In this patent infringement action, Vinotemp International ("Vinotemp") brought suit against Wine Master Cellars, LLP ("Wine Master"). Wine Master filed a counterclaim for patent infringement. Prior to trial, Vinotemp moved to preclude Wine Master from offering evidence of damages at trial.
As explained by the district court, "Vinotemp moves to exclude Wine Master's evidence of damages on two grounds: (1) Wine Master failed to properly disclose its damages categories and computations under Federal Rules of Civil Procedure 26(a)(1)(A)(iii) and (e); and (2) Wine Master's damages are impermissibly speculative."
Federal Rule of Civil Procedure 26(a)(1)(A)(iii) requires that parties disclose "a computation of each category of damages claimed by the disclosing party - who must also make available for inspection and copying as under Rule 34 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[.]" Parties also have an obligation to supplement initial disclosures when prior disclosures are "incomplete or incorrect," if the additional information has not already been disclosed during discovery. Fed. R. Civ. P. 26(e).
The district court explained that Rule 37(c)(1) gives teeth to Rule 26(a) and (e)'s "requirements 'by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed.' Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). The Ninth Circuit considers Rule 37 'a self-executing, automatic sanction to provide a strong inducement for disclosure of material,' and therefore a finding of willfulness or bad faith is not required."
In its initial disclosures, Wine Master stated: "As of the date of this Rule 26 disclosure, discovery has not commenced and WMC [i.e., Wine Master Cellars] is unaware of all sales of the Vinotemp Rack sold in violation of the Settlement Agreement between the parties. Consequently, WMC is unable to calculate any potential damages claim it may assert and reserves the right to do so at the appropriate time."
Wine Master never supplemented this initial disclosure, much less to include lost profits as a category of damages.
At trial, Wine Master intended to seek damages in the form of lost sales calculated based on Vinotemp's sales of its own wine racks. The district court concluded that Wine Master's failure to disclose its lost profits theory of damages violated Rule 26. "Wine Master's failure to disclose its lost profits theory of damages or any other category or computation of damages undoubtedly violated Rule 26, so Wine Master must now demonstrate that this failure was either substantially justified or harmless. See Yeti by Molly, 259 F.3d at 1106."
Analyzing whether the failure to disclose was harmless, the district court concluded it was not. "Wine Master's failure to disclose damages still impedes Vinotemp's ability to defend against these claims at trial. The Court would then have to move the trial date to allow Vinotemp to conduct additional discovery, which demonstrates that Wine Master's failure was not harmless. See Hoffman, 541 F.3d at 1180 ('Later disclosure of damages would have most likely required the court to create a new briefing schedule and perhaps re-open discovery, rather than simply set a trial date. Such modifications to the court's and the parties' schedules supports a finding that the failure to disclose was not harmless.')."
The district court also rejected Wine Master's argument that the failure to disclose was substantially justified. "This record does not demonstrate that Wine Master's violation of Rule 26 was substantially justified. First, Vinotemp points out that, regardless of the parties' February and March 2012 correspondence, Wine Master had data on which to base its calculations because Vinotemp provided sales information on several occasions before and after its March 2012 letter, such as in October 2011 discovery responses; an October 2011 Rule 30(b)(6) deposition; a June 2012 declaration; and a July 2012 declaration. (Kleinberg Supp. Decl., ¶ 3; Docket No. 64 ¶ 5; Docket No. 66-1 ¶¶ 12-16.) Further, Wine Master's February 7, 2012 email was directed at its patent infringement claims, not its contract claims, and Vinotemp points out that it is customary in patent cases to disclose initial sales data and then update that information before trial. As a result, Wine Master could not have reasonably relied on Vinotemp's delay in updating its sales information to avoid disclosing its lost profits damages and calculations for its contract claims."
Accordingly, the district court prohibited Wine Master from introducing any evidence of damages at trial because it failed to list lost profits as a separate category of damages in its initial disclosures.
Vinotemp Int'l Corp. v. Wine Master Cellars, LLP, Case No. CV 11-1543 ABC (PLAx) (C.D. Cal. Feb. 5, 2013)
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