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Karum Holdings LLC v. Lowe's Co., Inc.

United States District Court, N.D. Illinois, Eastern Division

November 21, 2017



          John Z. Lee United States District Judge

         Lowe's Companies, Inc. (“Lowe's Inc.”) is a corporation that operates home improvement stores in North America. Around 2007, Lowe's Inc. decided to create a program to provide private label credit cards to customers of Lowe's Mexico. To that end, Lowe's Companies Mexico, S. de R.L. de C.V. (“Lowe's Mexico”) entered into two agreements with Karum Holdings LLC (“Karum Holdings”), Karum Group LLC (“Karum Group”), and Karum Card Services S.A. de C.V., SOFOM, E.N.R. (“KCS”) to implement the private label credit card program. In 2015, Karum Holdings, Karum Group, and KCS (“Karum”) commenced this lawsuit against Lowe's Inc. and Lowe's Mexico (“Lowe's”) for purportedly breaching the parties' agreements. The parties are scheduled to proceed to trial on December 11, 2017.

         In April 2015, Karum submitted to Lowe's a summary damages model and estimate of damages. In anticipation of trial, Lowe's has filed a motion in limine to preclude Karum from offering testimony of its damages model and to exclude the underlying model altogether. For the reasons stated herein, Lowe's motion is granted insofar as it seeks to exclude Karum's witnesses from testifying to the damages model at trial.


         In March 2015, Karum provided initial disclosures of individuals likely to have discoverable information to support its claims or defenses, as required by Federal Rule of Civil Procedure 26(a). See generally Pls.' Rule 26(a) Disclosures, ECF No. 201. As part of its initial disclosures, Karum notified Lowe's that Karum Chairman and Chief Executive Officer, Peter Johnson, (“Johnson”) and Chief Financial Officer, Russell Ouchida (“Ouchida”), among others, were persons with knowledge of discoverable information relevant to the dispute. Id. at 2-4. Karum did not designate any potential witnesses in the disclosure as experts. See id. at 2- 5.

         In April 2015, Karum provided Lowe's with a summary damages model and estimate of damages, as required by Rule 26(a)(1)(A)(iii). See generally Defs.' Mot. in Limine No. 1 to Exclude Evidence of Pls.' Damages Model (“Defs.' Mot.”), Ex. D, Lowe's Computation of Damages April 22, 2015 (“Damages Model”), ECF No. 175-4. At that time or sometime shortly thereafter, Karum advised Lowe's that it “did not intend to use a retained expert to present damages, but rather would rely on opinion testimony” from Johnson. See Karum's Mem. Opp'n Defs.' Mot. Strike Pls.' Supplemental April 22, 2017 Damages Model (“Pls.' Resp. Defs.' Mot. Strike Revised Damages”) at 1, ECF No. 126. Karum's statement in this regard is worth quoting.

Johnson can opine as a lay witness under Federal Rule of Evidence 701 on the subject of Karum's estimated damages by virtue of his perception of Karum's business gained through his management of that business. But he might also qualify as an expert under Federal Rule of Evidence 702, through the knowledge and experience he has gathered from decades in the credit business. In fact, Johnson has served on the audit committees of multiple public companies, and as such, is recognized by the SEC to have financial expertise. Either way, Lowe's knows Johnson and will not be surprised by his testimony.

Id. n.1.

         In September 2017, Lowe's filed a motion in limine to preclude Johnson and Ouchida from testifying as to Karum's damages model. Defs.' Mot. at 5-8, ECF No. 159. Lowe's argues that any testimony by Johnson and Ouchida regarding the model would not be rationally based on their own perceptions and would require specialized knowledge in contravention of Federal Rule of Evidence 701. Id. In response, Karum argues that it does not intend (and has never intended) to offer lay-opinion testimony under Rule 701, but rather that Johnson will provide expert testimony regarding the damages model under Rule 702.[1] Karum's Opp'n Lowe's Mot. in Limine (“Pls.' Resp.”) at 1, ECF No. 184. Karum further asserts that Johnson was disclosed as an expert “from day one” of this litigation and that, in the footnote quoted above, Karum “reminded” Lowe's that it intended to call Johnson as an expert witness under Rule 702. Id. at 1 n.1.

         Legal Standard

         Under Rule 26(a)(2), a party “shall disclose to other parties the identity of any person who may be used at trial to present evidence” under Federal Rule of Evidence 702. Where, as here, the Court does not order a different disclosure deadline, the disclosures must be made “at least 90 days before the date set for trial or for the case to be ready for trial . . . .” Fed.R.Civ.P. 26(a)(2)(D)(i). Expert witnesses who are not retained as experts or whose duties do not regularly involve giving expert testimony need not provide a written expert report, but a party offering any expert witness must always: (1) state the subject matter on which the expert witness is expected to present evidence under Federal Rule of Evidence 702 and (2) provide a summary of the facts and opinions to which the witness is expected to testify. Fed.R.Civ.P. 26(a)(2)(B), (C). “[A]ll disclosures under Rule 26(a) must be in writing, signed, and served.” Fed.R.Civ.P. 26(a)(4).

         Proper disclosure of an expert witness requires formally designating the witness as an “expert.” See Musser v. Gentiva Health Servs., 356 F.3d 751, 757-58 (7th Cir. 2004). Moreover, the “duty to disclose a witness as an expert is not excused when a witness who will testify as a fact witness and as an expert witness is disclosed as a fact witness.” Tribble v. Evangelides, 670 F.3d 753, 759-60 (7th Cir. 2012) (citing Musser, 356 F.3d at 757) (emphasis in original). “This is a strict but well-founded requirement: ‘Knowing the identity of the opponent's expert witnesses allows a party to properly prepare for trial.'” Id. at 759 (citing Musser, 356 F.3d at 757).

         The exclusion of non-disclosed evidence, including an expert witness, “is automatic and mandatory under Rule 37(c)(1) unless non-disclosure was justified or harmless.” Musser, 356 F.3d at 758; see David v. Caterpillar, Inc., 324 F.3d 851, 857 (7th Cir. 2003); NutraSweet Co. v. X-L Eng'g Co., 227 F.3d 776, 785-86 (7th Cir. 2000). “The determination of whether a Rule 26(a) violation is justified or harmless is entrusted to the broad discretion of the district court.” Caterpillar, 324 F.3d at 857 (quoting Mid-Am. Tablewares, Inc. v. Mogi Trading Co., Ltd., 100 F.3d 1353, 1363 (7th Cir. 1996)).

         Failure to disclose a witness as an expert is usually not harmless because, for example, “[w]ithout proper disclosures, a party may miss its opportunity to disqualify the expert, retain rebuttal experts, or hold depositions for an expert not required to provide a report.” Tribble, 670 F.3d. at 759-60 (citing Musser, 356 F.3d at 758). Moreover, “a misunderstanding of the law does not equate to a ...

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