Transamerica Life Ins. v. Lincoln Nat. Life Ins.

Decision Date18 December 2008
Docket NumberNo. C 06-110-MWB.,C 06-110-MWB.
Citation592 F.Supp.2d 1087
PartiesTRANSAMERICA LIFE INSURANCE COMPANY, Western Reserve Life Assurance Co. of Ohio, and Transamerica Financial Life Insurance Company, Plaintiffs, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Northern District of Iowa

James R. Myers, Ropes & Gray, LLP, Washington, DC, John K. Felter, Ropes & Gray, LLP, Boston, MA, for Plaintiffs.

Carrie Marie Raver, Dale Randall Brown, Gary C. Furst, Barnes & Thornburg LLP, Fort Wayne, IN, Todd A. Strother, Denny M. Dennis, Bradshaw Fowler Proctor Fairgrave, Des Moines, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING LINCOLN'S OBJECTION TO MAGISTRATE JUDGE'S ORDER GRANTING TRANSAMERICA LEAVE TO FILE A SECOND SUPPLEMENTAL EXPERT REPORT

MARK W. BENNETT, District Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION.........................................................1088
                    A. Procedural Background............................................1088
                    B. The Motion To Supplement And The Challenged Order.................1089
                    C. Lincoln's Objection...............................................1090
                    D. Transamerica's Response...........................................1091
                II. LEGAL ANALYSIS.......................................................1091
                     A. Standard of Review...............................................1091
                     B. Review Under The Scheduling Order Standard.......................1092
                        1. Was the ruling "contrary to law"?.............................1092
                        2. Was the ruling "clearly erroneous"?...........................1094
                     C. Review Under Rule 26(e) Standards................................1096
                     D. Review Under Rule 37(c) Standards.................................1097
                III. CONCLUSION.........................................................1100
                

This patent litigation comes before the court on one party's objections, pursuant to Rule 72(a) of the Federal Rules of Civil Procedure, to an order of a magistrate judge granting the opposing party's motion for leave to supplement its expert's report. The parties dispute whether the late supplementation of the expert's report complied with the requirements of the court's scheduling order, whether there was any substantial justification for the belated supplementation, and whether one party or the other will be prejudiced by allowing or prohibiting the belated supplementation.

I. INTRODUCTION
A. Procedural Background

This litigation involves United States Patent No. 7,089,201 B1 (the '201 patent), which is entitled "METHOD AND APPARATUS FOR PROVIDING RETIREMENT INCOME BENEFITS." The '201 patent is assigned to Lincoln National Life Insurance Company (Lincoln). On August 8, 2006, Transamerica Life Insurance Company, Western Reserve Life Assurance Co. of Ohio, and Transamerica Financial Life Insurance Company collectively as "Transamerica," filed a Complaint For Declaratory Judgment (docket no. 1) initiating this action. In its Complaint, Transamerica asserts, in essence, that it is not infringing the '201 patent by selling various annuity product contracts. In contrast, in an Answer To Plaintiffs' Complaint And Patent Infringement Counterclaim (docket no. 14), filed December 29, 2006, Lincoln seeks declarations that the '201 patent is not invalid and that Transamerica is infringing it. Lincoln also seeks damages for infringement, injunctive relief from such infringement, and reasonable attorney fees for litigating this matter. At the times pertinent here trial in this matter was set to begin on December 1, 2008, but the trial was subsequently continued to February 2, 2009, to accommodate the court's schedule.

The pertinent part of the March 16, 2007, Scheduling Order, Discovery Plan, And Order On Miscellaneous Pretrial Matters (Scheduling Order) (docket no. 23) in this case provided for filing and supplementation of expert reports, as follows:

Unless leave of court is applied for and given, no expert reports other than the Initial Expert Reports and the Rebuttal Expert Reports will be permitted, although generally, leave will be granted for a party to serve a supplemental expert report prepared and served promptly following the discovery of information not known or reasonably available to the party's expert at the time of the earlier report. Immediately following service of a supplemental expert report, the party offering the expert must make the expert available for deposition.

Scheduling Order (docket no. 23), "Discovery Plan," ¶ 9. Pursuant to the Scheduling Order, as subsequently amended, the deadline to serve Initial Expert Reports was May 1, 2008, and the deadline to serve Rebuttal Expert Reports was June 23, 2008.

B. The Motion To Supplement And The Challenged Order

On October 22, 2008, Transamerica filed a Motion For Leave To Serve Supplemental Report Of A. Scott Logan (docket no. 107). Thus, Transamerica's motion to supplement its expert's report was filed more than five months after the deadline to serve its Initial Expert Report, four months after Lincoln's deadline to serve a Rebuttal Expert Report, and less than six weeks before trial was scheduled to begin. In its motion, Transamerica sought leave to amend paragraph 9 of the "Discovery Plan" in the Scheduling Order to permit supplementation of a report by its expert based on what Transamerica contended was information discovered after the close of discovery, including (1) new factual assertions and documents revealed by Lincoln, and (2) an order issued by the United States Patent and Trademark Office (USPTO) on September 18, 2008, granting ex parte reexamination of the '201 patent. Somewhat more specifically, Transamerica sought leave to amend Mr. Logan's report to address the following matters: (1) what Transamerica alleged was Lincoln's new and inaccurate assertion that the '201 patent was not obvious owing to "secondary considerations," including "praise of others regarding the invention"; (2) what Transamerica alleged was Lincoln's new and inaccurate assertion that it invented the broad concept of "GMWBs," or guaranteed minimum withdrawal benefits in annuity plans; and (3) the USPTO's September 18, 2008, order granting an ex parte application for reexamination of the '201 patent on the basis of certain prior art, including what the parties call "the Fortis prior art reference," which Transamerica argued rebutted Lincoln's contention that such prior art was essentially the same as Equitable's "Golden '815 patent," which the original examiner had found did not bar the '201 patent. Lincoln resisted Transamerica's motion for leave to supplement the expert's report.

Chief United States Magistrate Judge Paul A. Zoss, to whom Transamerica's motion had been assigned, held a hearing on the motion on October 29, 2008. In the course of the hearing, Judge Zoss observed,

[I]ts obvious to me that both parties have had a chance to dissect [the supplemental report] in detail, both parties have gone, in particular Lincoln has gone through it and picked it apart so I don't think its any great surprise or any great, uh, it's not that long and it's not that detailed and it deals with some very discrete limited issues whether they are beyond the whether they are justified or not, I find there is no sufficient prejudice or problem....

Hearing Transcript (Lincoln's Exhibit 2), p. 18, ll. 2-7. That same day, Judge Zoss issued an Order (docket no. 116), granting Transamerica's motion, finding that Lincoln "has not shown it will suffer sufficient prejudice to deny the motion." Judge Zoss did make clear, however, that his order did not allow amendment of Transamerica's Prior Art Statement, nor did it take any position on the admissibility at trial of the supplemental opinions contained in the report. Judge Zoss also directed Transamerica to produce Mr. Logan for a supplemental deposition as soon as possible, but not later than November 5, 2008; permitted Lincoln to offer supplemental evidence or opinions using experts already designated without seeking leave to file an additional rebuttal expert report; and permitted Lincoln to designate an additional expert witness, if necessary, to rebut Mr. Logan's supplemental expert report. As noted above, at the time of Judge Zoss's ruling, trial in this matter was set to begin on December 1, 2008, but trial in this matter was subsequently continued to February 2, 2009, to accommodate the court's schedule, and Mr. Logan's supplemental deposition has been reset for December 19, 2008.

C. Lincoln's Objection

This matter comes before the court pursuant to Lincoln's November 12, 2008, Rule 72 Objection To Order Granting Plaintiffs' Motion For Leave To Serve Second Supplemental Expert Report of A. Scott Logan (Lincoln's Objection) (docket no. 127), which challenges Judge Zoss's October 29, 2008, Order. In its Objection to Judge Zoss's October 28, 2008, Order granting Transamerica leave to supplement its expert's report, Lincoln argues that the Order was clearly erroneous and contrary to Rules 16, 26, and 37 of the Federal Rules of Civil Procedure, Local Rules 16 and 26, and the court's Scheduling and Pretrial Orders, as well as well-settled Eighth Circuit law.

More specifically, Lincoln argues that, instead of applying the standard in the Scheduling Order—i.e., whether the information prompting the supplemental report was "not known or reasonably available to the party's expert at the time of the earlier report," see Scheduling Order, "Discovery Plan," ¶ 9—or the Rule 37(c) standard, which requires a determination of whether the belated supplement is "substantially justified or harmless," Judge Zoss placed the burden on Lincoln to show that it would be prejudiced by the belated supplemental report. Lincoln also argues that Judge Zoss permitted the supplementation of Mr. Logan's expert report even though Transamerica has known since this lawsuit was initiated that Claim 35 of the '201...

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