Duke Energy Carolinas, LLC v. NTE Caroinas II, LLC

• Decision Date: 24 March 2022
• Docket Number: Civil Action 3:19-CV-00515-KDB-DSC
• Court: U.S. District Court — Western District of North Carolina
• Parties: DUKE ENERGY CAROLINAS, LLC, Plaintiff, v. NTE CAROINAS II, LLC, ET AL., Defendants.

DUKE ENERGY CAROLINAS, LLC, Plaintiff, v. NTE CAROINAS II, LLC, ET AL., Defendants.

Civil Action No. 3:19-CV-00515-KDB-DSC

United States District Court, W.D. North Carolina, Charlotte Division

March 24, 2022

ORDER

KENNETH D. BELL, UNITED STATES DISTRICT JUDGE

This is an action between two competitors in the market for selling wholesale electrical power, Plaintiff Duke Energy Carolinas LLC (“Duke”) and the defendant NTE Energy companies.^[1] Duke asserts claims for breach of contract related to a power generation agreement for a new NTE power plant near Fayetteville, North Carolina, and Defendants have filed counterclaims alleging that Duke violated antitrust and unfair competition laws by anticompetitive conduct towards NTE. Now before the Court is Duke's motion, Doc. No. 177 arguing that NTE should be precluded from claiming more than $2.7 billion dollars in potential counterclaim damages on the grounds they were not timely disclosed. More specifically Duke claims that NTE did not identify the particular damages - and then still without a specific amount for many of the items - until approximately a week before the end of the discovery period.

After careful consideration of Duke's motion, the parties' briefs and exhibits^[2] and oral argument on the motion from the parties' counsel, the Court finds that the disclosure of these alleged damages was untimely under Fed.R.Civ.P. 26 and will exercise its discretion to exclude most of these damages claims from evidence at any future hearing or trial pursuant to Fed.R.Civ.P. 37(c)(1). Rule 1 of the Federal Rules of Civil Procedure requires that the rules governing the adjudication of civil actions in Federal district courts “be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.” Most simply put, it would be neither just nor lead to the speedy conclusion of this action to permit Defendants to wait until so late in these proceedings to disclose such an enormous amount of new damages, nearly all of which relates to electric generation projects which were not even identified in Defendants' three times amended counterclaims.

I. LEGAL STANDARD

Federal Rule of Civil Procedure 26(a)(1) requires all parties to provide certain initial disclosures regarding witnesses, documents and other information early in the proceedings. Fed.R.Civ.P. 26(a)(1). The advisory committee notes on the 1993 amendment of the rules that added these requirements referred to these mandated disclosures as “the functional equivalent of court-ordered interrogatories, ” requiring “without need for any request, [the disclosure of] four types of information that have been customarily secured early in litigation through formal discovery.” Fed.R.Civ.P. 26 Advisory Committee's Note to 1993 Amendment. Further, “a party must make its initial disclosures based on the information then reasonably available to it. A party is not excused from making its disclosures because it has not fully investigated the case or because it challenges the sufficiency of another party's disclosures or because another party has not made its disclosures.” Fed.R.Civ.P. 26 (a)(1)(E).

Most relevant here, a party must provide “a computation of each category of damages claimed” and must “make available for inspection and copying ... the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered.” Fed.R.Civ.P. 26(a)(1)(A)(iii). Moreover, following this initial disclosure, the disclosing party has a continuing duty to supplement and correct its damages computation “in a timely manner, ” including to update the materials on which the party relies in assessing its damages. See Fed. R. Civ. P. 26(e).

The purpose of Rule 26(a) is to allow litigants “to adequately prepare their cases for trial and to avoid unfair surprise.” Bresler v. Wilmington Tr. Co., 855 F.3d 178, 190 (4th Cir. 2017) (quoting Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396 (4th Cir. 2014)). Accordingly, a party who fails to comply with the disclosure rules is prohibited from “us[ing] that information or witness to supply evidence ... at a trial, unless the failure was substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1). This sanction is, in the words of the notes of the advisory committee, “automatic” and “self-executing.” See Fed. R. Civ. P. 37 Advisory Committee's Note to 1993 Amendment.

Still, district courts are accorded “broad discretion” in determining whether a party's nondisclosure or untimely disclosure of evidence is substantially justified or harmless. Wilkins v. Montgomery, 751 F.3d 214, 222 (4th Cir. 2014) (quoting Southern States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 597 (4th Cir. 2003)). In making this determination, district courts are guided by the following factors: (1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence. See Bresler, 855 F.3d at 190 (citing Southern States, 318 F.3d at 597). The first four factors listed above relate primarily to the harmlessness exception, while the last factor, addressing the party's explanation for its nondisclosure, relates mainly to the substantial justification exception. Id. The party failing to disclose information bears the burden of establishing that the nondisclosure was substantially justified or was harmless. Id.

II. FACTS AND PROCEDURAL HISTORY

This matter is a business dispute involving Duke's claims that NTE breached a 2017 Large Generator Interconnection Agreement related to a new power plant that NTE planned to build in Reidsville, North Carolina (the “LGIA”) and Defendants' counterclaims alleging that Duke violated the federal antitrust laws and state law in connection with the competition between Duke and NTE for wholesale power sales (i.e., sales of electricity to wholesale customers, such as municipalities that operate their own local electric utilities). See generally, Doc. Nos. 114, 125. In addition to the Reidsville plant, NTE affiliates that are not parties to this action are in the process of developing other energy facilities in the Carolinas and Connecticut including: the Killingly Energy Center in Connecticut; the Anderson Energy Center in South Carolina; and the Gastonia Energy Center and Fayetteville Solar Energy Center in North Carolina (collectively, the “Other NTE Facilities”). Although NTE's counterclaims complain generally that their businesses were harmed by Duke's alleged wrongful conduct beyond Reidsville, none of NTE's counterclaims mention any of the Other NTE Facilities by name.

Plaintiff filed this action in North Carolina state court against NTE on September 6, 2019. NTE removed the action to this Court on October 8, 2019 on the grounds of federal question jurisdiction. On December 11, 2019, NTE first answered the complaint, which was amended in December 2021, and asserted their counterclaims against Duke. NTE's Counterclaims have been amended three times, with Defendants' final Third Amended Counterclaims being filed on January 7, 2022. See Doc. Nos. 11, 18, 86, 114 and 125.

A. NTE's Initial Damages Disclosures

On October 20, 2020, NTE served its initial disclosures under Rule 26. With respect to damages, NTE stated:

… NTE is presently unable to provide a complete estimate of its damages. Not only will such an estimate require discovery from Duke, as well as third parties, but it will also require both expert analysis, as well as the passage of time, to assess the financial impact of Duke's conduct.

At the present time, NTE believes its damages, before trebling, are in the hundreds of millions of dollars. These damages may include costs incurred developing the Reidsville facility, additional costs incurred during time lost due to Duke's unlawful ''termination" of the Reidsville LGIA, lost business and profits, lost future profits, lost revenues from contracts cancelled as a result of Duke's unlawful actions, additional financing costs, as well as treble damages, reasonable attorneys' fees and court costs as allowed by law.

Doc. No. 178-2.

When NTE added new NTE affiliates NTE Southeast Electric Company, NTE Carolinas II Holdings LLC, NTE Energy Services Company, LLC, and Castillo Investment Holdings, II, LLC, as counterclaim plaintiffs on October 22, 2021 and January 7, 2022, respectively, it did not provide additional disclosures on behalf of those entities.

B. The Parties' Discovery

Following initial disclosures, the parties engaged in extensive fact discovery. On November 24, 2020, Duke sent NTE a request for production, requesting, among other things: 120. All Documents [NTE] allege[s] tend to show any damages suffered by NTE that it seeks to obtain in this Lawsuit.

On January 11, 2021, NTE responded to Duke's RFP No. 120 by stating:

Defendants incorporate all of the foregoing General Objections … . Subject to these objections, Defendants further respond as follows: Defendants intend to present expert testimony as to their damages and will comply with the requirements of Rule 26 in a timely fashion.

Doc. No. 178-3. In total, the parties served over 200 requests for the production of documents, which resulted in the exchange of over 120, 000 documents. The parties also reviewed thousands more documents produced by third parties and answered dozens of interrogatories.^[3]

With respect to testimony, the parties...