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EQT Production Co. v. Magnum Hunter Production, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

May 25, 2017



          Robert E. Wier United States Magistrate Judge

         Plaintiff EQT Production Company (EQT) filed a formal motion on a portion of the subject matter at issue on the April 10, 2017, discovery dispute telephonic conference.[1] See DE ##49 (Motion for Reconsideration); 43 (Minute Entry Order). Defendant Magnum Hunter Production, Inc. (MHP), responded in opposition. DE #53 (Response). EQT replied. DE ##54, 55 (Reply). The matter is ripe for consideration. For the following reasons, the Court DENIES DE #49 and reconfirms the substance of the provisional ruling.

         Legal Principles

         In discovery, a party must disclose “a computation of each category of damages claimed” as well as make available “the documents or other evidentiary material . . . on which each computation is based, including materials bearing on the nature and extent of injuries suffered[.]” Fed.R.Civ.P. 26(a)(1)(A)(iii). Further, a “party who has made a disclosure under Rule 26(a) . . . must supplement or correct its disclosure . . . in a timely manner if the party learns that in some material respect the disclosure . . . is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process[.]” Id. 26(e)(1)(A). “If a party fails to provide information . . . as required by Rule 26(a) or (e), the party is not allowed to use that information . . . to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” Id. 37(c)(1). The Court may order additional or substitute sanctions. Id. 37(c)(1)(A)-(C). The Rule 37(d) exclusion basis, where applicable, likewise includes the potential for additional or substitute sanctions. Id. 37(d)(3) (cross-referencing Rule 37(b)(2)(A)(i)-(vi)).

         The test for Rule 37(c) exclusion “is very simple: the sanction is mandatory unless there is a reasonable explanation of why Rule 26 was not complied with or the mistake was harmless.” Bessemer & Lake Erie R.R. Co. v. Seaway Marine Transp., 596 F.3d 357, 370 (6th Cir. 2010);[2] see also Acuity Brands Lighting, Inc. v. Bickley, No. 5:13-CV-366-DLB-REW, 2015 WL 10551946 (E.D. Ky. Nov. 30, 2015), adopted by 2016 WL 1171541 (E.D. Ky. Mar. 24, 2016). “Rule 37(c)(1) authorizes the trial court to exclude evidence that was withheld in violation of Rule 26(a) or (e). The party requesting exclusion under Rule 37(c)(1) need not show prejudice, rather the non-moving party must show that the exclusion was ‘harmless' or ‘substantially justified.'” Saint Gobain Autover USA, Inc. v. Xinyi Glass N. Am., Inc., 666 F.Supp.2d 820, 826 (N.D. Ohio 2009). “The exclusion of non-disclosed evidence is automatic and mandatory under Rule 37(c)(1) unless non-disclosure was justified or harmless.” Dickenson v. Cardiac & Thoracic Surgery of E. Tenn., 388 F.3d 976, 983 (6th Cir. 2004). Indeed, as the Circuit recently emphasized, “exclusion of late or undisclosed evidence is the usual remedy for noncompliance with Rule 26(a) or (e), ” although the Court of course retains alternative options. Howe v. City of Akron, 801 F.3d 718, 747 (6th Cir. 2015).[3]

         What, then, does it mean for a mistake to be substantially justified or harmless? The Sixth Circuit explored that question in Howe, “adopt[ing]” the Fourth Circuit's five-factor test to “assess whether a party's omitted or late disclosure is ‘substantially justified' or ‘harmless[.]'” 801 F.3d at 747-48. The factors are: “(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence.” Id. at 748 (quoting Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396-97 (4th Cir. 2014), and S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 597 (4th Cir. 2003));[4] see also, e.g., Baker Hughes Inc. v. S&S Chemical, LLC, 836 F.3d 554, 568-69 (6th Cir. 2016); Smith v. State Farm Mut. Auto. Ins. Co., No. 5:15-375-KKC, 2017 WL 107971, at *2 (E.D. Ky. Jan. 11, 2017) (applying the factors); Bentley v. Highlands Hosp. Corp., No. 15-97-ART-EBA, 2016 WL 5867496, at *10 (E.D. Ky. Oct. 6, 2016) (characterizing the five factors as “flesh[ing] out” Bessemer's “simple test”). As Judge Thapar put it: “The factors simply lend themselves to the task at the heart of Rule 37(c)(1): separating ‘honest, ' harmless mistakes from the type of ‘underhanded gamesmanship' that warrants the harsh remedy of exclusion.” Id.

         That said, though, Rule 37(c)(1) still “requires absolute compliance with Rule 26(a), that is, it mandates that a trial court punish a party for discovery violations in connection with Rule 26 unless the violation was harmless or is substantially justified.” Marais v. Chase Home Fin., LLC, 24 F.Supp.3d 712, 730 (S.D. Ohio 2014). As EQT emphasizes and the Court recognizes, Rule 37(c)(1) provides for “less draconian options” than exclusion in appropriate circumstances. Id. The Rules and the unfolding discovery process, though, give many opportunities to timely correct a prior inadequacy or seasonably supply equivalent information. The later the disclosure, the smaller the margin of error and greater the peril. The Sixth Circuit deferentially reviews district courts' decisions on these matters under an abuse of discretion standard. Howe, 801 F.3d at 747.


         The Court previously excluded, “as a preclusive sanction under Rule 37(c) and (d), from further proceedings in this case any evidence on which EQT relied to make a damages calculation that EQT did not produce to [MHP].” DE #43. The Court “h[e]ld EQT to what EQT . . . produced, ” including through exclusion of any “unproduced backup documentation.” Id. In sum, the Court “fr[o]ze EQT's damage proof at what it in fact ha[d] provided to [MHP].” Id.

         EQT does not dispute that there is a category of information (summarized as “backup” or other information from the Enertia database to support its damages calculation) that it did not timely produce (and did not so dispute in the informal discovery dispute resolution setting). See, e.g., DE ##49, at 8 (stating that “EQT provided MHP with a report from Enertia” only on April 25, 2017, well after the 3/23/17 Bergonzi deposition and 3/1/17 discovery cutoff); 54, at 6 (“The crux of [MHP]'s argument is that EQT did not provide Enertia data that supports its damages calculations to MHP until after Mr. Bergonzi's deposition. EQT has since provided that data to MHP.” (emphasis added)); 54-1 (West Affidavit), at ¶ 24; 49-1, at 6 (Bergonzi Depo. p. 113) (“[Y]ou used some Enertia records in-house to come up with those numbers?” “Yes.” “And those documents have never been provided to us. The backup for that has never been provided to us in this case, but you're going to go back and look for that?” “I'm sure we have backup for that.”); id. at 7 (Depo. p. 119) (“[W]e can substantiate how we calculated those numbers.”).[5]

         Though EQT's Complaint and Rule 26 initial disclosure provided some damage figures, the disclosure did not in any way detail the computation. EQT most certainly did not make available to MHP the underlying Enertia ESI or any spreadsheets generated as back-up for the figures-Rule 26 plainly requires this as to “the documents or other evidentiary material . . . on which each computation is based, including materials bearing on the nature and extent of injuries suffered.” Fed.R.Civ.P. 26(a)(1)(A)(iii). Notably, the initial disclosure, at DE #53-1, nowhere lists Enertia data or spreadsheets from Enertia as documents or ESI in EQT's possession that it may use “to support its claims, ” again counter to the Rule 26(a) dictates. Later, by detailed and overlapping document requests, MHP sought, through many formulations, all evidence related to or supporting the damage claims. None of those triggered production of Enertia records. Heading into the Rule 30(b)(6) depositions, EQT knew it was to designate and prepare a witness to discuss damages. Despite all of that history and the many instances of required disclosure or response, EQT produced its designee and mouthpiece Bergonzi for deposition, having not produced to MHP the Enertia records, substantiating spreadsheets, or the work papers underlying the damage amounts. As Plaintiff, EQT had used the materials to formulate its Complaint (and its pre-complaint POC in bankruptcy). Still, EQT simply ignored that cache of records, as a matter of discovery, until Bergonzi testified, a point well after the formal discovery close. When first before the Court, EQT insisted that the discovery requests had not encompassed Enertia materials and that EQT had timely produced all the Rules required. See Audio File No. KYED-LEX5-16-cv-150-JMH-REW20170410105000, at 15:30.

         EQT seeks refuge in Rule 37's “unless” clause: it endeavors to establish that the discovery failure was “substantially justified” or “harmless, ” so as to militate against the remedy of exclusion. See, e.g., DE #49, at 6. Whether the failure was substantially justified or harmless is a question on which EQT has the burden. Roberts ex rel. Johnson v. Galen of Va., Inc., 325 F.3d 776, 782 (6th Cir. 2003); Blair v. GEICO Gen. Ins. Co., 917 F.Supp.2d 647, 656 (E.D. Ky. 2013). Because the Howe factors govern the analysis, the Court examines each.

         The surprise to MHP. The Court, in these circumstances, sees plain surprise to MHP. MHP directly asserted its surprise. DE #53, at 10. In MHP's view, “Bergonzi could not explain how he came up with even the place-holding numbers except by vague references to Enertia reports he ran in February 2016 and yet had not produced by the time he was deposed more than a year later, in March 2017.” Id. The Court recognizes MHP's surprise concerns as valid in this scenario.

         The Court has reviewed every tendered page of the Bergonzi deposition (indeed, of every exhibit tendered) and agrees with MHP on the issue. Apparently, little (if anything) Enertia-related had been exchanged in discovery prior to the Bergonzi deposition, despite the database's apparent empirical centrality (per Bergonzi, EQT's speaker) to EQT's damages calculation.[6] Bergonzi had to explain the basics of Enertia, see DE #49-1, at 3-4, and “[w]hen” Bergonzi “mentioned Enertia . . ., a bell went off in [EQT counsel's] head that maybe we can . . . go back and look there” for responsive information. Id. at 3 (Depo. p. 88). Ms. Chesnut agreed that the topic of damages was “hard to talk about without something in front of us to understand ...

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