Aronstein v. High Standard Mfg. Co. (In re High Standard Mfg. Co.)

• Decision Date: 24 August 2017
• Docket Number: ADVERSARY NO. 16-3133,CASE NO: 15-33794
• Parties: IN RE: HIGH STANDARD MANUFACTURING COMPANY, INC.; fka HI STANDARD; fka HIGH STANDARD; fka INTERARMS; fka AMT Debtor(s) ALAN L ARONSTEIN Plaintiff(s) v. HIGH STANDARD MANUFACTURING COMPANY, INC. Defendant(s)
• Court: U.S. Bankruptcy Court — Southern District of Texas

IN RE: HIGH STANDARD MANUFACTURING COMPANY, INC.;fka HI STANDARD; fka HIGH STANDARD; fka INTERARMS; fka AMT Debtor(s)ALAN L ARONSTEIN Plaintiff(s) v. HIGH STANDARD MANUFACTURING COMPANY, INC. Defendant(s)

CASE NO: 15-33794

ADVERSARY NO. 16-3133

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

August 24, 2017

CHAPTER 11

MEMORANDUM OPINION

Alan Aronstein filed this adversary proceeding against High Standard Manufacturing Company, Inc. seeking declaratory judgments. Aronstein now moves for exclusion of testimony from four of High Standard's witnesses pursuant to Federal Rule of Civil Procedure 37(c)(1). Although the Court will not exclude High Standard's witness testimony, the trial is continued to allow Aronstein to conduct additional discovery. Moreover, Aronstein's own witnesses and exhibits, previously excluded, may be offered at the continued trial.

Background

On July 13, 2016, Aronstein filed a complaint against High Standard seeking a declaratory judgment to determine the ownership of International Armament Corporation, Crusader Gun Company Inc., and Firearms International, Inc. (ECF No. 1 at 6-8). On September 15, 2016, High Standard filed an answer, a counter claim, and cross claims seeking a similar declaration regarding the ownership of the three corporate entities and claiming unjust enrichment, conversion, and breach of fiduciary duty. (ECF No. 18 at 5-8).

On September 27, 2016, the parties submitted a Joint Discovery/Case Management Plan in which they agreed to comply with Federal Rule of Civil Procedure 26(a)'s required initial disclosures by October 14, 2016. (ECF No. 19 at 2). On September 30, 2016, the Court issued a Comprehensive Scheduling, Pre-Trial and Trial Order accepting the report that set the initial disclosure deadline as October 14, 2016. (ECF No. 20 at 1). The Order also set the discovery deadline for December 30, 2016, set the pre-trial conference for February 22, 2017, and further ordered that "in the event of a discovery dispute, the parties should contact the Court's Case Manager for a telephonic status conference prior to filing a written motion concerning the discovery dispute." (ECF No. 20 at 2).

On December 12, 2016, High Standard submitted its initial disclosure pursuant to Rule 26(a)(1)(A). (ECF No. 52-1 at 6, 52-5 at 6). The disclosure named Stan Chapman, Alan Aronstein, Richard Fuqua, Jim Gray, and Scott Aronstein as individuals having discoverable information. However, the contact information section for Jim Gray and Scott Aronstein stated "unknown at this time. will supplement." (ECF No. 52-1 at 4-5, 52-5 at 4-5). On March 16, 2017, the Court set the final pretrial conference for April 19, 2017. On April 17, 2017, High Standard submitted its witness and exhibit list for use in the trial, which was set for June 16, 2017. (ECF No. 43-2). The witness list included the four individuals identified in High Standard's initial disclosure, as well as several other individuals that were not identified in High Standard's initial disclosure.

High Standard failed to meet its Rule 26 disclosure obligations. Based on that failure, Aronstein filed this motion to exclude the testimony of High Standard's witnesses on June 14, 2017. (ECF No. 49).

On June 16, 2017, the Court commenced the trial in this proceeding. The exclusionary issue, which had not been raised at the final pre-trial conference, was raised at trial. At the trial, the Court ordered the parties to submit briefs on the following questions by July 7, 2017:

• Does Rule 37(c) apply to untimely disclosures in addition to a total failure to disclose?

• Was High Standard's failure to disclose substantially justified or harmless?

• Was Aronstein required to file a Rule 37(a) motion in order to preserve his rights?

• Must High Standard's failure to timely disclose have been addressed at the final pre-trial conference?

The Court took these questions under advisement on July 7, 2017.

Jurisdiction

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).

Analysis

Rules 26(a) and 37(c) are made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7037. In re Harmon, 2011 WL 302859, at *26 (Bankr. S.D. Tex. Jan. 26, 2011). Under Rule 26(a), which governs the parties' initial disclosures,

[A] party must, without awaiting a discovery request, provide the other parties: (i) the name and, if known, the address and telephone number of each individual likely to have discoverable information-along with the subjects of that information-that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment; and (iii) a computation of each category of damages claimed by the disclosing party. . . .

FED. R. CIV. P. 26(a)(1)(A)(i)-(iii).

Under Rule 37, which governs the consequences for failing to adhere to 26(a),

If a party fails to provide information to 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 the failure was substantially justified or is harmless. In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard: (A) may order payment of the reasonable expenses, including attorney's fees, caused by the failure; (B) may inform the jury of the party's failure; and (C) may impose other appropriate sanctions . . . .

FED. R. CIV. P. 37(c)(1)(A)-(C).

In the Fifth Circuit, Rule 37 sanctions are "not exclusive or arbitrary," but are rather "flexible, and within reason, may be applied in as many or varied forms as the Court desires by exercising broad discretion in light of the facts of each case." Jonibach Mgmt. Trust v. Wartburg Enterprises, Inc., 136 F. Supp. 3d 792, 807-08 (S.D. Tex. 2015) (citing Guidry v. Continental Oil Co., 640 F.2d 523, 533 (5th Cir. 1981); see also Genereux v. Raytheon, 754 F.3d 51, 59 (1st Cir. 2014) ("[B]ut preclusion is not automatic, and a lapse may be excused if the court determines that, in the particular circumstances, a different remedy is more condign.") (citing 37(c)(1)(C)); Wegener v. Johnson, 527 F.3d 687, 692 (8th Cir. 2008) (holding that a district court "may exclude as a self-executing sanction" in its discretion).

Does Rule 37(c) of the Federal Rules of Civil Procedure apply to untimely disclosures in addition to a total failure to disclose?

The first issue that the Court required the parties to address is whether Rule 37(c) applies to untimely disclosures in addition to a total failure to disclose.

A breach of Rule 37 occurs "if a party fails to provide information or identify a witness as required by Rule 26(a) . . . ." FED. R. CIV. P. 37(c)(1) (emphasis added). Rule 26(a) requires that parties must, without awaiting a discovery request, initially disclose "the name and, if known, the address and telephone number of each individual likely to have discoverableinformation . . . that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment." FED. R. CIV. P. (26)(a)(1)(A)(i). Rule 26(a) further requires that such a disclosure be made "at or within 14 days after the parties' Rule 26(f) conferences unless a different time is set by stipulation or court order . . . ." FED. R. CIV. P. (26)(a)(1)(C) (emphasis added). As a result, a "failure to comply with rule 26(a)" would apply both to a failure to comply with the content requirements as well as the time requirements of Rule 26(a).

A major purpose of these disclosure requirements is to "accelerate the exchange of basic information about the case and to eliminate the paper work involved in requesting such information . . . ." FED. R. CIV. P. 26 advisory committee's notes (1993). An additional goal of these disclosure requirements, when coupled with the exclusionary sanction in Rule 26 for failure to initially disclose, is "to prevent the practice of sandbagging an opposing party with new evidence." Haas v. Delaware & Hudson Ry. Co., 282 Fed. Appx. 84, 86 (2d Cir. 2008) (citation omitted); see also New World Solutions, Inc. v. NameMedia Inc., 150 F. Supp. 3d 287, 304 (S.D. N.Y. 2015). By requiring the parties to make initial disclosures, and providing a sanction for the failure to do so, the rules aim to "prevent an ambush, resulting in surprise or prejudice, of undisclosed or late disclosed evidence." See Jonibach Mgmt. Trust, 136 F. Supp. 3d. at 807-08 (citing Reed v. Iowa Marine & Repair Corp., 16 F.3d 82, 85 (5th Cir.1994)).

In addition to untimely disclosures, a failure to disclose required substantive information is considered a failure to disclose under Rule 37(c). Rules 26(a) and 37(c), considered together, indicate that a failure to provide the required information—the address and telephone number of the disclosed individual—constitute a "failure" to comply with Rule 26(a) under Rule 37(c). A party is required to disclose addresses and phone numbers because the initial disclosures "allow for a complete investigation by all parties, thus allowing parties to depose, interview, orsubpoena documents of such individuals during the period of time set aside for discovery." Quesenberry v. Volvo Group N. Am., Inc, 267 F.R.D. 475, 480 (W.D. Va. 2010). Consequently, if the address and telephone number of a disclosed witness was known, Rule 26(a) would require the information to be disclosed, and a failure to disclose would constitute a failure under Rule 37(c).

High Standard identified Stan Chapman, Richard Fuqua, Jim Gray, and Scott Aronstein 59 days after the required Initial Disclosure date set by this Court's Comprehensive Scheduling, Pre-Trial and Trial Order. In addition to making its disclosure well after the deadline, High Standard also failed to provide the address or telephone number for both Jim Gray and Scott Aronstein. In its brief, High Standard does not...