Bass, Berry & Sims attorney Chris Lazarini analyzed a case in which the court applied the following criteria in considering whether to dismiss a party’s claims under F.R.C.P 37: 

  1. Whether the party’s failure is due to willfulness, bad faith, or fault;
  2. Whether the adversary was prejudiced by the party’s conduct;
  3. Whether the party was warned that failure to comply could lead to dismissal; and
  4. Whether less drastic sanctions are available.

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

Emerman vs. Financial Commodity Investments, LLC, No. 1:13cv2546 (N.D. Ohio, 11/2/15)

*Courts are reluctant to dismiss claims as a discovery sanction where an alternate, less onerous, sanction will protect the integrity of the process.
**In determining whether to dismiss a party’s claims under F.R.C.P. 37, courts will consider (1) whether the party’s failure is due to willfulness, bad faith, or fault; (2) whether the adversary was prejudiced by the party’s conduct; (3) whether the party was warned that failure to comply could lead to dismissal; and (4) whether less drastic sanctions are available. 

Plaintiffs brought this fraud and breach of fiduciary duty action after suffering significant losses in Defendants’ commodity trading program. In the initial Case Management Conference, Plaintiffs stated that they did not anticipate the need for expert testimony. The Court adopted Plaintiffs’ statement in the initial Case Management Order, leaving open the possibility that experts might be identified at a later date. Plaintiffs did not identify an expert prior the expiration of the discovery deadline. During a status conference after discovery closed, however, Plaintiffs stated that their accountant was finalizing a damages report. The Court gave Plaintiffs 30 days to produce the report and directed Plaintiffs to make the accountant available for deposition.

Instead of producing the report, Plaintiffs told Defendants they would rely on a damages spreadsheet produced in their initial production and supplement their production with an explanation of the source data and methodology used in creating the spreadsheet. The promised explanation was not timely provided, and Defendants moved to compel. The Court conducted a telephonic hearing on Defendants’ motion, during which Plaintiffs advised that the final damages report was not complete and stated, for the first time, that they intended to call the accountant as an expert. The Court directed Plaintiffs to produce the final report as soon as possible. Defendants then filed a motion in limine to exclude the testimony and work product of the accountant expert. In response, Plaintiffs advised the Court that they would not challenge the motion to exclude and would let the damages spreadsheet speak for itself. Defendants then moved to dismiss under F.R.C.P. 12(b)(6) and 37(b).

The Court finds that Plaintiffs failed to comply with the Rule 26 disclosure obligations and the Court’s discovery orders. Plaintiffs did not timely identify the accountant as a witness, expert or otherwise, nor did Plaintiffs timely produce the accountant’s report or the promised explanation of the damages spreadsheet. The Court deems dismissal of the claims overly harsh, however, noting that courts are reluctant to dismiss a case to discipline a party’s attorney and Plaintiffs had not been expressly warned that failure to timely identify the accountant and produce his report could lead to dismissal. Instead, finding no reasonable explanation or justification for Plaintiffs’ failure to abide by their discovery obligations and prejudice to Defendants, the Court grants Defendants’ motion in limine and prohibits Plaintiffs from offering testimony from the accountant or any expert at trial and from presenting evidence explaining or clarifying the damages spreadsheet. Finally, the Court reserves ruling on the admissibility of the damages spreadsheet, but questions how it will be introduced at trial without testimony from the accountant.

This was not the first time the Court allowed Plaintiffs some measure of relief after applicable deadlines for taking action had passed. In SLA 2015-06, we reported on the Court’s decision to allow Plaintiffs to file a second amended complaint after the deadline for filing amendments had passed because there was no prejudice to Defendants. We also reported on the Court’s dismissal of Defendants’ counterclaims for lack of factual support in SLA 2015-26.