FILED
United States Court of Appeals
Tenth Circuit
October 17, 2017
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
HCG PLATINUM, LLC,
Plaintiff Counter Defendant -
Appellee,
v. No. 15-4157
PREFERRED PRODUCT PLACEMENT
CORPORATION,
Defendant Counterclaimant
Third-Party Plaintiff - Appellant,
v.
RIGHT WAY NUTRITION LLC;
KEVIN WRIGHT; TY MATTINGLY;
ANNETTE WRIGHT; PRIMARY
COLORS, LLC; WEEKES HOLDINGS,
LLC; JULIE C. MATTINGLY,
Third-Party Defendants -
Appellees.
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:11-CV-00496-RJS)
Scott E. Schutzman, of the Law Offices of Scott E. Schutzman, Santa Ana, California, for
Defendant Counterclaimant Third-Party Plaintiff-Appellant.
Kimberly N. Baum (Evan A. Schmutz, on the briefs), of Durham Jones & Pinegar, P.C.,
Lehi, Utah, for Plaintiff Counter Defendant-Appellee and Third-Party Defendants-
Appellees.
Before HOLMES, SEYMOUR, and MORITZ, Circuit Judges.
HOLMES, Circuit Judge.
HCG Platinum, LLC (“HCG”) and Preferred Product Placement Corporation
(“PPPC”) entered into a Manufacturer’s Representative Agreement (“Marketing
Agreement”), under which PPPC agreed to place HCG products into specified retailers in
exchange for a percentage of the proceeds. Shortly thereafter, HCG filed the underlying
breach-of-contract action against PPPC, seeking compensatory damages for PPPC’s
alleged breaches and a declaratory judgment that HCG properly terminated the Marketing
Agreement on account of these breaches. PPPC counterclaimed for breach of contract
and asserted third-party contract claims against individuals and entities associated with
HCG.
In advance of trial, HCG moved to preclude PPPC from presenting evidence of
damages, asserting that PPPC’s initial (and never supplemented) disclosures provided an
insufficient description and computation of PPPC’s damages theory. Finding PPPC’s
initial disclosures insufficient and its request to compel discovery untimely, the district
court excluded the damages evidence from PPPC’s disclosures. Exclusion of that
evidence, in turn, necessarily barred PPPC from pursuing its counterclaims, and the
2
district court subsequently entered judgment against PPPC on that basis. PPPC appeals,
arguing that the district court abused its discretion by imposing a discovery sanction
(exclusion) that carried the force of dismissal, despite the fact that its discovery
shortcomings resulted in only minimal and curable prejudice to HCG.
Exercising jurisdiction under 28 U.S.C. § 1291, we reverse the district court’s
judgment in favor of HCG on PPPC’s counterclaims, and remand with instructions that
the district court reconsider the exclusion of PPPC’s damages evidence under an analysis
that considers, among other things, the availability of lesser sanctions.
I
A
On March 30, 2010, HCG, a Utah-based manufacturer of dietary supplements,
contracted with PPPC to “actively promote and market” HCG products. Aplt.’s App.,
Vol. II, at 73 (Manufacturer’s Representative Agreement, dated Mar. 30, 2010). In
exchange for these services, HCG agreed to pay PPPC a fee and staggered commissions
based on PPPC’s placement of HCG products within specified tiers of retailers.
Separately, the parties entered into a “Confidentiality Non-Circumvent
Agreement” (“Non-Circumvention Agreement”), id. at 79, which recognized that the
parties’ relationship required PPPC to disclose confidential business information
concerning its “customer lists and information relating to customers, marketing plans and
strategies, . . . details of negotiations with current partners and business associates, details
of business opportunities or projects,” and other information, id. As a result, the Non-
3
Circumvention Agreement precluded HCG from “directly or indirectly interfer[ing] with,
circumvent[ing], avoid[ing], by-pass[ing], obviat[ing], influenc[ing], or otherwise
control[ling]” PPPC’s “interests, relationship[s], agreements or arrangements” with any
third-parties, id. at 80.
B
In the following year, HCG filed a breach-of-contract action in Utah state court,
alleging that PPPC breached the Marketing Agreement by “fail[ing] to execute a sales
agreement with all of the [retailers in HCG’s top two tiers], except GNC, Europa, Bartell
Drugs, Miejer [sic], [and] Rite Aid.” Aplt.’s App., Vol. I, at 26 (Compl., filed May 9,
2011). After removing the matter to federal district court, PPPC filed a counterclaim and
third-party complaint, alleging that HCG (and associated entities and individuals)
breached the Marketing and Non-Circumvention Agreements by failing to pay
outstanding commissions and “interfering” with PPPC’s third-party relationships. Id.,
Vol. II, at 70 (First Am. Countercl. and Third Party Compl., filed Nov. 23, 2011). PPPC
therefore sought compensatory damages “in an amount according to proof,”
consequential damages, attorneys’ fees and costs, and injunctive relief against future
violations of the Non-Circumvention Agreement. Id. at 70–71.
On August 4, 2011, PPPC served initial disclosures providing the following
“Computation of Damages”:
1. Static Analysis: $1,840,243.50*
Based on May 11, 2011 Invoice for April sales to GNC, Europa
4
Sports and Bartell Drug. $47,185.73 x 39 months (36 months
until first termination date + 3 month notice period) =
$1,840,243.50 (* This figure does not include sales to Meijer)
a. Note: Meijer Supermarkets has attempted to pay HCG
$16,703.00 for products shipped in February and March
2011, but as HCG has not set up EDI (Electronic Data
Exchange) and no payments were made. PPPC is owed
$1,670.30 for these sales.
2. Dynamic Analysis: Based on projections in attached chart:
7,538,840.00[1]
a. Existing Accounts: GNC, Europa Sports, Bartell Drug,
Meijer with sales increasing gradually over the life of the
Agreement: $3,838,700.00
b. Pending Accounts: Vitamin Shoppe, Vitamin World,
Rite Aid, CVS, Walgreens, Savon, Wal-Mart, etc., that
order HCG products over the life of the Agreement with
sales to these retailers increasing gradually:
$3,610,140.00
c. All Accounts: Existing Accounts, other specialty market
accounts (Vitamin Shoppe, Vitamin World) and other
mass-market chains (Rite Aid, CVS, Walgreens, etc. . .)
that order HCG products over the life of the Agreement
with sales to these retailers increasing gradually:
$7,538,840.00
3. Additional Damages: To be determined
HCG has failed to pay PPPC 1% for every bottle sold.
HCG has only paid PPPC for bottles sold to PPPC
1
PPPC referenced an “attached chart” in its “Dynamic Analysis,” Aplt.’s
App., Vol. VI, at 204, but never provided the actual graphic. In its reply brief, PPPC
confusingly states that “a chart was and could have always been provided and brought to
PPPC’s attention that it was missing.” Aplt.’s Reply Br. at 3 (capitalization altered)
(emphasis omitted). The existence of the chart has no impact on this appeal.
5
customers. These additional damages will be determined
upon inspection of HCG books and records.
Aplt.’s App., Vol. VI, at 204–05 (numbering altered) (Initial Disclosures, dated Aug. 4,
2011). Thus, the damages aspect of PPPC’s initial disclosures set forth several different
calculations, each without evidential support or significant written explanation.
Over the course of the next two years, PPPC appears to have requested additional
information concerning sales under the Marketing Agreement,2 but claims that HCG
provided only a “one page conclusory -- conclusory statement” that “said $10 million,
and [then] broke out what was sold through GNC.” Dist. Ct. Docket No. 139, at 51 (Tr.
Final Pretrial Conference, dated Sept. 2, 2015).3 Given that disclosure, PPPC subpoenaed
GNC’s records and allegedly discovered that HCG’s discovery response “was off by a
million dollars.” Id. Nevertheless, PPPC never moved to compel more informative or
meaningful discovery responses, nor supplemented its own damages disclosures to
account for the alleged deficiency, and factual discovery ended on June 12, 2012.
Following dispositive motion practice, on March 5, 2015, the district court granted
2
Although the parties acknowledge that these early discovery efforts took
place, neither PPPC’s discovery requests nor HCG’s responses have been included in the
record. Although the district court docket suggests their existence, see Aplt.’s App., Vol.
I, at 9–10 (reproducing the district court docket, which lists the certificates of service for
the parties’ various discovery requests), we have no method of independently
substantiating their contents.
3
The transcript found in PPPC’s appendix includes only thirty-four pages of
the one-hundred page district court transcript. See Aplt.’s App., Vol. VII, at 222–56.
Nevertheless, the entire transcript was filed with the district court, and we have directly
accessed it from the court. See FED. R. APP. P. 10(a) (noting that “the record on appeal”
includes “the original papers and exhibits filed in the district court”).
6
PPPC leave to serve follow-up interrogatories concerning HCG’s ongoing product sales,
and leave to file “additional motions” within two weeks.4 Aplt.’s App., Vol. I, at 12–13.
PPPC served follow-up discovery requests on April 1, 2015, and HCG served responses
on April 30, 2015. Upon receipt, PPPC deemed HCG’s discovery responses inadequate
(and supposedly raised the inadequacy during an informal meet and confer in June of
2015), but again made no effort to address the deficiency with the district court through
filing a motion to compel or otherwise.
Rather, the parties prepared for the final pretrial conference and trial. In
connection with that process, on August 11, 2015, HCG moved to preclude PPPC from
presenting any evidence of damages under the Marketing Agreement. In doing so, HCG
argued that PPPC’s initial disclosures—i.e., the only document PPPC ever produced on
the issue of damages—described projections that would be inadmissible without the
benefit of expert testimony. HCG reasoned that, because PPPC never designated a
damages expert, it would be unable to put on any evidence of damages. PPPC responded
to HCG’s motion on August 24, 2015, by moving to compel more adequate responses to
its supplemental interrogatories (served in April of 2015), and requesting that discovery
be reopened on the issue of damages.
C
The district court resolved the parties’ motions during the final pretrial conference
4
In addition, the district court scheduled a final pretrial conference for
September 2, 2015, and the ultimate trial (if necessary) for September 22, 2015.
7
on September 2, 2015. Beginning with HCG’s motion, the district court stated that
PPPC’s failure to supplement the damages aspect of its initial disclosures, as required by
Federal Rule of Civil Procedure 26(e), meant that PPPC could not introduce evidence of
damages unless its discovery deficiency proved harmless or substantially justified within
the meaning of Federal Rule of Civil Procedure 37(c)(1). See Dist. Ct. Docket No. 139,
at 51, 28-29. The district court then described, at least initially, our established “four
factor test” that (as relevant here) inquires regarding: (1) the prejudice or surprise to the
party against whom the damages evidence would be offered, HCG; (2) HCG’s ability to
cure that prejudice; (3) the extent to which the introduction of new damages evidence
would disrupt the trial; and (4) whether bad faith or willfulness motivated PPPC’s
discovery failures. Dist. Ct. Docket No. 139, at 29; accord id. at 39 (“this is going to boil
down to those four factors”); see also Woodworker’s Supply, Inc. v. Principal Mutual Life
Insurance Co., 170 F.3d 985, 993 (10th Cir. 1999) (the “Woodworker’s factors”).
Thereafter, the district court offered some prefatory remarks and conclusions concerning
HCG’s motion.
Substantively addressing only the fourth Woodworker’s factor, the district court
specifically found no evidence to support “a finding or conclusion . . . about bad faith or
willfulness.” Dist. Ct. Docket No. 139, at 30; see also id. at 68 (repeating the same
conclusion, after attorney argument: “I am not finding that there’s any bad faith or
willfulness on the part of PPPC. In fact I’m affirmatively finding that on the record
before me there’s no basis on which I could find bad faith.”). With that conclusion, the
8
district court reasoned that the analysis would “focus on prejudice and harmlessness,” id.
at 30, and primarily whether the prejudice derived from PPPC’s discovery failure
warranted “throw[ing] [PPPC] out of court on [its] claims for millions of dollars in
damages,” id. at 38. Focusing on that inquiry, the district court questioned whether the
circumstances favored exclusion, because PPPC’s initial disclosures provided “notice of
the basis of the damage claim” and implied that the ultimate calculation would be
“derive[d] from HCG’s own books and records, not from external sources.” Id. Despite
those initial remarks (all of which suggested an inclination towards denying HCG’s
motion), the district court opened the floor to argument on “the right way to think about
[the issue].” Id.
For its part, HCG argued that the “law” compelled exclusion, id. at 38, because the
initial disclosures provided no precise quantification of PPPC’s claimed damages, nor any
explanation of PPPC’s damages theory. See id. at 33–34. Rather, HCG described
PPPC’s disclosure as “a series of future projection damages, four of them”—$1.84
million, $3.83 million, $3.6 million, and $7.5 million—unsupported by expert or
documentary materials, and lacking any explanation of PPPC’s calculations. Id. at 34;
accord id. at 42–43. HCG then argued that the paucity of information in PPPC’s
damages disclosure prejudiced HCG’s defense, by leaving it “completely unaware” of
PPPC’s position on damages. Id. at 35. Finally, HCG claimed that the prejudice proved
incurable and disruptive, because reopening discovery and reviewing new documents on
the eve of trial would be burdensome, expensive, and would require an adjournment of
9
the trial date. See id. at 44–46.
PPPC, in turn, attributed part of its discovery deficiency to the inadequacy of
HCG’s damages-related discovery, see Dist. Ct. Docket No. 139, at 50–58, and
emphasized that its conduct caused only “slight” prejudice, which could easily be
remedied through limited additional discovery, id. at 67.
Following a brief recess, the district court reconvened the hearing with the
following statement:
I’ve changed my mind a little bit about what’s next to happen. I’ve
seen this before twice somewhat recently, and I want to be consistent
in my treatment of this issue. This is the way I’ve seen it before and
it’s the way I continue to see it, and I’m prepared to make a ruling. I’m
going to make a ruling on the motion in limine without further
argument about how it comes out . . . .
Id. at 58. Acknowledging that HCG “clearly had discoverable and relevant information
about its sales that PPPC asked for and wanted,” the district court expressed “enormous”
“dislike [for] sharp discovery practices,” id. at 59, particularly “when the party who
resists the open and forthcoming disclosure of necessary and important information
comes to court pointing at the failure of the other side to make some proof,” id.
Despite these observations, the district court explained that:
The rules impose a specific obligation on the party seeking the
discovery . . . to take up that issue if it arises in a timely fashion. The
rules require that if [a party] receive[s] discovery responses that . . . are
inadequate, that [party must] raise that issue at the time and manner and
sequence of the case that the question can be addressed and resolved,
and a magistrate judge or [district judge] [can] decide the issue, order
the additional production of the information or say that it’s protected or
it’s sufficient and answer those questions at a time when the parties can
10
then continue to order the litigation and make decisions about how to
proceed.
Id. at 59. Beginning to apply those tenets to the circumstances before it, the district court
stated that:
The time to raise the sufficiency of a discovery response is not
after the motion for summary judgment is filed, it is not on the eve of
trial. If there was a failure in the production of discovery, the time to
address it was in discovery. There was no motion to compel filed in
connection with the 2011 or 2012 discovery responses or the adequacy
of the responses. There is one now, of course, in response to the 2015
interrogatories.
Id. at 59–60.
As these comments reveal, the district court found PPPC’s motion to compel
“untimely” (given the late, eve-of-trial posture of the proceedings), id. at 60, and labeled
PPPC’s damage “projection[s]” speculative “presumption[s]” in plain violation of its
discovery obligations. Id. at 65. Without referencing the Woodworker’s inquiry (or its
imbedded considerations),5 the district court granted HCG’s motion to preclude the
5
Although the district court referenced the Woodworker’s factors during its
prefatory remarks, the district court’s oral ruling made no mention of its earlier statements
concerning the Woodworker’s analysis. Nor did the district court provide any explanation
for its drastic departure from its initial impressions. See, e.g., Dist. Ct. Docket No. 139, at
30 (finding no evidence of bad faith or willfulness); id. at 38 (explaining the limitations of
any prejudice, given HCG’s “notice of the basis of the damage claim” and its derivation,
and implying that the Woodworker’s analysis favored PPPC); id. at 44 (finding “an
opportunity to cure [the prejudice] by obtaining the information and testing it”).
Rather, after counsel for PPPC challenged the district court’s ruling under
“the four-part [Woodworker’s] test,” id. at 67, the district court simply restated its earlier
determination that the fourth Woodworker’s factor—bad faith or willfulness—counseled
(continued...)
11
introduction of any “evidence or testimony” based upon PPPC’s initial damages
disclosures, id. at 66, and consequently denied PPPC’s motion to compel “for the reasons
stated in connection with” HCG’s motion, id. at 88.6 See also Aplt.’s App., Vol. III, at
101 (Order, dated Sept. 3, 2015). Nevertheless, the district court believed that the record
contained “sufficient and adequate bas[es] . . . for PPPC to prove the fact of damages at a
trial, notwithstanding [the] ruling on the availability of testimony about the amount of
damages.” Dist. Ct. Docket No. 139, at 65–66.
Following additional briefing on the practical implications of exclusion, however,
on September 17, 2015, the district court determined that its “evidentiary ruling
preclude[d] PPPC from bringing evidence of damages at trial, leaving no basis on which
to reasonably estimate damages.” Aplt.’s App., Vol. V, at 163 (Order, dated Sept. 17,
2015). As a result, the district court concluded that PPPC could not “proceed to trial,” id.,
and entered judgment in favor of HCG on PPPC’s counterclaims. HCG then voluntarily
5
(...continued)
against exclusion of evidence, see id. at 68 (“I am not finding that there’s any bad faith or
willfulness on the part of PPPC. In fact I’m affirmatively finding that on the record
before me there’s no basis on which I could find bad faith.”). Despite being reminded of
the remainder of the Woodworker’s criteria, however, the district court appears to have
overlooked it, as detailed infra.
6
The district court did not separately consider PPPC’s motion to compel,
denying it instead for the reasons the district court granted HCG’s motion. Like the
district court, we do not separately address PPPC’s motion to compel, but will direct that
the district court revisit that motion as part of the overall remand specified herein.
12
dismissed its own affirmative claims without prejudice,7 and PPPC’s notice of appeal
followed on October 15, 2015.8
7
Ordinarily, “[p]arties may not confer appellate jurisdiction upon us by
obtaining a voluntary dismissal without prejudice of some claims so that others may be
appealed.” Eastom v. City of Tulsa, 783 F.3d 1181, 1184 (10th Cir. 2015) (alteration in
original) (quoting Heimann v. Snead, 133 F.3d 767, 769 (10th Cir. 1998)); see also Cook
v. Rocky Mountain Bank Note Co., 974 F.2d 147, 148 (10th Cir. 1992). In this case,
however, the district court’s judgment against PPPC ripened into a final and appealable
order, when the district court subsequently certified the judgment as final under Federal
Rule of Civil Procedure 54(b). See Woodruff v. Herrera, 623 F.3d 1103, 1109 n.5 (10th
Cir. 2010) (“We initially questioned whether we had jurisdiction over this appeal because
the district-court order being appealed did not appear to be a final, appealable order. The
district court later entered an order certifying under FED. R. CIV. P. 54(b) that the claims
at issue on appeal are final and appealable and that there is no just reason for delay.
Accordingly, we have jurisdiction over this appeal.”); Lewis v. B.F. Goodrich Co., 850
F.2d 641, 645 (10th Cir. 1988) (holding that when an “appellant obtains a 54(b)
certification after the notice of appeal was filed,” as here, “we will deem the notice of
appeal to ripen as of the date of certification and will accept the jurisdiction”).
Accordingly, we have jurisdiction over the district court’s final judgment in favor of HCG
on PPPC’s counterclaims.
8
In the aftermath of PPPC’s notice of appeal, HCG filed a motion for
attorneys’ fees. The district court granted HCG’s motion on October 27, 2015, and
subsequently entered a judgment for attorneys’ fees on November 25, 2015. PPPC,
however, never filed a new or amended notice of appeal with respect to that judgment.
Rather, in its appellate briefing, PPPC assumes our appellate jurisdiction over the
attorneys’ fees award, and then submits that the attorneys’ fees issue will become moot if
we reverse, and will stand unchallenged if we affirm. See Aplt.’s Opening Br. at 12.
Although we ultimately reverse the district court’s judgment (and PPPC
mounts no substantive challenge to the attorneys’ fees award), we clarify the limited
contours of our appellate jurisdiction over this appeal. Federal Rule of Appellate
Procedure 3(c)(1)(B) requires a notice of appeal to “designate the judgment, order, or part
thereof being appealed,” FED. R. APP. P. 3(c)(1)(B), and those designations circumscribe
the scope of our appellate review, see Cunico v. Pueblo Sch. Dist. No. 60, 917 F.2d 431,
444 (10th Cir. 1990). Nevertheless, “our jurisdiction will not be defeated if other papers
[like a docketing statement or opening appellate brief] filed within the [thirty-day] time
period for filing the notice of appeal provide the ‘functional equivalent’ of what Rule 3
(continued...)
13
II
Federal Rule of Civil Procedure 37(c)(1)9 addresses a party’s failure to disclose or
supplement initial disclosures, providing that, “[i]f a party fails to provide information or
identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that
information or witness to supply evidence on a motion, at a hearing, or at a trial, unless
8
(...continued)
requires.” Denver & Rio Grande W. R.R. Co. v. Union Pac. R.R. Co., 119 F.3d 847, 849
(10th Cir. 1997) (quoting Torres v. Oakland Scavenger Co., 487 U.S. 312, 317 (1988)).
The underlying proceedings here plainly reveal that we lack appellate
jurisdiction over the district court’s attorneys’ fees award. Simply stated, PPPC filed no
new or amended notice of appeal following the district court’s judgment for attorneys’
fees, and PPPC’s opening brief (filed January 19, 2016) cannot be treated as the
functional equivalent of a notice of appeal, because it came more than thirty days after the
district court’s entry of judgment for attorneys’ fees (on November 25, 2015).
Accordingly, we lack jurisdiction to consider the attorneys’ fees award on appeal. See
FED. R. APP. P. 4(a)(4)(B)(ii); see also Art Janpol Volkswagen, Inc. v. Fiat Motors of N.
Am., Inc., 767 F.2d 690, 697 (10th Cir. 1985) (explaining that a “separate notice of appeal
is . . . required to obtain review” of an attorneys’ fees determination that follows a
judgment on the merits).
9
Federal Rule of Civil Procedure 26(a)(1)(A)(iii) states that “a party must,
without awaiting a discovery request, provide . . . a computation of each category of
damages claimed by the disclosing party–who must also make available for inspection
and copying . . . the documents or other evidentiary material” that provide the basis for
each computation. Federal Rule of Civil Procedure 26(e)(1)(A) builds on this obligation,
by requiring “[a] party who has made a disclosure under Rule 26(a)” to “supplement or
correct its disclosure or response . . . if the party learns that in some material respect the
disclosure or response [has proved to be] incomplete or incorrect.” PPPC does not
challenge on appeal the district court’s necessary determination that it committed a Rule
26(a) and (e) violation, so our inquiry focuses directly on whether Rule 37(c)(1) (as well
as our related precedent) permitted exclusion of PPPC’s damages evidence.
14
the failure was substantially justified or is harmless.”10 “[T]he determination of whether a
Rule 26(a) [or (e)] violation is justified or harmless is entrusted to the broad discretion of
the district court.” Neiberger v. Fed Ex Ground Package Sys., Inc., 566 F.3d 1184,
1191–92 (10th Cir. 2009) (quoting Woodworker’s Supply, Inc., 170 F.3d at 993); accord
Jacobsen v. Deseret Book Co., 287 F.3d 936, 953 (10th Cir. 2002). However, the Rule
37(c)(1) inquiry “depends upon several factors that a district court should consider in
exercising its discretion.” Eugene S. v. Horizon Blue Cross Blue Shield of N.J., 663 F.3d
1124, 1129 (10th Cir. 2011) (emphasis added). These factors include: “(1) the prejudice
or surprise to the party against whom the testimony is offered; (2) the ability of the party
to cure the prejudice; (3) the extent to which introducing such testimony would disrupt
the trial; and (4) the moving party’s bad faith or willfulness.” Woodworker’s Supply, Inc.,
170 F.3d at 993.
Ultimately, we review the district court’s decision to preclude evidence for abuse
of discretion, see Neiberger, 566 F.3d at 1192; Jacobsen, 287 F.3d at 953; Woodworker’s
Supply, Inc., 170 F.3d at 993, meaning that we will reverse only if the district court’s
decision rests “‘on an erroneous conclusion of law,’ or would result in ‘fundamental
unfairness in the trial of the case,’” Jacobsen, 287 F.3d at 953 (first quoting Kiowa Indian
10
“In addition to or instead of” exclusion, the district court may “order
payment of” reasonable expenses, “inform the jury of the party’s failure,” or “impose” an
array of “other appropriate [and lesser-included] sanctions.” FED. R. CIV. P.
37(c)(1)(A)–(C).
15
Tribe v. Hoover, 150 F.3d 1163, 1165 (10th Cir. 1998); then quoting Orjias v. Stevenson,
31 F.3d 995, 1005 (10th Cir. 1994)).
III
PPPC does not contest on appeal the district court’s necessary finding that it
committed a discovery violation. That violation admittedly inhibited the orderly
discovery scheme embodied by the federal rules. Nevertheless, under the unique facts
presented here, we conclude that the district court abused its discretion by imposing a
discovery sanction (i.e., exclusion of evidence) that necessarily barred PPPC from
pursuing its counterclaims. Accordingly, for the reasons that follow, we will reverse the
district court’s judgment in this respect, and remand with instructions for further
proceedings.
A
Although “‘[a] district court need not make explicit findings concerning the
existence of a substantial justification or the harmlessness’ of a Rule 26(a) [or (e)]
violation,” Jacobsen, 287 F.3d at 953 (alteration in original) (emphasis added) (quoting
Woodworker’s Supply, Inc., 170 F.3d at 993), our decisions plainly reveal that the
Woodworker’s factors should guide the district court’s exercise of discretion. See, e.g.,
Eugene S., 663 F.3d at 1129 (noting that “a district court should consider [the
Woodworker’s factors] in exercising its discretion”); Jacobsen, 287 F.3d at 953 (stating
that “the court should consider the following [Woodworker’s] factors”); Woodworker’s
Supply, Inc., 170 F.3d at 993 (explaining that the Woodworker’s factors “should guide
16
[the district court’s] discretion”); see also Guerrero v. Meadows, 646 F. App’x 597, 599
(10th Cir. 2016) (unpublished) (explaining that the Woodworker’s factors “guide the
district court’s discretion” under Rule 37(c)(1)); Gillum v. United States, 309 F. App’x
267, 269 (10th Cir. 2009) (unpublished) (reciting the same premise); Hirpa v. IHC
Hosps., Inc., 50 F. App’x 928, 932 (10th Cir. 2002) (unpublished) (same). Thus,
although a district court need not mechanically recite the terms “substantial justification”
or “harmlessness,” the district court’s ultimate reasoning should reveal consideration of
the Woodworker’s criteria. See Jacobsen, 287 F.3d at 953 (finding that the district court
“abused its discretion by misapplying two of [the Woodworker’s] factors and not
addressing the other two factors”).
The record in this appeal, however, strongly suggests that the district court
ultimately overlooked the lion’s share of the Woodworker’s inquiry. Notably, the district
court began the final pretrial conference by reciting the Woodworker’s factors and
expressing an initial view that three of the those factors—prejudice, curability, and bad
faith or willfulness—weighed against exclusion. See Dist. Ct. Docket No. 139, at 29
(explicitly describing the Woodworker’s factor); id. at 30 (finding that the record
contained no indication of bad faith or willfulness); id. at 38 (explaining the limitations of
any prejudice, given HCG’s “notice of the basis of the damage claim,” and its derivation);
id. at 44 (finding “an opportunity to cure [the prejudice] by obtaining the information and
testing it”). During the later, decisional portion of its oral ruling, however, the district
court resolved HCG’s motion without even a general reference to the inquiry compelled
17
by the Woodworker’s factors. Citing the need for “consistent . . . treatment,” id. at 58, the
district court instead excluded PPPC’s damages evidence on analytic grounds that do not
clearly and meaningfully embody (without more) the Woodworker’s inquiry: (1) the
overall “[in]sufficiency” of PPPC’s initial damages disclosures, id. at 61–65, and (2) the
generally “untimely” nature of PPPC’s motion to compel additional discovery responses
from HCG, id. at 60. For those two reasons, the district court “disallow[ed] any evidence
or testimony about the amount of those damages,” and granted HCG’s motion. Id. at 66.
Thereafter, counsel for PPPC requested “a short record” on the district court’s
decision, and proceeded to express his “disagree[ment] with the ruling” based on PPPC’s
evaluation of “the four-part [Woodworker’s] test.” Id. at 67. Addressing each
Woodworker’s factor, counsel for PPPC argued that PPPC’s “failure to supplement the
pretrial disclosure” produced “slight” prejudice (first Woodworker’s factor) that could be
“cure[d]” without “disrupt[ing] the trial” (second and third Woodworker’s factors), and
restated that the discovery violation occurred without “bad faith or willfulness on
[PPPC’s] part” (fourth Woodworker’s factor). Id. at 67–68. Despite being confronted
with the entire Woodworker’s inquiry, the district court responded only by reiterating its
earlier “finding” of no “bad faith or willfulness on the part of PPPC,” id. at 68; it again
offered no opinion on the prejudice to HCG, the curability of that prejudice, or the extent
to which new evidence would disrupt the scheduled bench trial (i.e., the other
Woodworker’s factors).
Viewed that way, we are constrained to conclude that the record reflects that the
18
district court reached an arbitrary outcome that essentially overlooked most of the
Woodworker’s criteria (except for the fourth factor). The district court’s apparent failure
to consider this criteria amounts to legal error, and we must conclude that the district
court abused its discretion on that ground alone.11 See Jacobsen, 287 F.3d at 953 (finding
that the district court “abused its discretion by misapplying two of [the Woodworker’s]
factors and not addressing the other two factors”).
B
Nevertheless, even if we assumed that the district court tacitly weighed and
resolved the Woodworker’s factors, we would still find an abuse of discretion, because
the district court failed to reconcile its ultimate decision on HCG’s motion with its
expressed initial leanings.
As detailed supra, the district court opened the final pretrial conference with the
express conclusion that the fourth factor weighed against exclusion, see Dist. Ct. Docket
No. 139, at 29–30 (finding no bad faith or willfulness), and with observations that
signaled that PPPC’s discovery violations caused limited and readily curable prejudice,
see id. at 38 (suggesting limited prejudice); id. at 40 (suggesting an opportunity to cure).
11
HCG’s citation to an unpublished decision of our court, Bettis v. Hall, 543
F. App’x 819 (10th Cir. 2013) (unpublished), misses the mark. In Bettis, the district court
excluded evidence of a “new, alternative” damages theory, but permitted the plaintiffs to
proceed to trial on their original damages theory. Id. at 822; see also id. at 821 (noting
that the plaintiffs ultimately obtained a jury verdict of $302,000). In doing so, the district
court made a specific finding of prejudice, and a panel of our court affirmed on abuse-of-
discretion review. The findings on review here markedly differ from those faced by the
Bettis court, as discussed herein.
19
In other words, the district court expressed a clear inclination towards denying HCG’s
motion. The district court, however, ultimately granted HCG’s motion, adopting a
conclusion that ran inexplicably counter to its initial leanings.
Given this conflict, the district court should have set forth the reasoning for
exercising its discretion to exclude evidence under Rule 37(c)(1). “In making a
discretionary decision, a court must present an explanation for its choice sufficient to
enable a reviewing court to determine that it did not act thoughtlessly, but instead
considered the factors relevant to its decision and in fact exercised its discretion.” Jewell
v. Life Ins. Co. of N. Am., 508 F.3d 1303, 1310 (10th Cir. 2007) (quoting Patton v.
MFS/Sun Life Fin. Distribs., Inc., 480 F.3d 478, 491 (7th Cir. 2007)); see also O’Toole v.
Northrop Grumman Corp., 499 F.3d 1218, 1226 (10th Cir. 2007) (holding that a district
court must explain its discretionary denial of prejudgment interest); Okland Oil Co. v.
Conoco Inc., 144 F.3d 1308, 1329 (10th Cir. 1998) (holding that a district court must
provide an “adequate explanation” for its discretionary denial of costs); cf. Reeder v. Am.
Econ. Ins. Co., 88 F.3d 892, 896 (10th Cir. 1996) (emphasizing, in the abuse-of-discretion
context, the need for the district court to provide a “reasoned explanation” for its
discretionary judgment). The district court’s failure to explain its sharp change of
analytic direction in ultimately granting HCG’s motion, in itself, constitutes an abuse of
discretion.
C
In sum, we reverse the district court’s judgment in favor of HCG on PPPC’s
20
counterclaims and remand to allow the district court to specifically reevaluate the
exclusion of PPPC’s damages evidence under the Woodworker’s analysis.12 Given the
severe effect of exclusion here, however, we conclude, for the reasons that follow, that
the district court in particular should evaluate the efficacy of lesser sanctions in
conjunction with the traditional Woodworker’s analysis.
Our decisions offer little guidance on how to apply the Woodworker’s inquiry
where the exclusion of evidence carries the force and effect of dismissal. We have,
however, articulated helpful reasoning in connection with analogous discovery sanctions
under Federal Rule of Civil Procedure 37(b)(2). Rule 37(b)(2) permits a court to issue
“[a]n order . . . dismissing the action,” among an array of other sanctions, “[i]f a party . . .
fails to obey an order to provide or permit discovery.” FED. R. CIV. P. 37(b)(2)(A)(v).
Additionally:
Before imposing dismissal as a sanction [under this rule], a
district court should ordinarily evaluate the following factors on
the record: “(1) the degree of actual prejudice to the [other party];
(2) the amount of interference with the judicial process; . . . (3)
the culpability of the litigant; (4) whether the court warned the
party in advance that dismissal of the action would be a likely
sanction for noncompliance; and (5) the efficacy of lesser
sanctions.”
The Procter & Gamble Co. v. Haugen, 427 F.3d 727, 738 (10th Cir. 2005) (second and
12
We could evaluate the Woodworker’s factors on appeal, see Jacobsen, 287
F.3d at 953–954 (addressing and applying each Woodworker’s factor). Nevertheless,
because we direct the district court to consider the efficacy of lesser sanctions (in
conjunction with the traditional Woodworker’s inquiry), we deem it more advisable on
these facts to allow the district court to do so in the first instance.
21
third alterations in original) (quoting Gripe v. City of Enid, 312 F.3d 1184, 1187 (10th
Cir. 2002)); see also Ehrenhaus v. Reynolds, 965 F.2d 916, 920–21 (10th Cir. 1992)
(original source of the so-called Ehrenhaus factors).
Discussing those factors, we have described dismissal as “an extreme sanction,”
Ehrenhaus, 965 F.2d at 920, appropriate “[o]nly when the aggravating factors [like bad
faith or willfulness] outweigh the judicial system’s strong predisposition to resolve cases
on their merits,” id. at 921 (quoting Meade v. Grubbs, 841 F.2d 1512, 1521 n.7 (10th Cir.
1988)); see also id. at 920 (“dismissal represents an extreme sanction appropriate only in
cases of willful misconduct”). Relatedly, we have directed that dismissal under Rule
37(b)(2) “be used as a weapon of last, rather than first, resort,” id. (quoting Meade, 841
F.2d at 1520 n.6), because “a lesser sanction will [often] deter the errant party from
further [discovery] misconduct,” id. at 920; accord Mobley v. McCormick, 40 F.3d 337,
341 (10th Cir. 1994) (expressing “particular[] concern[] with the trial court’s failure to
consider whether a lesser sanction would be appropriate” in imposing the severe sanction
of dismissal with prejudice); Jones v. Thompson, 996 F.2d 261, 265 (10th Cir. 1993)
(“[D]ismissal is a severe sanction and is not ordinarily warranted if lesser sanctions would
be effective.”); see also The Procter & Gamble Co., 427 F.3d at 741 (reversing the
district court for, among other reasons, failing to consider the efficacy of lesser sanctions
as alternatives to dismissal).
Although this case concerns exclusion of evidence under Rule 37(c)(1) (rather than
dismissal for violation of a discovery order under Rule 37(b)(2)), the line of reasoning
22
applied in our Rule 37(b)(2) decisions fits comfortably within the Rule 37(c)(1)
framework implicated here, and has already been applied by at least one panel of our
court in the Rule 37(c)(1) setting under analogous circumstances. See Gillum, 309 F.
App’x 267.
In Gillum, Kathleen Gillum brought a medical malpractice claim against the
United States on behalf of her deceased husband, asserting that the United States’s
delayed diagnosis and treatment “caused [her deceased spouse] more pain and suffering
and decreased the quality of his remaining life.”13 Id. at 268. The Gillum district court
entered a scheduling order that required Ms. Gillum’s expert reports to be submitted by
October 20, 2007, set a factual discovery deadline of February 15, 2008, and set trial for
March 10, 2008. See id. Two days before the expert discovery deadline, Ms. Gillum
named John Eckardt, M.D. as her testifying medical expert. One month later, Dr. Eckardt
submitted a “brief report” which restated Ms. Gillum’s underlying theory of liability, but
offered no “reasons for these conclusions” nor provided “the other [disclosures] required
by Federal Rule of Civil Procedure 26(a)(2)(B).”14 Id. Counsel for the United States,
13
Mr. Gillum received treatment from the “Veterans Affairs Medical Clinic in
Oklahoma City,” making the United States the proper defendant. Gillum, 309 F. App’x at
268.
14
Rule 26(a)(2)(B) generally provides that the disclosure of an expert witness
“must be accompanied by a written report—prepared and signed by the witness.” FED. R.
CIV. P. 26(a)(2)(B). The required report must contain, among other things, “a complete
statement of all opinions the witness will express and the basis and reasons for them” and
“the facts or data considered by the witness in forming them.” FED. R. CIV. P.
26(a)(2)(B)(i), (ii).
23
however, undertook an independent investigation, and proceeded to take Dr. Eckardt’s
expert deposition on December 3, 2007. Id.
Following the deposition, the United States moved to exclude Dr. Eckardt’s
testimony under Federal Rule of Civil Procedure 37(c)(1), and separately moved for
summary judgment on the ground that Ms. Gillum could not establish her prima facie
case without the benefit of Mr. Eckardt’s (presumably excludable) expert testimony. See
id. Applying the Woodworker’s inquiry, the district court found that the inadequate
expert report incurably prejudiced the United Stated by depriving it of the “one chance”
to “effective[ly] depos[e]” the expert “flat-footed, with the benefit of the homework.” Id.
at 269 (quoting the record). The district court then concluded that “new rounds of expert
work” would disrupt the trial schedule, but found (as here) “no bad faith or willfulness.”
Id. at 270. With that analysis, the district court excluded Dr. Eckardt, and subsequently
entered summary judgment in favor of the United States. See id. at 270.
A panel of this court reversed, concluding that the district court “abused its
discretion in analyzing the ‘cure’ factor,” because the court “improperly focused on the
fact that the inadequate report permanently deprived the United States of the opportunity
to confront Dr. Eckardt ‘flat-footed’ at his deposition.” Id. at 270. Emphasizing that
“litigation should promote the finding of the truth, and, wherever possible, the resolution
of cases on their merits,” the panel reasoned that “any prejudice accruing to the United
States from [the] inadequate opportunity to prepare for the first deposition” could be
cured through an additional deposition at Ms. Gillum’s expense. Id. Citing our Rule
24
37(b)(2) decisions, the panel then concluded that “the total exclusion of Dr. Eckardt’s
testimony, which necessarily resulted in the grant of summary judgment for the United
States, was too extreme a sanction.” Id. (citing Ehrenhaus, 965 F.2d at 921).
In other words, the Gillum court embraced the notion embodied in our Rule
37(b)(2) decisions that district courts should consider the efficacy of lesser sanctions,
where the exclusion of evidence has the necessary force and effect of a dismissal.
Although Gillum constitutes non-binding precedent, Gillum closely resembles the events
underlying this appeal, and we find Gillum’s implicit incorporation of a lesser-sanctions
approach to the Rule 37(c)(1) inquiry persuasive for three salient reasons. First, the
lesser-sanctions analysis finds its natural origins in our Rule 37(b)(2) decisions, discussed
supra, and particularly our repeated recognition therein that dismissal constitutes an
extreme sanction that typically is appropriate only in cases of bad faith or willful
misconduct.
Second, a lesser-sanctions inquiry finds support within the overall structure of
Rule 37(c)(1), which expressly empowers district courts to impose sanctions short of
exclusion. See FED. R. CIV. P. 37(c)(1)(A)–(C) (listing the other sanctions the court may
impose in “addition to or instead of” exclusion). Finally, the notion that district courts
should consider the appropriateness of lesser sanctions where their discovery rulings have
the effect of dismissal finds widespread accord in the decisions of our sibling circuits.
See, e.g., Esposito v. Home Depot U.S.A., Inc., 590 F.3d 72, 79–80 (1st Cir. 2009)
(finding that the “justification” for a Rule 37(c) sanction that carries the force of a
25
dismissal “must be comparatively more robust,” and directing district courts to consider
lesser alternatives); Wegener v. Johnson, 527 F.3d 687, 692 (8th Cir. 2008) (applying
Rule 37(c)(1), and finding that “the district court’s discretion narrows as the severity of
the sanction or remedy it elects increases”); see also Bonds v. Dist. of Columbia, 93 F.3d
801, 808 (D.C. Cir. 1996) (discussing Rule 37 generally, and stating: “Particularly in the
context of litigation-ending sanctions, we have insisted that ‘[s]ince our system favors the
disposition of cases on the merits, dismissal is a sanction of last resort to be applied only
after less dire alternatives have been explored without success’ or would obviously prove
futile.” (quoting Shea v. Donohoe Constr. Co., 795 F.2d 1071, 1075 (D.C. Cir. 1986))).
In sum, where the exclusion of evidence under Rule 37(c)(1) has the necessary
effect of a dismissal, as here, district courts should, in conjunction with the traditional
Woodworker’s inquiry, carefully explore and consider the efficacy of less drastic
alternatives, ordinarily reserving the extreme sanction of dismissal for cases involving
bad faith or willfulness or instances where less severe sanctions would obviously prove
futile.15
IV
Based on the foregoing, we REVERSE the district court’s judgment in favor of
15
Although we adopt a lesser-sanctions approach to the exclusion of evidence
under Rule 37(c)(1) where such exclusion necessarily results in dismissal, we express no
opinion on the appropriate sanction (if any) in this case. Nor do we preclude the district
court from ultimately concluding, after an appropriate evaluation of the Woodworker’s
factors and the efficacy of lesser sanctions, that the circumstances compel exclusion.
26
HCG on PPPC’s counterclaims, and REMAND with instructions that the district court
reevaluate the exclusion of PPPC’s damages evidence under a Woodworker’s analysis
and consider, among other things, the availability of lesser sanctions.
27