Commercial Litigation and Arbitration

Rule 26(a)(1) Damages Disclosure — “Substantial Justification” and Harmless Error — No Requirement That Expert Perform Complicated Initial Disclosures

U.S. Bank N.A. v. PHL Variable Life Ins. Co., 2013 U.S. Dist. LEXIS 143398 (S.D.N.Y. Oct. 3, 2013):

"Substantial justification may be demonstrated where there is justification to a degree that could satisfy a reasonable person that parties could differ as to whether the party was required to comply with the disclosure request, or if there exists a genuine dispute concerning compliance." Ritchie Risk-Related Trading, 280 F.R.D. at 159 (internal quotation marks omitted). A violation is harmless if it does not prejudice the opposing party. Id. In evaluating whether a failure to disclose should be excused, courts look to factors such as (1) whether the failure has an explanation or was willful or in bad faith; (2) the surprise or prejudice to the party against whom the evidence would be offered; (3) the ability to cure the surprise; (4) the importance of the evidence; and (5) the extent to which allowing the evidence would disrupt the trial. See, e.g., Rodrick v. Wal-Mart Stores East, L.P., 666 F.3d 1093, 1096-97 (8th Cir. 2012); MicroStrategy Inc. v. Business Objects, S.A., 429 F.3d 1344, 1357 (Fed. Cir. 2005); David v. Caterpillar, Inc., 324 F.3d 851, 857 (7th Cir. 2003); Woodworker's Supply, Inc. v. Principal Mutual Life Insurance Co., 170 F.3d 985, 993 (10th Cir. 1999);  [*10] Softel, Inc. v. Dragon Medical and Scientific Communications, Inc., 118 F.3d 955, 961 (2d Cir. 1997); Accenture Global Services GmbH v. Guidewire Software Inc., 691 F. Supp. 2d 577, 587 n.16 (D. Del. 2010); Ebbert v. Nassau County, No. 05 CV 5445, 2008 WL 4443238, at *14 (E.D.N.Y. Sept. 26, 2008).***

Moreover, Rule 26(a)(1) does not mandate that the initial damages computation, even if complicated, be performed by an expert.   Indeed, this points to a foundational flaw in PHL's motion. The defendant seems to assume that the damages computation required  in initial disclosures would be akin to a fully-reasoned expert report. That is not required; rather Rule 26(a)(1) contemplates an estimate of damages and "some analysis," e.g., Maharaj v. California Bank & Trust, 288 F.R.D. 458, 463 (E.D. Cal. 2013), and Rule 26(e) requires supplementation as additional or corrective information becomes available. Expert disclosures, on the other hand, are governed by Rule 26(a)(2), which provides that such information be provided "in the sequence that the court orders."4 See Fed. R. Civ. P. 26(a)(2)(D). That is, neither Rule 26(a)(1) nor Rule 26(e) requires disclosure of an expert report prior to the date ordered by the court for such disclosure. See Hesco Parts, 2007 WL 2407255, at *2.


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