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Crew Tile Distribution, Inc. v. Porcelanosa Los Angeles, Inc.

United States District Court, D. Colorado

February 16, 2017

CREW TILE DISTRIBUTION, INC., Plaintiff and Counter Defendant,
v.
PORCELANOSA LOS ANGELES, INC., PORCELANOSA NEW YORK, INC., PORCELANOSA TEXAS, CORP., and PORVEN, LTD., Defendants and CounterClaimants. and RYAN A. DAVIS, DARLYNE A. DAVIS, GLENN L. DAVIS, SHANA L. BASTEMEYER, PARADIGM TILE & STONE DISTRIBUTORS, LLC, and G&D DAVIS HOLDINGS, LLC, CounterDefendants,

          ORDER REGARDING PRETRIAL EVIDENTIARY MOTIONS

          William J. Martinez, United States District Judge

         In this business dispute pending under 28 U.S.C. § 1332, Plaintiff Crew Tile Distribution, Inc. (“Crew Tile”) alleges that it is owed damages arising from the breach of a 2009 exclusive distribution agreement (the “2009 Distribution Agreement”) by Defendants / CounterClaimaints (Porcelanosa Los Angeles, Inc., et al., collectively, “Porcelanosa”). Porcelanosa alleges that the alleged 2009 Agreement is a forgery created by Crew Tile and the CounterDefendants (collectively the “Crew Tile Parties”), and counterclaims for abuse of process and related claims. The Court has previously entered detailed orders setting out the factual background of this case (see ECF Nos. 236, 237), and familiarity with that background is presumed.

         Now before the Court are the following motions related to pre-trial evidentiary matters:

1. Porcelanosa's Motion Raising Objections to the Sur-Rebuttal Report of Plaintiff's Expert, Steve[n] Hazel (ECF No. 242);
2. Crew Tile's Motion to Strike the Reports of Defendants' Undisclosed Experts (ECF No. 252);
3. The Crew Tile Parties' Joint Motion In Limine to Exclude Certain Evidence, Testimony and Argument (ECF No. 251); and
4. Porcelanosa's Combined Motion In Limine (ECF No. 253).

         These motions are resolved as set out below.

         I. PORCELANOSA'S MOTION RAISING OBJECTIONS TO THE SUR-REBUTTAL REPORT OF PLAINTIFF'S EXPERT, STEVE[N] HAZEL (ECF No. 242)

         A. Background

         The parties have disclosed opposing experts as to the amount of Crew Tile's claimed damages, including the experts' calculations of the business valuation of Crew Tile at the time of Porcelanosa's alleged breach or termination of the 2009 Distribution Agreement. Crew Tile's expert is Mr. Steven Hazel, and Porcelanosa's expert is Mr. Patrick McFarlen. Further background regarding these experts is set out in the Court's previous Order Regarding Expert Witnesses. (ECF No. 237 at 26-29.)

         The Court's prior orders concluded that Mr. McFarlen's rebuttal report dated November 11, 2015 (the “McFarlen Rebuttal Report”) was untimely disclosed, but that the untimely disclosure was harmless. (Id. at 27-28.) As a sanction in lieu of exclusion, the Court ordered that “Plaintiff may have its expert, Mr. Steven Hazel, prepare and serve a sur-rebuttal report in response to the November 11, 2015 report of Defendants' expert, ” Mr. McFarlen. (ECF No. 239.)

         Mr. Hazel had previously prepared two affirmative reports, dated February 2, 2015 and April 3, 2015, and a rebuttal report dated July 30, 2015 (the “Hazel Rebuttal Report”). (See Id. at 2.) Following the Court's prior order, he prepared an additional report, dated October 31, 2016 (the “2016 Hazel Report, ” or the “New Report”), which describes itself as the “second revised damages and valuation report.” (ECF No. 245-2 at 2.)[1] After receiving this report, Porcelanosa took an additional deposition of Mr. Hazel, as permitted by the Court's order. (See ECF Nos. 239, 245-3.)

         Porcelanosa objects that the 2016 Hazel Report is not a proper sur-rebuttal to the McFarlen Rebuttal Report, arguing the new Report instead engaged in “Analysis Carte Blanche, ” revising Mr. Hazel's underlying opinions as a whole, instead of rebutting Mr. McFarlen's criticisms. (See generally ECF No. 242 at 3-8.) Crew Tile responds, first, that the 2016 Hazel Report was an overall fair rebuttal to Mr. McFarlen (ECF No. 245 at 3-5), second, that “[w]hile the opinions may go beyond specific sur-rebuttal, ” they were proper supplementation under Rule 26(e) b)(2)(E) & 26(e) (id. at 5-6), and third, that Porcelanosa has suffered no prejudice warranting exclusion of Mr. Hazel's opinions.

         B. Legal Standards

         Porcelanosa's motion fails to cite a single rule, statute, court decision, or any other legal authority in support of its request for relief. (See ECF No. 242 at 1-8; contra D.C.COLO.LCivR 7.1(d) (a contested motion is to “state under which rule or statute it is filed and be supported by a recitation of legal authority”).) Nevertheless, it is clear that the Court's resolution of this dispute must apply Rules 26(a)(2), 26(e), and 37(c), governing expert disclosures, supplementation, and the appropriate sanctions for improper disclosures, respectively.

         Rule 26(a)(2)(D)(ii) defines an expert's rebuttal disclosures as those “intended solely to contradict or rebut evidence on the same subject matter identified by another party.” Separately, Rule 26(e) requires supplementation “in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties.” For expert witnesses, supplementation “must be disclosed by the time the party's pretrial disclosures under Rule 26(a)(3) are due.” Fed.R.Civ.P. 26(e)(2). In this Court, the pretrial disclosures required by Rule 26(a)(3) “shall be made in the proposed final pretrial order.” D.C.COLO.LCivR 26.1(b).

         Regarding the relationship between experts' rebuttal and supplementation, the Court agrees with the following analysis:

Supplementation under the Federal Rules of Civil Procedure means correcting inaccuracies, or filling the interstices of an incomplete report based on information that was not available at the time of the disclosure. Rebuttal evidence is evidence intended solely to contradict or rebut evidence on the same subject matter identified by another party in its expert disclosures.

Aid for Women v. Foulston, 2005 WL 6964192, *3 (D. Kan. July 14, 2005) (internal quotation marks and citations omitted). As relevant here, a party “may not offer testimony under the guise of ‘rebuttal' only to provide additional support for his case in chief.” Anderson v. Seven Falls Co., 2013 WL 3771300, at *9 (D. Colo. July 18, 2013) (quoting Stanfield v. Dart, 2013 WL 589222, at *3 (N.D.Ill. Feb. 14, 2013)). Expert opinions are not fairly offered as rebuttal “if the testimony proffered does not address or rebut previously disclosed expert testimony.” Smith v. Wal-Mart Stores, Inc., 2012 WL 4051925, at *1 (D. Nev. Sept. 13, 2012). Thus, the deadline for rebuttal disclosure-or, here, for sur-rebuttal-“is not intended to provide an extension of the deadline by which a party may deliver the lion's share of its expert information.” Id.

         C. Contents of 2016 Hazel Report

         After carefully examining the relevant record, it is obvious that the 2016 Hazel Report was not prepared or offered strictly as a sur-rebuttal to the McFarlen Rebuttal Report. Initially, the 2016 Hazel Report does not describe itself as a rebuttal report. It barely mentions the McFarlen Rebuttal Report, and it does not respond to alm ost any of Mr. McFarlen's criticisms. This is in stark contrast to the previous rebuttal report prepared by Mr. Hazel in this case. (ECF No. 169-3.) The prior rebuttal report leaves no ambiguity that it is a rebuttal. It explicitly stated that its purpose was to “review and rebut the McFarlen . . . Reports, ” (id. at 1), followed by a lengthy section titled “Rebuttal of McFarlen Report, ” which states specific criticisms of Mr. McFarlen's analysis. (See id. at 10-12.)[2]

         By contrast, the 2016 Hazel Report does not address itself to the November 2015 McFarlen Report, which it barely mentions. The New Report instead states that its purpose is to provide opinions “with respect to information produced . . . subsequent to” the three previous Hazel Reports. (ECF No. 245-2 at 2.) The content of the 2016 Hazel Report confirms this purpose, as the new report sets out a wholesale recalculation of Mr. Hazel's damages and valuation analysis, based upon new data and information. Without attempting to detail all of the changes from Mr. Hazel's prior reports, the Court notes that, first and foremost, his new calculations rest upon a new data set, “the 2008-14 Sales Data production, ” which Mr. Hazel “received on or around November 24, 2015, ” well after writing his prior reports. (See Id. at 4.) The New Report also relies on other materials received after Mr. Hazel's prior reports. (See Id. at 3.) None of this material was addressed by the McFarlen Rebuttal Report.

         Relying on these new sources, the 2016 Hazel Report adds several elements to Mr. Hazel's damages analysis. Among other things, the 2016 Hazel Report adds a category of damages for Crew Tile's “shut down costs, ” which were not calculated in his prior analyses. (Compare ECF No. 245-2 at 9 with ECF No. 242-10 at 5.)[3] Mr. Hazel has also dramatically increased his calculation of Crew Tile's alleged damages. First, he re-calculated Crew Tile's “historical lost profits” upwards by nearly 50%, from $421, 144 to $629, 000. (Compare ECF No. 245-2 at 9 with ECF No. 242-10 at 5.) Second, he increased his “fair value of company” estimate, from $156, 000 to $1, 128, 000. (Id.) Crew Tile argues that Mr. Hazel's prior analysis estimated a range of possible damages and the New Report specifies a number still falling within that range (ECF No. 245 at 6), but the April 2015 Hazel Report plainly stated a single figure for “Total Calculated Damages” (ECF No. 242-10 at 5), and the New Report materially changes that figure (ECF No. 245-2 at 9). These dramatic increases flow principally from Mr. Hazel's new reliance on the “2008-2014 Sales Data production.” (See ECF No. 245-2 at 7.) In addition, the increased “lost profits” and “fair value” figures both rest on “[i]nformation related to Plaintiff's retail and distributor revenues and customer base, ” which Mr. Hazel had not previously reviewed, but which he now uses to allocate costs differently as between distinct “retail” and “distributor” sales categories. (See Id. at 7.)[4]With only one exception, none of Mr. Hazel's re-calculations purport to be offered in response to any particular criticisms raised by the McFarlen Rebuttal Report.

         D. Rebuttal Analysis

         The Court concludes that the New Report is exactly what it says it is: a supplementation and re-calculation of Mr. Hazel's opinions, based on materials he had not previously reviewed. Crew Tile effectively concedes that it is not solely a sur-rebuttal, admitting “the report may go beyond specific sur-rebuttal, ” and sets out “all of [Mr. Hazel's] opinions, ” not only those responsive to the November 11, 2015 McFarlen Rebuttal Report. (ECF No. 245 at 2 (emphasis added); see also ECF No. 242-13 (Crew Tile's disclosure of the 2016 Hazel Report, describing it as “the third supplemental report”).)

         Crew Tile argues, however, that because Mr. McFarlen “draws into question nearly every . . . aspect of Mr. Hazel's valuation methodology, ” “Mr. Hazel was required to provide complete justification for his opinions in sur-rebuttal.” (ECF No. 245 at 4.) The Court finds this portion of Crew Tile's argument disingenuous. As summarized above, the stated and obvious purpose of the 2016 Hazel Report was to overhaul Mr. Hazel's opinions in reliance upon new information, not to respond to Mr. McFarlen. This goes far beyond both the language and intent of the Court's prior order, which granted leave-only as a limited form of sanction-for Crew Tile to prepare “a sur-rebuttal report in response to the November 11, 2015 report” from Mr. McFarlen. (ECF No. 239 (emphasis added).) The Court did not grant leave for Mr. Hazel to revise “all of” his opinions, but that is evidently what Crew Tile asked him to prepare.[5]

         The Court also rejects Crew Tile's suggestion that the McFarlen Rebuttal Report was so sweeping that the only possible form of sur-rebuttal was for Mr. Hazel to revamp all of his analysis. The McFarlen Rebuttal Report raised specific criticisms, to which Mr. Hazel could have specifically responded, in much the same fashion as his previous rebuttal report. Instead, the New Report obviously and unnecessarily went beyond the scope of the McFarlen Rebuttal Report. For example, the McFarlen Rebuttal Report explicitly did not address Mr. Hazel's lost profits analysis. But Mr. Hazel has nevertheless re-calculated that measure. The McFarlen Rebuttal Report articulated approximately six discrete criticisms of Mr. Hazel's report (see ECF No. 245-1 at 5-6), [6] which Mr. Hazel might have directly addressed, but did not. The McFarlen Rebuttal Report also used a “Monte Carlo Simulation, ” as a probabilistic model of how the range of different inputs or assumptions in the two experts' work affect the possible valuations of Crew Tile. As was clear at his deposition, Mr. Hazel might have offered specific criticisms in response to this “Monte Carlo simulation” but those were nowhere included in his New Report. (See ECF No. 245-3 at 31.)

         Typically, the Court is not inclined to “place an overly restrictive interpretation on the operative phrase, ” of the “same subject matter” which sets the boundaries for acceptable rebuttal disclosure by experts in the ordinary exchange of experts' reports under Rule 26(a)(2)(D)(ii). See Armstrong v. I-Behavior Inc., 2013 WL 2419794, at *3 (D. Colo. June 3, 2013). Here, however, the Court can only conclude that the 2016 Hazel Report goes far beyond the “same subject matter” of the McFarlen Rebuttal Report. The subject matter open to sur-rebuttal was clearly defined in the circumstances of this case. Ordinarily, Rule 26 “does not permit parties to further rebut rebuttal expert disclosures.” Rothenberg v. Standard Ins. Co., 2012 WL 2126846, at *2 (D. Colo. June 12, 2012). Here, the Court affirmatively allowed a sur-rebuttal, as a form of sanction. (ECF No. 237 at 28-29.) Therefore, the scope of the “subject matter” to which Mr. Hazel was responding was defined by the four corners of the McFarlen Rebuttal Report. Furthermore, there is no credible argument that the 2016 Hazel Report was offered “solely to contradict or rebut” the evidence offered in the McFarlen Rebuttal Report, see Fed. R. Civ. P. 26(a)(2)(D)(ii) (emphasis added), since Crew Tile freely admits that the purpose of the new Report was largely to supplement Mr. Hazel's work. In sum, the Court concludes that the 2016 Hazel Report plainly exceeded the scope of permissible sur-rebuttal to the McFarlen Rebuttal Report.

         E. ...


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