Opinion
CAUSE NO. IP 02-071 C T/K
January 13, 2003
ENTRY ON DEFENDANTS' MOTION TO COMPEL DISCOVERY
I. Background
Plaintiff Crouse Cartage Company filed suit against Defendants National Warehouse Investment Company and Holman/Shidler Investment Corporation, alleging a breach of contract in that Defendants refused to allow Crouse to exercise an option to purchase certain real estate property pursuant to the parties' lease agreement. Defendants countersued, alleging that Crouse defaulted on several of the lease's provisions.
Defendants filed a motion to compel discovery on two grounds. First, Defendants allege that Crouse failed to comply with Federal Rule of Civil Procedure 26(a)(1) by providing deficient initial disclosures, namely the name of a real estate broker and a copy of the "rough market analysis" generated by the broker on the leased property. Defendants have also certified questions in a deposition seeking information on this topic. Second, Defendants contend that Crouse violated Federal Rule of Civil Procedure 30(b)(6) by failing to produce competent and prepared witnesses to testify to matters in its notice of deposition. Both parties have filed motions for sanctions.
For the reasons set forth below, Defendants' motion to compel discovery is GRANTED IN PART and DENIED IN PART. The parties' cross motions for sanctions are DENIED.
II. Discussion A. Dispute Regarding Rule 26(a)(1) Initial Disclosures
Federal Rule of Civil Procedure 26(a)(1) requires parties to a civil action to make certain initial disclosures, including the name of potential witnesses, a copy or description of documents that may support a party's claims or defenses, a computation of damages, and a copy of any insurance agreements under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment. See Fed.R.Civ.P. 26(a)(1)-(4). The rule "clearly requires that the initial disclosures be complete and detailed." Van Baelen v. Sabine Transp. Co., 2001 WL 474273, *2 (E.D.La. 2001), quoting Sierra Club v. Cedar Point Oil Co., Inc., 73 F.3d 546, 572 (5th Cir. 1996).
A "major purpose of the [rule] is to accelerate the exchange of basic information about the case and to eliminate the paper work involved in requesting such information, and the rule should be applied in a manner to achieve those objectives." Minnesota Min. and Mfg. Co. v. Signtech, USA, Ltd., 177 F.R.D. 459, 460 (D.Minn. 1998), quoting Rule 26 Advisory Committee Notes to 1993 Amendment. See also Biltrite Corp. v. World Road Markings, Inc., 202 F.R.D. 359, 362 (D.Mass. 2001) ("The obvious purpose of the disclosure requirement of [Rule 26(a)(1)(A)] is to give the opposing party information as to the identification and location of persons with knowledge so that they can be contacted in connection with the litigation. . . .").
Here, Defendants claim that Crouse failed to provide sufficient initial disclosures by not providing the name of a real estate broker Crouse retained before filing suit and a copy of a "rough market analysis" conducted by the broker to assist Crouse in assessing its alleged damages.
1. Work Product Doctrine the "Non-testifying Expert"
Crouse asserts that the identity and documentation generated by its real estate broker are protected by the work product doctrine since the broker was retained in anticipation of litigation. [Pl.'s Br., ¶¶ 4, 7]. The work product doctrine protects from disclosure documents and tangible things otherwise discoverable that are "prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative." Ocean Atlantic Development Corp. v. Willow Tree Farm, L.L.C., 2002 WL 1968581, *4 (N.D.Ill. Aug. 23, 2002), quoting Fed.R.Civ.P. 26(b)(3). The documents must have been created in response to "a substantial and significant threat of litigation, which can be shown by objective facts establishing an identifiable resolve to litigate." Bartlett v. State Farm Mut. Auto. Ins., 206 F.R.D. 623 (S.D.Ind. 2002), quoting SmithKline Beecham Corp. v. Pentech Pharmaceuticals, Inc., 2001 WL 1397876, *2 (N.D.Ill. 2001). The party claiming privilege has the burden of establishing that the privilege applies. See In re Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir. 2000).
The work product doctrine is not absolute. The privilege may be overcome if the party seeking the discovery can demonstrate a substantial need for the document and that it cannot otherwise obtain the material absent undue hardship. E.E.O.C. v. International Profit Assocs., Inc., 206 F.R.D. 215, 221 (N.D.Ill. 2002). In addition, documents "created in the ordinary course of business are not protected work product." Ocean Atlantic Development, 2002 WL 1968581, at *5.
Although Crouse does not frame the real estate broker as such, he is essentially a non-testifying expert. The concept of the non-testifying expert is set forth in Rule 26(b)(4)(B), which "forbids the judge to order disclosure in pretrial discovery of the facts found or opinions formulated by an opponent's non-testifying experts except `upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means.'" Braun v. Lorillard Inc., 84 F.3d 230, 236 (7th Cir. 1996), quoting Fed.R.Civ.P. 26(b)(4)(B). The underlying rule of nondisclosure invites shopping for favorable expert witnesses and facilitates the concealment of negative test results. Id. Crouse has the burden of demonstrating that the real estate broker's role was that of a non-testifying expert. In re Painted Aluminum Products Antitrust Litigation, 1996 WL 397472, *1 (E.D.Pa. 1996). Indeed, a "corporation might well find it prudent to retain an expert to help resolve questions about legal liability long before any legal action is initiated, and, conversely, might hire an expert on wholly unrelated matters long after litigation itself has begun." Id. The key inquiry under Rule 26(b)(4)(B) is whether the consultation took place in anticipation of litigation. Spearman Industries, Inc. v. St. Paul Fire and Marine Ins. Co., 128 F. Supp. d 1148, 1151 (N.D.Ill. 2001).
2. Real Estate Broker and "Rough Market Analysis"
Prior to filing suit, Crouse retained a real estate broker to conduct a "rough market analysis" to determine the value of the property. Crouse has asserted the work product doctrine in refusing to disclose the identity, his opinions, and the rough market analysis. In addition, Crouse has not determined whether it will utilize the broker as an expert witness. [Def.'s Verified Stmt., Ex. B; Pl.'s Resp., ¶¶ 4-5]. Defendant claims that Crouse violated Rule 26(a)(1) by not providing the name of the broker and his rough market analysis of the property since Crouse relied on them to make his damage calculations. [Def.'s Br., pp. 5-8].
Crouse meets its burden under the rule, and discovery cannot be had if: (1) Crouse retained the real estate broker in anticipation of litigation; (2) Crouse does not intend to call the real estate broker as a trial witness; and (3) Defendants cannot prove that exceptional circumstances compel discovery. See Vanguard Sav. and Loan Ass'n, VSL Service Corp. v. Banks, 1995 WL 71293, *3 (E.D.Pa. 1995). Under this standard, the Court finds that Crouse meets its burden of demonstrating that the real estate broker is a non-testifying expert, and thus is subject to a privilege. This is supported by the fact that Crouse retained counsel to evaluate whether he could pursue a claim against Defendants in June 2001, and retained the real estate broker in July 2001 "specifically for the purpose of evaluating [Crouse's] potential damages in anticipation of litigation against Defendants." [Pl.'s Br., ¶ 4]. All of this occurred months before Crouse filed this suit in January 2002. See, e.g., United States v. Bell, 1994 WL 665295, *4 (N.D.Cal. 1994) (to conclude that an expert was hired in anticipation of litigation, a lawsuit need not have been filed, but there must have existed "more than a remote possibility of litigation."); Spearman Industries,128 F. Supp.2d at 1152 ("courts have consistently held that a party may not discover the identity of, facts known by, or opinions held by an informally consulted expert."). Further, Crouse has certified to the Court that he has not determined whether he will utilize the real estate broker as a damage expert at trial. [Pl.'s Resp., ¶¶ 4-5]. Indeed, pursuant to the Case Management Plan ("CMP"), Plaintiff is not required to disclose expert witness information until February 11, 2003.
In addition, Defendants cannot demonstrate any exceptional circumstances justifying the disclosure of the information. Under Rule 26(b)(4)(B), the party seeking discovery from the non-testifying expert consulted in anticipation of litigation "carries a heavy burden in demonstrating the existence of exceptional circumstances." Id., quoting Ager v. Jane C. Stormont Hospital and Training School for Nurses, 622 F.2d 496, 503 (10th Cir. 1980). Defendants may meet the exceptional circumstances standard in one of two ways. First, "the moving party may show that the object or condition at issue is destroyed or has deteriorated after the non-testifying expert observes it but before the moving party's expert has an opportunity to observe it." Spearman Industries, 128 F. Supp.2d at 1152, citing Disidore v. Mail Contractors of Am., Inc., 196 F.R.D. 410, 417 (D.Kan. 2000). Second, "the moving party may show there are no other available experts in the same field or subject area." Id. Defendants fail to show exceptional circumstances justifying disclosure. Crouse provided two formulas and an estimate of damages in its initial disclosures and CMP. Presumably, Defendants could replicate this information by employing its own non-testifying expert and arrive at a similar figure. As a result, Defendants may not discover the identity or any information generated from the real estate broker.
Accordingly, Defendants' motion to compel Rule 26(a)(1) responses regarding the real estate broker and the "rough market analysis" is DENIED.
3. Other Rule 26(a)(1) Issues
Rule 26(a)(1)(B) requires the parties to provide "a copy of, or a description by category and location of, all documents, data compilations, and tangible things that are in the possession, custody, or control of the party and that the disclosing party may use to support its claims or defenses, unless solely for impeachment." According to Defendants, the parties agreed to provide copies of responsive documents rather than describe or summarize them. [Defs.' Br., p. 7]. However, Defendants state that Crouse described eight documents but only produced six. Specifically, Crouse has not produced certified copies of insurance polices and an August 9, 2000 report of ATC Associates, Inc. concerning alleged contamination of the subject property.
Defendants state that Crouse did not produce documents demonstrating it performed its obligations under the lease, documents or receipts evidencing repairs, or documents supporting its damage claims. [Defs.' Br., p. 7]. However, Crouse did not list as a category in his initial disclosures any of these documents. Therefore, the Court will not compel production of documents not identified in a party's initial disclosures.
The rule does not require the parties to produce the actual document as part of the initial disclosures regardless of the parties' informal agreement to do so. Therefore, the Court declines to compel Crouse to produce these documents. This is the type of discovery dispute that, at best, should be informally resolved by the parties without Court intervention.
Accordingly, Defendants' motion to compel Rule 26(a)(1)(B) responses is DENIED.
4. Defendants' Certified Questions in Pendleton Deposition
In Defendants' June 19, 2002 deposition of Larry Pendleton, Defendants certified two questions for the Court's review. First, Defendants inquired into Pendleton's knowledge and details of the "rough market analysis." The Court has already concluded that Defendants may not discover the identity of the real estate broker and the rough market analysis. Thus, the only conceivable way Defendants may be able to pursue this line of questioning is to demonstrate Crouse waived a privilege. The record does not reflect, and Defendants fail to demonstrate, that Crouse waived either its non-testifying expert or work product privilege. In fact, Defendants do not even allege that Crouse waived a privilege. See, e.g., Help At Home, Inc. v. Med. Capital, L.L.C., 260 F.3d 748, 753 n. 2 (7th Cir. 2001) (failure to raise argument results in waiver).
Also in the Pendleton deposition, Defendants asked Pendleton about some "confusing communication" it had with Crouse's former attorneys in which Defendants discovered Crouse had the leased property appraised at $750,000, and another communication in which Crouse's former attorneys stated that a second appraisal was conducted in which the leased property was valued between $700,000 and $1,295,000. [Defs.' Br., p. 11]. Specifically, Defendants questioned Pendleton about how many reports he had seen, whether there was more than one report, and whether they came from more than one person. [Pendleton Dep., pp. 124-25]. Based on the record, and in light Crouse's objection to this line of question as simply the "attorney client privilege" (Pendleton Dep., p. 125), it difficult for the Court to determine whether Defendants were seeking to inquire into the real estate broker and rough market analysis the Court has deemed protected. If this is the case, Defendants' motion to compel a response to this line of questioning is denied. However, if Defendants seek information about a topic outside the scope of the privileged information, Defendants' motion to compel is granted, and the parties are encouraged to come to a mutually agreeable time and location to continue the deposition of Pendleton so that he may answer the certified question only.
Perhaps a more cost effective method of obtaining an answer to this question would be to utilize Rule 31's deposition upon written questions, or simply serve an interrogatory pursuant to Rule 33.
Accordingly, Defendants' motion to compel Pendleton's responses to deposition questions is GRANTED IN PART and DENIED IN PART.
B. Standard on Federal Rule of Civil Procedure 30(b)(6)
Since it is not literally possible to depose a corporation, information may be solicited from natural persons who can speak on behalf of the corporation through a Rule 30(b)(6) notice of deposition. Hooker v. Norfolk Southern Ry. Co., 204 F.R.D. 124, 125 (S.D.Ind. 2001), citing 8 A C. Wright, A. Miller R. Marcus, Federal Practice and Procedure § 2103, pp. 38-39 (2d ed. 1994). Rule 30(b)(6) states in pertinent part: "A party may in the party's notice and in a subpoena name as the deponent a public or private corporation or a partnership or association or governmental agency . . . In that event, the organization so named shall designate one or more officers, directors, or managing agents, or other persons who consent to testify on its behalf. . . ." Solomon v. Kimberly-Clark Corp., 1999 WL 89570, *2 (N.D.Ill. 1999), quoting Fed.R.Civ.P. 30(b)(6). Essentially, the rule allows a corporation to speak through its agents. Hooker, 204 F.R.D. at 125.
The practical effect of the rule is to place upon the business entity the burden of identifying witnesses who possess knowledge responsive to subjects requested in the Rule 30(b)(6) request. Resolution Trust Corp. v. Southern Union Co., Inc., 985 F.2d 196, 197 (5th Cir. 1993); Canal Barge Co. v. Commonwealth Edison Co., 2001 WL 817853, *1 (N.D.Ill. 2001). The rule is designed to prevent business entities from "bandying," the practice of presenting employees for their deposition who disclaim knowledge of facts known by other individuals within the entity. Smithkline Beecham Corp. v. Apotex Corp., 2000 WL 116082, *8 (N.D.Ill. 2000). See also Fed.R.Civ.P. 30(b)(6) Advisory Committee's Note (bandying is the practice "by which officers or managing agents of a corporation [or government agency] are deposed in turn but each disclaims knowledge of facts that are clearly known to persons in the organization and thereby to it."). As a result, the rule imposes a duty upon the named business entity to prepare its selected deponent to adequately testify not only on matters known by the deponent, but also on subjects that the entity should reasonably know. See Kanaji v. Philadelphia Child Guidance Center of Children's Hosp., 2001 WL 708898, *2 (E.D.Pa. 2001).
On May 15, 2002, Defendants served a notice of deposition under Rule 30(b)(6) that set forth twenty-six items of inquiry. [Defs.' Ex.2]. In response, on June 19, Crouse produced Larry Crouse to answer questions pertaining to item number one, and Larry Pendleton to respond to the remaining items. Defendants state that it was "obvious" that neither L. Crouse or Pendleton were adequately prepared for the depositions. [Defs.' Br., p. 17]. Both witnesses testified they had not seen the notice of deposition until the morning of their deposition, and that their knowledge of the topics listed therein was limited. [Crouse Dep., pp. 12-15, 18, 21; Pendleton Dep., pp. 12-13]. If in fact Defendants could demonstrate that Crouse did not adequately prepare either L. Crouse or Pendleton, it could warrant an award of sanctions. See e.g., Media Svcs. Group, Inc. v. Lesso, Inc., 45 F. Supp.2d 1237, 1253 (D.Kan. 1999) (Rule 30(b)(6) imposes a duty upon the named business entity to prepare its selected deponent to adequately testify not only on matters known by the deponent, but also on subjects that the entity should reasonably know); United States v. Taylor, 166 F.R.D. 356, 361 (M.D.N.C. 1996) (same).
On the other hand, Crouse contends it complied with Rule 30(b)(6). For instance, in an October 4 letter to Defendants, Crouse states it produced L. Crouse and Pendleton, two high level employees with general knowledge about the matters listed in the notice. When these witnesses revealed additional Crouse employees who may have knowledge of items listed in the notice, Crouse did not obstruct Defendants' efforts to depose these additional witnesses. [Defs.' Ex. H]. In fact, on November 6, Defendants deposed Bill Cox, Crouse's only remaining executive employee. The parties agreed to schedule a second day for Cox's deposition. The record is unclear whether that deposition has occurred. In any event, it is undisputed that topics 2-4, 6-11, and 14-26 remain unaddressed. [Defs.' Reply, p. 7].
Since September 2000, Crouse has been involved in a voluntary liquidation of its assets outside of bankruptcy.
The Court finds that Crouse did not violate Rule 30(b)(6). Although counsel for Crouse represented to Defendants that L. Crouse and Pendleton could sufficiently respond to all twenty-six items in the notice, counsel for Crouse presents evidence that these representations were made in good faith. For instance, upon receipt of the notice, counsel for Crouse forwarded it to Cox and requested that he designate employees who may be competent to testify on behalf of the corporation. [Pl.'s Br., ¶ 4]. Counsel for Crouse reasonably relied on Cox's assessment of who could properly respond to the items listed in the notice. In addition, Defendants were notified of additional witnesses in the L. Crouse and Pendleton depositions who may be competent to testify. [Defs.' Exs. H I]. However, as noted above, Defendants still have not received adequate responses to topic numbers 2-4, 6-11, and 14-26, and shall be afforded an opportunity to explore them through the newly identified witnesses discovered in the L. Crouse and Pendleton depositions or from any other reliable source uncovered in the discovery process.
Accordingly, Defendants' motion to compel responses to Rule 30(b)(6) depositions is GRANTED IN PART and DENIED IN PART. The motion is granted to the extent that Crouse is ordered to make Cox available for the second day of his deposition, as well as make available any other witnesses identified as having pertinent knowledge to respond to the Rule 30(b)(6) notice of deposition. The motion is denied in all other respects.
C. Cross Motions for Sanctions
Pursuant to Rule 37, both parties have moved for sanctions. "[P]roducing an unprepared witness is tantamount to a failure to appear" and "is sanctionable under Rule 37(d)." Black Horse Lane Assoc., L.P. v. Dow Chemical Corp., 228 F.3d 275, 304 (3rd Cir. 2000). However, in light of the Court's ruling that Crouse did not violate Rule 30(b)(6), Defendants' motion for sanctions is denied.
Crouse has also moved for sanctions alleging that Defendants filed a frivolous motion for sanctions. [Pl.'s Br., ¶ 21]. However, Crouse's motion is denied for not complying with Local Rule 7.1(a), which states in pertinent part a "motion pursuant to Rule 37 . . . shall be accompanied by a separate supporting brief." S.D. Ind. L.R. 7.1(a). In its opposition to Defendants' motion to compel, Crouse makes its request for sanctions in a paragraph without filing a separate brief in support. This procedural defect results in a denial of its motion for sanctions. In any event, as evidenced by the Court's partial grant of the motion to compel, an award of sanctions to Crouse is not appropriate. Accordingly, Defendants' motion for sanctions is DENIED. Likewise, Crouse's motion for sanctions is DENIED.
III. Conclusion
For the reasons set forth above:
1. Defendants' motion to compel Rule 26(a)(1) responses regarding the real estate broker and the "rough market analysis" is DENIED;
2. Defendants' motion to compel Rule 26(a)(1)(B) responses is DENIED.
3. Defendants' motion to certify questions in the Pendleton deposition is GRANTED to the extent the questions do not solicit the identity of the real estate broker or information on the rough market analysis, and DENIED in all other respects. Defendants may notice Pendleton's deposition to seek answers to the certified questions only;
4. Defendants' motion to compel responses to Rule 30(b)(6) depositions is GRANTED IN PART and DENIED IN PART. The motion is granted to the extent that Crouse is ordered to make Cox available for the second day of his deposition, as well as make available any other witnesses identified as having pertinent knowledge to respond to the Rule 30(b)(6) notice of deposition. The motion is denied in all other respects;
5. Defendants' motion for sanctions is DENIED; and
6. Plaintiff's motion for sanctions is DENIED.
So ordered.