Commercial Litigation and Arbitration

Rule 37(c)(1) Sanctions — Factors for Determining Whether Failure Was Substantially Justified or Harmless

ACE Am. Ins. Co. v. McDonald’s Corp., 2012 U.S. Dist. LEXIS 89726 (D. Md. June 28, 2012):

Although Ace American's Rule 26 (a)(2) disclosures were untimely and in non-compliance, and arguably rendered McDonald's unable to "comply with its own Rule 26(a)(2) disclosure requirements," *** the Court denies McDonald's Motion to Strike Ace American's Rule 26(a)(2) Disclosures because the delay and incompleteness are substantially justified or harmless under Rule 37 (c)(1).

Federal Rule of Civil Procedure 37(c)(1) governs the failure to make disclosures. See Fed.R.Civ.P.37. If a party provides untimely or inadequate expert disclosures, Rule 37(c)(1) states that "the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed.R.Civ.P.37(c)(1); Fields, 2012 WL 1792639 at *2. On motion, the Court may choose to additionally or alternatively "(A) . . . order payment of the reasonable expenses, including attorney's fees, caused by the failure; (B) . . . inform the jury of the party's failure; and (C) . . . impose other appropriate sanctions, including any of the orders listed in Rule 37(b)(2)(A)(i)-(vi)." Fed.R.Civ.P.37(c)(1)(A)-(C).

The Fourth Circuit has held that district courts have broad discretion and should consider the following factors when determining whether the nondisclosure of evidence is substantially justified or harmless under Rule 37(c)(1):

(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.

Southern States, 318 F.3d at 597.

The purpose of Rule 37(c)(1) is to prevent a party from surprising and, thus, prejudicing the opposing party. Southern States, 318 F.3d at 596. Hence, the Fourth Circuit's test "does not require a finding of bad faith or callous disregard of the discovery rules." ... Bad faith, however, may be "relevant to the fifth factor." ***

Furthermore, Rule 26(e) requires that disclosures made under Rule 26(a) must be timely supplemented if a party learns that "the disclosure or response is incomplete or incorrect . . . or as ordered by the court." Fed.R.Civ.P. 26(e).

In this case, the Southern States factors weigh against striking Ace American's Rule 26(a)(2) disclosures. Regarding the first two factors, the issue of surprise and ability to cure the surprise, the litigation is in an early stage. The discovery deadline is not until July 27, 2012.... Hence, no surprise will occur if, pursuant to Rule 26(e), Ace American supplements its Rule 26(a)(2)(C) disclosures to conform with this Court's Order. Regarding the third factor, no trial date has been set yet, so the issue of trial disruption can be avoided if a supplemental Rule 26(a)(2)(C) disclosure is timely filed pursuant to Rule 26(e). Likewise, even though a settlement conference is scheduled for August 27, 2012, a timely filed supplemental Rule 26(a)(2)(C) disclosure is unlikely to disrupt those proceedings. Regarding factor four, Ace American's Rule 26(a)(2) disclosures are essential to Ace American's case. Since Ace American decided not to retain a liability expert and instead included all of Ms. Hines' treating physicians on Ace American's Rule 26(a)(2) disclosure, the information to which Ms. Hines' treating physicians would likely testify is critical. These treating physicians, therefore, should be allowed to testify. Finally, regarding the fifth factor, Ace American's explanation for failing to disclose the requisite information was that Ace American believed it did comply with the disclosures under Rule 26(a)(2) based on their understanding of the requirements. It is clear that Ace American did not understand the requirements under Rule 26 (a)(2)(C) and Local Rule 104.10. This is not uncommon; Rule 26 disclosures have been a "trap for the unwary" for quite some time. See Sullivan, 175 F.R.D. at 500-01 (noting that the distinction between hybrid witnesses and a retained expert is "often overlooked in practice"). In this case, there is sufficient time [*16] to supplement the Rule 26(a)(2) disclosures. Accordingly, McDonald's Motion to Strike Plaintiffs' Rule 26(a)(2) Disclosures is denied because the Fourth Circuit's Rule 37 balancing test weighs in favor of a finding that the failed disclosure is harmless.

Footnote 1. The Court will only permit Ms. Hines' treating physicians to function as hybrid fact/expert witnesses, as disclosed by Ace American, meaning that these treating physicians may only base their opinions on "information learned during the actual treatment of the patient . . . ." Sullivan, 175 F.R.D. at 501.

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