United States District Court, S.D. New York
OPINION AND ORDER
HENRY PITMAN, Magistrate Judge.
By notice of motion dated July 10, 2013 (Docket Item 230), defendants Citigroup Global Markets, Inc. and The Yield Book, Inc. (collectively, "Defendants") move for an Order pursuant to Rules 16, 26, and 37 of the Federal Rules of Civil Procedure (1) striking the Fourth Declaration of Dr. Jianqing Fan ("Fourth Fan Decl."), which plaintiff filed in connection with its opposition to both Defendants' motion for summary judgment and Defendants' motion, made pursuant to Fed.R.Evid 702 and Daubert v. Merrell Dow Pharm. , 509 U.S. 579 (1993), to exclude Dr. Fan's 2007 Report and testimony concerning the opinions set forth in that report, and (2) awarding Defendants their expenses, including attorney's fees and costs, incurred in connection with the present motion. Plaintiff Advanced Analytics, Inc. ("AAI") opposes the motion on multiple grounds; however, in the event that the Fourth Fan Decl. is stricken, AAI requests, in the alternative, that it be granted leave to amend its opposition papers.
For the reasons set forth below, I (1) grant in part and deny in part Defendants' motion to strike the Fourth Fan Decl.; (2) grant in part and deny in part Defendants' application for an Order directing AAI to reimburse Defendants for the costs and fees incurred in making this motion and (3) grant AAI's request for leave to amend its papers in opposition to Defendants' motion for summary judgment.
Given the lengthy history of this action, I assume the reader's familiarity with the facts and background of this case and reference only those facts that are necessary to explain this opinion.
This action has been pending for over nine years, and arises from AAI's allegations that Defendants misappropriated sequences of numbers developed by Plaintiff's principal, Xiaolu Wang, and either incorporated them into Defendants' software product called the Yield Book, which offers models to price mortgage-backed securities, or used them to create new sequences of numbers for use in the Yield Book. The parties have conducted extensive fact and expert discovery over the years.
During a hearing held on January 17, 2012, and after conferring with counsel, I set a revised discovery schedule and instructed the parties to raise discovery issues promptly, in order to ensure compliance with the schedule (Tr. of Discovery Conference, held on January 17, 2012 (Docket Item 146), at 78). In an Order issued immediately after the conference, I set the following schedule: (1) no later than May 17, 2012, AAI was to submit all expert disclosures; (2) no later than June 18, 2012, Defendants were to submit all expert disclosures and (3) all discovery, including expert discovery, was to be completed by July 17, 2012 (Order, dated January 19, 2012 ("Scheduling Order") (Docket Item 143)).
Notwithstanding the Scheduling Order and my admonition that the parties raise discovery disputes promptly, AAI attempted to submit a reply expert report from Dr. Jianqing Fan after the May 17, 2012 deadline ("Fan Reply") and requested yet additional discovery after the close of the discovery period (Tr. of Discovery Conference, held on July 18, 2012 (Docket Item 226)). Defendants moved to strike the Fan Reply on the grounds that it was untimely and did not constitute a proper "reply, " because it contained new information and opinions that were not within the scope of either parties' prior expert disclosures (Tr. of Discovery Conference, held on September 5, 2012 (Docket Item 175), at 4). AAI argued that the Fan Reply was proper, notwithstanding its untimeliness, because Defendants had engaged in fraudulent conduct during the course of discovery by fabricating and tampering with evidence (Tr. of Discovery Conference, held on September 5, 2012 (Docket Item 175), at 7-10). After considering the parties' written submissions and hearing oral argument, I found that there was "very, very little evidence, if any evidence" that Defendants had committed fraud and no justification for AAI's belated filing of the Fan Reply (Tr. of Discovery Conference, held on September 5, 2012 (Docket Item 175), at 94). Accordingly, I granted Defendants' motion to strike the Fan Reply, and granted in part and denied in part AAI's application for additional discovery. Advanced Analytics, Inc. v. Citigroup Global Mkts., Inc., 04 Civ. 3531 (LTS) (HBP), 2012 WL 7037319 at *1 (S.D.N.Y. Sept. 25, 2012).
AAI filed objections to my ruling striking the Fan Reply (Docket Items 195-97). On February 8, 2013, the Honorable Laura T. Swain, United States District Judge, overruled AAI's objections in their entirety. Specifically, with regard to my decision to strike the Fan Reply, Judge Swain held:
Dr. Fan's Reply Report was filed two weeks after the close of discovery. "If an expert's report does not rely [on] any information that was previously unknown or unavailable to him, ' it is not an appropriate supplemental report under Rule 26." Cedar Petrochemicals, Inc. v. Dongbu Hannong Chemical Co., Ltd. , 769 F.Supp.2d 269, 278 (S.D.N.Y. 2011) [(Francis, M.J.)]. Plaintiff has not met its burden of establishing that Judge Pitman's ruling granting Defendants' motion to strike Dr. Fan's Reply Report, memorialized in Judge Pitman's September 25, 2012, Order, was either clearly erroneous or contrary to law. For these reasons and for substantially the reasons stated on the record by Judge Pitman, at the September 5, 2012, hearing, Plaintiff's objection is overruled.
Advanced Analytics, Inc. v. Citigroup Global Mkts., Inc., 04 Civ. 3531 (LTS) (HBP), 2013 WL 489061 at *2 (S.D.N.Y. Feb. 8, 2013).
Subsequently, the parties stipulated to a briefing schedule for Defendants' motion for summary judgment and their Rule 702/Daubert motion to exclude Dr. Fan's initial report and testimony based on that report (Stipulation and Order on Briefing Schedule for Summary Judgment, dated February 22, 2013 (Docket Items 215, 216); Stipulation and Order on Briefing Schedule for Motion to Exclude, dated April 16, 2013 (Docket Item 218)). Defendants served these motions on April 5, 2013. AAI served its opposition to both motions on June 6, 2013; its opposition to both motions included the Fourth Fan Decl. The Fourth Fan Decl. is 91 pages long and is accompanied by 117 exhibits, at least three of which appear to be newly created documents that were never previously produced (see Exhibits WW, CCC and SSS). Although it is difficult to summarize briefly, the Fourth Fan Decl. alleges that Defendants committed fraud during discovery and offers new theories and opinions in support of AAI's claim that Defendants misappropriated its trade secrets. In addition, the Fourth Fan Decl. incorporates in its entirety by reference the previously stricken Fan Reply and relies upon it (Fourth Fan Decl. ¶¶ 19-26, 52, 63, 100).
By letter, dated June 10, 2013, Defendants requested a conference in connection with their anticipated motion to strike the Fourth Fan Decl. on the grounds that it was untimely and contained entirely new bases for AAI's claims (Letter from Defendants to the undersigned, dated June 10, 2013). AAI also submitted a letter, dated June 17, 2013, requesting a conference in connection with an anticipated motion for sanctions against defendants that would be based on the allegations of discovery misconduct set forth in the Fourth Fan Decl. (Letter from AAI to the Honorable Laura Taylor Swain, United States District Judge, and the undersigned, dated June 17, 2013).
By Order, dated June 19, 2013, I directed the parties to complete their briefing on Defendants' motion to strike the Fourth Fan Decl. and adjourned sine die the dates on which the remaining submissions in connection with Defendants' pending motions would be due and deferred consideration of AAI's contemplated motion for sanctions until the dispute concerning the Fourth Fan Decl. was resolved (Order, dated June 19, 2013 (Docket Item 221)). AAI sought reconsideration of my June 19 Order (Docket Items 223, 224, 228). I denied that motion on July 11, 2013 (Endorsement, dated July 11, 2013 (Docket Item 229)).
Defendants argue that the untimely submission of the Fourth Fan Decl. violates the Scheduling Order and the expert disclosure requirements of Rule 26 of the Federal Rules of Civil Procedure, warranting preclusion and an award of attorney's fees and costs, pursuant to Fed.R.Civ.P. 16 and 37. AAI argues that the Fourth Fan Decl. is not subject to Rule 26's disclosure requirement to the extent that AAI relies on it for purposes other than the merits of its claims and that, even if Rule 26 were applicable, AAI's failure to comply with Rule 26 was substantially justified and harmless and that preclusion is, therefore, unwarranted. In addition, AAI contends that the Fourth Fan Decl. should not be stricken because it is properly within the scope of Fan's initial expert report. Finally, AAI argues that an award of attorney's fees is inappropriate because it did not act in bad faith.
A. Legal Standards
"The Court has power under Rule 16 of the Federal Rules of Civil Procedure, as well as power derived from its inherent authority to manage proceedings before it... to impose sanctions in respect of conduct violative of scheduling orders and wasteful of the time of the Court and opposing counsel." Dallas v. Goldberg, 95 Civ. 9076 (LTS) (RLE), 2003 WL 22872325 at *1 (S.D.N.Y. Dec. 5, 2003) (Swain, D.J.), citing Chambers v. NASCO , 501 U.S. 32, 43-50 (1991) and Roadway Express, Inc. v. Piper , 447 U.S. 752, 766 (1980). The same is true under Rule 37: "[w]hether exercising its inherent power, or acting pursuant to Rule 37, a district court has wide discretion in sanctioning a party for discovery abuses." Reilly v. Natwest Mkts. Grp. Inc. , 181 F.3d 253, 267 (2d Cir. 1999); see Design Strategy, Inc. v. Davis , 469 F.3d 284, 294 (2d Cir. 2006).
1. Noncompliance with Court Orders
Among other things, Rule 16 governs scheduling matters and the district court's general powers to manage its own proceedings. Rule 16(f)(1) provides that, "[o]n motion or on its own, the court may issue any just orders, including those authorized by Rule 37(b)(2)(A)(ii)-(vii), if a party... fails to obey a scheduling or other pretrial order." Rule 16(f)(1)(C). Rule 37(b)(2)(A)(ii)-(vii), which Rule 16(f) references, sets forth a non-exclusive list of sanctions a court may impose against a party for failing to comply with a court order. These include the sanctions of preclusion, dismissal, rendering of a default judgment or contempt. Accordingly, pursuant to Rule 16, a party's failure to comply with a scheduling or pretrial order may result in preclusion. See RLI Ins. Co. v. May Const. Co., Inc., 09 Civ. 7415 (PKC), 2011 WL 1197937 at *2 n.1 (S.D.N.Y. Mar. 22, 2011) (Castel, D.J.) (granting motion to strike for party's failure to obey scheduling order under Rule 16(f)); Farricker v. Penson Dev., Inc., 07 Civ. 11191 (PKC), 2010 WL 4456850 at *2 n.2 (S.D.N.Y. Oct. 28, 2010) (Castel, D.J.) (same).
2. Rule 26(a)(2)(B)'s Disclosure Requirements
Fed.R.Civ.P. 26(a)(2) governs expert disclosures. Rule 26(a)(2)(B) requires an expert witness to provide a written report "if the [expert] witness is one retained or specially employed to provide expert testimony in the case or one whose duties as the party's employee regularly involve giving expert testimony." The written report must include, inter alia, "a complete statement of all opinions the witness will express and the basis and reasons for them; the facts or data considered by the witness in forming them; [and] any exhibits that will be used to summarize or support them." Rule 26(a)(2)(B)(i)-(iii) (emphasis added). As explained in the Advisory Committee notes, Rule 26(a) "requires that persons retained or specially employed to provide expert testimony... must prepare a detailed and complete written report, stating the testimony the witness is expected to present during direct examination, together with the reasons therefor." Rule 26(a)(2)(B) Advisory Committee Notes on 1993 amend. ¶ (2)(B) (emphasis added). "The purpose of the rule is to prevent the practice of sandbagging' an opposing party with new evidence." Ebewo v. Martinez , 309 F.Supp.2d 600, 607 (S.D.N.Y. 2004) (Koeltl, D.J.) (citations omitted). To that same end, Rule 26 also imposes a continuing obligation on parties to supplement or correct expert disclosures "in a timely manner." Rule 26(e)(1)(A).
Pursuant to Rule 37(c)(1), a party who fails to provide information required under Rule 26(a) or (e), "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" (emphasis added). Like Rule 16(f), Rule 37(c)(1)(C) permits the court to impose any other sanction it deems appropriate, including those listed in Rule 37(b)(2)(A)(i)-(vi). Although there is language in the Advisory Committee Notes to the 1993 amendments to Rule 37 suggesting that preclusion is intended as an "automatic sanction" for untimely disclosures, the Court of Appeals for the Second Circuit has explained that the structure of the Rule does not warrant this interpretation and has directed District Courts to use a more flexible approach in assessing the consequences of a party's untimely disclosure or amendment of a disclosure previously made. Design Strategy Inc. v. Davis, supra , 469 F.3d at 296-98. Specifically, the Court of Appeals has identified four factors to be considered in determining whether an order of preclusion is appropriate:
(1) the party's explanation for the failure to comply with the [disclosure requirement]; (2) the importance of the testimony of the precluded witness[es]; (3) the prejudice suffered by the opposing party as a result of having to prepare to meet the new testimony; and (4) the possibility of a continuance.
Patterson v. Balsamico , 440 F.3d 104, 117 (2d Cir. 2006) (alterations in original), citing Softel, Inc. v. Dragon Med. & Scientific Commc'ns, Inc. , 118 F.3d 955, 961 (2d Cir. 1997). A finding of bad faith, however, is not required before sanctions can be imposed under Fed.R.Civ.P. 37(c)(1). Design Strategy, Inc. v. Davis , 469 F.3d at 296.
"[T]o the extent that an expert affidavit is within the scope of the initial expert report, it is properly submitted in conjunction with dispositive motions even outside the time frame for expert discovery." Cedar Petrochemicals, Inc. v. Dongbu Hannong Chem. Co. , 769 F.Supp.2d 269, 279 (S.D.N.Y. 2011) (Francis, M.J.) (citations omitted); accord Commercial Data Servers, Inc. v. Int'l Bus. Machs. Corp. , 262 F.Supp.2d 50, 61 (S.D.N.Y. 2003) (McMahon, D.J.) (considering untimely ...