Bridgestone Am., Inc. v. IBM Corp.
Bridgestone Am., Inc. v. IBM Corp.
2016 WL 11786195 (M.D. Tenn. 2016)
October 31, 2016
Brown, Joe B., United States Magistrate Judge
Summary
IBM sought to preclude Bridgestone Americas, Inc.'s (“BSAM's”) $29 million claim for unearned customer awards. The court found that BSAM had failed to provide a timely computation of the unearned customer awards and had not produced the documents or other evidentiary material on which the computation was based. As a result, the court imposed sanctions on BSAM, prohibiting it from using the information to supply evidence on a motion, at a hearing, or at a trial. Electronically stored information was important to the case, as IBM was unable to fully analyze the claim until the beginning of expert discovery.
Additional Decisions
BRIDGESTONE AMERICAS, INC., Plaintiff,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Counterclaim Plaintiff,
v.
BRIDGESTONE AMERICAS, INC. and BRIDGESTONE CORPORATION, Counterclaim Defendants
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Counterclaim Plaintiff,
v.
BRIDGESTONE AMERICAS, INC. and BRIDGESTONE CORPORATION, Counterclaim Defendants
No. 3:13-cv-1196
United States District Court, M.D. Tennessee, Nashville Division
Signed October 31, 2016
Counsel
Aubrey B. Harwell, III, Aubrey B. Harwell, Jr., Charles F. Barrett, Neal & Harwell, PLC, Nashville, TN, C. Michael Ellingburg, Daniel, Coker, Horton & Bell, Jackson, MS, Cary Littlejohn, Barrett Law Group, P.A., David McMullan, Don Barrett, Don Barrett, P.A., Lexington, MS, Gary Yarborough, Yarborough Law Firm, PLLC, Bay St. Louis, MS, for Plaintiff, Counter Defendants.Andrew R. McGaan, Christine P. Payne, Douglas G. Smith, Karl Stampfl, Kirkland & Ellis, LLP, Chicago, IL, Gibeault C. Creson, Jason W. Callen, K&L Gates LLP, Nashville, TN, Robert Jackson Walker, The University of Tennessee Office of General Counsel, Knoxville, TN, for Defendant, Counter Plaintiff.
Brown, Joe B., United States Magistrate Judge
ORDER
*1 International Business Machines Corporation (“IBM”) moved to preclude Bridgestone Americas, Inc.'s (“BSAM's”) $29 million claim for unearned customer awards. (Doc. 371). The District Judge referred this motion to the Magistrate Judge for consideration and ruling pursuant to 28 U.S.C. § 636(b)(3), Federal Rule of Civil Procedure 26, and Local Rule 72.01(a). (Doc. 465).[1] For the reasons that follow, IBM's motion to preclude BSAM's claim for unearned customer awards (Doc. 371) is GRANTED.
I. BACKGROUND
BSAM initiated this lawsuit on October 29, 2013. (Docs. 1, 36). As a result of alleged contractual breaches, BSAM claimed damages in excess of $200,000,000. (Doc. 36, p. 6 ¶ 17) (Doc. 281, p. 6 ¶ 17).[2] Initial disclosures were exchanged on December 20, 2013. (Doc. 54, pp. 4, 10). Among other losses listed in its preliminary computation of damages, BSAM claimed losses for customer payments made to Sullivan Tire and Costco. (Doc. 239-1, p. 3).
Delayed production of documents concerning damages has plagued this litigation. The general issue was discussed in telephone conferences with the Magistrate Judge on March 26, 2015, July 17, 2015, August 27, 2015, and November 9, 2015. (Doc. 125, pp. 32-65) (Doc. 165, pp. 5-17) (Doc. 192, pp. 39-69) (Doc. 262, pp. 80-90). After the March 26, 2015 conference call, BSAM was ordered to produce the documents supporting its damage claims within sixty days. (Doc. 125, p. 4). The Magistrate Judge warned BSAM that “[f]ailure to fully disclose materials required under Rule 26 could result in their damage claims being substantially limited.” (Doc. 125, p. 4). After the August 27, 2015 conference call, BSAM was again warned that “failure to make required disclosures concerning damages can result, and should result, in their being precluded from seeking those damages at the actual trial.” (Doc. 186, p. 4).
On September 11, 2015, BSAM's response to IBM's discovery correspondence revealed that BSAM was considering claiming losses for additional customer payments. Counsel for BSAM stated:
Documents were produced relating to the payments made to Sullivan Tire and Costco listed in the Preliminary Damages Calculations and only one additional payment of less than $6,000 has been identified within the past week. In addition, the Preliminary Consumer Tire Replacement Lost Profits includes a cost of approximately $29 million for payments of unearned customer awards on three programs. Bridgestone determined that these awards would have been earned by the customers if BATO [Bridgestone Americas Tire Operations] could have processed and delivered all of their orders when submitted in 2012. The May 29, 2015, production also contains accounting documents supporting these payments; however, as a result of these questions, Bridgestone has identified additional sources of documents relating to these payments and programs in preparing this response to these letters. Collection of these additional documents has begun for a supplemental production. Such additional documents include, but may not be limited to, program documents, forms, exception and approval sheets for program rebates, credits or other compensation to customers provided because of Bridgestone's inability to fill orders because of OTC failures. In addition, the underlying support for those payments showing sales by customer and detail on the sales programs operating during 2012 is being collected for production.
*2 (Doc. 371-1, p. 6) (emphasis added).
IBM moved to compel production of BSAM's damages documents on October 26, 2015. (Doc. 241). Among the various categories of damages documents requested were the data and documents supporting this unearned customer awards claim and an explanation as to how this claim was calculated. (Doc. 241, pp. 26-27). In its response to the motion, BSAM stated that documentation and data related to this claim were produced on November 16, 2015. (Doc. 260, p. 17). IBM replied, acknowledging that BSAM had produced emails, spreadsheets, and sales-program exception requests in support of the unearned customer awards claim. (Doc. 278, p. 6). However, as BSAM had not explained its calculation of the claim, IBM requested that the Court order BSAM to provide a computation of the claim and confirm that all responsive documents had been produced. (Doc. 278, p. 6 & n.7).
On January 12, 2016, the Magistrate Judge granted in part and denied in part IBM's motion to compel. (Doc. 291). With respect to unearned customer awards, the Magistrate Judge stated:
As this alleged cost was not submitted with Bridgestone's initial disclosures, IBM's request for further information is perfectly reasonable. IBM's Motion to Compel production regarding the $29 million claim for “unearned customer awards” is GRANTED. Bridgestone is ORDERED to produce data and documents related to Bridgestone's alleged cost of approximately $29 million for payments of unearned customer awards on three programs including: (a) all data and documents sufficient to identify the programs at issue, including their terms, conditions, participants, and past operations, including payouts and costs; and (b) all data and documents bearing upon the $29 million alleged “cost.” Bridgestone is also ORDERED to supplement its initial disclosures to explain its calculation of this claim.
(Doc. 291, pp. 26-27) (emphasis in original). Unless IBM agreed to extend the production deadline, BSAM was ordered to produce this information within forty-five days from the date the order was entered. (Doc. 291, p. 27). The Magistrate Judge cautioned the parties that failure to produce documents supporting claims for damages may result in the claims being disallowed. (Doc. 291, p. 27).
Forty-five days later, on February 26, 2016, BSAM produced 583 financial documents, totaling 59,756 pages. (Doc. 371, p. 3) (Doc. 371-2, p. 2). IBM complains that these documents were not related to the claim for unearned customer awards and that more than half of these documents were duplicates of documents that were previously produced. (Doc. 371, p. 3). In a letter dated February 29, 2016, BSAM stated:
[The $29 unearned customer awards] amount comes from a document produced to IBM which is not used as a basis for a separate claim at the time, but is related to “any injury or damage” in IBM's request. Documentation provided in support of this specific amount is incomplete as of this time, but is still being pursued and will be supplemented when complete.
(Doc. 371-2, p. 5) (emphasis added).
*3 These unearned customer awards were again discussed in a telephone conference on March 11, 2016. (Doc. 345, p. 5) (Doc. 347, pp. 32-40). BSAM explained the nature of the claim in the following exchange:
MR. ELLINGBURG: The 29 million was never part of the lost profits claim, but it was a document that was reviewed in the process of looking at it. And it's—it may or may not be a separate claim under some legal theory once everything is shaken out. But it's not $29 million anymore, it's twenty-five million seven hundred and some odd thousand dollars, and all that documentation that relates to that—that number that has been requested will be—has already been delivered to the electronic discovery vendor and, in fact, will be provided.
THE COURT: Okay. Just—for my edification, being a bit ignorant about this, what's the short version of what this—what constitutes this claim? I mean, this is a significant chunk of change.
MR. ELLINGBURG: Yes, Your Honor. And the short version is this: Bridgestone has—has a number of programs, and it's going to produce the program documents—there's a separate request for this outstanding. But Bridgestone has a number of programs that it uses to promote tire sales to customers to whom it makes wholesale sales.
THE COURT: Uh-huh (affirmative).
MR. ELLINGBURG: And there are a lot of them. Those programs typically require those customers to sell a certain volume of tires. If they—and this is—this is typical in the automobile industry.
THE COURT: Yeah, in other words if—in other words, if you—we'll sell you tires and we'll provide you advertising assistance, provided you sell X number of tires. And if they don't sell X number of tires, then you don't—you don't provide them the advertising.
MR. ELLINGBURG: Or even more specifically, if you sell 10 percent more tires this year, before the year starts than you sold last year—
THE COURT: Right.
MR. ELLINGBURG: —we will rebate you a certain amount of money.
THE COURT: Okay.
MR. ELLINGBURG: And so what happens—what happened in OTC was that there were wholesale customers who, in fact, said, we would have sold tires, but you couldn't get them delivered to us.
THE COURT: Okay.
MR. ELLINGBURG: And we won't (inaudible).
THE COURT: And if we'd sold them, then we would have been entitled to a rebate of X number of dollars. Are you saying that you-all looked at some of those claims then and you—and you, in fact, said yeah, we think you're right, so we're going to give you a rebate?
MR. ELLINGBURG: Yes, Your Honor. In fact, they had to fill out something called exception forms, which are part of the production.
THE COURT: So you would have documentation, then, of where you have—have paid those rebates because the customers claimed that but for OTC they would have been entitled to them.
MR. ELLINGBURG: Yes, Your Honor. And the—and—if that is made as a separate claim, the amount of it is, again—the amount that's been paid has been—has been now audited, essentially.
THE COURT: Okay.
MR. ELLINGBURG: And that information's being provided.
THE COURT: All right. And to the—to the extent you need to make a Rule [2]6 disclosure of that as a claim, at least I understand where it's coming from. Now, at some point, obviously, that—that needs to either be rolled into your overall loss of sales damage or stand alone, but you're saying that you are in the process or have provided the information that supports that—now that it's been audited, supports that figure.
*4 MR. ELLINGBURG: We are—we are—we have delivered it to the—to the vendor to be processed—
THE COURT: Processed and such. Okay.
MR. ELLINGBURG: And—and I'll—and just for clarification also, Your Honor, the—what it would be, if—if it—if it's asserted separately would be an alternative claim. Because if, in fact, the tires were sold under the lost profit claim, then this expense would be incurred anyway.
THE COURT: Uh-huh (affirmative).
MR. ELLINGBURG: From a mathematical standpoint, I mean, it—it—it may be an alternative. We just haven't decided.
THE COURT: In other words, you can't—you can't claim—you can't claim the rebate—okay. You can't claim it twice.
MR. ELLINGBURG: Exactly, Your Honor.
THE COURT: All right.
MS. PAYNE: So, you know, regardless of how the experts would like to, you know, characterize any damages related to this as part of opinion testimony, you know, in discussing sandbagging, this strikes me as quite intense. You know, Bridgestone first mentioned this $29 million figure in September and for seven months has refused to articulate anything about it. The detail that we're hearing from Mr. Ellingburg today is the very first time we've heard any of this. And, you know, while Mr. Ellingburg says it's not part of the lost profits claim, I'm looking at Exhibit 2 to the joint statement, IBM's Exhibit 2, and on page 5 Mr. Ellingburg himself said that the consumer tire replacement lost profits includes the cost of approximately $29 million for payments of unearned customer awards. So here—
(Multiple speakers.)
MS. PAYNE: —discovery well past when the Rule 26 disclosures were due and past the deadline that the Court has already set on this very issue. And Mr. Ellingburg says it's in the mail. This is absolutely inappropriate. IBM has spent far too much money exploring an already—I don't quite know what to say about this here. All I know is this will be part of our preclusion claim. And to the extent that Bridgestone has any factual basis for any claims, it needs to come forward with that now.
THE COURT: Now, he says—as I understand it, he says they've sent it to the provider and it should be coming to you-all. Do you have any estimate of when the—your provider will get it over to IBM?
MR. ELLINGBURG: Your Honor, I'm sure that they'll receive it next week. It may be by midweek. Because I don't control that absolutely—
(Doc. 347, pp. 33-39) (emphasis added).
IBM states that BSAM produced a small set of documents on March 11, 2016, but IBM's experts were unable to determine whether this claim was part of BSAM's lost profits claim or if it was an independent claim. (Doc. 371, pp. 3-4). On March 17, 2016, IBM followed up with BSAM by letter, asking whether BSAM intended to supplement its initial disclosures to reflect the claim for unearned customer awards. (Doc. 371-3, p. 3). BSAM responded on April 7, 2016, stating:
Your letter also seems to present, yet again, the incorrect notion that Bridgestone has claimed the $26 million programs exception payments and TBR program exception payments as part of its damages. Currently, Bridgestone has not claimed these as direct damages in any filing, including our preliminary damage disclosures in December 2014.
*5 (Doc. 371-4, p. 3) (emphasis added). In an email sent on April 14, 2016, BSAM later stated:
Please accept this as a partial supplementation to the Rule 26 disclosure: Unearned Customer Awards will not be claimed as damages if Bridgestone's lost profits claims are submitted to the jury for consideration because such payments would have been a cost incurred against such lost sales. Should the Court preclude Bridgestone from offering evidence of its lost profits Bridgestone will seek recovery of such payments as damages under any and all liability claims which may support such recovery.
(Doc. 371-5, p. 2) (emphasis added).
Not satisfied with these responses, IBM filed the instant motion to preclude BSAM's claim for unearned customer awards. (Doc. 371). BSAM responded (Doc. 391), and IBM filed a reply (Doc. 408). While the Magistrate Judge was considering the motion, BSAM disclosed its expert reports.[3] Out of an abundance of caution, the Magistrate Judge granted BSAM and IBM leave to file supplemental briefs to explain what, if any impact, BSAM's newly produced expert reports has on this motion. (Doc. 486, p. 5).
In its supplemental response, BSAM argued that IBM has not been prejudiced, IBM's motion should be denied because IBM received sufficient evidence regarding this claim during fact discovery, and quantification of this damages claim required an expert witness. (Doc. 490). By March 11, 2016, BSAM had provided IBM with all of the documents considered by BSAM's expert witness to calculate the claim of unearned customer awards. (Doc. 490, p. 3). IBM had an opportunity to depose Mr. John Baratta, President of Bridgestone Consumer Tire Replacement, as an individual and as a Rule 30(b)(6) witness. (Doc. 490, p. 3). More than two months before IBM deposed Kurt Danielson, President of Bridgestone Commercial Tire, in August 2016, BSAM produced Commercial Tire Replacement program documents to IBM. (Doc. 490, p. 4). BSAM has produced its damages expert report and working papers supporting the accounting for the claim, and IBM will have an opportunity to depose BSAM's expert. (Doc. 490, pp. 1, 4-5). BSAM additionally stated:
Because the determination of the amounts of these credits was a significant accounting effort, the first quantification of an amount based on best available documentation discovered and produced was made by Bridgestone's damages expert in this litigation. Those amounts are $25,778,000 for the Consumer Tire Replacement business and $3,776,000 for the Truck, Bus and Radial Replacement Tire business[ ].
(Doc. 490, p. 4) (emphasis in original). According to BSAM, the “accounting required for the quantification of [the damages] is the work of an expert witness,” and the claim had not been calculated as of April 14, 2016, when BSAM emailed IBM a partial supplementation of its Rule 26 disclosures. (Doc. 490, pp. 3, 5).
IBM filed a timely reply to BSAM's supplemental response. (Doc. 496). IBM complained that BSAM first provided 2,400 documents that included “something akin to a computation for its claim” on October 17, 2016, the same day that the Court requested an update on this motion. (Doc. 496, pp. 1-2). Contrary to BSAM's assertion that a computation of the claim was not available earlier because it required a significant accounting effort, IBM submitted three documents showing BSAM's computation of the claim in March 2016 and May 2016. (Docs. 494, 494-1, 494-2). First, IBM submitted a three-page spreadsheet titled “Tab 3 – Analysis 3_9_2016” which contains a detailed calculation of Bridgestone's OTC Consumer Tire Replacement Exception Credits. (Doc. 494). This spreadsheet identifies seventy-five customers, one of which is Sullivan Tire, to whom BSAM paid a total of $25,778,348 in exception credits. (Doc. 494). According to IBM, this is the exact same amount claimed in Robert Alexander's recently disclosed expert report. (Doc. 496, p. 3). Second, IBM submitted an eight-page email thread titled “$29 Million Customer Credits” and “$29 Million Customer Credits – Response for Guidelines” dated March 8-11, 2016, in which Melissa Toth from Bridgestone Consumer Replacement Sales and Jeffrey Aucoin, an accountant, discuss the calculation of this claim. (Doc. 494-1). After recognizing a computation error on March 10, 2016, Ms. Toth adjusted the amount claimed from $29 million to $25,775,159.39. (Doc. 494-1, p. 5). The third document submitted is a spreadsheet authored by Mr. Alexander on May 4, 2016. (Doc. 494-2). This spreadsheet is a three-page excerpt from a ninety-five page document which contains the same information as “Tab 3 – Analysis 3_9_2016” (Doc. 494). (Doc. 496, p. 3 n.6). Like the March 9, 2016, spreadsheet, IBM asserts that the calculation of the claim in Mr. Alexander's May 4, 2016 spreadsheet is the exact same amount claimed in Mr. Alexander's expert report. (Doc. 496, p. 3). IBM argues that untimely disclosure of this computation prejudiced IBM because it did not have an opportunity to learn:
*6 (1) which of Bridgestone's thousands of customers and related awards were part of this claim and which were not;
(2) which customers formed the largest component of this claim, and thus which customers IBM should have focused on in fact discovery and third-party discovery; and
(3) which Bridgestone employees were knowledgeable about the largest customers forming the claim, thus providing IBM with the names of potential deponents.
(Doc. 496, pp. 4-5). In addition, IBM expended time and effort seeking the Court's assistance to obtain information regarding this claim, and IBM must quickly prepare for expert depositions using recently produced materials. (Doc. 496, p. 2). The motion is fully briefed and is ripe for decision.
II. LEGAL STANDARD
A. INITIAL DISCLOSURES
Initial disclosures are intended to assist parties prepare for trial and make informed decisions about settlement. Fed. R. Civ. P. 26(a) advisory committee's notes to 1993 amendment. At or within fourteen days after the parties' Rule 26(f) conference, unless otherwise stipulated by the parties or ordered by the court, a party claiming damages must make an initial disclosure of “a computation of each category of damages claimed.” Fed. R. Civ. P. 26(a)(1)(A)(iii), (a)(1)(C). Though the Rule does not explain how detailed this computation must be, at a minimum the figure demanded must be accompanied by an explanation, a calculation, or some form of analysis. Bessemer & Lake Erie R.R. Co. v. Seaway Marine Transp., 596 F.3d 357, 367-69 (6th Cir. 2010) (concluding that the defendant did not satisfy its Rule 26 initial disclosure obligation for a claim of lost profits where the defendant failed to account for costs avoided); Design Strategy, Inc. v. Davis, 469 F.3d 284, 295 (2d Cir. 2006) (“[B]y its very terms Rule 26(a) requires more than providing—without any explanation—undifferentiated financial statements; it requires a ‘computation,’ supported by documents.”); Maharaj v. California Bank & Trust, 288 F.R.D. 458, 463 (E.D. Cal. 2013) (citations and internal quotations omitted) (“[C]ases have held that ‘the computation of damages required by Rule 26(a)(1)(C) contemplates some analysis; for instance, in a claim for lost wages, there should be some information relating to hours worked and pay rate.’ ”); Dunstan v. Wal-Mart Stores E., L.P., No. 307-CV-713-J-32TEM, 2008 WL 2025313, at *1 (M.D. Fla. May 9, 2008) (citation and internal quotations omitted) (“Plaintiffs should be able to make a good faith estimate of damages and methods of calculations based on the information available at this stage of the litigation, while reserving the right to amend their calculations.”).
The disclosing party “must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered.” Fed. R. Civ. P. 26(a)(1)(A)(iii). This requirement is akin to a standing Rule 34 request for production. Fed. R. Civ. P. 26(a) advisory committee's notes to 1993 amendment. In addition, the party must supplement or correct its disclosure “(A) in a timely manner if the party learns that in some material respect the disclosure ... 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.” Fed. R. Civ. P. 26(e)(1).
B. SANCTIONS
*7 Rule 37(c)(1) of the Federal Rules of Civil Procedure provides that “[i]f a party fails to provide information ... as required by Rule 26(a) ..., 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.” Additional and alternative sanctions are also available on motion and after giving the parties an opportunity to be heard. Fed. R. Civ. P. 37(c)(1). The party that failed to provide the required information bears the burden of proving that the omission was substantially justified or harmless. Roberts ex rel. Johnson v. Galen of Virginia, Inc., 325 F.3d 776, 782 (6th Cir. 2003) (citations omitted).
On a similar note, failure to obey a discovery order may result in the party being prohibited “from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence.” Fed. R. Civ. P. 37(b)(2)(A)(ii). A sanction entered by the court under this authority must be “just” and must be related to the claim at issue in the discovery order. Id. 37(b)(2)(A); Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707 (1982); Serra Chevrolet, Inc. v. Gen. Motors Corp., 446 F.3d 1137, 1151 (11th Cir. 2006) (quoting Ins. Corp. of Ireland, 456 U.S. at 707); Polanski v. Detroit Police, 15th Precinct, 798 F.2d 470, 1986 WL 17175, at *2 (6th Cir. 1986) (table) (quoting Ins. Corp. of Ireland, 456 U.S. at 707).[4]
III. ANALYSIS
IBM's motion presents two related issues: (1) whether BSAM satisfied the Rule 26 initial disclosure requirements as to this $29 or $26 million claim of unearned customer awards and whether any failure was substantially justified or harmless; and (2) whether BSAM complied with the Court's January 12, 2016 discovery order concerning these unearned customer awards. Upon review of the parties' briefs and the underlying record, the Magistrate Judge concludes that the answer to both questions is a resounding “No.” BSAM did not satisfy the initial disclosure requirements as to this claim and the failure was not substantially justified or harmless, and BSAM did not fully comply with the Court's January 12, 2016 order concerning this claim.
A. BSAM'S INITIAL AND SUPPLEMENTAL DISCLOSURES DID NOT SATISFY RULE 26 AS TO THIS CLAIM FOR UNEARNED CUSTOMER AWARDS
Through its initial and supplemental disclosures, BSAM did not satisfy the baseline Rule 26(a)(1)(A)(iii) requirements necessary to recover these unearned customer awards. This is evident even without considering whether BSAM produced the documents on which this claim is based. Most significantly, BSAM failed to provide a timely computation of these unearned customer awards. See Bessemer & Lake Erie R.R. Co., 596 F.3d at 367-69; Design Strategy, Inc., 469 F.3d at 295; Maharaj, 288 F.R.D. at 463; Dunstan, No. 307-CV-713-J-32TEM, 2008 WL 2025313, at *1.
*8 In its December 2013 initial disclosures, BSAM claimed losses for customer payments made to Sullivan Tire and Costco. (Doc. 239-1, p. 3). The unearned customer awards at issue in this order are first referenced in correspondence between BSAM and IBM in September 2015, when BSAM notified IBM that its preliminary claim of consumer tire replacement lost profits included a $29 million cost for payments of unearned customer awards. (Doc. 371-1, p. 6). On February 29, 2016, BSAM stated that the $29 million figure was not a basis for a separate claim at that time. (Doc. 371-2, p. 5). During a telephone conference on March 11, 2016, BSAM stated that the $29 million figure was not part of its claim for lost profits, “it may or may not be a separate claim under some legal theory,” and the amount had decreased to “twenty-five million seven hundred and some odd thousand dollars.” (Doc. 347, p. 33). On April 7, 2016, BSAM stated that it had not claimed the $26 million program exception payments as direct damages. (Doc. 371-4, p. 3). A week later, on April 14, 2016, BSAM stated it will not seek unearned customer awards if BSAM's lost profits claims are submitted to the jury but will seek to recover these unearned customer awards if BSAM is precluded from offering evidence of lost profits. (Doc. 371-5, p. 2).
Noticeably absent from these exchanges is any real computation of the $29 million or $26 million figure. BSAM's statement that the figure had decreased to “twenty-five million seven hundred and some odd thousand dollars” on March 11, 2016 suggests that BSAM had some method of calculating the figure at that point. Documents produced by BSAM to IBM on October 17, 2016 confirm this suspicion. As of March 11, 2016, BSAM had two preliminary computations of the claim. (Docs. 494, 494-1). BSAM's March 9, 2016, spreadsheet computes the damages as $25,778,348. (Doc. 494). On March 10, 2016, Ms. Toth computed the damages as $25,775,159.39. (Doc. 494-1, p. 5). On May 4, 2016, BSAM's expert apparently created a damages spreadsheet with the same information as the March 9, 2016, spreadsheet and calculated the damages as $25,778,348. (Doc. 494-2). BSAM's recent production of these three computations on October 17, 2016 is well outside the time period in which it was required to supplement its initial disclosures. See Fed. R. Civ. P. 26(e)(1). Likewise, production of BSAM's expert reports on September 23, 2016, does not rectify this late disclosure.
The recent deposition testimony of Mr. John Baratta, President of Bridgestone Consumer Tire Replacement, reinforces IBM's need for BSAM's method of calculating this large figure during fact discovery. Mr. Baratta explained that he gave his customers program exceptions in BSAM's customer awards program because SAP-OTC issues interrupted his customers' businesses. (Doc. 406, p. 5). However, Mr. Baratta also provided program exceptions for issues that were not directly related to SAP-OTC problems. (Doc. 406, pp. 5-6) (Doc. 406-1, pp. 2, 4). For example, a program exception was granted for the following three justifications:
(1) SAP related issues such as BATO's unreliable ability to ship tires, order visibility issues ... and lack of sales reporting made it difficult for dealers to trend towards goals in 1st half 2012.
(2) BATO loss of Chrysler PR program to Dealer Tire will impact Sullivan purchases. Out of Sullivan Tire's control.
(3) Monro PR switch to Terry's will impact Sullivan Tire purchases. Out of Sullivan Tire's control.
(Doc. 406-1, p. 2). Mr. Baratta explained that Chrysler opting to go with Dealer Tire and Monro switching to Terry's were unrelated to the OTC system. (Doc. 406, p. 6). Without a computation of this claim at the time of Mr. Baratta's deposition, IBM could not effectively question Mr. Baratta about the calculation of this claim and how awards granted for non-OTC issues were factored into this accounting.
BSAM claims it produced the documents on which this $29 million or $26 million claim is based. Document production is an important component of initial disclosures, but document production alone does not carry the ball across the goal line. The Second Circuit Court of Appeals explained the importance of producing a computation of damages in addition to the records on which the computation is based in Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006). First, the court summarized the proceedings before the district judge:
*9 [In a telephone conference with the district judge,] Design objected that it had, in fact, turned over evidence from which a computation of damages could be made—its financial records. When pressed, Design argued that it was not obligated to provide a calculation of damages because the calculation of damages from these records would be “simple arithmetic”—“If our revenue is $100 and our expenses are $50, then we have a 50 percent profit margin, and that is the basis on which I would have our people testify.” The District Court corrected Design, noting that Rule 26 required more of plaintiffs:
THE COURT: Mr. Dweck [Design's counsel], it is not as simple as simply providing the [financial statements] to the defendant without your providing as well a specific formula indicating how your theory of damages is supported. That is not something that the defendant is in a position to do for you.
The only way that you can establish that you suffered damages is to be able to set it forth in some theory and then support the theory with facts. Simply providing documents to the defendant and assuming that somehow the defendant will divine what your alleged lost profits are by having documents is not sufficient. This Court on that basis is persuaded that this record does not support that theory.
MR. DWECK: ... I didn't think we were obligated to do their homework.
THE COURT: It is quite the opposite, Mr. Dweck. You, the plaintiff, are the one[ ] who [is] asserting the damages. If you assert the damages and you claim that you suffered a certain amount of injury, it is for you, you have the burden of proof on injury and the amounts thereof, and they have to be calculated with reasonable certainty. So your saying that you provided documents to the defendant doesn't go far enough in meeting your burden of proof on this issue.
Design Strategy, Inc., 469 F.3d at 293-94. The district judge precluded evidence of the party's lost profits claim. Id. at 293. On appeal, the party argued that preclusion was improper because the party was not directly ordered to calculate damages and that calculating lost profits was mathematically simple. Id. at 295. The Second Circuit rejected these arguments and affirmed the district court's finding that the party failed to comply with its initial disclosure obligations. Id. at 295-96. Similarly, BSAM's production of documents on which this $29 million or $26 million figure is based does not satisfy its obligation to produce a timely computation of this claim.
B. BSAM'S FAILURE TO COMPLY WITH RULE 26 IS NOT SUBSTANTIALLY JUSTIFIED OR HARMLESS
BSAM's failure to provide a timely computation of its claim for unearned customer awards is not substantially justified or harmless. The Sixth Circuit Court of Appeals recently adopted the Fourth Circuit's five-factor inquiry on this point:
(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.
*10 Taking the first factor into consideration, the Magistrate Judge finds that introduction of this claim for unearned customer awards at trial may unfairly surprise IBM. Perhaps most prejudicial, BSAM produced its first computation of this claim after the close of fact discovery and on the eve of expert depositions. IBM contends that fact discovery would have revealed which of BSAM's customers and awards were part of this claim, which customers IBM should have focused on in fact discovery and third-party discovery, and which BSAM employees should have been considered for deposition on this claim. (Doc. 496, pp. 4-5). Review of the recently produced spreadsheets supports IBM's claims. Each spreadsheet identifies seventy-five customers to whom BSAM awarded exception credits and calculates the amount of the credits given to each customer. (Docs. 494, 494-2). Receipt of this information after the close of fact discovery does IBM little good. While IBM is aware of the potential damages claim, IBM has limited time to analyze the claim during expert discovery and did not have the ability to develop the claim through fact discovery. Addressing a party's failure to produce evidence supporting its claim for lost profits, the Bessemer court similarly stated:
Because Bessemer never turned over supporting documentation for its lost-profits calculation, Seaway's expert could not independently analyze Bessemer's claim. And Bessemer's six-month delay in disclosing its million-dollar Stelco contract claim prevented Seaway from exploring the basis of that claim during depositions and discovery.
Bessemer & Lake Erie R.R. Co., 596 F.3d at 370. Further underscoring the element of surprise, the amount claimed changed over time and without explanation. The figure began at $29 million, was recently lowered to approximately $26 million, and was even more recently referred to as $29 million in BSAM's response brief. Only the recently produced March 2016 email thread explains the $3 million difference between the figures. (Doc. 494-1, p. 5). Similarly, the nature of this claim, whether it falls under the category of lost profits or some other damages theory, is still unclear. To the extent the unearned customer awards are not claimed as lost profits, BSAM intends to “seek recovery of such payments as damages under any and all liability claims which may support such recovery.” (Doc. 371-5, p. 2). BSAM may use alternate theories of recovery, but it must at least identify those theories.
Second, IBM has not been able to fully cure the surprise. IBM attempted to resolve the ambiguities surrounding this claim through numerous telephone conferences with the Magistrate Judge and through a motion to compel. Though BSAM may have produced documents on which this claim is based in response to the order on the motion to compel, the failure to provide a timely method of computation and specific legal theory under which the damages are sought continues to inhibit IBM's ability to factually develop and analyze the claim.
BSAM's failure to produce a timely computation of the unearned customer awards may pose an impediment to engaging in expert discovery and maintaining the July 27, 2017 trial date. Fact discovery closed on August 24, 2016,[6] and expert discovery opened on September 23, 2016. (Doc. 368, p. 17 ¶ 10). As of March 2016, IBM's experts were unable to determine whether these damages fell under a lost profits theory or some other theory. (Doc. 371, p. 4). Nor did IBM have a full opportunity to examine deponents about this unearned customer awards claim during fact discovery. (Doc. 408, p. 4) (Doc. 496, pp. 2, 5). Reopening fact discovery in the already compressed expert discovery schedule would likely require changing the trial date. As this case is set for a five-week trial before the Chief District Judge, rescheduling the trial date would be a herculean task.
The importance of the unearned customer awards information varies depending on whether BSAM is permitted to submit its lost profits claim to the jury. As these unearned customer awards would have been paid by BSAM in the ordinary course of business, BSAM will not seek to recover these customer awards in addition to lost profits. (Doc. 371-5, p. 2). If BSAM is not permitted to offer evidence of lost profits, BSAM will seek payment of unearned customer awards “as damages under any and all liability claims which may support such recovery.” (Doc. 371-5, p. 2).
*11 Last, the Magistrate Judge considers BSAM's explanation for its failure to disclose this computation in a timely manner. BSAM explained that its collection of damages information was hindered by BSAM's attempts to overcome the OTC issue, loss of data caused by the OTC failure, and the lengthy liability-related discovery. (Doc. 391, pp. 2-3). BSAM additionally states that the documentation regarding this claim was scattered and that calculating the amount was a task for an expert witness. (Doc. 490, p. 2). This assertion is contradicted by the March 2016 and May 2016 preliminary computations of the claim recently produced. (Docs. 494, 494-1, 494-2). The massive amount of work required to litigate this suit is not lost on the Magistrate Judge. This is no excuse, however, for failing to provide a timely computation of damages, especially where it is a required initial disclosure, the omission was brought to BSAM's attention, and BSAM was ordered to rectify this specific error.
Taking the factors identified in Howe into consideration, the Magistrate Judge concludes that BSAM's failure to provide a timely computation of its claim for unearned customer awards was neither substantially justified nor harmless.
C. BSAM DID NOT FULLY COMPLY WITH THE COURT'S JANUARY 12, 2016 ORDER REGARDING THIS CLAIM FOR UNEARNED CUSTOMER AWARDS
BSAM did not fully comply with the Court's January 12, 2016 order to supplement its initial disclosures to explain its calculation of the $29 million claim for unearned customer awards. The January order explicitly stated: “Bridgestone is also ORDERED to supplement its initial disclosures to explain its calculation of this claim.” (Doc. 291, p. 27). The January 12, 2016 order set a forty-five day compliance deadline. (Doc. 291, p. 27).[7] BSAM failed to explain its calculation of this claim within the forty-five days allotted and did not seek additional time in which to comply with the January 12, 2016 order.
A district court recently explained that production of supporting documents in response to an order on a motion to compel without also providing an explanation for the calculation does not suffice:
It should not take a conference, a motion to compel, a court order, and a motion for sanctions to generate a computation of damages.... That computation is required in a plaintiff's initial disclosures pursuant to Rule 26(a)(1)(A)(iii), and requires both a dollar amount sought and some analysis explaining how that figure was arrived at.... When a case such as this one has progressed into discovery, a more detailed calculation becomes necessary.... Thompson was required to make this showing; merely gesturing at a large set of documents is not sufficient.... As with Thompson's other objections and reservations, the time to contest the appropriateness of the computation requirement was at the motion to compel stage, or at the time of initial disclosures. When the October 22 Order was issued, it was Thompson's responsibility to comply.
Thompson v. Jamaica Hosp. Med. Ctr., No. 13 CIV. 1896 RWS, 2015 WL 3824254, at *3 (S.D.N.Y. June 19, 2015) (internal citations omitted).
Upon concluding that BSAM failed to fully comply with a discovery order, the inquiry turns to whether the sanction sought, precluding BSAM from claiming or introducing at trial any evidence supporting its claim for these unearned customer awards, is “just” and related to the claim at issue in the discovery order. See Fed. R. Civ. P. 37(b)(2)(A); Ins. Corp. of Ireland, 456 U.S. at 707; Serra Chevrolet, Inc., 446 F.3d at 1151; Polanski, 798 F.2d 470, 1986 WL 17175, at *2. The factors used to determine whether a dismissal sanction is appropriate under Rule 37(b) provide guidance as to whether the sanction sought is just: (1) whether the party acted willfully or in bad faith; (2) whether the adversary suffered prejudice; (3) whether the party was warned about potential sanctions; and (4) whether less drastic sanctions were imposed or considered. Universal Health Grp. v. Allstate Ins. Co., 703 F.3d 953, 956 (6th Cir. 2013) (citation omitted); Freeland v. Amigo, 103 F.3d 1271, 1277 (6th Cir. 1997) (citations omitted).
*12 The Magistrate Judge first considers whether BSAM acted willfully or in bad faith when it failed to comply with the January 12, 2016 order. “For a plaintiff's actions to be motivated by bad faith, willfulness, or fault, his conduct ‘must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of [his] conduct on those proceedings.’ ” Wu v. T.W. Wang, Inc., 420 F.3d 641, 643 (6th Cir. 2005) (quoting Mulbah v. Detroit Bd. of Educ., 261 F.3d 586, 591 (6th Cir. 2001)). BSAM failed to comply with the January 12, 2016 order after receiving several warnings that failure to produce damages documents may result in preclusion of damages claims. This alone reveals a reckless disregard for the effect of BSAM's conduct in the lawsuit. Added to this are the March 2016 and May 2016 documents BSAM recently produced to IBM which reveal that BSAM created preliminary computations of this claim months before the close of fact discovery and failed to produce this information to IBM until the close of fact discovery and the eve of expert discovery. (Docs. 494, 494-1, 494-2). The first factor is satisfied.
As for the second factor, the Magistrate Judge finds that BSAM's failure to provide a timely computation of these damages is prejudicial to IBM. “[A] defendant is prejudiced by the plaintiff's conduct where the defendant ‘waste[d] time, money, and effort in pursuit of cooperation which [the plaintiff] was legally obligated to provide.’ ” Schafer v. City of Defiance Police Dep't, 529 F.3d 731, 737 (6th Cir. 2008) (citation omitted); see also Mullins, No. 2:14-CV-0045, 2015 WL 5511331, at *3 (quoting Wright v. City of Germantown, Tenn., No. 11-02607, 2013 WL 1729105, at *2 (W.D. Tenn. Apr. 22, 2013)). Without knowing the method for calculating this figure, or even the actual number of the figure, IBM and its experts were unable to fully analyze the claim until the beginning of expert discovery. Likewise, without knowing which customers received these unearned awards, IBM was prevented from meaningfully assessing these claims. Consequently, IBM's and its experts' analysis of this claim is without the benefit of the investigatory tools permitted in fact discovery. Additionally, IBM expended time, money, and effort seeking information regarding this damages claim. BSAM was obligated to provide a computation of this claim with its initial disclosures; IBM should not have been required to file a motion to compel to obtain this information.
Third, on no fewer than three occasions the Magistrate Judge warned the parties that failure to produce damages information may lead to preclusion of that information at trial. (Doc. 125, p. 4) (Doc. 186, p. 4) (Doc. 291, p. 27). In the January 12, 2016 order, the Magistrate Judge gave BSAM an opportunity to correct this specific initial disclosure failure, and BSAM failed to follow through in a timely manner.
With respect to the fourth factor, less severe sanctions likely would not remedy the prejudice faced by IBM. For example, levying a fine against BSAM's counsel may have a cathartic effect on IBM, but it would not assist IBM's or its experts' analysis of and defense against this claim. Entry of a stay while IBM obtains the fact discovery sought regarding this claim likewise would not be prudent; a stay would merely upset expert discovery and dispositive motion deadlines and require rescheduling the trial.
Taking these factors into consideration, the Magistrate Judge finds that the sanction requested by IBM is “just.” Further, this sanction is related to the claim at issue in the January 12, 2016 discovery order because it would entail precluding evidence in support of the very same claim.
IV. CONCLUSION
IBM seeks an order precluding BSAM from claiming or introducing at trial any evidence supporting its $29 million or $26 million claim for unearned customer awards. (Doc. 371). This relief is appropriate under Rule 37(c)(1) and Rule 37(b)(2) of the Federal Rules of Civil Procedure. BSAM failed to provide a timely computation of this claim in its initial and supplemental disclosures, and that failure was not substantially justified or harmless. Further, BSAM failed to fully comply with a discovery order which required BSAM to provide this computation by February 26, 2016. BSAM's failure to provide this computation by the close of fact discovery put IBM and its experts at a severe disadvantage without good cause. The Magistrate Judge took great pains to warn the parties that the consequence of withholding damages information is dire. “Every violation of the Rules has consequences; the question is who will bear them. Too often the consequences are borne only by the innocent party, who must live with the violation ... or else pay to brief and argue a motion to compel the offending party to do what the Rules required it to do all along. Better instead to make the offending party pay a price, and thereby also to remind others that they, too, should comply the first time.” R.C. Olmstead, Inc., v. CU Interface, LLC, 606 F.3d 262, 277-78 (6th Cir. 2010) (Kethledge, J., concurring). Accordingly, IBM's motion to preclude BSAM's potential claim for unearned customer awards (Doc. 371) is GRANTED.
*13 It is so ORDERED this 31st day of October, 2016.
Footnotes
To the extent this order is considered dispositive, the District Judge's review is de novo. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b)(3); Local Rule 72.03(b).
Page references throughout this order are to the individual page stamp provided by CM/ECF.
Pursuant to the fourth amended case management order, Plaintiff's expert reports were due on September 23, 2016. (Doc. 368, p. 17 ¶ 10).
Rule 41(b) of the Federal Rules of Civil Procedure provides that a party's failure to comply with a court order may result in dismissal of an action or a claim. Dismissal for failure to comply with a discovery order is properly considered under Rule 37(b)(2) instead of Rule 41(b). Societe Internationale Pour Participations Industrielles Et Commerciales, S. A. v. Rogers, 357 U.S. 197, 207 (1958) (“[W]hether a court has power to dismiss a complaint because of noncompliance with a production order depends exclusively upon Rule 37 .... There is no need to resort to Rule 41(b), which appears in that part of the Rules concerned with trials and which lacks such specific references to discovery.”); Bullard v. Roadway Exp., 3 F. App'x 418, 421 (6th Cir. 2001) (citation omitted). Regardless, “the factors considered when reviewing a dismissal under Rule 41(b), Rule 37(b), or a court's inherent power are largely the same.” Coleman v. Am. Red Cross, 23 F.3d 1091, 1094 n.1 (6th Cir. 1994) (citations omitted); see also Mullins v. Norris, No. 2:14-CV-0045, 2015 WL 5511331, at *2 & n.2 (M.D. Tenn. Sept. 17, 2015) (citations omitted).
In addition, the advisory committee notes to Rule 37 explain that an exception for instances where nondisclosure is harmless or is substantially justified is needed to prevent excessive penalties in instances where the party's omission is inadvertent but the information is known by all parties or, in the case of a pro se litigant, the individual is unaware of the disclosure requirements and the court and other party have not corrected the pro se litigant. Fed. R. Civ. P. 37(c) advisory committee's notes to 1993 amendment. Neither of these scenarios apply here.
Discovery was extended for limited items. (Doc. 467).
BSAM's response repeatedly refers to a sixty-day deadline. (Doc. 391, pp. 3, 8-9, 16). This is in error.