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Amari Company, Inc., et al v. John R. Burgess

November 2, 2012


The opinion of the court was delivered by: Judge John J. Tharp, Jr.


The plaintiffs, sixteen businesses in various industries, allege that the three individual defendants used various corporate entities they controlled (which the Court collectively refers to as "IPA" unless otherwise required) in a pattern of racketeering activity that swindled Plaintiffs into purchasing expensive but unnecessary or worthless business management and tax consulting services. See 18 U.S.C. 1962(c). The case is in its sixth year, and the 1000-plus docket entries tell the tale of the case's tortured and contentious history. A smattering of related state-court cases in various stages of litigation has also slowed progress in this Court. Fact discovery, now closed, proceeded at a snail's pace, was hotly contested, and frequently gave rise to motions to compel or for sanctions (meritorious and otherwise). Now before the Court are seven motions to bar the testimony of sixteen proposed expert witnesses. True to form, each party contests almost every one of the other side's disclosed experts. The motions to exclude can be grouped into those based on disclosure and those based on admissibility. The Court takes them up in turn.

A. Disclosure Challenges

Plaintiffs named Douglas Carpenter and Frank Baldino, both accountants, as experts for purposes of computing the consequential damages incurred by Tring Corporation and John Cardullo & Sons, Inc., respectively. In their motions to strike (Dkt. ## 1013, 1015), Defendants argue that Carpenter and Baldino must be excluded because Plaintiffs' disclosure of relating to their opinions and their bases was both late and incomplete.

1. General Disclosure Requirements

Before expert testimony can be admitted, certain procedural thresholds must be satisfied, quite apart from the admissibility of the testimony as a matter of substance. Federal Rule of Civil Procedure 26(a)(2) requires the proponent of expert testimony to timely disclose the witness's identity, and, for retained experts, a written report that contains, among other things, a "complete statement of all opinions the witness will express and the basis and reasons for them." Happel v. Walmart Stores, Inc., 602 F.3d 820, 825 (7th Cir. 2010). The Seventh Circuit has explained that "all witnesses who are to give expert testimony under the Federal Rules of Evidence must be disclosed under Rule 26(a)(2)(A) while only those witnesses retained or specially employed to provide expert testimony must submit an expert report complying with Rule 26(a)(2)(B)." Banister v. Burton, 636 F.3d 828 (7th Cir. 2011) (quoting Musser v. Gentiva Health Services, 356 F.3d 751, 756-57 (7th Cir. 2004)). The expert disclosure requirements cannot be avoided by "elevating" to expert status a witness who was previously identified as a fact witness or person with knowledge. See Happel, 602 F.3d at 823. The sanction for failure to comply with the disclosure requirements is the "automatic and mandatory" exclusion of the testimony, "unless non-disclosure was justified or harmless." Fed. R. Civ. P. 37(c)(1); Hammel v. Eau Galle Cheese Factory, 407 F.3d 852, 869 (7th Cir. 2005).

2. Discussion

The record does not contain a single clear disclosure of Carpenter and Baldino pursuant to Rule 26(a)(2). Plaintiffs do not maintain otherwise in their response to the motion to exclude; instead they discuss various ways they believe they made Defendants aware of these experts. A September 16, 2011, letter to Defendants' counsel names Carpenter and Baldino in a paragraph entitled "Damages Experts." The letter also goes on to state that Plaintiffs had long considered Defendants to be on notice of those experts. First, Baldino's report (which had been submitted in related state-court litigation) was already in the record as an exhibit to Plaintiff's response to one of many unrelated motions filed in this case. Dkt. # 438, Ex. Q (February 11, 2009). Second, although Carpenter's final report was not yet prepared, Plaintiffs noted that they had previously listed him in their amended witness disclosure, which had been filed with the Court as an exhibit to a motion for an extension of time on October 1, 2009. In fact, Carpenter does appear on "Schedule A.3.2" of Plaintiffs' "Third Amended and Supplemental Disclosures pursuant to Rule 26(a)(1)" (emphasis added), listed as a witness for Plaintiff Tring, to testify about "Uselessness / Negative Impact of IPA Companies Service and Advice." Dkt. # 615-2 at 53. Despite these earlier references, it was not until October 31, 2011, that Plaintiffs emailed or faxed (they are unsure which) "final" copies of Carpenter's and Baldino's reports to Defendants.

Despite Plaintiff's creative arguments, neither the September 16 letter nor the 2009 court filings that mention Baldino and Carpenter count as disclosures pursuant to Rule 26(a)(2). "[A] party must disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702, 703, or 705," and "[u]nless otherwise stipulated or ordered by the court, this disclosure must be accompanied by a written report-prepared and signed by the witness." Fed. R. Civ. P. 26(a)(2)(A)&(B) (emphasis added).*fn1 Thus, at the earliest, Plaintiffs effectively disclosed Carpenter and Baldino on October 31, 2011, when they sent the reports to Defendants' counsel. Any prior mention of these witnesses-in the September letter, in the Rule 26(a)(1) disclosures, or buried in the exhibits to a totally unrelated motion-was not a disclosure within the meaning of Rule 26(a)(2). Disclosure as a Rule 26(a)(1) fact witness does not suffice as an expert disclosure (to the contrary; it suggests that the identified witness will not be testifying as an expert, but rather as a fact witness). See Happel, 602 F.3d at 823. And simply naming the expert is not a complete disclosure when a report is required. The rule "mandates a complete and detailed report of the expert witness's opinions, conclusions, and the basis and reasons for them . . . and not merely the expert witness's identity"; indeed, "the expert witness's identity is a separate fact that must be disclosed in addition to the report." Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 642 (7th Cir. 2008). Certainly before receiving the reports, Defendants could not have been on notice of the nature of the experts' opinions in this case, the bases of the opinions, and the experts' purported qualifications to render them. And timely notice is whole purpose of the rule. See id.

The timeliness of the disclosure will therefore be assessed by taking October 31, 2011 (or November 1, 2011, when Defendants apparently received the reports) as the disclosure date. The task is complicated because the case's scores of minute orders setting and changing deadlines for particular events-peppered heavily with the parties' motions to extend the deadlines and an endless stream of their objections-make it difficult to chart the applicable deadlines.*fn2 Defendants point to numerous orders setting deadlines for witness disclosures, instructing Plaintiffs to amend them, compelling answers to interrogatories, and imposing sanctions, which they insist add up to proof that disclosure of expert witnesses was due long before October 31, 2011. None of the cited orders directly says so, though. And the Court is inclined to agree with Plaintiffs that Defendants read too much into some orders; for instance, Judge Bucklo's orders portend a fact discovery phase to be followed by expert discovery,*fn3 so her deadlines for certain disclosures and depositions might have applied only to fact discovery.

But that doesn't make the disclosure of Carpenter and Baldino timely. Digging deeper, Defendants moved to bar "undisclosed" experts [Dkt. # 922] on June 1, 2011, in the midst of the briefing of their motion for summary judgment. The motion was directed at three experts- Zayas, Newman, and Boras (not the two currently at issue, Baldino and Carpenter)-upon whose declarations Plaintiff relied in responding to the summary-judgment motion. Judge Bucklo declined to consider the contested expert testimony in ruling on the summary judgment motion (see Mem. Op. & Order, Dkt. # 942 at 8-9 & n4), but she also denied the motion to exclude the experts as untimely. Minute Order, Dkt. # 941 (July 11, 2011).

At that time, Judge Bucklo also entered the following schedule: "Defendants shall have until October 1, 2011 to name any opposing experts. All depositions of experts shall be completed by November 15, 2011. Any motions to strike experts shall be filed by December 15, 2011." *fn4 Id. (emphasis added). This strongly suggests that, although Judge Bucklo considered the disclosure of Zayas, Newman, and Boras to be timely, she also considered Plaintiffs' time for disclosing experts to have passed.

On October 25, 2011, Defendants moved again to bar Plaintiffs' same three experts (Zayas, Newman, Boras) for failure to timely produce reports and appear for depositions. Dkt. # 979. Plaintiffs responded to this motion almost simultaneously with their disclosure to the defendants of the two damages witnesses, Carpenter and Baldino, but they did not advise the Court that these two additional experts were in their pipeline. In December, Judge Bucklo referred Defendants' second motion to bar to Magistrate Judge Ashman, who ultimately denied it without prejudice (along with a similar motion filed by Plaintiffs). Minute Entry, Dkt. #1002 (January 11, 2012). Then, on February 1, 2012, Magistrate Judge Ashman entered an agreed order providing for depositions of four experts not including Baldino or Carpenter, allowing Defendants time to disclose additional experts and time to supplement expert reports as needed after deposing Plaintiff's liability experts, and requiring each side to file any objections to the other's expert designations by February 27. Again, this suggests that Magistrate Judge Ashman also considered Plaintiffs to be done naming more experts, and Plaintiffs did nothing to disabuse the Court of that impression. Thus, although the parties were fighting over Plaintiff's experts Zayas, Newman, and Boras from June 2011 to January 2012, Carpenter and Baldino came to the Court's attention only in March 2012, when Defendants moved to exclude them.

This sequence of events suffices to convince the Court that the October 31, 2011, disclosure of Carpenter and Baldino was untimely. Judge Bucklo's July 11 order that rescued Zayas, Newman, and Boras from exclusion clearly contemplated that Plaintiff was done naming experts. She entered a schedule for the defendants to name their opposing experts. Even though no precise deadline had ever been set for Plaintiff's disclosures, it is clear that Plaintiffs' disclosures were considered closed as of July 11, 2011, just as Magistrate Judge Ashman did not contemplate the depositions of Carpenter and Baldino his February 2012 order. Plaintiffs, who not have shown themselves to be at all shy about moving to reconsider or clarify the court's orders, could have spoken up at that time and advised the court that more experts were on the way. Instead, they simply took the liberty of advising Defendants in September 2011 that they had some damages experts and finally attempted a complete disclosure on October 31, after which it does not appear they took further action (other than to say generically that the experts were "available" for depositions).

Moreover, the disclosures of Carpenter and Baldino were not complete within the meaning of Rule 26(a)(2) because the experts' reports are inadequate. They are heavy on conclusions but short on analysis and lacking anything but the broadest description of the methodology used. See Fed. R. Civ. P. 26(a)(2)(B) (requiring report to contain, inter alia, "a complete statement of all opinions the witness will express and the basis and reasons for them" and "the facts or data considered by the witness in forming them")(emphasis added). For example, the Carpenter "report" is a 1-page letter that concludes "based on the books and records" that plaintiff Tring Corporation paid two "excess" fees. There is no explanation of methodology, nor any mention how these supposed consequential damages were caused by the Defendants. The Baldino report is a letter supplementing a 2006 report, presumably in another case. It appears that Baldino is comparing plaintiff Cardullo's actual profits with what it "should" have made if its relationship with two vendors had not be disrupted, and attributing the entire difference to the Defendants. Baldino assumes causation without supplying any basis for the opinion. These issues also create doubts that the testimony as summarized in the reports would be admissible, but that is not the basis of Defendants' motions, so the Court will not pursue that issue further.

The Court further concludes that the untimely disclosures are not substantially justified or harmless within the meaning of Rule 37(c)(1). First, Plaintiffs offer no justification other than blaming the Court for failing to provide clear deadlines. But Plaintiffs concede that they intended as far back as 2009 to use Carpenter and Baldino as expert witnesses-and Baldino's "preliminary" analysis dates back to 2006. Yet they did not disclose them-even after facing opposition to their other three experts on grounds of timeliness-and never even supplemented their interrogatory responses which stated that they had not identified any expert witnesses. Although the Court might have provided a more definite schedule (though the unceasing flood of filings made such an exercise more challenging than it should have been), Plaintiffs were not entitled to take the ambiguity as license to trickle out their expert disclosures over a period of years, keeping the full extent of their case from Defendants and the Court.

And the failure is not harmless. This case has been dragging along for years. Allowing at this late date for still more expert depositions, and possibly the need for counter-designation of opposing damages experts, would gum up the works even more. True, Defendants could have deposed the two experts after (finally) receiving their reports, but it was not unreasonable to stand on the argument that the disclosure was untimely and/or incomplete, given the costs that they would have incurred by preparing for the depositions. Moreover, the depositions would have been based on expert reports that fell short of what is required, further handicapping the Defendants in any effort to effectively depose the authors. And now, Defendants would suffer prejudice by having to depose Carpenter and Baldino after their own experts have already been deposed; obtaining rebuttal testimony at this late stage would impose financial and other burdens that are not justified in light of Plaintiff's unjustified delay. Therefore, the motions to exclude damages experts Plaintiff's damages experts Carpenter and Baldino are granted.

B. Admissibility Challenges

The next groups of motions target the admissibility of proposed expert testimony. First, Defendants move to exclude the testimony of Jeffrey Newman, a tax expert, and Ricardo Zayas, an accounting expert, who propose to address how IPA (and its affiliate tax-advice business, International Tax Associates, or "ITA") gave Plaintiffs a sales pitch inaccurately describing their services and the benefits that Plaintiffs would receive. See Dkt. ## 1011, 1017. Next, Plaintiffs move to exclude IPA/ITA employees Breeman, Clauser, and Wallis, disclosed as rebuttal witnesses to Newman and Zayas. Dkt. ## 1020, 1021, 1030, 1033. Plaintiffs further move to exclude nine other current or ...

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