze plaintiff’s damages computation was not
provided at all. Although documentation is available that would permit defendants to
independently analyze plaintiff’s lost profit computation, Champion has not provided it,
choosing instead to provide unverifiable summaries, samples, averages, and estimates, or,
in some instances, to not provide the information at all. Champion’s discovery conduct
not only fails to comply with Rule 26’s specific damages discovery obligations, but also
fails to comply with its obligations under Rule 26 to respond to defendants’ discovery
requests, and the Court’s order regarding the same.
From the information provided by Champion in support of it damages
computation, defendants are unable to verify or test plaintiff’s projected lost profits. (See
Greenwald Supp. R. at 29179-29191; Greenwald Dep. at 49793-94.) Damages
disclosures lacking supporting documentation that would allow the opposing party to
“independently analyze” a lost profits claim violate Rule 26. Acuity Brands Lighting, Inc.
v. Bickley, No. 5:13-CV-366-DLB-REW, 2015 WL 10551946, at *2 (E.D. Ky. Nov. 30,
2015) (disclosure lacking supporting documentation that would allow the opposing party
to independently analyze the claim violates Rule 26) (citing Bessemer, 596 F.3d at 370),
32
Greenwald testified that there was some supporting documentation for boxes and packaging film.
(Greenwald Dep. at 49789-91.)
25
report and recommendation adopted sub nom. Acuity Brands, Inc. v. Bickley, No. CV 13366-DLB-REW, 2016 WL 1171541 (E.D. Ky. Mar. 24, 2016) (citing Scheel, 2012 WL
3879279, at *4)).
As argued by defendants’ in their original motion for sanctions, and discussed by
the Court in the order providing Champion with an additional opportunity to fulfill is
discover obligations under Rule 26, Bessemer sets the standard in the Sixth Circuit
regarding Rule 26’s requirements relating to a party’s damages discovery obligations.
Accordingly, the Court concludes that Champion’s damages disclosures, and
failure to properly and completely respond to defendants’ discovery requests relating to
lost profits, violate Rule 26 and the Court’s order.
B. Fed. R. Civ. P. 30(b)(6)
Information that was not provided by Champion in its damages packet and
document discovery regarding lost profits was also not provided by its Rule 30(b)(6)
witnesses. Defendants contend that Champion also violated the order relative to
Champion’s Rule 30(b)(6) witnesses. In that regard, the order required Champion:
to produce one or more Rule 30(b)(6) witnesses, as appropriate, for an
additional deposition regarding lost profits. Before selecting a witness or
witnesses, Champion shall again review the topics that Vista seeks to
discover on the issue of damages, and identify the appropriate
individual(s) within its organization to provide testimony on those topics.
The witness(es) must be knowledgeable and prepared to testify regarding
all discoverable topics.
(Order at 18805.)
Rule 30(b)(6) requires that individuals designated to speak for the company must
testify about “information known or reasonably available to the organization.” The
26
designated witness must be prepared by the organization to adequately testify on the
noticed topics. Nacco Materials Handling Grp., Inc. v. Lilly Co., 278 F.R.D. 395, 400-01
(W.D. Tenn. 2011) (citing FDIC v. Butcher, 116 F.R.D. 196, 199 (E.D. Tenn. 1986) (a
corporation must make a good-faith effort to designate persons having knowledge of the
information sought and to prepare those persons) and Marker v. Union Fid. Life Ins. Co.,
125 F.R.D. 121, 126 (M.D. N.C. 1989) (Rule 30(b)(6) requires a corporation not only to
produce persons to testify with respect to the designated matters, but also to prepare the
witness to give complete and knowledgeable answers)); Prosonic Corp. v. Stafford, No.
2:07-CV-0803, 2008 WL 2323528, at *1 (S.D. Ohio June 2, 2008) (“[f]or a Rule 30(b)(6)
deposition to operate effectively, the deposing party must designate the areas of inquiry
with reasonable particularity, and the corporation must designate and adequately prepare
witnesses to address these matters”) (quoting Starlight Intern. Inc. v. Herlihy, 186 F.R.D.
626, 638 (D. Kan. 1999) (quotation marks and further citation omitted)).
Preparation of a Rule 30(b)(6) witness is an active process. “Rule 30(b)(6)
requires all such designees to review all matters known or reasonably available to the
corporation in preparation for the deposition, even if the documents are voluminous and
burdensome to review.” Beattie v. CenturyTel, Inc., No. 02-10277, 2009 WL 5066676, at
*6 (E.D. Mich. Dec. 16, 2009) (citing Sprint Commc'ns Co. v. Theglobe.com, Inc., 236
F.R.D. 524, 528 (D. Kan. 2006)); Nacco Materials Handling Grp., 278 F.R.D. at 401
(Lilly’s Rule 30(b)(6) designee was not adequately prepared to testify on the noticed
topics because he did not meet with employees he knew had accessed plaintiff’s website,
examine their computers to determine what portion of plaintiff’s secure site had been
27
accessed, or “review any documents or records to determine who accessed the site,
although he admitted that Lilly probably had such records available”).
1.
Weithman’s Rule 30(b)(6) deposition
Defendants’ Rule 30(b)(6) notice, in relevant part, identified the following topics:
7. Projects that Champion performed in 2011-2014 that were similar to the
2013 and 2014 OAFB contracts. Designated—Ty Weithman to mid-2013;
Ed Nicewicz after mid-2013.
8. Champion’s revenues, profits, margins, and performance on similar
projects from 2011-2014. Designated—Ty Weithman to mid-2013; Ed
Nicewicz after mid-2013.
(DX UU.)33
Weithman was designated by Champion to testify regarding projects similar to the
OAFB contracts at issue. As previously discussed, Champion conceded that the 2012
contract performed by Champion would be an indicator of Champion’s expected
performance with respect to the OAFB’s 2013 summer backpack program,34 and
Greenwald agreed. (Greenwald Dep. at 40708; Greenwald Dec. ¶¶ 7, 11.)
33
In defendants’ Rule 30(b)(6) notice, counsel for Vista noted: “These designations are tentative based on
Champion’s review of the topics[.]” (DX UU.)
34
Weithman testified at his deposition that the two projects “were very similar program[s],” and while he
could not say “definitively because there were different aspects to each program[,]” the comparison of
Champion’s profits in the 2012 program with the projected profits of the 2013 program “would be very
close.” (Weithman Dep. at 41054-55.) The OAFB’s 2012 summer backpack program did not go through a
bid process like the OAFB’s 2013 summer backpack program, and the timing of the project was different.
Notwithstanding these and some other differences, Champion acknowledged that the two projects were
“similar” in scope—600,000 meals delivered to foodbanks across Ohio. (Weithman Dep. at 41035-36.) At
the evidentiary hearing, Weithman again acknowledged that the 2012 program was “similar in scope,” but
attempted to back away from his Rule 30(b)(6) testimony by describing certain differences in the
procedural aspects and timing of the 2012 program. (See Tr. at 48826-33.) Even were Weithman’s afterthe-fact qualifying testimony at the evidentiary hearing credible—and the Court finds that it was not—that
testimony, more than a year after the deposition, is not relevant to the Court’s determination as to whether
Champion complied with the Court’s order to produce a knowledgeable and prepared Rule 30(b)(6) witness
at the time of Weithman’s deposition.
28
Weithman testified that Champion did not separately maintain profit/loss
statements on a per project basis, but acknowledged that all of the documents necessary
to compute profits and margins for the 2012 OAFB summer backpack program were
available, and “if asked,” he could perform that analysis. (Tr. at 48826 (emphasis added);
see also Weithman Dep. at 41054-55.) Defendants did ask.
The deposition notice directed Champion to provide profitability analysis for
projects “similar” to the OAFB contracts at issue in the lost profits claims. Champion
identified two such projects—the 2012 summer backpack and 2013 IMD programs.
(Weithman Dep. at 41035-36; Nicewicz Dep. at 42120-24).35 Champion possessed the
underlying documents from which the information requested could be determined.
(Weithman Dep. at 41054-55.) Champion had an obligation to prepare its designated
witnesses to testify on these topics. See Laethem Equip. Co. v. Deere & Co., No. 05-CV10113-BC, 2007 WL 2897848, at *4 (E.D. Mich. Sept. 28, 2007) (granting motion to
compel Rule 30(b)(6) deposition regarding profits where plaintiff argued that Deere had
documents from which Deere’s margins on products sold could be determined). But
Weithman was not prepared to testify at his deposition regarding the noticed topics.
35
Even if Champion concluded that such an analysis would not be relevant to its claim for lost profits
because of certain purported program differences (Weithman Dep. at 41035-36; Nicewicz Dep. at 4212024; see also Tr. at 48899-48901), a company may not circumvent its obligation to prepare its Rule 30(b)(6)
witness to “answer fully and without evasion all questions about the designated subject matter” “simply by
producing a witness without knowledge of the subjects believed to be irrelevant.” Painter-Payne v. Vesta
W. Bay, LLC, No. 2:12-CV-00912, 2014 WL 1599505, at *3 (S.D. Ohio Apr. 21, 2014) (case citations
omitted). “[A] witness at a deposition is [generally] required to answer even irrelevant questions, subject to
objection, because the circumstances under which a witness may refuse to answer deposition questions are
quite limited. See Fed. R. Civ. P. 30(d)(1). That rule is not different for Rule 30(b)(6) depositions.”
Prosonic, 2008 WL 2323528, at *4 (citing Banks v. Office of Senate Sergeant-at-Arms, 222 F.R.D. 7
(D.D.C. 2004)).
29
2. Nicewicz’s Rule 30(b)(6) deposition
Nicewicz prepared Champion’s damages packet and was questioned at his
deposition regarding those calculations. Nicewicz provided no more information in his
Rule 30(b)(6) deposition than was available in the unsubstantiated information in the
damages packet such as would enable defendants to independently verify and analyze
plaintiff’s lost profit claims.
For example with respect to food prices, Champion’s damages packet contains
invoices from time frames that are not contemporaneous with the time frame in which the
project was to have been performed.36 (Greenwald Supp. R. at 29180, 29184.) Nicewicz
testified that he and an assistant verified food costs, but his testimony does not clarify the
matter. Nicewicz produced no notes, emails, or other documents to support his scattered
and uncertain recollections regarding these price verifications. (Nicewicz Dep. at 4206779.)
Nicewicz also testified regarding labor costs. First, Nicewicz testified how he
initially arrived at the labor costs contained in the damages packet, noting mistakes along
the way with respect to both labor rate and the number of employees required to perform
the work. (Id. at 42162-66.) Nicewicz’s testimony about the corrected labor costs is no
more illuminating, and is filled with estimates and uncertainty with respect to the details
of Champion’s labor costs used in its lost profit calculations. In the end, Nicewicz
testified that Champion does not keep records of time to complete a project and required
36
Champion essentially concedes that it did not provide contemporaneous invoices, arguing in its posthearing brief that “Champion may have had more recent invoices, but the prices were the same.”
(Champion Resp. at 50153.)
30
labor, even with respect to completed projects similar to the contracts for which
Champion claims lost profits. (Id. at 42162-75.)
As previously discussed regarding meal delivery costs, the damages packet
contains no documentation to support Champion’s use of 1.5 cents per mile for meal
delivery costs. Nicewicz was questioned about this expense at his Rule 30(b)(6)
deposition, but his testimony is a confusing labyrinth of assumptions, estimates, and
guesswork and he admits that Champion produced no calculations to support this sum.
(Id. at 42424-47.) Rather, Champion’s meal delivery costs are based simply on
Champion’s “long experience.” (Champion Resp. at 50153.)
3. Rule 30(b)(6) analysis
Both Weithman and Nicewicz were unprepared to testify about matters for which
they were noticed regarding Champion’s lost profit claims. Both Rule 30(b)(6) and the
Court’s order required Champion to produce witnesses that were knowledgeable and
prepared, and to perform whatever inquiry and review was required to be so prepared.
Nacco Materials Handling Grp., 278 F.R.D. at 400-01. This preparation is an active
process, and Weithman and Nicewicz had a duty to inquire and review documents so that
they were knowledgeable about, and could testify, regarding the noticed topics. Beattie,
2009 WL 5066676, at *6; Nacco Materials Handling Grp., 278 F.R.D. at 401.
Champion’s failure to produce Rule 30(b)(6) witnesses knowledgeable and prepared to
testify violates the requirements of the Federal Rules and the order. See Bessemer, 596
F.3d at 367-68.
31
III. SANCTIONS
The Court now considers what sanctions, if any, are appropriate based on these
findings.
A. Fed. R. Civ. P. 37(c)(1)
Defendants seek to exclude evidence of plaintiff’s lost profits pursuant to Fed. R.
Civ. P. 37(c)(1).37 If a party fails to comply with its discovery obligations under Rule 26,
Fed. R. Civ. P. 37(c)(1) provides for the imposition of sanctions. Hitachi Med. Sys. Am.,
Inc. v. Choe, No. 5:10 CV 384, 2012 WL 4475561, at *4 (N.D. Ohio Sept. 26, 2012) (“If
a party fails to provide information ... as required by Rule 26(a) or (e), the party is not
allowed to use that information ... to supply evidence on a motion, at a hearing, or at a
trial, unless the failure was substantially justified or is harmless.” (quoting Fed. R. Civ. P.
37(c)(1))); Consol. Rail Corp. v. Grand Trunk W. R. Co., 853 F. Supp. 2d 666, 670 (E.D.
Mich. 2012) (“If a party fails to disclose such information during discovery, it may not
use that information against the opposing party at trial, unless the failure to disclose was
substantially justified or is harmless.” (citing Fed. R. Civ. P. 37(c)(1))).
37
Defendants’ motion seeks exclusion of evidence of plaintiff’s lost profits “along with such other remedy
the Court deems . . . appropriate[.]” (Vista Mot. at 29133.) The parties focused their motion briefing on
excluding evidence of plaintiff’s damages claim. In post-hearing briefing, defendants engage in an
extensive analysis under Bessemer in support of excluding evidence of plaintiff’s damages claim. (See
Vista Brief.) In addition, citing Laukus v. Rio Brands, Inc., 292 F.R.D. 485 (N.D. Ohio 2013), Vista
appears to argue that dismissal of plaintiff’s case is also an appropriate sanction for plaintiff’s failure to
fulfill its damages discovery obligations. (Vista Brief at 49177.) As noted by the court in Bessemer, the test
for dismissal of plaintiff’s case under Fed. R. Civ. P. 37(b) is an entirely different standard than exclusion
of evidence under Rule 37(c)(1). Bessemer, 596 F.3d at 370. The sanction of dismissal was not the focus of
the parties’ briefing with respect to defendants’ motion. That said, the Court recognizes that it may impose
whatever sanction it determines to be appropriate under the federal rules, statutes, and the Court’s inherent
power.
32
“[T]he party seeking to invoke the preclusion sanction [of Rule 37(c)(1)] must
first prove that the opposing party violated Rule 26(a) or (e) ....” Nathan v. Ohio State
Univ., No. 2:10-CV-872, 2012 WL 5342666, at *4 (S.D. Ohio Oct. 29, 2012) (quoting 7
James Wm. Moore et al., Moore’s Federal Practice § 37.60 [2][a] (3d ed. 2012)).
1. Plaintiff has failed to comply with the requirements of Rule 26 and the
Court’s order
The Court has previously detailed the severe deficiencies regarding plaintiff’s
damages disclosures in connection with its damages computation, and concluded that
Champion’s disclosures are insufficient to enable defendants to independently analyze
plaintiff’s damages claim. Nicewicz, who prepared plaintiff’s damages packet, is
admittedly not an accountant, has no experience in accounting, forensic accounting,
auditing, appraisals, or business valuation. (Nicewicz Dep. at 42329-31.) Defendants’
expert has detailed the insufficiencies of plaintiff’s damages packet. The damages packet,
does not permit the plaintiff’s damages computation to be verified or tested. While an
expert is not required under Ohio law to prove damages, without an expert Champion is
unable to rebut the compelling opinion and testimony of defendants’ expert that such
documentation is needed in order to independently analyze plaintiff’s damages claim.
Bessemer, 596 F.3d at 369 (“[A]ccording to the unrebutted opinion of Seaway’s expert,
the records requested were ‘standard accounting records’ and Bessemer could not excuse
its failure to disclose on the grounds that there were no documents to produce.”)
Plaintiff argues that it has complied with Rule 26 and the order, and that
defendants’ motion is really a dispute about the amount of damages, not the sufficiency
33
of the damages documentation under Rule 26. Under Ohio law, plaintiff need not prove
the amount lost with “absolute precision,” and the “evidence need only be reasonable, not
specific.”38 Ask Chem., LP v. Computer Packages, Inc., 593 F. App'x 506, 511 (6th Cir.
2014) (quoting Charles R. Combs Trucking, Inc. v. Int'l Harvester Co., 12 Ohio St. 3d
241, 466 N.E.2d 883, 887 (1984)). But defendants’ motions concerns the discovery
required under the Federal Rules, not the proof required under Ohio law to prevail on a
claim for lost profits. In the absence of supporting documentation that enables defendants
to independently analyze plaintiff’s damages computation, that computation cannot be
verified. See Silicon Knights, 2012 WL 1596722, at *7.
It is true that plaintiff compiled a packet of more than 400 pages to “support” its
damages claim. Quantity alone does satisfy the requirements of the Federal Rules, and
Champion included many pages that are of no value in allowing defendants to analyze
plaintiff’s damages claim. More troubling, though, is that Champion deliberately failed to
provide information pertinent to defendants’ analysis. Both with respect to the
insufficient documentation provided, and with respect to the information not provided
based on Champion’s own contrived determination as to what information was relevant
or was not relied upon, Champion is essentially asking defendants to “take their word for
it” regarding plaintiff’s overviews, summaries, samples, estimates, experience, and
averages used to compute lost profits.
38
“The Erie Doctrine ‘requires a federal court sitting in diversity to apply state substantive law and federal
procedural law.’” Barnes v. Sun Chem. Corp., No. 1:14-CV-136, 2016 WL 759206, at *2 (W.D. Mich. Feb.
26, 2016) (quoting Degussa Admixtures, Inc. v. Burnett, 277 F. App’x 530 (6th Cir. 2008) (citing Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 82 L. Ed. 1188 (1938))).
34
Rule 26 does not require defendants to take plaintiff’s word for it. “Bessemer
requires robust damage-related production.” Acuity Brands Lighting, 2015 WL
10551946, at *1 n.2. Damages disclosures lacking supporting documentation that allows
the opposing party to “independently analyze” the lost profit claims violates Rule 26. Id.
at *2 (citation omitted); Shoffner v. Qwest Commc’ns Corp., No. 4:01-CV-54, 2014 WL
3495045, at *9 (E.D. Tenn. June 23, 2014) (damages claim not sufficiently documented
when plaintiff’s estimated value of land then calculated various percentages of
diminished values), report and recommendation adopted, No. 4:01-CV-54, 2014 WL
3495175 (E.D. Tenn. July 11, 2014).
Champion repeatedly failed to comply with the requirements of the Federal Rules
by applying its own definition of relevance and what constitutes “support” for its
damages claim. Rule 26’s requirement that a claimant provide evidence supporting its
damages computation is not a license to pick and choose what constitutes support, and
exclude evidence that may be unfavorable to the claim, because plaintiff chooses not to
“rely” on it. The Federal Rules and the courts determine what constitutes relevant
evidence, not the claimant. “Our system of discovery was designed to increase the
likelihood that justice will be served in each case, not to promote principles of
gamesmanship and deception in which the person who hides the ball most effectively
wins the case.” Abrahamsen v. Trans-State Exp., Inc., 92 F.3d 425, 428-29 (6th Cir.
1996).
During the entire course of damages discovery, plaintiff continually objected to
clearly relevant damages discovery requests based on the self-serving contention that the
35
information was not relevant, or not utilized by plaintiff to support its damages claim.
Additionally, plaintiff steadfastly refused to provide actual supporting documentation for
its damages computation, which was admittedly available, and instead provided
defendants with prepared-for-litigation summaries and overviews from which defendants
could not independently analyze plaintiff’s calculations. Plaintiff’s sustained and
deliberate refusal to comply with its discovery obligations violates both Rule 26 and the
Court’s order.
2. Plaintiff’s failure is not justified or harmless
If the moving party establishes that the party seeking damages did not comply
with its discovery obligations under Rule 26, the burden shifts to the potentially
sanctioned party to show that the violation of Rule 26 was justified or harmless. R.C.
Olmstead, Inc. v. CU Interface, LLC, 657 F. Supp. 2d 905, 908-09 (N.D. Ohio 2008),
aff'd, 606 F.3d 262 (6th Cir. 2010) (citations omitted).
“The advisory committee note to Rule 37(c) ‘strongly suggests that ‘harmless’
involves an honest mistake on the part of the party coupled with sufficient knowledge on
the part of the other party.’” Sommer v. Davis, 317 F.3d 686, 692 (6th Cir. 2003) (quoting
Vance v. United States, No. 98–5488, 1999 WL 455435, at *5 (6th Cir. June 25, 1999)
(unpublished table decision)); R.C. Olmstead, 657 F. Supp. 2d at 908-09.
In its post-hearing brief, plaintiff continues to advance its recurring themes that
the evidence sought by defendants to independently analyze plaintiff’s damages
computation is not relevant, and/or that plaintiff did not rely on the evidence to support
its computation. (See Champion Resp.) As discussed above and at the evidentiary
36
hearing, a party does not satisfy its discovery obligations by picking and choosing
supporting documentation based on its own definition of relevance, and ignoring
information clearly relevant under the Federal Rules that may be unfavorable to its
damages computation. (See Tr. at 48879-83.)
Moreover, plaintiff’s refusal to comply with its discovery obligations under Rule
26 continued unabashed in the face of the Court’s order regarding damages discovery
(relating to both documents and Rule 30(b)(6) witness testimony), and in the face of the
Court’s warning that the sanction of exclusion or dismissal may be imposed if plaintiff
did not avail itself of the additional opportunity provided by the Court to comply with its
discovery obligations under both Rules 26 and 30(b)(6). Bessemer, 596 F.3d at 370
(“Even with the entry of a protective order in May 2007, Bessemer continued to evade
Seaway’s requests for information[.]”) Undeterred, plaintiff continued to steadfastly rely
on its own definition of relevance and support with respect to its lost profit calculations.
Plaintiff’s argument that the court-ordered ESI discovery of Champion’s network
absolves plaintiff of its failure to comply with its discovery obligations is unavailing.
Even if the ESI discovery revealed all of the documents that defendants sought regarding
plaintiff’s damages computation, and the Court does not find that it did,39 that discovery
was limited to attorneys-eyes-only (at plaintiff’s insistence) until November 2015—
which was several months after the order providing plaintiff with one last opportunity to
comply with its Rule 26 and 30(b)(6)discovery obligations; after the second round of
39
The parties dispute whether Champion’s payroll system, which is located on BC&G Weithman’s server
and not Champion’s server, was part of ESI discovery. (Cf. Tr. at 48941-44 and Doc. No. 660-4 (July 14,
2016 Declaration of Matthew Curtin) ¶ 4.)
37
Rule 30(b)(6) depositions ordered by the Court; after plaintiff’s compilation of the
damages packet ordered by the Court; and after the defendants’ expert issued his
supplemental report regarding the sufficiency of plaintiff’s damages computation based
on the evidence and information provided by Champion in its damages packet and by its
Rule 30(b)(6) damages witnesses. What defendants may or may not have belatedly
discovered as a result of the court-ordered ESI discovery is of limited relevance to the
issue of plaintiff’s failure to provide documents sought by defendants in their second
request for production of documents in 2014,40 plaintiff’s failure to comply with Rule 26
regarding its damages computation, and its failure to provide knowledgeable and
prepared witnesses for the Rule 30(b)(6) damages depositions.41
Rule 37(c)’s sanction of exclusion is mandatory unless there is a reasonable
explanation of why Rule 26 was not complied with or the mistake was harmless.
Bessemer, 596 F.3d at 370 (citation omitted); Numatics, Inc. v. Balluff, Inc., 66 F. Supp.
3d 934, 943 (E.D. Mich. 2014) (When the disclosure requirements of Rule 26 are
violated, Rule 37 mandates preclusion of the evidence “unless there is a reasonable
40
TLC Realty 1 LLC v. Belfor USA Grp., Inc., No. 3:13-CV-56, 2016 WL 1730712, at *2 (S.D. Ohio Feb.
3, 2016) (“In addition to Rule 26, parties must detail and provide proof of damages when requested to do so
in discovery. See, e.g., Bonnell v. Firstmerit Bank, N.A., No. 13–13589, 2014 WL 5511494, at *1
(E.D.Mich. Oct. 31, 2014) (excluding evidence of damages when the plaintiff failed to provide mandatory
disclosures and failed to provide requested information regarding her damages even though the defendant
expressly requested that information during discovery).”).
41
Even if Champion had already produced in discovery all of the documents regarding the 2012 contract,
defendants were entitled to depose Champion’s representative on the noticed topics. See In re Vitamins
Antitrust Litig., 217 F.R.D. 229 (D.D.C. 2002); Richardson v. Rock City Mech. Co., LLC, No. CV 3-090092, 2010 WL 711830, at *7 (M.D. Tenn. Feb. 24, 2010) (“simply because the defendant has previously
produced documents, the plaintiff is not precluded from inquiring about those documents at a Rule 30(b)(6)
deposition”) (citing Foreclosure Mgmt. Co. v. Asset Mgmt. Holding, 2008 WL 3895474 *5 (D. Kan.
Aug.21, 2008); Tri-State Hosp. Supply Corp. v. United States, 226 F.R.D. 118, 125-26 (D.D.C. 2005)).
38
explnation of why Rule 26 was not complied with or the mistake was harmless.”)
(quoting Bessemer, 596 F.3d at 370 (6th Cir. 2010) (quotation marks and further citation
omitted)); Callen Mfg. Corp., 2016 WL 865733, at *5 (“A noncompliant party may avoid
sanction if there is a reasonable explanation of why Rule 26 was not complied with or the
mistake was harmless.”) (quoting Howe v. City of Akron, 801 F.3d 718, 747 (6th Cir.
2015) (quotation marks and further citation omitted)).
Applying the factors used in the Sixth Circuit to determine if the non-disclosures
are substantially justified or harmless,42 the Court concludes that plaintiff’s noncompliance was willful and deliberate—not justified or harmless. Similar to Bessemer,
plaintiff’s claim for damages is not a surprise to defendants, but the insufficiencies of
plaintiff’s damages disclosures are critical to defendants’ defense of plaintiff’s lost profit
claims. The unrebutted testimony of defendants’ expert is that without the documents and
information at issue, plaintiff’s damages computation cannot be independently analyzed.
Plaintiff’s noncompliance with Rule 26 thwarted defendants’ ability to independently
analyze plaintiff’s lost profit claims and effectively rebut the profits projected in
plaintiff’s damages packet. (See, e.g., Greenwald Dep. at 49838 (damages calculations
based on assumptions for which there is no supporting documents).) Defendants’ inability
42
Courts in the Sixth Circuit consider five factors when determining whether a party’s omitted or late
disclosure is substantially justified or harmless:
(1) the surprise to the party against whom the evidence would be offered; (2) the ability
of that party to cure the surprise; (3) the extent to which allowing the evidence would
disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's
explanation for its failure to disclose the evidence.
Howe, 801 F.3d at 748 (quoting Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396–97 (4th Cir.
2014) (further citation omitted)); Callen Mfg. Corp. v. Nexteer Auto. Corp., No. 15-CV-11363, 2016 WL
865733, at *5-6 (E.D. Mich. Mar. 7, 2016).
39
to analyze plaintiff’s damages computation before the evidentiary hearing remained
unchanged by any evidence introduced at the hearing. (See Greenwald Dep. at 49675-85,
49840.) Plaintiff’s continued willful failure to fulfill its discovery obligations is neither
justified nor harmless.
Rule 37(c)(1) allows for the imposition of both greater and lesser sanctions for
failure to disclose or supplement discovery required by Rule 26(a) or (e).43 Fed. R. Civ.
P. (c)(1)(A)-(B). Notwithstanding the Court’s conclusion that plaintiff’s failure was not
justified or harmless, the Court has nevertheless considered whether a lesser sanction is
warranted and appropriate under Rule 37(c)(1).
For example, the Court considered shifting the cost of court-ordered ESI
discovery from defendants to plaintiff because the court-ordered discovery revealed that
plaintiff did not produce documents available on their computers that were relevant to
plaintiff’s lost profit claims. The Court also considered utilizing a jury instruction with
respect to the issue of damages, such as, for example, Champion’s unprofitability as a
company.
The Court concludes, however, that these sanctions would be insufficient under
the circumstances of this case. First, the Court provided plaintiff with an additional
opportunity to comply with its discovery obligations, both with respect to Rule 26 and
Rule 30(b)(6), and warned plaintiff that failing to do so may result in the exclusion of lost
43
Rule 37(c)(1) provides for less “draconian options” if warranted by the circumstances. Marais v. Chase
Home Fin., LLC, 24 F. Supp. 3d 712, 730 (S.D. Ohio 2014) (“[N]otwithstanding the tough language in
parts of Rule 37(c)(1), the remainder of the Rule allows a Court to exercise its discretion to impose a large
range of discovery sanctions upon a violator including, if the Court deems the violation ‘substantially
justified’ or ‘harmless,’ no sanction at all.”).
40
profits evidence, and even dismissal of the case. (Order at 18803-05.) Despite being
given this additional opportunity to properly and completely comply with the discovery
rules and avoid sanction, Champion persisted to flout its discovery obligations under the
Federal Rules. Second, the lesser sanctions considered would not be sufficient to address
the ultimate consequence of plaintiff’s discovery violations, which thwarted defendants’
ability to independently analyze—and ultimately defend against—plaintiff’s unsupported
lost profit claims.
Thus, the Court concludes that exclusion of evidence of plaintiff’s lost profit
claims for repeated failure to fulfill its discovery obligations, even after being given
numerous opportunities to do so, is an appropriate and necessary sanction under Rule
37(c)(1) given the enormity plaintiff’s deficiencies in fulfilling its discovery obligations.
See Bessemer, 596 F.3d at 369-70.
B. Rule 37(b)(2)
Rule 37(b)(2) provides for the imposition of sanctions for the failure to obey a
court order to provide or permit discovery. For such violations, a court may issue “further
just orders[,]” which may include “prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from introducing designated matters into
evidence.” See Laukus v. Rio Brands, Inc., 292 F.R.D. 485, 500 (N.D. Ohio 2013)
(quoting Fed.R.Civ.P. 37(b)(2)(A)(i)–(vii)).
Appropriate sanctions under Rule 37(b)(2) include prohibiting a party from
pursuing damages that would have been supported by the discovery that the party failed
to provide pursuant to a court’s order. See Karlik v. Colvin, No. 12-CV-14879, 2014 WL
41
2095352, at *2 (E.D. Mich. May 20, 2014) (granting defendant’s motion to exclude
medical-based damages evidence at trial pursuant to Fed. R. Civ. P. 37(b)(2)(A)(ii) where
plaintiff failed to comply with court order to provide medical release, even though
plaintiff provided some medical documents, because defendant would be prejudiced by
not having an opportunity to review plaintiff’s medical records prior to trial); see also
Fontaine v. State Farm Fire & Cas. Co., No. 2:15-CV-12881, 2016 WL 520988, at *2
(E.D. Mich. Feb. 4, 2016) (“Should Plaintiff fail to supplement his answer to
Interrogatory No. 1 within the time specified, he will be precluded from pursuing the
damages that would be supported by these documents and responses; in other words, he
will be prohibited ‘from supporting or ... from introducing designated matters in
evidence[,]’ as the sanction specified in Fed. R. Civ. P. 37(b)(2)(A)(ii).”).
In this case, plaintiff failed to comply with the Court’s order regarding discovery
under both Rules 26 and 30(b)(6). Although plaintiff provided some information in its
damages packet, plaintiff failed to: (1) fully and completely respond to defendants’
requests for discovery relating to lost profits; (2) failed to produce available evidence
sufficient under Rule 26 to support its damages computation; and (3) failed to produce
knowledgeable and prepared Rule 30(b)(6) witnesses regarding its lost profit claims. See,
e.g., Karlik, 2014 WL 2095352, at *2; TLC Realty 1 LLC, 2016 WL 1730712, at *2;
Acuity Brands Lighting, Inc., 20015 WL 10551946at *2 (citing Scheel, 2012 WL
3879279, at *4); Nacco Materials Handling Grp., 278 F.R.D. at 400-01.
42
Based on plaintiff’s deliberate failure to comply with the Court’s order to fulfill
its discovery obligations, the Court finds that excluding evidence of plaintiff’s lost profits
is also the most appropriate sanction under Rule 37(b)(2).
IV. CONCLUSION
For all of the foregoing reasons, defendants’ motions to exclude evidence of
Champion’s lost profits claim with respect to the OAFB 2013 and 2014 summer
backpack programs, and OAFB 2014 summer IMD program, as a sanction for plaintiff’s
failure to fulfill its obligations under the Federal Rules and for its violations of the
Court’s order regarding lost profits discovery, are granted. Accordingly, Champion is
precluded from making any reference to, or presenting at trial any testimony, evidence, or
argument, concerning alleged lost profits and/or damages with respect to any of the
OAFB contracts at issue in this case.
IT IS SO ORDERED.
Dated: August 23, 2016
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE
43
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