The opinion of the court was delivered by: P. Michael Mahoney, United States Magistrate Judge.
Report and Recommendation
James Hess ("Plaintiff'), who works for keg-Ellen Machine Tool Corporation ("Reg-Ellen"), filed a lawsuit against keg-Ellen Machine Tool Corporation's Employee Stock Ownership Plan ("Reg-Ellen ESOP Plan" or "Defendant"), with jurisdiction based on ERISA, 29 U.S.C. § 1132. Plaintiff's two count*fn1 complaint seeks, inter alia, recovery of benefits due under terms of the keg-Ellen ESOP Plan.
On April 19, 2002, this court held an Initial Pretrial Conference. At that conference the Magistrate Judge ordered the disclosure of all 26(a)(1) material by May 17, 2002, a fact discovery cutoff date of November 30, 2002, and a dispositive motions due date of December 30, 2002. Plaintiff submitted his Rule 26(a)(1) disclosures on May 17, 2002. Defendant failed to serve any Rule 26(a)(1) disclosures. On January 3, 2003, Plaintiff filed a motion for summary judgment. In response to Plaintiff's motion for summary judgment, on February 19, 2003, Defendant included the affidavits of Timothy Turner ("Mr. Turner") and Lorraine Morris ("Ms. Morris"), two previously undisclosed witnesses. Plaintiff filed a Motion to Exclude Evidence or in the Alternative Motion to Strike Affidavits ("Plaintiff's Motion to Strike") on March 10, 2003. Defendant, probably sensing a problem, filed, on March 19, 2003, his Defendant's Response to Plaintiff's Motion to Strike ("Defendant's Response") (incorrectly labeled a Reply) to Plaintiff's Motion to Strike and, additionally sought leave from the court to disclose Mr. Turner and Ms. Morris, some four months after the fact discovery cutoff date. (Def.'s Resp. at 9)("WHEREFORE, . . . Defendant be granted leave to disclose Timothy Turner and Lorraine Morris. . . .")
On March 25, 2003, Judge Reinhard, after having to read all the briefs submitted by Plaintiff and Defendant in relation to Plaintiff's motion for summary judgment and all the briefs submitted by Plaintiff and Defendant in relation to Plaintiff's Motion to Strike, denied Plaintiff's motion for summary judgment without prejudice, returned the case to the Magistrate Judge for necessary discovery and requested the Magistrate Judge write a Report and Recommendation addressing whether sanctions, including attorney's fees, should be imposed against Defendant and/or their counsel for the discovery violation of not disclosing the previously-named witnesses and, if so, the nature and amount of those sanctions. For the reasons stated below, it is the Recommendation of the Magistrate Judge that Defendant's counsel be ordered to pay Plaintiff's counsel four thousand three hundred ninety two dollars ($4392.00).
Plaintiff, in his amended complaint, alleges that around June 5, 1998, he requested that he be allowed to diversify his assets in the keg-Ellen ESOP for the contributions to the Plan prior to 12-1-94 pursuant to the plan amendment and to transfer value of his pre-12-1-94 ESOP assets to other investments. (Am. Compl. at ¶ 5). Allegedly, around November 3, 1995, keg-Ellen amended the keg-Ellen ESOP to provide, among other things, the following:
Section 4.12(j) ". . . Although Participants shall
continue to have the right to direct the investment of
the Participant's account as to contributions made on
or before November 30, 1994, Participants shall have
no rights pursuant to Section 4.12. to direct the
investment of the Participant's account made on or
after December 1, 1994.
(Id. at ¶ 6). Between July 1998 and November 1998, Reg-Ellen allegedly denied Plaintiff's request to move his pre 12-1-94 stock out keg-Ellen's company stock and into other investment accounts. (Id. at ¶ 9). Plaintiff alleges that as a result of this denial, Plaintiff suffered financial losses in excess of $111,000.00. (Id. at ¶ 14).
Plaintiff's 26(a)(1) disclosures included nine individuals that Plaintiff believed were likely to have discoverable information relevant to the disputed facts. Of those nine, one individual, David Lewellen ("Mr. Lewellen"), is of particular importance. Plaintiff's 26(a)(1) disclosure included Mr. Lewellen (the fourth person in the list of nine) with the following statement regarding why Mr. Lewellen was disclosed by Plaintiff:
Mr. Lewellen was the President of Reg-Ellen, principal
Plan sponsor and Plan Adminstrator from 1987 to 1998.
He has knowledge of the intent of the 1994 Amendment
and the Plan Sponsor's purpose in adding the new
provision in section 4.12(i) to the Plan to allow
participant to direct their pre-12-1-94 accts.
investment in either the Co. stock or the Trustee's
Investment Fund after 12-1-94, and the promises made
to the Participants about their rights under their
Pl.'s Rule 26(a)(1)(A) Disclosures at 2 (emphasis added).
According to Plaintiff, Mr. Lewellen was the president, board of directors member, and principal shareholder from 1978 to December 31, 1997 and was primarily responsible for the establishment of the 401(k) pension plan and ESOP which became effective December 1, 1987, and was amended in 1989 and again in 1994. (LR. 56.1(a) ¶ 3). Plaintiff included the affidavit of Mr. Lewellen with his motion for summary judgment. In his affidavit, Mr. Lewellen stated:
As Plan Administrator for the ESOP, I retained a
pension consultant, n.k.a. McGladrey & Pullen, of
Rockford, IL. to advise me on the appropriate
amendment language. It was the intent of the Board of
Directors in amending the ESOP, that we did not wish
to affect or diminish the participant's rights to
direct the investment of their accounts as to any
contributions made on or before November 30, 1994, the
day before the effective date of the Amendment. I was
advised by McGladrey & Pullen and they insisted
that specific language should be added as an amendment
to Section 4 of the ESOP to assure that the
Participants shall continue to have the right to
direct the investment of the Participant's account as
to contributions made on or before November 30, 1994,
but no right to direct investment of the contributions
made after December 1, 1994. I understood and
interpreted the 1994 ESOP Amendment to mean that each
Participant could continue to direct the investment of
their Account as to any contributions made either by
them or on their behalf, prior to December 1, 1994,
notwithstanding any provision of Section 4.12. to the
contrary, as was expressly stated in the 1994
(Lewellen Aff. at ¶ 4).
Defendant, in response to Plaintiff's 56.1 statement and Mr. Lewellen's affidavit, submitted their Response to Plaintiff's Statement of Material Facts, in which they stated:
Defendants deny Paragraph 4 of Plaintiff's Statement
of Material Facts insofar as it states that David
Lewellen was the ESOP Plan Administrator's designee
from 1987 through December 31, 1997. David Lewellen's
Affidavit clearly states that he was the ESOP Plan
Administrator for the ESOP from 1987 through December
31, 1997. David Lewellen, however, was not the Plan
Administrator, keg-Ellen was the Administrator.
(Timothy Turner Affidavit Paragraph 30, and Lorraine
Morris Affidavit Paragraph 31, . . .).
(LR 56.1(b) at ¶ 4). Additionally, in submitting additional facts within their 56.1(b) statement, Defendant stated:
2. The board of directors of keg-Ellen Machine Tool
Corp. has never expressed an intent to allow, nor has
it ever allowed any ESOP participant to liquidate
money from keg-Ellen Machine Tool Corp. into any other
investment, until the participant has met the
diversification requirements contained in Section
4.12(g), age 55 and 10 years of service. (Timothy
Turner Affidavit Paragraph 17, and Lorraine Morris
Affidavit Paragraph 18.).
3. The 1995 plan amendment was adopted in order to
eliminate 401(k) elective deferral by participants
(the ability of participants to have their own money
withheld from their paychecks and contributed to the
plan). From that point forward, the only contributions
to the plan have been made by keg-Ellen Machine Tool
Corp. Previously, participants had the opportunity to
decide whether to have their elective deferrals
invested in Reg-Ellen Machine ...