C/A No. 3:06–2007–JFA
United States District Court, D. South Carolina, Columbia Division
August 27, 2008
David Matthew Chromy, Grant Davis Goldenberg, McGuirewoods, Charlotte, NC, for Plaintiff.
Universal Mortgage Group Inc, Roy Schneider, West Columbia, SC, pro se.
Steven J. Hewitson, Charles Robert Burnett, Merle Reginald Arnold, III, Troutman Sanders, Natalie M. Brunson, Samuel Wade Malone, Nelson Mullins Riley and Scarborough, Atlanta, GA, William H. Latham, Nelson Mullins Riley and Scarborough, Columbia, SC, for Defendants.
J. Ashley Twombley, Twenge and Twombley, Port Royal, SC, for Defendants/Cross–Claim Plaintiff/Counterclaim Plaintiff.
Robert A. Muckenfuss, McGuirewoods, Charlotte, NC, for Plaintiff/Counterclaim Defendant.
Vincent C. Bushnell, Troutman Sanders, Atlanta, GA, for Defendants/Counterclaim Plaintiff.
*1 This case comes before the court on nBank's motion to exclude a supplemental report filed by Option One's expert, Option One's motion for sanctions based on nBank's alleged spoilation of evidence [dkt # 211], and cross-motions for summary judgment [dkt # 's 164, 170]. After careful consideration, the court denies the motions.
nBank filed a motion for summary judgment February 28, 2008 [dkt# 164], and Option One filed a motion for partial summary judgment March 10, 2008 [dkt # 170]. Having reviewed the parties' briefs, the record, and the law, the court finds that there are disputes of material facts which preclude the granting of summary judgment.
nBank argues that the court should exclude the supplemental report filed by Option One's expert, T. Randolph Whitt. The court disagrees.
A party is under a duty to supplement or correct its discovery responses “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....” Rule 26(e), Fed.R.Civ.P. As this duty relates to experts who are required to furnish reports, a party must supplement any incomplete or incorrect information in both the expert's report and in the expert's deposition. Rule 26(e)(2). These supplemental disclosures are due at least 30 days before trial. Id.
(citing Rule 26(a)(3)).
nBank offers two reasons why Whitt's supplemental report should be excluded. First, nBank argues that the report was not filed in accordance with the time limits set forth in the court's scheduling order. See
[dkt # 92]. Second, nBank argues that the report is a wholesale reconsideration and not a supplementation of Whitt's original report. In support of this second argument, nBank avers that the second report contradicts the original report, that the report fails to cite any evidence which was not known or available prior to the expiration of fact discovery, and that allowing the report provides an end-run around the court's earlier ruling denying Option One's request to either strike nBank's designated expert or allow Option One to designate an additional expert. The court finds none of these arguments persuasive.
Dealing first with the timeliness argument, although nBank properly notes that fact discovery in this case closed in August of 2007 and that Option One's expert's complete report was due in November of 2007, these scheduling deadlines do not impose limits on the time in which an expert may file a supplemental report correcting incorrect or incomplete information. The proper guidepost for timeliness is supplied by Rule 26(e)(2)'s imposition of a specific deadline for supplemental disclosures which is 30 days prior to trial, and in this regard, the supplemental report was timely filed.
*2 As to nBank's argument that the supplemental report is not a supplement, but is instead a reconsideration, the court must begin by noting that Whitt's original and supplemental reports contain some differences. Initially, with respect to nBank's alleged application of payments for recent loans to older loans when had not been satisfied, termed as “lapping,” Whitt's initial report includes only four loans in its discussion of nBank's lapping, and Whitt's supplemental report includes two additional loans in its description of this lapping scheme. To explain this difference, Whitt states that the balance sheet provided by nBank does not reflect an entry for a loan involved in the lapping scheme, and that it was therefore impossible to discover whether the lap had been closed. Whitt further offers that additional testimony provided by nBank's Rule 30(b)(6) designee for discovery, provided after Whitt submitted his original report, disclosed these alleged later links in the lap.
Additionally, where Whitt's original report confines its analysis to a four-loan lap which Whitt discovered through analyzing wire transfers from Option One to Universal, the delay of time between Universal's relay of those funds to nBank, and nBank's spreadsheet, the supplemental report takes a different tack. Specifically, the supplemental report examines all Universal to nBank transactions from a period prior to the third sequence in the lap up to the year 2007. Analyzing these transactions as well as Universal's cash flow and balance sheet over this same period, Whitt concludes that Universal did not have, nor has it ever had, sufficient financial resources to close the lap. Whitt ultimately concludes that Universal did not have the financial resources to make several payments reflected in nBank's balance sheet without using funds that Option One had transferred to Universal for the purchase of the nine loans at issue in this case.
Finally, in his original report, Whitt opines that nBank has benefitted from the lapping scheme by retiring older, unsatisfied loans for which it would be liable for higher rates of interest and that this retirement allowed nBank to put additional loans on the market and make additional profits. In the supplemental report, Whitt concludes that the lapping scheme allowed nBank to accrue interest to which it was not entitled because the lapping scheme caused loans to remain outstanding when they should have been retired.
The court finds that these differences are not so substantial that they counsel in favor of finding Whitt's second report to be an improper report disguised as a supplement. This is especially so in light of Whitt's statement that it was difficult to analyze these transactions because some loans did not appear on nBank's balance sheet. In both reports, Whitt devotes the majority of his analysis to examining how funds flowed between Option One, Universal, and nBank, and the common focus of both reports is Whitt's opinion on how funds were lapped in the course of these transactions. This aspect of both reports appears to be consistent with what has been Option One's thesis throughout this case; namely, that Universal and nBank utilized deceitful accounting practices which resulted in Option One's funds not being applied to the proper purchases. Thus, as Whitt's supplemental report alleges that further analysis and later deposition testimony provided the triggers which led to his supplemental analysis and conclusion that the lap extended beyond the four loans originally identified, the supplemental report is proper.
*3 Turning to nBank's argument that Whitt's supplemental report fails to cite any evidence which was not known or available prior to the expiration of fact discovery, the court finds that the argument is misplaced. Rule 26(e) requires that a party continually supplement its discovery responses unless the supplemental information has otherwise been disclosed or made available. The rule does not include a requirement that supplemental responses be based on after-discovered evidence.
nBank's argument that allowing the supplemental report provides an end-run around the court's earlier ruling denying Option One's request to allow it to designate an additional expert is similarly flawed. The issue in the previous motion was Option One's claim that by failing to designate an expert in chief and designating only a rebuttal expert, nBank had sandbagged Option One into believing that nBank would not have an expert. The court held that nBank's designation of a rebuttal expert was proper; that because the expert was designated as a rebuttal expert, the expert's opinions would be limited to that area; and that Option One had offered no reason it should be allowed an additional expert. The issue in this motion is whether Option One has properly filed a supplement to the original report of its expert witness. For this reason, nBank's characterization of the supplemental report as an attempt to skirt the court's ruling on the previous motion is inaccurate.
Accordingly, the court denies nBank's motion to exclude the supplemental report of Option One's expert, T. Randolph Whitt.
Option One argues that nBank failed to preserve documents which would have been subject to discovery and that this spoilation of discoverable evidence materially prejudiced Option One in its ability to prosecute its claims and defend against nBank's counterclaims. Option One therefore asks that the court sanction nBank. The court denies Option One's request.
Option One specifically alleges that nBank failed to preserve two types of discoverable information: draft expert reports and electronic information. As to the draft expert reports, Option One argues that nBank's expert, Lawrence Hirsh, should have provided Option One with any preliminary reports and notes he developed in preparing his final report. Option One argues that this production should have included draft reports prepared by subordinates reporting to Hirsh. Option One avers that Hirsh produced only a final report, a few e-mails, and the depositions he relied upon. As to electronic information, Option One argues that employees in nBank's “Broker Participation Division” dealt with wire transfers from outside lending institutions such as Universal on a daily basis, that the employees often corresponded with their supervisors and these outside lenders via e-mail, and that these employees' e-mails might contain information which would be useful in discovering the scope of the lapping scheme. Option One alleges that after nBank learned of the inappropriate accounting practices in its Broker Participation Division, it fired almost all of the employees in that division and deleted the employees' e-mails and files. Option One argues that nBank should have reasonably anticipated litigation after learning of the inappropriate accounting practices and should therefore have suspended its company policy of deleting terminated employee files and data. Option One further argues that nBank has refused to disclose the contents of password protected portions of one of its employee's electronic records and that nBank has improperly insisted that Option One fund the recovery of these electronic files.
*4 Option One hinges its argument arising out of the draft expert reports on the requirement that an expert furnish the opposing party with not only a complete statement of all opinions he will express and the basis for them, but also with all data considered in forming the opinions. See
Rule 26(a)(2)(B), Fed.R.Civ.P. In holding that draft expert reports and communications with the lawyers retaining the experts are discoverable, the Fourth Circuit Court of Appeals has noted, “as several courts have observed, it is important to the proper cross-examination of an expert witness that the adverse party be aware of the facts underlying the expert's opinions, including whether the expert made an independent evaluation of those facts, or whether he instead adopted the opinions of the lawyers that retained him.” Elm Grove Coal Co. v. Director, O.W. C.P., 480 F.3d 278, 301 (4th Cir.2007).
But this case asks a question that was not asked or answered in Elm Grove.
Specifically, the issue in Elm Grove
was whether the lower court, in that case, the administrative law court, erred in holding that draft reports were protected under the work-product doctrine. In this case, the question is whether nBank's failure to disclose Hirsh's preliminary report and notes has prejudiced Option One and warrants the imposition of sanctions.
The court finds that sanctions are not warranted here. Option One has at its disposal Hirsh's final report containing a complete statement of all his opinions, and at trial, Option One will be able to examine Hirsh on those opinions and question him about the data or other information considered by him in forming his opinions. Similarly, Option One has retained an expert of its own who will no doubt examine Hirsh's opinions and provide opinions in reply to Hirsh's rebuttal evidence. Under these circumstances, the court finds that Option One has not been prejudiced.
As to Option One's claims regarding the failure to disclose and destruction of electronic information, Option One deposed several nBank employees who would have authored or received the sought e-mails, and Option One does not identify deposition testimony from any of these employees demonstrating that the e-mails may have contained anything which might relate to nBank's accounting practices. It is of course impossible for Option One to prove the contents of correspondence it has never seen, and the court is troubled by the fact that nBank appears to have learned of problems in its Broker Participation Division by way of a phone call from the FBI made March 9, 2006, and that all the employees in that division were fired and their files destroyed by the time Option One initiated this lawsuit less than four months later. This concern is also exacerbated by the fact that although nBank claims to have anticipated litigation only shortly before Option One filed suit, nBank professes to have hired a private investigator to investigate the claims of fraud immediately after being notified by the FBI. Nevertheless, the court declines to issue any sanctions in this case. Fact discovery has been closed in this case since August 2007, and Option One appears to have presented what it views as a quite complete theory of this case using the voluminous evidence disclosed by nBank, other discovery, and expert testimony.
*5 Accordingly, the court denies Option One's request for sanctions.
The parties' motions for summary judgment are denied, nBank's motion to exclude the supplemental report of Option One's expert is denied, and Option One's motion for sanctions is denied.
End of Document.