United States Court of Appeals
Fifth Circuit
IN THE UNITED STATES COURT OF APPEALS
F I L E D
February 28, 2007
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 05-10903
KURT BETZEL,
Plaintiff-Appellant,
versus
STATE FARM LLOYDS,
Defendant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas, Fort Worth
Before HIGGINBOTHAM, DENNIS and CLEMENT, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
This is a dispute controlled by Texas law between a homeowner
and his insured over coverage for a mold-damage claim. Kurt Betzel
appeals from a district court order excluding his late-designated
expert witnesses and from a district court order granting State
Farm’s motion for summary judgment. We reverse and remand.
I
A
Kurt Betzel bought his home in Arlington, Texas in 1991 and
insured it with State Farm. In December 2001, Betzel notified
State Farm that mold was growing on the sheet rock near his leaking
A/C registers. State Farm opened a claim and sent Michael King, an
insurance adjuster, to inspect Betzel’s home. King confirmed the
A/C leak and found another in the kitchen, for which he opened a
second claim. King found mold in several places and noted in the
State Farm Activity Log, “We have confirmed that we have a covered
loss.” Six months later, State Farm opened a third and fourth
claim, one for a shower-drain leak and another for a sewer leak.
The first two claims were for losses that occurred while an HO-B
policy was in effect. The third and fourth claims were for losses
occurring under an HO-162A policy.
Kurt Betzel hired Blackmon Mooring, a company recommended by
State Farm, to do the remediation work. After three months of
work, and after three failed environmental-clearance tests, Betzel
fired Blackmon Mooring. He then hired Paul Frantz, one of his
late-designated experts, to finish the job. The house passed its
clearance test on December 30, 2002.
With remediation finally complete, Betzel hired Jan Matlock,
the original builder, to rebuild the house. Matlock is Betzel’s
other late-designated expert. State Farm estimated the cost to
rebuild Betzel’s house at $23,419.45. Matlock’s estimate of
$145,000.00 was much higher — and that was before more mold was
discovered.
So Betzel brought Paul Frantz back in, several times, during
the re-build to remove the “hidden mold” that Matlock had
discovered. Because of these unforeseen problems and because of an
2
increase in the cost of materials, Matlock’s estimate jumped to
$212,260.92. State Farm had already paid more than $160,000 to
Betzel for remediation, living expenses, and repair. Betzel
estimated that another $132,000 would be necessary to finish the
work. He hired a lawyer, who sent State Farm a letter, demanding
$275,000 as full and final satisfaction of Betzel’s claims. On
November 17, 2003, a State Farm claims representative responded by
denying further coverage and explaining that “the payments issued
are appropriate and sufficient for the necessary remediation and
rebuild of Mr. Betzel’s home with regard to covered losses.”
B
Betzel sued State Farm in Tarrant County District Court for
breach of the insurance contract, breach of the duty of good faith
and fair dealing, and violation of articles 21.21 and 21.55 of the
Texas Insurance Code. State Farm removed based on diversity.
On September 28, 2004, the federal district court entered a
scheduling order which provided:
Each party shall designate experts by filing a written
designation including the name, address, and telephone
number of each expert who may be called to testify and
make the disclosures required by Fed. R. Civ. P. 26(a)(2)
by serving the required written reports at least 120 days
before the pretrial conference date. . . . Strict
compliance with the terms of this Order . . . is
required.
The pretrial conference was originally set for July 5, 2005;
Betzel’s designation deadline was therefore March 6, 2005. Nearly
three months after that deadline, on May 23, 2005, Betzel filed a
3
motion, opposed by State Farm, styled “Plaintiff’s Motion To Allow
Opinion Testimony From Certain Witnesses.” Betzel’s motion sought
to elicit expert testimony from Matlock and Frantz. This motion
came three weeks after State Farm filed its motion for summary
judgment; one week after the deadline to file Daubert motions;
three days after State Farm had deposed Matlock (as a fact
witness); and immediately after State Farm had deposed Frantz (also
as a fact witness).
The district court denied the plaintiff’s motion on June 10,
2005. Five days later, the district court granted State Farm’s
motion for summary judgment, ruling that Betzel had marshaled no
evidence to support his contractual claim, because “[t]he only
summary judgment evidence plaintiff points to in support of his
breach of contract claims is the deposition testimony of his
general contractor, Mrs. Matlock, that ‘in her opinion it would
cost $212,260 to rebuild the home.’” The district court accordingly
found no triable issue of fact on the question of cost to repair,
since “this court has already ruled that plaintiff may not elicit
expert testimony as a result of his failure to comply with the
court’s [scheduling order].”
4
Betzel appeals from the district court’s order excluding his
experts and from the district court’s order granting summary
judgment to State Farm.1
II
We hold that the district court abused its discretion in
excluding Betzel’s late-designated witnesses.2 We review such
exercises of discretion by considering four factors: “(1) the
explanation for the failure to identify the witness; (2) the
importance of the testimony; (3) potential prejudice in allowing
the testimony; and (4) the availability of a continuance to cure
such prejudice.”3
A
The first factor plainly favors State Farm. Indeed, Betzel
concedes that he offered no explanation to the district court for
1
Betzel has withdrawn his claims for (1) breach of the duty of good
faith and fair dealing and (2) violation of article 21.21. He has not
addressed in his brief to this court the district court's summary-judgment
dismissal of his Article 21.55 claim. Thus, only the breach of contract claim
is before this court.
2
This court reviews for abuse of discretion a district court's decision
to exclude expert testimony as a sanction for a violation of a pretrial order.
1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281, 1288 (5th Cir. 1991); Barrett
v. Atlantic Richfield Co., 95 F.3d 375, 380 (5th Cir. 1996). “[O]ur court
gives the trial court broad discretion to preserve the integrity and purpose
of the pretrial order.” Geiserman v. MacDonald, 893 F.2d 787, 790 (5th Cir.
1990) (internal quotation omitted).
3
Geiserman, 893 F.2d at 791; see also Campbell v. Keystone Aerial
Surveys, Inc., 138 F.3d 996, 1000 (5th Cir. 1998); Bradley v. United States,
866 F.2d 120, 124 (5th Cir. 1989) (citing Murphy v. Magnolia Elec. Power
Ass'n, 639 F.2d 232, 235 (5th Cir.1981)).
5
his failure to timely designate.4 We take seriously this lack of
explanation, having held, for example, that exclusion of expert
witnesses “is particularly appropriate” where the party has “failed
to provide an adequate explanation for their failure to identify
their expert within the designated timetable.”5 We reverse,
nevertheless, because the three remaining factors strongly favor
Betzel.
B
The second factor is the importance of the excluded testimony.
Betzel urges that his experts’ testimony is “very important,”
although he refuses, of course, to concede that he must lose on
summary judgment without it. State Farm responds that the
testimony is unimportant because neither expert was even qualified
to opine about mold causation.
The expert testimony is essential. Putting aside State Farm’s
contention that neither expert is qualified to segregate covered
losses from non-covered losses,6 the two experts are still
necessary to Betzel’s case, particularly to his proof of the cost
to rebuild his house. Without his experts, Betzel cannot prove
damages.
4
Betzel hints on appeal that the failure was related "to discussions
between counsel and personal affairs."
5
1488, Inc., 939 F.2d at 1289.
6
We leave unanswered the question of whether this testimony provides
“some evidence affording the jury a reasonable basis on which to allocate the
damage.” Fiess v. State Farm Lloyds, 392 F.3d 802, 807–08, 808 n.24 (5th Cir.
2004) (citing Paulson v. Fire Ins. Exch., 393 S.W.2d 316, 319 (Tex. 1965)).
6
Of course, this court has applied this second factor in
unexpected ways, sometimes even standing it on its head. In
Geiserman, we “assume[d] arguendo that expert testimony was
significant to Geiserman's case,” but then noted, “so much the more
reason to be sure its introduction was properly grounded.”7 And
again, in Barrett, this court wryly noted that “the claimed
importance of Plaintiffs' expert testimony merely underscores the
need for Plaintiffs to have complied with the court's deadlines.”8
Applying the second factor as intended, however, we find that
it weighs in favor of the plaintiff, whose case depends on the
excluded witnesses. We acknowledge that “the importance of such
proposed testimony cannot singularly override the enforcement of
local rules and scheduling orders,”9 yet, as we will explain, the
remaining factors also urge reversal.
C
The third factor is the prejudice to State Farm. Betzel
argues that State Farm was not surprised by the two experts because
(1) State Farm adjusters had met them during the remediation of
Betzel’s home and (2) Betzel identified them in discovery on March
17, 2005 — 11 days after the designation deadline — as “persons who
may be called to testify.” State Farm responds that they were
7
Geiserman, 893 F.2d at 791–93.
8
Barrett, 95 F.3d at 381.
9
Id. (emphasis added).
7
unaware that either witness would be called as an expert until
Betzel filed his motion on May 23, 2005. State Farm argues that
allowing the late designation of these two experts would have
significantly increased their litigation expenses since they
already had prepared their motion for summary judgment in reliance
on Betzel’s lack of expert testimony. Further, they had been
deprived of an opportunity to depose Matlock and Frantz as expert
witnesses, to file Daubert challenges, and to rebut the late
witnesses with their own experts.
We have been sympathetic to such prejudices in the past10 and
would be so again in the future, if they are supported by the
facts. Here, however, State Farm’s list of grievances better
reflects the case law than the record. State Farm’s motion for
summary judgment only trivially relied on Betzel’s lack of expert
testimony. The substantive bulk of State Farm’s 38-page motion
relies, in fact, on the legal contention that mold is not covered
under the HO-B policy. Only four sentences of State Farm’s motion
for summary judgment are dedicated to the argument that Betzel has
“no evidence” on his breach of contract claim.11
10
In Geiserman, for example, this court accepted such arguments, noting
that late designation “would have disrupted the court's discovery schedule and
the opponent's preparation,” and that the defendant had relied “on Plaintiff's
apparent decision to forgo expert testimony.” Finally, this court
acknowledged the “expense that would result from an extended discovery
schedule for Geiserman's failure to adhere to deadlines.” Geiserman, 893 F.2d
at 791–93.
11
Of course, State Farm did argue this point in opposing plaintiff’s
motion to allow late-designated experts, as well as in their summary-judgment
reply, a document filed after the plaintiff’s notice of appeal.
8
D
What prejudice remains could have been cured with a
continuance; that is the fourth factor. Indeed, “we have
repeatedly emphasized that a continuance is the preferred means of
dealing with a party's attempt to designate a witness out of
time.”12 A continuance would have given State Farm an opportunity
to depose Matlock and Frantz as expert witnesses, to file Daubert
challenges, and to designate experts for rebuttal.
We have cautioned that “[a] continuance might have cured any
prejudice arising from the defendants' late designation, but such
a remedy would have entailed additional expense to the plaintiff
and further delayed its day in court.”13 We have further warned
that “a continuance would not deter future dilatory behavior, nor
serve to enforce local rules or court imposed scheduling orders.”14
Because State Farm would have incurred no unwarranted
additional expenses in filing a second motion for summary judgment
and because the imposed sanction was dispositive of the case, we
must find an abuse of discretion. We do not suggest that the able
district judge abused his discretion in imposing a sanction.
Rather, it is that the extreme end of the sanction spectrum was
imposed against the lowest end of the prejudice spectrum. Any
12
Campbell, 138 F.3d at 1001 (internal quotation omitted).
13
1488, Inc., 939 F.2d at 1289.
14
Id.
9
number of less-dispositive sanctions, in conjunction with a
continuance, were at hand, such as prohibiting Betzel from filing
any expert supplements, denying Betzel any costs and attorneys’
fees associated with the deposition of the late-designated experts,
denying Betzel 21.55 penalties or interest for the delay associated
with the continuance, or even requiring Betzel to reimburse State
Farm’s costs and attorneys’ fees associated with the additional
expert discovery.
III
After excluding Betzel’s experts, the district court granted
State Farm’s motion for summary judgment, holding that he had no
evidence of breach of contract. Even with these experts now
included, State Farm urges us to affirm the district court’s
summary-judgment on an alternative ground raised below: that the
Texas HO-B policy does not cover mold. This argument, urges State
Farm, is directly supported by the Texas Supreme Court’s recent
decision in Fiess.15 We disagree that Fiess is dispositive16 and
decline to affirm on this alternative ground.
In Fiess, the Supreme Court of Texas answered our certified
question, holding that the ensuing-loss provision of the Texas HO-B
15
See Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006).
16
See Balandran v. Safeco Insurance Co., 972 S.W.2d 738 (Tex. 1998).
Compare Kolenic v. Travelers Lloyds of Texas Ins. Co., No. 03-02-00366-CV,
2003 WL 247117, at *2 (Tex.App.-Austin February 06, 2003, no pet.) (mem.op.)
(not designated for publication) with Salinas v. Allstate Texas Lloyd's Co.,
278 F.Supp.2d 820, 823 (S.D.Tex. 2003).
10
policy did not cover mold contamination.17 Way back in federal
district court, the Fiesses had also urged a backup argument,
contending that coverage for mold was provided by the exclusion-
repeal provision. Due to a defect in their notice-of-appeal, we
declined to exercise jurisdiction over the backup argument.18 The
Supreme Court of Texas declined as well. That question is
presented here, however, since the exclusion-repeal provision
relates to losses resulting from “accidental discharge, leakage, or
overflow of water or steam from within a plumbing, heating or air
conditioning system or household appliance.”
Although we may affirm on any ground advanced below in the
motion for summary judgment,19 we decline to further address this
unsettled and important question of state law. It is neither
necessary to this opinion, nor was it fully briefed by the parties.
IV
The judgement of the district court is REVERSED and the case
is REMANDED for further proceedings.
17
Fiess, 202 S.W.3d at 744.
18
Fiess, 392 F.3d at 806–07.
19
See Employers Ins. of Wausau v. Occidental Petroleum Corp., 978 F.2d
1422, 1426–27 (5th Cir. 1992).
11