Tuesday, August 9, 2011

Exclusion of evidence containing belated damages estimates upheld as sanction for violation of automatic disclosure obligations

            In Dynegy Marketing & Trade v. Multiut Corp., 2011 WL 3347848 (7th Cir. Aug. 4, 2011), plaintiff supplier sued defendants, a distributor and its owner, for unpaid invoices for natural gas.  Defendants counterclaimed for breach of an agreement to supply gas at fixed prices, among other claims.  After discovery, plaintiff moved for summary judgment.  In opposition to the summary judgment motion, defendants submitted the declaration of the owner, which “contained [defendants’] first and only estimates of Multuit’s lost profits and some of its other alleged damages.” 

            The district court excluded the declaration as a sanction under Rule 37(c) for defendants’ violation of Rule 26(a)(1)(A)(iii) and Rule 26(e), which require parties to disclose and supplement “a computation of each category of damages.”  The district court then granted plaintiff’s summary judgment motion.

            The Seventh Circuit affirmed: 

Multiut and Draiman started off discovery on the right foot by providing Dynegy with rough estimates of the damages associated with their counterclaims in their original disclosures. At that time, they averred, “As a result of Dynegy's breach of an agreement to supply gas at a fixed price, Multiut has sustained damages in an amount that Multiut believes exceeds $6 million. Multiut will supplement with a computation of these damages when they are ascertained through the course of continuing discovery.” They made a similar statement with respect to their breach of confidentiality agreement counterclaim, for which they estimated at least $1 million in damages. But even after Dynegy filed several motions to compel and repeatedly sought (and occasionally obtained) sanctions, Multiut and Draiman failed to disclose how they arrived at those numbers. Even if we fully credit the defendants' contention that the numerical information in Draiman's declaration was duplicative of that already disclosed in spreadsheet form, nothing in the record—not even Draiman's declaration—shines light into the black box of their damages calculation process. A reasonable district court could and did conclude that exclusion of the declaration, which contained the only ballpark estimates of Multiut's lost profits and alleged credits due, was an appropriate sanction for the defendants' continued dilatory and opaque behavior. Without an idea of where the defendants' numbers were coming from, Dynegy was unable to investigate and raise arguments against the claimed damages; the district court did not err in concluding the omissions were not harmless. 

--Patricia Hatamyar Moore


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