In Bessemer & Lake Erie Railroad Co., et al. v. Seaway
Marine Transport, et al., 6th Cir. Nos. 08-4676/4678 (Feb. 25,
2010), the Sixth Circuit threw out a Plaintiff's lost profits
claim, citing failure to follow initial disclosure
requirements.
The case involved a Plaintiff ship loader who had its equipment
damaged by defendant's cargo ship on Lake Erie. The damage took
five weeks to repair. During that time, Plaintiff claims, it
experienced a loss of profit. Defendant Seaway conceded some fault
for what happened, and admitted responsibility for some of the
damages. However, it disputed that it had any responsibility to pay
for lost profits under the circumstances.
Seaway argued that Plaintiff failed to disclose or otherwise
provide the details that were needed to calculate the amount of the
alleged losses. The Sixth Circuit agreed, citing Fed. R. Civ. P.
26(a)(1)(A)(iii). The Court granted summary judgment and dismissed
the lost profits claim. It found that Plaintiff fell short of the
rule's requirements by "not disclosing the costs it saved
during the time its machinery was under repair."
To further its arguments, Defendant Seaway presented an uncontested
opinion from its economic expert to highlight inadequacies in the
data. The expert stated that Plaintiff failed to turn over payroll
journals, payroll tax returns, financial statements, financial
summary reports, and general ledgers that were "necessary to
verify and analyze Bessemer's claim for lost profits." The
Court agreed with the expert that Plaintiff provided
"insufficient data" for a proper determination of avoided
costs, precluding calculation of the actual amount of
damages.
The Court noted that Plaintiff's failures extended well beyond
an initial failure to disclose. There was a repeated refusal to
provide the relevant, requested data throughout the course of
discovery. The initial disclosures simply listed a figure of $1.6
million owed for managers' time, trains diverted, and other
items. However, there was "no explanation and no supporting
documentation to back up the calculations." When Seaway
requested additional documents, Plaintiff responded by referring
simply to "documents previously provided." Plaintiff
further stated that "no . . . documents exist" to address
"overhead savings."
In depositions, Plaintiff's corporate representative confirmed
that the claimed losses related to "lost gross revenue, not
its lost profits." The representative had no information about
costs saved and did not know of anyone who would. When Seaway
issued a detailed follow-up deposition notice regarding the
"loss of revenue claim, including savings realized,"
Plaintiff failed to provide any information. Asked about saving due
to not having to assemble, load, and fuel train cars,
Plaintiff's representative could not say whether this was a
cost saved. He also could not point to any documents relating to
savings.
Against this background, the Court quoted Civ. R. 26. The Rule
requires a party to provide "a computation on each category of
damages claimed" as well as "the documents or other
evidentiary material... on which each computation is based,
including materials bearing on the nature and extent of injuries
suffered." Finding that Plaintiff failed to meet this
obligation, and in light of Defendant's repeated efforts to
obtain the data, the Court granted summary judgment.
The decision is a warning to counsel who are pursuing
business-related damages: initial disclosure requirements must be
taken seriously. Good faith disclosures should be provided up-front
and supplementation should be added to fully support the claim.
Counsel opposing damages claims will benefit by building a record
of attempts to obtain the relevant information with proper
explanation, including expert input, of the need for this
information. If disclosures are not properly provided, Civ.R. 26
may provide a basis, as in this case, for the Court to strike the
claim.
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