*1 This Order addresses Plaintiff Correct Rx Pharmacy Services, Inc.'s (“Correct Rx”) motion for discovery sanctions [113]. For the reasons set forth below, the Court grants in part and denies in part the motion.

Correct Rx entered into a written contract (the “Agreement”) with Defendant Cornerstone Automation Systems, LLC (“Cornerstone”) under which Cornerstone was to provide Correct Rx with an automated pharmacy system (the “System”). The Agreement included a payment schedule under which Correct Rx promised to pay Cornerstone set amounts of money upon Cornerstone's completion of designated milestones. But due to difficulties it encountered in performing the Agreement, Cornerstone missed its deadline to deliver the System. To date, Correct Rx has not taken delivery of the System and has not paid Cornerstone the remaining amount due under the Agreement.

On September 15, 2015, Correct Rx brought this action against Defendants Cornerstone; MTWD Holdings, Inc. f/k/a Cornerstone Automation Systems, Inc. (“MTWD”); Thomas Karol; Michael Doke; and Mark Gillett[1] as a result of Cornerstone's failure to timely deliver the System. Correct Rx asserts claims for common law fraud, fraud by nondisclosure, and negligent misrepresentation [44].[2]

During discovery, Correct Rx sought, among other things, information on any similar work that Cornerstone had done on other automated pharmacy systems. The parties eventually agreed upon a list of search terms to use in discovery. Defendants used a third-party discovery vendor to collect the documents the search terms returned. Defendants then permitted that vendor and Rick Gunter, a Cornerstone information technology manager, to conduct a privilege review of the documents. Gunter performed the only secondary level of document review. Defendants' counsel did not review or supervise Gunter's work.

Unbeknownst to Correct Rx, Gunter and the vendor culled from production any documents that mentioned Cornerstone's other clients except for the California Department of Correction and Rehabilitation (“CDCR”), even if the documents were relevant and responsive to Correct Rx's requests.[3] It appears that Gunter, who is not an attorney, was under the impression that such documents were privileged. Discovery closed on February 9, 2018.

Defendants first disclosed that they had withheld responsive documents from Correct Rx on April 12, 2018. On April 20, 2018, Defendants produced approximately 3,800 pages of withheld documents to Correct Rx. Trial is set for April 30, 2018. Correct Rx now moves for sanctions under Federal Rule of Civil Procedure 37 based on Defendants' failure to timely produce the withheld documents.

*2 Under Federal Rule of Civil Procedure 37(c)(1), 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 ... at a trial, unless the failure was substantially justified or is harmless.” FED. R. CIV. P. 37(c)(1). The Court may also impose a number of other sanctions in addition to or instead of prohibiting the nondisclosing party from using the withheld information at trial. Id.

In determining whether a failure to provide information as required by Rule 26 is harmless, courts in the Fifth Circuit weigh four factors: “(1) the importance of the evidence; (2) the prejudice to the opposing party of including the evidence; (3) the possibility of curing such prejudice by granting a continuance; and (4) the explanation for the party's failure to disclose.” Texas A&M Research Found. v. Magna Transp., Inc., 338 F.3d 394, 402 (5th Cir. 2003) (citations omitted).

Here, the documents that Defendants failed to produce are at least somewhat important to their defense. Defendants argue that Cornerstone's successful implementation of other similar automated pharmacy systems made it reasonable to believe that Cornerstone could design, build, and install the Correct Rx System within a limited time frame. Defendants assert that the withheld documents support this position. But they also contend that, while many of the withheld emails “may fill in a few holes in the prior production,” Resp. at 8 [118], many of the documents consist primarily of communications among Cornerstone personnel that are similar to other emails Defendants previously produced in the normal course of discovery. Id. at 9.

At the same time, permitting Defendants to present the withheld documents at trial would severely prejudice Correct Rx. Defendants notified Correct Rx of the existence of the documents after dispositive motions had been fully briefed and less than three weeks before trial. Defendants did not produce the documents until ten days before trial. Permitting Defendants to now rely on the documents would require Correct Rx to litigate the case without an opportunity to fully review relevant documents that should have been produced months ago. To do so would unfairly punish Correct Rx for Defendants' failure to comply with their discovery obligations.

Nor would a continuance of trial cure the prejudice to Correct Rx. Correct Rx is in the final stages of trial preparation. Discovery closed over two months ago. But Correct Rx's preliminary review of the 1,079 newly produced documents, constituting 3,800 pages, showed that at least 76 documents were duplicates and 60 documents were missing attachments. Correct Rx would have to conduct significant additional discovery before Defendants could use the documents at trial. At a minimum, Correct Rx asserts that it would have to re-depose each witness regarding the newly produced documents. But requiring Correct Rx to effectively conduct discovery twice would delay the proceedings and impose substantial additional costs on Correct Rx.

Defendants offer no justification for their failure to disclose the withheld documents. Defendants permitted Gunter, who is not a licensed attorney, to conduct the only secondary review of the documents. Defendants' counsel did not supervise or review Gunter's work. Defendants argue that their failure to disclose was not in bad faith. But whether Defendants acted in bad faith is not alone determinative. Defendants willfully failed to disclose the withheld documents with no plausible basis for doing so. In so doing, they caused extreme prejudice to Correct Rx. Defendants' failure to comply with their discovery obligations was neither harmless nor substantially justified.

*3 The Court thus grants Correct Rx's motion to exclude the withheld documents from trial. However, because Correct had an opportunity to conduct deposition discovery on Defendants' claim that they believed they could timely deliver the System based on their work on other projects, the Court denies Correct Rx's motion to preclude Defendants from making such an argument at trial. The Court further denies Correct Rx's motion for an adverse inference instruction to the jury.

The Court grants Correct Rx's motion to exclude the documents Defendants withheld during the normal course of discovery. Defendants may not introduce at trial any of the documents they withheld from production. The Court also grants Correct Rx's request for attorneys' fees and costs associated with its motion for sanctions. The Court denies Correct Rx's motion to preclude Defendants' argument that they believed they could timely deliver the System based on their work with other clients. The Court further denies Correct Rx's motion for an adverse inference instruction.