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ARMSTRONG v. AMSTEAD INDUSTRIES

July 1, 2004.

JUAN ARMSTRONG, et al., Plaintiffs,
v.
AMSTEAD INDUSTRIES, INC., et al., Defendants.



The opinion of the court was delivered by: JAMES MORAN, Senior District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff class brought this action against Amsted Industries, Inc. (Amsted), LaSalle Bank (LaSalle) and various other defendants for violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., (ERISA). Plaintiffs now seek sanctions against Amsted and LaSalle for discovery abuses, and request that the court strike the opinions of three of defendants' expert witnesses concerning Amsted's stock repurchase obligation. Plaintiffs claim that despite numerous production requests, defendants did not disclose various relevant documents until after the close of fact discovery and plaintiffs' submission of their expert disclosures. Nonetheless, defendants provided these documents to their own experts. Plaintiffs seek to bar defendants' use of certain parts of opinions of Robert Gross, Lawrence Levine, and Joseph Belger. Plaintiffs' motion for sanctions is denied.

BACKGROUND

  After more than sixteen months, fact-discovery in this case closed on August 22, 2003. Plaintiffs made their expert disclosures on September 5, 2003, and defendants made their disclosures on December 10, 2003. During discovery, plaintiffs made several production requests to Amsted and LaSalle. In request no. 51 of their First Requests for Production submitted to Amsted on May 3, 2002, plaintiffs asked for: "Documents provided by either AMSTED Industries, Inc. or the AMSTED ESOP, to any third-party for use in the preparation of any stock repurchase obligation feasibility study, analysis, opinion, report and/or projection in connection with, or preparation for, the Varlen merger." Amsted objected to the production of documents generated before 1999, but otherwise complied with the request. In request no. 55 of their Second Requests for Production made to Amsted on June 13, 2002, plaintiffs requested: "To the extent not previously produced, a copy of all documents, data compilations and tangible things that are in your possession, custody or control that you may use to support any claims or defenses." Amsted responded that the "[i]nvestigation continues." On October 21, 2002, plaintiffs served Amsted with their Third Requests for Production, in which request no. 59 read: "To the extent not previously produced, any data, output, report or other analysis generated by, or created with PERLS software, that it is/was related to or made in conjunction with any stock repurchase obligation stemming from any corporate acquisition or merger from January 1, 1997 to the present." Amsted once again objected to the temporal scope of the request and referred plaintiffs to previously disclosed documents.

  Plaintiffs also made requests for production on LaSalle Bank. On October 9, 2002, plaintiffs requested "All documents regardless of form, including all documents stored on magnetic or digital media, provided by Amsted Industries, Inc., and/or the Amsted Industries, Inc. Employee Stock Ownership Plan (ESOP) to LaSalle Bank, N.A. as Trustee of the Amsted Industries, Inc. Employee Stock Ownership Plan (ESOP) for its use in serving as trustee of the Amsted Industries, Inc. Employee Stock Ownership Plan (ESOP) from January 1, 1997 to the present." LaSalle stated that it would produce all non-privileged documents responsive to the request.

  Finally, plaintiffs requested that Matthew Hower, Amsted's treasurer, bring certain documents to his deposition, including "[f]easibility studies, analyses, opinions, reports and/or projections prepared in connection with the ESOP stock repurchase obligation resulting from the, prepared at the direction of, reviewed by, circulated to or addressed to any Amsted officer, director and/or employee" and all documents in his control that he may use to support his claims and defenses.

  In response to Amsted's objection to the production of documents generated before 1999, plaintiffs brought a motion to compel. On December 18, 2002, the court ordered defendants to supplement their previous responses to plaintiffs' production requests with documents from January 1, 1998 to January 1, 1999. Armstrong v. Amsted, 2002 WL 31844956 (N.D.Ill. 2002).

  After the close of fact-discovery, and after plaintiffs had made their expert disclosures, defendants provided plaintiffs with three different types of documents that were previously undisclosed. On October 1, 2003, Amsted produced twelve PERLS reports from 1998 and two from 1999. LaSalle's expert, Robert Gross, refers to these reports in his opinion, finding that Amsted used PERLS software to analyze its repurchase obligation throughout 1998 and 1999. On December 31, 2003, three days before Amsted's expert Lawrence Levine's deposition, Amsted produced spreadsheets documenting the company's quarterly ESOP repurchase history from 1984 to 2000. Levine received these spreadsheets while formulating his opinion after he requested more information from Amsted. Another spreadsheet allegedly generated by Amsted containing ESOP repurchase data from 1987 to 1999, appeared in Levine's report under Tab 3. Finally, on January 5, 2004, the day before the deposition of its expert, Joseph Belger, LaSalle produced 100 pages of employee census spreadsheets listing various details about Amsted's ESOP participants, including their age, years of employment, and share account balances. To give plaintiffs time to review these census sheets, Belger's deposition was rescheduled.

  DISCUSSION

  Plaintiffs argue that defendants' failures to produce the PERLS reports, the quarterly ESOP repurchase spreadsheets and the employee census sheets, in response to their production requests, are discovery abuses sanctionable under both the court's inherent powers and Federal Rule of Civil Procedure 37. Courts have an inherent power to sanction a range of litigation abuses — including discovery abuses — to ensure the "orderly and expeditious disposition of cases." Chambers v. NASCO, Inc., 501 U.S. 32, 43, 46 (1991). Furthermore, Rule 37 explicitly grants the court the power to sanction discovery abuses. It states: "A party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1) shall not, unless such failure is harmless, be permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed. In addition to or in lieu of this sanction, the court, on motion and after affording an opportunity to be heard, may impose other appropriate sanctions. . . ." Amsted and LaSalle argue that the circumstances do not warrant sanctions. In separate responses each defendant addresses its alleged lapses and the effect on its expert witnesses' reports.

  Amsted first argues that plaintiffs' motion should be denied because it does not comport with Local Rule 37.2, which requires a statement from the movant that a consultation between the parties was unable to resolve the discovery dispute or at least that attempts to schedule a consultation were made but were unsuccessful due to no fault of the movant. Though plaintiffs' motion does not contain such a statement and apparently no consultation was attempted, we accept plaintiffs' contention that a meeting between the parties would have been fruitless, given plaintiffs' desired sanction.

  In response to plaintiffs' allegations that defendants failed to produce the PERLS reports, Amsted argues both that plaintiffs never sought to compel these documents and that its failure to produce these documents was inadvertent and rectified when they were given to plaintiffs immediately after Amsted discovered the lapse. Plaintiffs maintain that the PERLS reports from 1998 and 1999 should have been turned over in response to three of their requests for production and to the document requests submitted with Hower's deposition notice. Defendants objected to all of these requests to the extent they sought documents generated before January 1, 1999, leading to plaintiffs' motion to compel. We ordered defendants to supplement their responses to include materials from 1998. Amsted argues that plaintiffs only sought to compel the additional documents for certain requests from its First Requests for Production. Thus, it maintains that of the four allegedly relevant requests it needed only to provide documents from 1998 in response to request 51 from the First Requests for Production. This request did not implicate the PERLS reports, Amsted argues, because it sought documents relating to the Varlen merger, and the PERLS reports did not relate.

  Though Amsted's technical reading of plaintiffs' requests and the motion to compel may be correct, it recognizes that this did not relieve its obligation to produce the PERLS reports from either 1999 (which clearly would have been implicated by plaintiffs' cited requests) or 1998. Thus, Amsted maintains that the failure was an inadvertent mistake by Hower, who allegedly believed that all the PERLS reports requested were produced earlier.

  Amsted also contests plaintiffs' arguments regarding Lawrence Levine's use of data in his expert report. Plaintiffs protest the late production of spreadsheets containing quarterly ESOP data from 1984 to 2000,*fn1 the failure to produce the spreadsheet at Tab 3 of Levine's report, and Levine's reliance on this historical quarterly ESOP information in his standard deviation analysis. Amsted minimizes the significance of the tardy production of spreadsheets, arguing that much of the data contained in the spreadsheets had been produced in other documents and that Levine's reliance on this information (especially in relation to his standard deviation analysis of Amsted's repurchase obligation) was overstated by plaintiffs. However, as plaintiffs point out, defendant's production of some of the ...


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