Free Order on Motion for Miscellaneous Relief - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

WO

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Diane Mann, as Trustee for the Estate of LeapSource, Inc., et al.,

) ) ) ) Plaintiffs, ) ) Vs. ) ) GTCR Golder Rauner, L.L.C., ) a Delaware limited liability) company, et al., ) ) Defendants. ) )

No. CIV 02-2099-PHX RCB O R D E R

On July 29, 2005, Defendants GTCR Golder Rauner, L.L.C., GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce Rauner, Daniel Yih, David A. Donnini, Philip A. Canfield, Michael Makings, David Eaton, AEG Partners LLC, and Kirkland & Ellis ("Defendants") filed a Motion to Bar Plaintiffs from Asserting Undisclosed Damages Claims. Mot. (doc. 233). This motion was fully briefed on

Case 2:02-cv-02099-RCB

Document 249

Filed 09/07/2005

Page 1 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

August 25, 2005. Reply (doc. 245).1 Having carefully considered the arguments presented by the parties, the court now rules. I. Background Facts This action was originally filed in the Arizona state court, alleging numerous state law claims arising out of the financial demise of LeapSource, Inc. ("LeapSource"). LeapSource is a Phoenix-based "business process outsourcing" company, formed to provide accounting and employee benefit services to mid-sized businesses. at 1. Mot. to Dismiss (doc. 16)

The defendants in this action include a number of

individuals and companies who were involved in various transactions related to the start-up and operation of LeapSource. The plaintiffs in this action include the LeapSource bankruptcy trustee, as well as eight individuals who served in principal positions with LeapSource (including Kirk). See Notice of Rem. (doc. 1) Ex. A, Amended Complaint. Plaintiffs' complaint alleges various causes of action against the defendants both collectively and individually. II. Federal Rules of Civil Procedure The Federal Rules of Civil Procedure require that a party provide, ...a computation of any category of damages claimed by the disclosing party, making available for inspection and copying as under Rule 34 the documents or other evidentiary material, not privileged or protected from disclosure, on which such computation is

Plaintiffs, in their Response, requested oral argument on this matter. (doc. 237). Such request is denied. Case 2:02-cv-02099-RCB -2Document 249 Filed 09/07/2005 Page 2 of 7

1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

based, including materials bearing on the nature and extent of injuries suffered. Fed.R.Civ.P. 26(a)(1)(C). Rule 26(a)(2)(A) and (B) require the following disclosures with respect to expert opinion testimony: (A) In addition to the disclosures required by paragraph (1), a party shall disclose to other parties the identity of any person who may be used at trial to present evidence under Rules 702, 703, or 705 of the Federal Rules of Evidence. (B) Except as otherwise stipulated or directed by the court, this disclosure shall, with respect to a witness who is retained or specially employed to provide expert testimony in the case or whose duties as an employee of the party regularly involve giving expert testimony, be accompanied by a written report prepared and signed by the witness... Fed.R.Civ.P. 26(a)(2)(A) and (B). III. Defendants' Motion In their motion, Defendants ask the Court to bar Plaintiffs from offering evidence or advancing arguments in support of any damages claims other than their severance claims. Mot. (doc. 233) at 1. Specifically, Defendants assert that Plaintiffs failed to provide the damages computation required by Federal Rule of Civil Procedure 26(a)(1)(C) on their claims for (1) loss of the value of their shares in the "Kirk-GTCR Joint Venture," and (2) loss of salary/bonus. Id. In addition, Defendants argue that the Court should bar Plaintiffs' damages claim for the loss of the value of their shares in the "Kirk-GTCR Joint Venture," because Plaintiffs failed to serve expert reports in relation to their disclosed

Case 2:02-cv-02099-RCB

-3Document 249 Filed 09/07/2005

Page 3 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

"experts" on such damages. Id. at 6.2 "Without meaningful information on the amount of damages plaintiffs intend to seek at trial or the manner of calculating those damages, defendants are severely and unfairly disadvantaged." Id. at 12. In response, Plaintiffs assert that they have disclosed all the information necessary to determine their requested damages. Resp. (doc. 237) at 4. First, Plaintiffs concede that their initial disclosures did not include a computation of damages. Id. However, Plaintiffs assert that in relation to their loss of value claim, they provided Defendants with the documents in their possession and deposition testimony pertinent to such claims. Id. at 6-10. Plaintiffs also note that they provided responses to interrogatories that included a recitation of the Individual Plaintiffs' damages for lost income, out of pocket costs, and other damages. Id. at 4. Second, Plaintiffs assert that each of the Individual Plaintiffs may testify as to his or her personal income and related losses and damages, pursuant to Federal Rule of Evidence 701 and 702. Id. at 11. In addition, Plaintiffs argue that "as part owners of the business, the Individual Plaintiffs are competent to testify about their own opinions of the value of the business." Id. Plaintiffs argue that

On July 15, 2005, Plaintiffs sent notice to Defendants that Plaintiffs Christine V. Kirk, Thomas F. Gilman, Indu Gupta, Kimberly C. Hartmann, Julie B. McCollum, Kelly A. Powers, Bobby D. Scott, and Patrice E. Walker ("Individual Plaintiffs") might be called to give "opinion testimony" under Federal Rules of Evidence 701, and/or 702, 703 and 705. Mot. (doc. 233) at 6; Exbt. P (doc. 234) at 2. Case 2:02-cv-02099-RCB -4Document 249 Filed 09/07/2005 Page 4 of 7

2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

regardless of whether the testimony of the Individual Plaintiffs is deemed to be lay opinion or expert testimony, they are not obligated to file reports because they do not fall into either of the exceptions defined by Federal Rule of Civil Procedure 26 (a)(2)(B). Id. at 12 ("None of them was retained or specially employed to provide expert testimony in this case, and when they were employed by LeapSource, their duties did not regularly involve giving expert testimony.").3 Defendants do not contest these assertions, but instead argue that the complex nature of the information and calculations needed to determine the loss of the value of Plaintiffs' shares in the "Kirk-GTCR Joint Venture" require an expert report. Reply (doc. 245) at 8 (citing Day v. Consolidated Rail Corp., 1996 WL 257654 (S.D.N.Y. May 15, 1996). The Day Court found that a witness, although employed by the defendant, was being called solely or principally to offer expert testimony, and, thus, "left little justification for construing the rules as excusing the report requirement." 1996 WL 257654 at 3. "Since his duties do not normally involve giving expert testimony, he may fairly be viewed as having been 'retained' or 'specially employed' for that purpose." Id. However, this conclusion was questioned in Navajo Nation v. Norris, 189 F.R.D. 610 (E.D. Wash. 1999), resulting in the Norris Court's ruling that the plain language of Rule 26 clearly defines when expert reports are

Plaintiffs note that "[a]lthough Mr. Gilman was not required to provide such a report, Plaintiffs' counsel agreed to provide a written summary of Mr. Gilman's opinions." Resp. (doc. 237) at 13. -5Document 249 Filed 09/07/2005

3

Case 2:02-cv-02099-RCB

Page 5 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

required, and that such a requirement should only be enforced upon those individuals that fall into the defined categories. Id. at 612-13. Upon review of the evidence and testimony disclosed by Plaintiffs regarding their damages claims, the Court concludes that a more definite computation of damages is necessary. Although Plaintiffs have provided Defendants with information on the prospective loss of the value of the "Kirk-GTCR Joint Venture" and their personal losses of salaries and bonuses, such disconnected facts do not clearly indicate what or how much Plaintiff seeks in damages for each of these claims. Without a defined calculation by which total damages may be determined, Defendants cannot be expected to figure it out on their own. Thus, Plaintiffs must provide Defendants with a computation of their damages. In relation to Plaintiffs disclosed "experts," the Court finds that the Individual Plaintiffs disclosed as Plaintiffs' witnesses do not fall into the exceptions defined by Federal Rule of Civil Procedure 26(a)(2)(B). The Individual Plaintiffs were not retained or specially employed to provide expert testimony in this case, nor did their duties as employees of LeapSource regularly involve giving expert testimony. Thus, pursuant to the plain language of Rule 26, expert reports are not required with Plaintiffs' disclosure of the Individual Plaintiffs as witnesses. Therefore, IT IS ORDERED that Defendants' Motion to Bar Plaintiffs from Asserting Undisclosed Damages Claims (doc. 233) is
Case 2:02-cv-02099-RCB -6Document 249 Filed 09/07/2005 Page 6 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

DENIED, subject to the following further order. IT IS FURTHER ORDERED that within twenty (20) days of the date of this order, Defendants may submit requests for admissions or interrogatories to Plaintiffs, which more clearly define the damages sought by Plaintiffs. In addition, Defendants shall have thirty (30) days from the date Plaintiffs' responses are due to disclose their expert witnesses, if any, and their reports. DATED this 7th day of September, 2005.

Copies to counsel of record.

Case 2:02-cv-02099-RCB

-7Document 249 Filed 09/07/2005

Page 7 of 7