Zander et al v. Katz, Sapper & Miller, LLP et al

Filing 180

ORDER: Defendants motion to supplement 162 is GRANTED only in part. Any supplement to the expert report shall be filed on or before June 16, 2014. In accord with Local Rule 16.01(f)(2), motions for review of this order may be filed on or before June 13, 2014. The party opposing any such motion may have until June 20, 2014 to respond. Signed by Magistrate Judge Joe Brown on 6/6/14. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(tmw)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
JEFFREY ZANDER, individually and as
Trustee of CARDINAL TRUST, JJZ
INSURANCE AGENCY d/b/a ZANDER
INSURANCE COMPANY
Plaintiffs,
vs.
KATZ, SAPPER & MILLER, LLP; KSM
BUSINESS SERVICES, INC.; and
ANDREW J. MANCHIR,
Defendants,

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Cv. No.
3:12-cv-0967
District Judge Sharp/Magistrate Judge
Brown.

ORDER
Plaintiff originally brought suit against Defendants—Katz, Sapper & Miller, LLP; KSM
Business Services, Inc.; and Andrew Manchir—in the Chancery Court of Davidson County,
Tennessee, for negligence, negligent misrepresentation, and breach of fiduciary duty in regard to
“alleged tax advice” given them by Defendants. (Notice of Removal (“Removal”), Docket Entry
(“Doc.”) 1, pp. 1-2) On September 19, 2012, Defendants timely removed the case to the United
States District Court for the Middle District of Tennessee, asserting jurisdiction under 28 U.S.C.
§§ 1332, 1446(b) based upon diversity of citizenship. (Removal, Doc. 1, p. 2)
Subsequent to the scheduling conference conducted upon November 19, 2012, the
Magistrate Judge issued a scheduling order establishing December 14, 2012 as the deadline for
Rule 26(a) disclosures, July 31, 2013 as the date for disclosure of Plaintiffs’ expert witnesses,
August 31, 2013 as the date for disclosure of Defendants’ expert witnesses, November 1, 2013 as
the date for conclusion of expert discovery, and December 6, 2013 as the completion of all
discovery. (Doc 11, p. 5) December 2, 2013, and January 10, 2013 were established as the
deadlines for dispositive motions and for responses, respectively. (Doc 11, p. 5) On May 15,

2013, Defendants issued their first set of subpoenas for discovery and did not make their first
document request until June of 2013. (Doc. 18, 19)
On September 5, 2013, the Magistrate Judge conducted a telephone conference between
counsel for Plaintiffs, Mr. Eugene Bulso, and Defendants, Ms. Lacey Adair Bishop, on the
subject of the discovery deadlines. (Doc. 43) Ms. Bishop cited sluggish progress in discovery
and the volume of documents as grounds for an extension of time in regard to expert depositions.
According to Ms. Bishop, Defendants required extensive discovery of voluminous files prior to
deposing Plaintiffs experts, and, as of September 5th, only 5 of the eleven subpoenas issued had
been responded to. (Recording of Sept. 2013 Telephone Conference)
Mr. Bulso argued that Defendants had been late in conducting discovery. According to
Mr. Bulso, Defendants had not prosecuted discovery for the eight months subsequent to removal,
and five months since the scheduling order issued in November of 2012.
Telephone Conference)

(Recording of

Ms. Bishop conceded that Defendants had delayed discovery for

“tactical” reasons. (Recording of Sept. 2013 Telephone conference) The Magistrate Judge
delayed acting on Defendants’ request for extension of the discovery schedule until early
November and clarified that all discovery was to be completed on December 6, 2013. (Doc. 43)
On October 15th and 17th 2013, Defendants issued notice of intent to depose Plaintiff’s
experts. According to the record, Defendants noticed the deposition of Larry Sacks and James
Berry to be conducted on November 4th (Doc. 50, 51); Dana Holmes, Mike Collins to be
conducted on November 5th (Doc. 53, 54); Richard Betts and David Lewis to be conducted on
November 8th (Doc. 52, 55); and Stephen Thompson and Brian Eagle to be conducted on
December 5th. (Doc. 56, 57) On October 29, 2013, a telephone conference was conducted on
the subject of discovery. (Doc. 64) Defendants requested leave of the court to extend the

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discovery deadlines such that three additional witnesses could be deposed.

(Doc. 64)

In

response, by order dated October 30, 2013, the Magistrate Judge extended both the discovery
and dispositive motion deadlines until January 10, 2014. (Doc. 64)
On January 8, 2014, just two days before the close of discovery, the Magistrate Judge
extended discovery until January 30, 2013 so that Mark Blackwell, a retired partner from Wyatt,
Tarrant and Combs, could be located and deposed. (Doc. 117, p. 1) According to Defendants,
Mr. Blackwell was instrumental in the transaction giving rise to the instant suit and his testimony
was essential to their defense. (Doc. 117, p. 1) The discovery deadline was extended to
February 7, 2014 once Mr. Blackwell was located and agreed to be deposed as Wyatt, Tarrant &
Combs’ Rule 30(b)(6) representative. (Doc. 117, pp. 1-2) Mr. Blackwell was deposed on
February 7, 2014. (Doc. 137)
On April 7, 2014, Defendants’ counsel notified Plaintiffs’ counsel of their intent to
supplement to the report of their expert, Mr. Frank Brown. (Defendants’ Motion to Supplement
(“M. to Supplement”), Doc. 162, pp. 3-4 ¶ 12) At that time, Defendants offered to make Mr.
Brown available to Plaintiffs for the purposes of deposition, but Plaintiffs declined. (M. to
Supplement, Doc. 162, p. 4 ¶ 12) On April 21, 2014, Defendants moved to supplement the
expert report of Mr. Frank Brown. (Doc. 158) However, Defendants failed to include the
proposed supplement. Plaintiffs objected to a supplemental report and filed a brief in opposition
on April 28, 2014. (Doc. 159) A hearing was conducted on the matter on May 15, 2014. (Doc.
160) On May 19, 2014, the Magistrate Judge denied Defendants’ motion “without prejudice to
refile, provided that in refiling the motion the Defendants attach a copy of the proposed
supplement of their expert report.” (Doc. 161, p. 1)

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Defendants refiled their motion to supplement on that same day. (Doc. 162) In support
of their motion, Defendants allege that their expert witness’ report was initially disclosed on
August 29, 2013 and he was deposed on October 23, 2013 well before deposition of any of
Plaintiffs’ experts. (M. to Supplement, Doc. 162, p. 2) Of particular import to Defendants is a
“staffing schedule” allegedly created on October 13, 2013 and disclosed to Defendants on
November 4, 2013 at the deposition of Mr. James Berry, and the deposition testimony of Mr.
Larry Sacks and Mr. Mark Blackwell. (Motion to Supplement, Doc. 162, pp. 2-3 ¶ 7, 9-10)
According to Defendants, the supplement to Mr. Brown’s report is needed
to update and supplement his opinions for any new information and documents
produced in this matter, to further analyze any contributing factors to Plaintiffs’
allegations, to update and supplement his analysis of the benefits of the ESOP
transaction, and to perform a “but for” analysis of the damages allegedly suffered
by Plaintiffs as a result of the allegedly negligent actions of Andrew Manchir
based on new information and documents produced in this matter. [Further, the
supplement is necessary to] respond to the calculation of damages done by Larry
Sacks, as part of his expert report and explained during his deposition.
(M. to Supplement, Doc. 162, pp. 5-6 ¶¶ 23-24)
LAW AND ANALYSIS
Defendants assert that Fed. Rule Civ. P. 26(a) and (e) place upon them a duty to
supplement the report of their expert witness based upon new and relevant evidence that is
disclosed throughout the discovery period.

(Defendants’ Memorandum in Support of their

Motion to Supplement (“D. Memo in Support”), Doc 162-2, p. 3) According to Defendants’
argument, the scheduling of deposition testimony was protracted until well after January which
necessitates the supplementation of Mr. Brown’s report here, well after the February 7th
discovery deadline under the court’s scheduling order. (D. Memo in Support, Doc. 162-2, p. 3)
Defendants also argue that the staffing schedule disclosed late by Plaintiffs and subsequent to
Mr. Brown’s initial report and deposition testimony is material to their defense, which further

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warrants supplementation. (D. Memo in Support, Doc. 162-2, pp. 3, 7-8) Lastly, Defendants
assert that their attempt at supplementation was attempted prior to the deadline for pre-trial
disclosures. (Motion to Supplement, Doc. 162, p. 4 ¶ 13)
Plaintiffs vigorously oppose Defendants’ efforts to supplement the expert opinion of Mr.
Brown, claiming bad faith and dilatory conduct of discovery on Defendants’ part. (Plaintiffs’
Motion in Opposition to Supplementation of Expert Report (“P. Motion in Opposition”), Doc.
171, pp. 3, 5-7) Plaintiffs argue that the expanded scope of Mr. Brown’s report, Defendants’
strategic delay in prosecuting discovery, and Defendants’ apparent reticence to be completely
forthcoming with the timing and submission of Mr. Brown’s supplemental report all point to
Defendants’ bad faith. (P. Motion in Opposition, Doc. 171, pp. 3-7) Further, Plaintiffs assert
that Defendants lack good cause to supplement Mr. Brown’s report under Fed. Rule 16(b) due to
their dilatory conduct of discovery. (P. Motion in Opposition, Doc. 171, p. 6-7)
Rule 26 provides that “[a] party who has made a disclosure under 26(a) . . . must
supplement or correct its disclosure or response [] in a timely manner if the party learns that in
some material respect the disclosure or response is incomplete or incorrect.” Fed. R. Civ. P.
26(e)(1)(A). Further, “an expert whose report must be disclosed under Rule 26(a)(2)(B) [is
mandated] to supplement . . . both information included in the [expert’s] report and []
information given during the expert’s deposition.” Fed. R. Civ. P. 26(e)(2). The timing of those
disclosures is tied to Rule 26(a)(3)(B)’s requirement that “[u]nless the court orders otherwise,
these disclosures must be made at least 30 days before trial.”

Id. at 26(a)(3)(B), (e)(2).

However, the advisory committee notes to the 1993 revisions make clear that “disclosures are to
be made in accordance with schedules adopted by the court under Rule 16(b).”

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Fed. R. Civ. P. 16(b)(4) provides that a pre-trial “schedule may be modified only for good
cause and with the judge’s consent.” The purpose of imposing this timing restraint is to force
litigants “to establish discovery priorities and thus to do the most important work first.”
Advisory Committee Notes to 1983 Amendments to Fed. R. Civ. P. 16. As the Sixth Circuit has
observed, a determination of good cause shown includes consideration of
“(1) when the moving party learned of the issue that is the subject of discovery;
(2) how the discovery would affect the ruling below; (3) the length of the
discovery period; (4) whether the moving party was dilatory; and (5) whether the
adverse party was responsive to . . . discovery requests."
Bentowski v. Scene Magazine, 637 F.3d 689, 696 (6th Cir. 2013) (quoting Dowling v. Cleveland
Clinic Found., 593 F.3d 472, 478 (6 th Cir. 2010)) (internal quotations omitted).
Defendants do not allege that Plaintiffs have been less than diligent in their responses to
discovery requests. To the contrary, Defendants arguments rest almost exclusively on their need
to supplement Mr. Brown’s expert opinion so that he can testify comprehensively at trial.
(Motion to Supplement, Doc. 162, p. 6 ¶ 24) While denial of Defendants’ motion may constrain
the topic of their expert’s testimony on direct to some degree, their expert should have more than
ample opportunity to rebut the opinions of Plaintiff’s experts at trial. Further, while the impact
upon the ruling below is one concern in deciding a motion to extend discovery, “[t]he
overarching inquiry in these overlapping factors is whether the moving party was diligent in
pursuing discovery." Id.

From the outset, the record establishes that Defendants have not

pursued discovery diligently.
Despite being given more than a year in which to prosecute discovery, Defendants
delayed initiating discovery eight months from removal of this case from state court and more
than six months from the initial case management order. While it is true that Plaintiffs’ experts
were deposed rather late in the schedule that was a strategic decision on Defendants’ part.

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Further, it is readily apparent that Defendants were well acquainted with the individuals that they
eventually deposed and with each expert’s involvement in the ESOP transaction at issue here.
Indeed, Defendants’ disclosures in the initial case management order demonstrate their
awareness of the witnesses addressed by Mr. Brown’s supplemental report, with the exception of
Mr. Blackwell, from the outset of the proceedings. (Initial Case Management Order, Doc. 9, pp.
4-5) Moreover, contrary to their claims, Defendants have not been exactly diligent in attempting
to supplement their expert’s opinion. The record reflects that Defendants first notified Plaintiffs’
counsel of their intent to supplement two months after Mr. Blackwell’s deposition on February 7,
2014, and waited nearly ten weeks before moving the court for permission to supplement.
Rule 16 was designed to ensure orderly case management and force the parties to
prosecute discovery in a timely manner. Thus, Defendants’ Motion to Supplement should be
denied because: 1) denial of Defendants’ motion to supplement will not be overly burdensome
on their case; and 2) Defendants have not been diligent in their prosecution of discovery despite
being given more than one and one half years to do so. Nevertheless, out of an abundance of
caution, Defendants’ will be permitted to supplement the opinion of Mr. Brown but on a very
narrow basis.
On June 5, 2014, the Magistrate Judge conducted a hearing on Defendants’ motion to
supplement Mr. Brown’s report. After the close of the hearing, the Magistrate Judge compared
the supplement proposed by Defendants with the original expert report. Contrary to counsel for
Defendants’ statement during oral argument, the supplement is not merely a 17 page supplement
to Mr. Brown’s original 32 page document. To the contrary, the supplement at issue here spans
39 pages but excludes twelve pages of Mr. Brown’s original report including: 1) a discussion of
Mr. Brown and his firm; 2) a discussion of Mr. Zander and the history of his company; 3) an

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overview of ESOP structures and their potential benefits; and 4) a discussion of Mr. Andrew
Machir and his involvement in the transaction giving rise to the ESOP plan that forms the basis
of Plaintiffs’ claims. (Exhibit 4 to Defendants’ Response to Plaintiffs’ Motion to Strike Expert
Testimony Regarding Standard of Care (“Exh. 4 to D. Motion to Strike”), Doc. 96-4, pp. 4-7, 89, 13-15, 16-18) All told, the supplement consists of 34 pages of substantive additions and
alterations touching on areas outside of the scope of Mr. Brown’s initial report and conclusion.
Defendants’ motion to supplement is GRANTED only in part. The supplement may not
extend beyond the areas upon which Mr. Brown’s original summary and conclusions are drawn. 1
(Exh. 4 to D. Motion to Strike, Doc. 96-4, p. 19) In particular, Defendants will not be permitted
to supplement Mr. Brown’s expert report to address the negligence, liability, or comparative fault
of any entities beyond those named in this cause. 2 The District Judge of course retains full
authority over what will be admissible at trial for rebuttal and impeachment depending on how
the actual evidence develops.
Any supplement to the expert report shall be filed on or before June 16, 2014. In accord
with Local Rule 16.01(f)(2), motions for review of this order may be filed on or before June 13,
2014.

The party opposing any such motion may have until June 20, 2014 to respond. This

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When presented with the possibility that the Magistrate Judge may permit Defendants the opportunity to
supplement Mr. Brown’s report to some degree at oral argument, Mr. Bulso, Plaintiffs’ counsel, stated
emphatically that Plaintiffs would not seek to depose Mr. Brown subsequent to any supplementation of his
report. According to Mr. Bulso, Plaintiffs “have no interest in taking Mr. Brown’s deposition. We have many
many other things to do.”

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At that hearing, counsel for Plaintiffs directed the court’s attention to the deposition testimony of Mr. Brown
where he was asked if he had formed an opinion as to whether “2nd Generation Capital, LLC, [was] at fault for
any of the losses complained of?” (Deposition of Mr. Frank Brown (“Deposition”) pp. 137-38, Doc. 164, p.
36) In response, Defendants’ lead counsel at the time, Mr. Edwards, objected and responded that Defendants
“have not asked [Mr. Brown] to opine on any comparative fault.” (Deposition p. 138, Doc. 164, p. 36) Mr.
Brown also responded that he had “not been engaged to look at that.” (Deposition p. 138, Doc. 164, p. 36)
Undeterred, counsel for Plaintiffs pressed the issue. (Deposition pp. 138-144, Doc. 164, pp. 36-7) Ultimately,
Defendants’ counsel stipulated that Mr. Brown “is not going to give opinions as to the liability in the second—
or the comparative fault parties . . . [i]t is not in his report [and h]e is not going to testify about it.” (Deposition
p. 144, Doc. 164, p. 37). Given this statement it is far too late to change horses now.

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schedule should allow the matter to be briefed in time for Judge Sharp to consider it at the Final
Case Management Conference.
It is so ORDERED

/s/Joe B. Brown
Joe B. Brown
U.S. Magistrate Judge

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