Opinion
MEMORANDUM DECISION ON MOTION FOR RECONSIDERATION OF PARTIAL SUMMARY JUDGMENT RE LOST OPPORTUNITY DELAY DAMAGES
DENNIS MONTALI, Bankruptcy Judge
For the reasons that follow, the court will deny the motion ("Motion to Reconsider"; Dkt. # 1914) of Lehman Brothers Holdings, Inc. ("Lehman") to reconsider its Memorandum Decision Regarding Motion For Partial Summary Judgment (the "PSJ Decision"; Dkt. # 1903) in favor of defendant John Kontrabecki ("Kontrabecki").
The court did not enter the Order Granting Partial Summary Judgment following the PSJ Decision until February 12, 2010 (Dkt. # 1969). The Motion to Reconsider obviously relates to that order, although the reasoning of the PSJ Decision is what the court has been asked to reconsider.
Kontrabecki filed his motion for partial summary judgment ("PSJ Motion") on July 31, 2009, arguing that "Lehman has not produce (sic) any evidence that would support its assertion that it would have received sales proceeds on (September 30 and December 31, 2003)". (Dkt. # 1839, at 2:19-21; emphasis in original). While the burden is generally on a moving party to demonstrate entitlement to summary judgment, where the non-moving party has the burden at trial, the moving party need not produce evidence negating or disproving every essential element of the non-moving party's case. Celotex Corp. v. Catrett , 477 U.S. 317, 327 (1986). Instead, the non-moving party's burden is met by pointing out that there is an absence of evidence supporting the non-moving party's case. Id. That shifts the burden back to the non-moving party to show a genuine issue of material fact to be resolved at trial. Fed. R. Bankr. P. 7056(e), incorporating Fed. R. Civ. P. 56(e); Celotex , 477 U.S. at 324.
Lehman opposed the PSJ Motion, urging that the expert report ("Report") of Monika A. Debska ("Debska") and her September 3, 2009, declaration (the "Declaration", Dkt. # 1868) establish "...all the foundational facts necessary for the Court to conclude that...it is reasonably probable that the WDC and OBC properties would have been sold, and Lehman would have received the proceeds, in the latter part of 2003 or by the beginning of 2004." Lehman Opposition at 16:26-17:1. If not so established, Lehman argued that its evidence created a factual issue that could not be resolved by summary judgment. Id., at 17:1-3
As the court explained in the PSJ Decision, the Report was inadequate and the Declaration was "deficient and untimely". PSJ Decision, at 12:24-25. Thus the non-moving party had not met its burden on this critical issue and Kontrabecki was awarded partial summary judgment. He was under no obligation to take discovery to prove an element of Lehman's case.
The adequacy of the Report and the Declaration is not addressed in the Motion to Reconsider.
Nowhere in its Opposition to the PSJ Motion did Lehman cite Fed. R. Bankr. P. 7026, incorporating Fed. R. Civ. P. 26 ("Rule 26") or Fed. R. Bankr. P. 7037, incorporating Fed. R. Civ. P. 37 ("Rule 37), two rules that are at the heart of the Motion to Reconsider. But in the court's view, that is exactly where those rules should have been cited and the arguments should have been made, not now as part of the Motion to Reconsider. Once Kontrabecki filed his PSJ Motion and argued that Lehman had not produced Time to Sell expert testimony, that was the time to raise Rules 26 and 37 and argue that the shortcomings in the Report were substantially justified and that any delays necessary to correct them would not prejudice Kontrabecki. It was Lehman's burden to do so, not Kontrabecki's duty to prove the opposite. Yeti by Molly, Ltd. v. Deckers Outdoor Corp. , 259 F.3d 1101 (9th Cir. 2001). Lehman did not do then what it seeks to do now. To raise "substantial justification" and "no prejudice" now, after the grant of partial summary judgment, is not appropriate, as demonstrated by the cases discussed below. This is true notwithstanding the court's power and authority to revisit its own interlocutory orders.
It is true, as Lehman now argues, that Kontrabecki devoted much of his Reply to the Lehman Opposition to the operation of those rules, which undoubtedly has caused Lehman to argue repeatedly in the Motion to Reconsider and its Reply that the court reached the harsh consequences of the PSJ Decision on a "truncated" basis. There was nothing truncated about Lehman's ability to make those arguments before the PSJ Decision. The court acknowledges that the PSJ Decision itself struck the portions of the Declaration and the Report that dealt with Time to Sell, but since they were deficient for the reasons stated, whether they were struck or not made little difference, and partial summary judgment was granted. Looked at somewhat differently, had Kontrabecki not filed a Reply to the Opposition to the PSJ Motion, the outcome would have been the same. The fact that he did, and raised the Rule 26 and Rule 37 issues, cannot be held against him after Lehman lost on the PSJ Motion without even attempting to establish either "substantial justification", "no prejudice", or both.
The court made this point in its Docket Text Order of March 7, 2010: "Thus the court granted partial summary judgment on that issue. The court also struck the Report. If Kontrabecki had not filed his motion and the matter had proceeded to trial with Lehman relying only on the Debska Report, how could it have avoided the fact that it had not established the critical time to sell element of its proof? The same result would appear to follow on the motion for partial summary judgment. Striking the Report under FRCP 37 as a sanction appears in retrospect to have been redundant and unnecessary; Kontrabecki sought and obtained partial summary judgment under FRBP 7056."
Lehman cites numerous cases that deal with various aspects of Rules 26 and 37 and the need for the court to consider alternative forms of sanctions and to apply, where appropriate, some leniency for violations of those Rules, particularly where the violation can be substantially justified or has not caused prejudice to the other side. The vast majority of the cases, however, arise in the context of a motion in limine, a motion to exclude, or some other discovery remedy. This case is about summary judgment. Most if not all of Lehman's cited cases that resulted in summary judgment in favor of the party failing to comply with those rules addressed the substantial justification and prejudice issues before summary judgment, not afterward as in the present case. The failures resulted in summary judgment. The patterns of conduct and the outcomes reflected in these cases demonstrate why Kontrabecki remains entitled to his partial summary judgment and why the Motion to Reconsider must be denied.
For example, in Wills v. Amerada Hess Corp. , 379 F.3d 32 (2d Cir. 2004), the district court awarded summary judgment to defendants after giving more time to the plaintiff to correct deficiencies in its pretrial presentation of evidence and expert testimony. The court struck the plaintiff's expert declarations in opposition to the defendants' motion for summary judgment because they were late. Here, the Report was deficient and the Declaration was deficient and late. Striking them or finding them inadequate, the result is the same.
The expert was disqualified on a Daubert challenge, not the case here, but the outcome was the same.
In Wong v. Regents of the University of California , 410 F.3d 1052 (9th Cir. 2005), plaintiff brought an action under the Americans with Disabilities Act. After discovery had closed and the expert disclosure deadline had passed, the defendant moved for summary judgment. The plaintiff was late in identifying his experts, contending that the issue to be dealt with by one of them (plaintiff's status as "disabled") had not been anticipated because the plaintiff did not believe the defendant was challenging his disabled status. He thus argued that the late submission and identification of the expert was substantially justified, and that defendant had not suffered any prejudice.
In rejecting those arguments the Ninth Circuit held that plaintiff's need for an expert could have been anticipated. In upholding the trial court's discretion in refusing to consider the late expert testimony, the court said:
"In these days of heavy case loads, trial courts in both the federal and state systems routinely set schedules and establish deadlines to foster the efficient treatment and resolution of cases. Those efforts will be successful only if deadlines are taken seriously by the parties, and the best way to encourage that is to enforce the deadlines. The parties must understand that they will pay a price for failure to comply strictly with scheduling and other orders, and that failure to do so may properly support severe sanctions and exclusions of evidence."
Wong , 410 F.3d at 1060.
Here there is no question that Time to Sell was known to all as a critical issue. Nor is there any doubt that Kontrabecki knew that Lehman intended to rely on the September 30 and December 31, 2003, dates and that it would do so with an expert other than Mr. Brogan. Maybe both sides even agreed, in November, 2008, emails, to the dates that would be used by Lehman's expert. The court will go further and presume that Kontrabecki had good reason to believe that Debska would be Lehman's expert. The key point, however, is that as of the date expert discovery closed, and later on the date Kontrabecki filed his PSJ Motion, there was no adequate expert report dealing with Time to Sell; there was no formal designation of Debska as the expert; there was nothing in the record to make Lehman's case on the issue. Kontrabecki's statement quoted above about Lehman's lack of proof was accurate.
In Wong, plaintiff also requested to supplement his expert's testimony under Rule 37. The court rejected that request as well, holding that to allow such supplementation would disrupt his schedule, even though the trial was "some months away." Of course, by the time Lehman filed the Declaration, trial was just weeks away.
Barrett v. Atlantic Richfield Co. , 95 F.3d 375 (5th Cir. 1996), involving hundreds of claims arising injuries from a superfund site, is a case in which plaintiffs failed to comply with pretrial discovery orders, including very clear instructions to them what was required of their experts. As a result, the trial court, affirmed by the court of appeal, awarded summary judgment to the defendants. The court held that no plausible explanation for noncompliance had been presented and that the prejudice, as in the other cases discussed here, affected defendants' preparation of their case. The court further observed that the appellant did not even request additional time from the trial court.
Had Lehman, once confronted with Kontrabecki's exposure of a serious flaw in its case, defended the PSJ Motion by asking for a short delay to obtain more pertinent information from Debska, or to continue the imminent trial, or explained its or its counsels' noncompliance with Rule 26(a)(2) in all the detail that it has now on the Motion to Reconsider, the result might have been different. For whatever reason, it placed its bet on the Opposition to the PSJ Motion and lost.
In the PSJ Decision the court commented on Lehman's strategy: "Here, Lehman has not provided substantial justification to cause the court to overlook the serious deficiencies of Debska's Report on the Time to Sell issue. Lehman stated at oral argument that it intends on resting its case with Debska's opinion on the Time to Sell since how long it takes to sell a property is inherent in an appraisal report. Debska's single sentence, unsupported, conclusory opinion on the Time to Sell simply and clearly does not comply with Rule 26(a)(2)(B), and her late Declaration cannot save the day." PSJ Decision at 16:15-23.
In response to plaintiff's arguments in Barrett that exclusion of the expert testimony was tantamount to dismissal of their claims, the court replied that the importance of the testimony "merely underscores the need for Plaintiffs to have complied with the court's deadlines or at least inform the trial judge in advance if good faith compliance was not possible." 95 F.3d at 381. In this case, as in the others, once the expert testimony was excluded the court determined that there was no evidence to demonstrate a crucial element of the plaintiff's case, and summary judgment was appropriate.
Lukes v. Family Care and Urgent Medical Clinics, 323 F.App'x 496 (9th Cir. 2009), is a medical malpractice action in which plaintiffs appealed summary judgment against them. Their late declarations in response to defendants' motion for summary judgment were submitted three months after the deadline, and plaintiffs failed to show any justification for the tardiness, nor could they rebut the court's conclusion that such a delay was not harmless in view of the fact that only ten weeks were left before trial.
The court repeated the principle that exclusion is not appropriate if failure to disclose is substantially justified or harmless, citing Yeti By Molly, Ltd. v. Deckers Out Door Corp. , 259 F.3d 1101 (9th Cir. 2001), but the outcome was the same, viz., with the evidence excluded plaintiffs had failed to establish a genuine issue of material fact on a critical element of their case and summary judgment followed.
In Laser Design Int'l, LLC v. BJ Crystal, Inc. , 2007 WL 735763 (N.D. Cal. Mar. 7, 2007), the plaintiff's motion for summary judgment was met with late declarations filed by defendant. Again, citing Yeti By Molly, the court stressed that the defendant bore the burden of showing substantial justification and found that the burden had not been sustained when the need for the testimony could have been anticipated. Having stricken defendant's late testimony, the court awarded summary judgment to the plaintiff. Again, the case at bar follows the same pattern.
Lehman also relies on Wendt v. Host International, Inc. , 125 F.3d 806 (9th Cir. 1997) for its reference to a five factor test found in Wanderer v. Johnston , 910 F.2d 652 (9th Cir. 1990). In Wendt the factors supported vacating a prior preclusion order directed at plaintiffs' prior counsel for failing to comply with discovery rules. Based upon the posture of the case before the court of appeals (reversing summary judgment for defendants a second time) the court observed that any prejudice as to defendants' trial preparation was dissipated: "Both parties now have ample opportunity to begin the expert disclosure procedure anew." 155 F.3d at 814 (emphasis added). The application of those factors has no place in the present case.
In summary, the court is mindful of the consequences to Lehman of the PSJ Decision and the importance to it of the Motion to Reconsider. Nevertheless, this is an adversarial system and Kontrabecki demonstrated initially that summary judgment on the Time to Sell issue was appropriate. All of the criticisms of him and his litigation tactics notwithstanding, Lehman's failure to make its case when it needed to and thereafter its after-the-fact pleas for relief do not offset the fundamental fairness of the outcome to Kontrabecki. He made a calculated decision to go on the offensive when he saw a gap in his opponent's proof. To deny him the goal he achieved on this record would be not be proper.
The court is concurrently entering an order denying the Motion to Reconsider, for the reasons stated herein. Counsel for the parties are directed to meet and confer about the future conduct of this adversary proceeding and to discuss the same with the court at a status conference to be held on April 13, 2010 at 9:30 A.M.