Rule 26(a)(1) Disclosure Violation — Exclusion Is the Usual Remedy, But There Are Many Alternatives — Honest Mistake as Defense to Sanctions — 6th Circuit Adopts 4th Circuit’s 5-Factor Test for Substantial Justification / Harmless Error

Howe v. City of Akron, 2015 U.S. App. LEXIS 16529 (6th Cir. Sept. 17, 2015):

In 2004, Defendant-Appellant City of Akron administered promotional examinations for firefighters for the ranks of Lieutenant and Captain. The Plaintiffs-Appellees [*2]  are Akron firefighters who took the examinations, but were not promoted. They filed this lawsuit, alleging that the promotional process disparately impacted firefighters over the age of forty in violation of the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., and Ohio Revised Code §§ 4112.02, .14, and .99. In addition, they allege that the Lieutenant promotional process adversely impacted African-American applicants, and the Captain promotional process adversely impacted Caucasian candidates in violation of Title VII, 42 U.S.C. § 2000e et seq., and Ohio Revised Code § 4112.02(A).

On December 23, 2008, a jury found that the two promotional processes adversely impacted applicants over the age of forty, and that the exams and promotional processes were not justified by business necessity. On October 2, 2009, the district court entered findings of fact and conclusions of law consistent with the jury's verdict with respect to the Plaintiffs' Title VII race-discrimination claims, finding that Akron's promotional process adversely impacted African-American Lieutenant candidates and Caucasian Captain candidates. Following the parties' post-judgment motions, the district court ordered a new trial on the sole issue of damages. On August 30, 2013, after a retrial, the district [*3]  court entered an award of back pay in the amount of $616,217.75. On March 27, 2014, the district court entered a permanent injunction and appointed a court monitor.

The parties have been litigating this case with remarkable vigor and venom since 2008. After two trials and multiple appeals, the parties remain unwilling to settle their differences. Akron now appeals the liability judgment, back-pay award, permanent injunction, and the appointment of a court monitor. The Plaintiffs have cross-appealed the district court's back-pay award, and argue that Akron has forfeited any challenge to the liability judgment because of this court's opinion in Howe v. City of Akron ("Howe I "), 723 F.3d 651 (6th Cir. 2013). Both parties  [**3]  seek--at the very least--a new trial on the issue of back pay and reassignment of the case to a different district judge.

For the reasons expressed in this opinion, we AFFIRM the liability judgment. However, we REVERSE the back-pay award and REMAND the case for reassignment to a different district judge and a new trial on the issue of back pay. In addition, we MODIFY the district court's order appointing a court monitor to limit the court monitor's involvement to one promotional cycle.

***

I. The Discovery Sanctions

On July 15, 2011, the Plaintiffs filed supplemental trial exhibits, including Exhibit 208, which was a document prepared by Carr reflecting his calculations of the Plaintiffs' back pay losses with a differential starting April 4, 2007. R. 429 at 3 (Pls.' Amend. Ex. List Rerial) (Page ID #11284). That same day, Akron disclosed its final back-pay calculations. R. 457-2 at 3 (Elfin Decl. ¶ 17) (Page ID #11673). The difference between Akron's and the Plaintiffs' computation of back pay was approximately [*28]  $14,000. R. 467 at 4 (Tr. Retrial Vol. 1) (Page ID #12473).

The retrial commenced on July 25, 2011, and the district court addressed Akron's concern that the Plaintiffs had disclosed their back-pay calculations late. See id. at 37-38 (Page ID #12506-07). The Plaintiffs' original calculation of back pay required taking the average salary of all Lieutenants or Captains promoted using the 2004 examination and resulting eligibility list. R. 448 at 1 (D. Ct. Order Re Supplemental Deps.) (Page ID #11482). The Plaintiffs who were candidates for the rank of Lieutenant would compare their actual salary with that of a promoted candidate for each year after the promotion. Id. Those Plaintiffs who were  [**16]  candidates for the rank of Captain would compare their actual salaries with the average salary of a promoted Captain. See id.

Carr's new formulation took a different approach: each Plaintiff used the paycheck he or she personally received and "incorporate[d] step increases into each paycheck" to reflect the pay increase they would have received had they been promoted. Id. at 1-2 (Page ID #11482-83). Thus, in the first year after the promotion, a Plaintiff would receive a percentage pay increase of her actual salary, and then in subsequent [*29]  years receive additional percentage increases. Carr indicated that he preferred his method of calculating back pay, but he abandoned his calculations because the other Plaintiffs intended to use Snyder's method. See R. 469 at 60-63 (Tr. Retrial Vol. 3) (Page ID #12852-55).

The Plaintiffs claimed that they had to change their calculations because the district court had promoted them and thus they could no longer compare their paychecks to promoted firefighters who had already received step increases. R. 448 at 3 (D. Ct. Order Re Supplemental Deps.) (Page ID #11484); see also R. 467 at 42-43 (Tr. Retrial Vol. 1) (Page ID #12511-12). Nevertheless, the district court found that Carr's formula had existed prior to the court's order promoting the Plaintiffs, but Akron had not deposed Carr about how he had made his calculations because it had been clear that the Plaintiffs intended to use Snyder's method. R. 448 at 3-4 (D. Ct. Order Re Supplemental Deps.) (Page ID #11484-85). In order to permit Akron to inquire into the Plaintiffs' new method for calculating back pay, the district court reopened the depositions of Carr and Snyder. Id. at 4 (Page ID #11485).

After the depositions and before the retrial [*30]  resumed, the district court conducted a voir dire examination of Carr to determine why the Plaintiffs had changed their back-pay calculations. The district court asked Carr, "[W]hat if anything at all did the Court's order of promotion have to do with the change in methodology by the plaintiffs?" R. 469 at 74 (Tr. Retrial Vol. 3) (Page ID #12866). Carr answered:

   Front pay got taken out of play. And there was a question of whether the start day. If the start date changed, then we couldn't use Mr. Snyder's calculations because it would have inflated the numbers if we would have kept it that way, because we would have only had one person to compare to, and that would have been a highly--one of the highest paid captains, Captain Willoughby.

[**17]  Id. at 74-75 (Page ID #12866-67). The district court clarified: "So, in essence, the methodology didn't change. Just simply the fact--the dates in essence changed, correct?" Id. at 75 (Page ID #12867). Carr replied, "Yes, sir." Id.

On July 28, 2011, at the close of the Plaintiffs' case, the district court entered an order excluding Carr's calculations from evidence. The district court found that the Plaintiffs had "engaged in a classic bait-and-switch maneuver," allowing Akron to [*31]  conduct discovery on the Snyder method without indicating that the Plaintiffs might use the Carr method for their final calculations. R. 484 at 7 (D. Ct. Order Excluding Ex. 208) (Page ID #13413). In addition, the district court rejected the Plaintiffs' contention that the court's promotion order had caused them to change course because Carr had computed back pay using his method before the promotion order went into effect. Id. The district court concluded that the late disclosure of Carr's calculations had prejudiced Akron because, at their depositions, all the Plaintiffs stated that they had relied on Snyder's calculation of back pay, but at trial, they stated that they had recalculated their back pay to verify Carr's calculations. Akron had not been able to depose Plaintiffs other than Carr about their individual calculations based on this new information. Id. at 8 (Page ID #13414). And the district court decided that it was highly suspicious that the Plaintiffs had calculated their own back pay only after the district court had expressed doubt that the Plaintiffs could rely on Carr's methodology. Id. Finally, the district court found that the "Plaintiffs' damages ha[d] been a moving target," [*32]  id. at 9 (Page ID #13415), concluding that "[w]hether this [was] a strategic choice or simply poor trial preparation, it is improper and prejudicial," id. at 10 (Page ID #13416). Therefore, the district court excluded Carr's back-pay calculations, Exhibit 208, as a sanction pursuant to Federal Rule of Civil Procedure 37(b)(2). Id. at 11-12 (Page ID #13417-18). As an additional sanction, the district court indicated that it would likely award attorney fees for the costs of litigating the motion to exclude Carr's testimony. Id. at 12 (Page ID #13418).

J. The Retrial

After excluding Exhibit 208, the district court suspended the retrial. Akron filed a motion for judgment on partial findings pursuant to Federal Rule of Civil Procedure 52(c), arguing that the Plaintiffs had not presented competent evidence to substantiate back pay, among other  [**18]  issues. See R. 499 at 1-30 (Def.'s Mem. in Supp. of Mot. for J. on Partial Findings) (Page ID #14626-55). On September 24, 2012, the district court denied Akron's Rule 52(c) motion, concluding that the Plaintiffs had presented evidence from which the court could determine back pay for each Plaintiff. R. 531 at 3 (D. Ct. Order Re Mot. for J. on Partial Findings) (Page ID #15372).

On November 28, 2012, nearly four years after the first trial and fifteen months after the retrial first [*33]  began, the trial resumed. Akron moved to admit exhibits into evidence, rested, and renewed its motion for a directed verdict pursuant to Federal Rule of Civil Procedure 52. R. 565 at 4-7 (Tr. Retrial Vol. 5) (Page ID #15881-84). Akron argued that the only evidence in the record was the testimony of Mark McLeod, Akron's witness, who had not performed back-pay calculations, but had reduced the Plaintiffs' lost earnings calculations to reflect a loss of chance. Id. at 8-11 (Page ID #15885-88).

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L. The Back-Pay Award

On August 30, 2013, the district court entered its findings of fact and conclusions of law with respect to the Plaintiffs' back pay. The district court used McLeod's calculations to compute the Plaintiffs' back pay, see R. 588 at 2-6 (Findings of Fact ¶¶ 9-23) (Page ID #16480-84, noting that the "computations involved simple mathematical functions and were not  [**19]  expert calculations," id. at 8 (Conclusions of Law ¶ 12) (Page ID #16486). The back-pay calculations began on April 4, 2007, and continued until July 17, 2011, the day before the Plaintiffs' promotions went into effect. Id. at 3-4 (Findings of Fact ¶ 21-22) (Page ID #16481-82). Accordingly, the district court found that there was sufficient evidence to award the Plaintiffs a total of $616,217.75 in back pay. Id. at 9 (Conclusions of Law ¶ 14) (Page ID #16487). The district court calculated each Plaintiff's individual back-pay award. See id. at 9-12 (FFCL ¶¶ 14A-U) (Page ID #16487-90). To the extent that the district court's calculations may include some [*35]  front pay, the court noted that it would still award that amount. Id. at 8 (Conclusions of Law ¶ 11) (Page ID #16486). In addition, the district court dismissed Plaintiff Michael Harvey's claim to back pay because he never testified and the record did not support a back-pay award. Id. at 12 (Conclusions of Law ¶ 15) (Page ID #16490). Finally, the district court found no just reason for delay pursuant to Federal Rule of Civil Procedure 54(b).4 Id. (Conclusions of Law ¶ 16).

4   Federal Rule of Civil Procedure 54(b) provides:

   When an action presents more than one claim for relief--whether as a claim, counterclaim, crossclaim, or third-party claim--or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.

On September 3, 2013, the district court denied Akron's renewed motion [*36]  for judgment under Rule 52(c). R. 589 at 1 (D. Ct. Order Re Def.'s Renewed Mot. for J. on Partial Findings) (Page ID #16491). The district court found that Akron had waived its legal theory that the Plaintiffs' back pay had to be reduced based on the probability that they would not be promoted because Akron had not presented that testimony or argument during the first trial. Id. at 2 (Page ID #16492). Moreover, the court concluded that the Plaintiffs had not opened the door to that theory during their cross-examination of McLeod. Id.

On September 27, 2013, Akron filed a Notice of Appeal of (1) "the Findings of Fact and Conclusions of Law entered in this action on the 30th day of August, 2013 (Doc. 588), that awards Plaintiffs $616,217.75 and includes 'no just reason for delay'"; (2) the Order ("Doc. 589") denying Akron's renewed Rule 52(c) motion; and (3) "interlocutory orders that issued  [**20]  prior to August 30, 2013 and are merged into the August 30, 2013 Findings of Fact and Conclusions of Law." R. 590 at 1 (Notice of Appeal Case No. 13-4172) (Page ID #16494). On October 10, 2013, the Plaintiffs filed their cross-appeal for Case No. 13-4172 regarding back pay.

On February 19, 2014, the Plaintiffs filed a motion [*37]  for prejudgment and post-judgment interest. R. 613 at 1-9 (Pls.' Mot. for Pre- & Post-J. Interest) (Page ID #16646-54). Akron opposed the motion. R. 638 at 1-14 (Def.'s Opp'n to Mot for Pre- & Post-J. Interest) (Page ID #17301-14). To date, the district court has not yet ruled on the Plaintiffs' motion.

***

Discovery Sanction. Akron contends that the record does not include any evidence necessary to compute step increases. Akron Reply Br. at 56-57. As explained above, we disagree. Even so, any deficiency in the evidentiary record was the result of the district [*68]  court's decision to exclude the Plaintiffs' final back-pay calculations as a sanction for alleged discovery violations. The Plaintiffs contend that the district court abused its discretion by excluding this evidence. See Pls.' Br. at 64-69.

 [**36]  Federal Rule of Civil Procedure 26(a)(1)(A)(iii) requires the party seeking damages to "make available for inspection and copying . . . 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[.]" "If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), 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). Although exclusion of late or undisclosed evidence is the usual remedy for noncompliance with Rule 26(a) or (e), Rule 37(c)(1) provides the district court with the option to order alternative sanctions "instead of" exclusion of the late or undisclosed evidence "on motion and after giving an opportunity to be heard." Id.; see also Roberts ex rel. Johnson v. Galen of Virginia, Inc., 325 F.3d 776, 783-84 (6th Cir. 2003) ("Rule 37(c)(1) does not compel the district judge to exclude testimony in its entirety."). A noncompliant [*69]  party may avoid sanction if "there is a reasonable explanation of why Rule 26 was not complied with or the mistake was harmless." Bessemer & Lake Erie R.R. Co. v. Seaway Marine Transp., 596 F.3d 357, 370 (6th Cir. 2010) (internal quotation marks omitted).

"We review a district court's decision to impose sanctions for any such noncompliance under an abuse-of-discretion standard." Jordan v. City of Cleveland, 464 F.3d 584, 600 (6th Cir. 2006). The Advisory Committee Notes to the 1993 Amendments, which include Rule 37(c)(1), explain that

   [l]imiting the automatic sanction to violations "without substantial justification," coupled with the exception for violations that are "harmless," is needed to avoid unduly harsh penalties in a variety of situations: e.g., the inadvertent omission from a Rule 26(a)(1)(A) disclosure of the name of a potential witness known to all parties; the failure to list as a trial witness a person so listed by another party; or the lack of knowledge of a pro se litigant of the requirement to make disclosures. In the latter situation, however, exclusion would be proper if the requirement for disclosure had been called to the litigant's attention by either the court or another party.

Fed. R. Civ. P. 37, 1993 advisory committee's note. "[The] Advisory Committee Notes to [the] 1993 Amendments (including Rule 37(c)(1)) . . . strongly suggest[] that 'harmless' involves an honest mistake on the part of a party coupled with sufficient knowledge on the [*70]  part of the other  [**37]  party." Vance ex rel. Hammons v. United States, 182 F.3d 920 (Table), Case No. 98-5488, 1999 U.S. App. LEXIS 14943, 1999 WL 455435, at *5 (6th Cir. June 25, 1999). In order to assess whether a party's omitted or late disclosure is "substantially justified" or "harmless," the Fourth Circuit considers five factors, which we now also adopt:

   (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.

Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396-97 (4th Cir. 2014) (quoting S. States Rack & Fixture, Inc. v. Sherwin--Williams Co., 318 F.3d 592, 597 (4th Cir. 2003)).

We first address whether the Plaintiffs' alleged late disclosure was a surprise to Akron. A district judge's decision to exclude evidence of the plaintiff's back-pay calculations as a sanction is an abuse of discretion when the defendant "had all the information relevant to the computation of damages in its possession" and "had a full opportunity during [the plaintiff's] deposition to question him about damages." Jordan, 464 F.3d at 601 & n.22. Here, Akron had all of the Plaintiffs' salary information in its possession. Akron knew that the Plaintiffs intended to use Excel simple math--addition, subtraction, multiplication, and division--to [*71]  calculate back pay. And Akron was aware that the Plaintiffs had considered two methods for computing back pay--Carr's method and Snyder's method.10 Akron deposed both Carr and Snyder about their methods for calculating back pay, and therefore Akron had adequate time to explore the methodology Carr and Snyder used.

10   Akron argues that this was an impermissible attempt to offer expert testimony. Akron Reply Br. at 46-48. The Plaintiffs claim that their calculations involve simple math--addition, subtraction, multiplication, and division. Pls.' Br. at 65-66. Because we are remanding this case to the district court for a new trial on the issue of back pay, we believe the district court should address whether expert testimony will facilitate proper calculation of back pay.

The record establishes that the Plaintiffs were relying on Snyder's back-pay calculations throughout the discovery period. But the record also reveals that the Plaintiffs acknowledged that their original back-pay calculations may have been flawed and that they may need to recalculate their back pay. After receiving information from Akron, the Plaintiffs calculated their back pay using Snyder's method. During the depositions, [*72]  the Plaintiffs realized that there  [**38]  may have been problems with their method of calculating back pay, and the Plaintiffs disclosed that to the district court. See R. 358 at 7 (Tr. Pretrial Conference) (Page ID #8322) ("If [Akron] is going to say that [the Plaintiffs' calculation of back pay] is incorrect, they have to assume that there is something that is correct. . . . That's why some of the revisions that we are making in the damage computations are based on the depositions that have happened so far based on some of the inquiries they have made . . . ."). Thus, Akron was aware that the Plaintiffs had considered Carr's method and that the Plaintiffs were reconsidering their calculations.

Second, we address whether Akron had adequate opportunity to remedy the surprise. Despite the Plaintiffs' last-minute decision to alter their method for calculating back pay, it appears that the change brought the parties closer to agreement: under the Carr method, the Plaintiffs' back-pay calculation apparently resulted in a $120,000 reduction. Pls.' Br. at 68. Akron had been complaining that the Plaintiffs had overstated their entitlement to back pay, see Akron Br. at 49, and therefore it seems [*73]  that this correction should have been welcome news to Akron; the only issue to be litigated during the retrial was how much Akron would have to pay, not whether they must. Moreover, Akron could have explored the problems with Carr's method for calculating back pay by cross-examining Carr and the other twenty-two Plaintiffs during the retrial.

Third, we consider whether introduction of the evidence would disrupt the hearing or trial. When the Plaintiffs disclosed Exhibit 208, the retrial had not commenced, and therefore Akron still had an opportunity to cross-examine Carr, Snyder, and the other twenty-one Plaintiffs. In addition, McLeod, an Akron employee, testified about the Akron Fire Department's compensation scheme and he calculated each Plaintiff's back pay, and therefore the record suggests that Akron believed that there was a "proper" method for calculating back pay. Akron could have compared the strengths and weaknesses of each method, which it apparently did by including evidence about the probability that the Plaintiffs would not have been promoted at all. See R. 565 at 10 (Tr. Retrial Vol. 5) (Page ID #15887) ("[I]f plaintiffs want to embrace Mr. McLeod's calculations, they must [*74]  embrace all of them, including the loss of chance reduction of 28 percent for the lieutenants, 29 percent for the captains."). We therefore conclude that the Plaintiffs' untimely disclosure did not significantly impact the trial.

 [**39]  Fourth, we consider the importance of the evidence excluded. We have already held that the district court should have considered the step increases when calculating the Plaintiffs' back pay in order to make them whole. We thus believe that this evidence was crucial to establishing an accurate back-pay award.

Fifth, we consider the Plaintiffs' explanation for the late disclosure. The Plaintiffs argue that the district court's last-minute orders promoting the Plaintiffs and establishing the start date for calculating back pay substantially justified the late disclosure of Exhibit 208. See Pls.' Br. at 66-68. The Plaintiffs contend that their "damages amount inevitably needed to change to comply with the July 12, 2011 Order," setting the start date for calculating back pay. Id. at 67. They explain that "the basic formula never changed--it always involved the [Plaintiffs'] weekly payroll data provided by Akron multiplied by the incremental step increases," id. at 67-68, but they [*75]  now could not use "the average salaries of promoted officers in 2005" to calculate the back pay, id. at 66. Akron points out that this is not an adequate explanation for the late disclosure because the start date for calculating back pay would not affect the formula used to calculate back pay, see Akron Reply Br. at 53-54, and we agree.

Nevertheless, we believe that the record suggests that the Plaintiffs' late disclosure was more likely the result of negligence, confusion, and lack of information than underhanded gamesmanship. Our review of the record suggests that the discovery period before the retrial was a rushed, confusing nightmare. The Plaintiffs complain that Akron wasted everyone's time by continuing to focus on the liability component of the case. Akron accuses the Plaintiffs of, first, trying to inflate their back pay; and, second, trying to conceal their back-pay calculations. The Plaintiffs requested information about the actual hours and pay rates of all of the Lieutenants and Captains who had been promoted in order to compare the promoted firefighters' earnings to the Plaintiffs' actual earnings. See R. 357 at 21-22 (Tr. Pretrial Conference) (Page ID #8295-96). Akron refused [*76]  to provide that information until the last possible day, but insisted that the Plaintiffs provide their back-pay calculations before that time. See id. at 22-23 (Page ID #8296-97). The record further reveals that the attorneys for both sides engaged in a childish withholding game, rather than providing necessary information to determine how best to make the Plaintiffs whole. See id. at 24-25 (Page ID #8298-99). The district court chastised both  [**40]  sides and required that "the plaintiffs quickly provid[e] to the defendant their damage calculation and how they arrive at those numbers. . . . [I]n order for the plaintiffs to do that, the city must promptly and timely provide documentation outlining lieutenants' pay and the overtime . . . ." Id. at 24 (Page ID #8298). Thus, the Plaintiffs could not calculate and verify their back-pay calculations until they looked at the data in Akron's possession, and Akron bears at least some responsibility for the delayed disclosure.

In addition, the record strongly suggests that the district court also caused some of the confusion leading up to the retrial. The district court set short deadlines for discovery and made it difficult for the Plaintiffs to calculate accurately their back pay [*77]  by (1) promoting all of the Plaintiffs without notice, and (2) setting the date to commence back-pay calculations very shortly before trial. The hurried nature of the second discovery period, rancor between the parties, and the last-minute decisions that substantially affected back-pay calculations contributed to the confusion. Although the Plaintiffs are not blameless, we believe that the district court caused many of the problems that led to the late disclosure of the Plaintiffs' final back-pay calculations. We therefore conclude that the Plaintiffs' late disclosure was harmless, and thus the district court's decision to exclude Carr's testimony and Exhibit 208 was an overreaction and an abuse of discretion.

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