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Eagle Railcar Services - Roscoe Inc. v. NGL Crude Logistics LLC

United States District Court, N.D. Texas, Abilene Division

May 22, 2018

EAGLE RAILCAR SERVICES-ROSCOE, INC., Plaintiff/Counter-Defendant,
v.
NGL CRUDE LOGISTICS, LLC, Defendant/Counter-Plaintiff.

          MEMORANDUM OPINION AND ORDER

          E. SCOTT FROSTUNITED STATES MAGISTRATE JUDGE.

         The Court has under consideration NGL Crude Logistics, LLC's (“NGL”)[1] Objection to and Motion to Exclude Untimely Expert Designations and Opinions (doc. 43); Plaintiff Eagle Railcar Services-Roscoe, Inc.'s (“Eagle”)[2] Motion for Leave to File Third Party Complaint (doc. 47); and Eagle's Motion to Compel and Motion for Sanctions (doc. 57). The motions are fully briefed and ready for ruling.[3] After reviewing the briefing and applicable law, the Court DENIES the motions.

         I. BACKGROUND

         Eagle commenced this action in state court in June 2016, seeking $49, 541.08 in damages for cleaning, servicing, maintaining, and/or repairing railcars for NGL. See Pl.'s Orig. Pet. (doc. 1-2). An attachment to the complaint shows the damage computation resulting from twenty-one unpaid invoices between December 2015 and February 2016. See Id. (attachment to Pl.'s Orig. Pet.).

         NGL removed this action to federal court in August 2016. See Notice of Removal (doc. 1). That same day, it filed its Original Answer and Counterclaim seeking more than $1, 000, 000 in damages for three counterclaims: (1) breach of contract, (2) promissory estoppel, and (3) negligent misrepresentation based on an alleged oral agreement between the parties for Eagle to clean railcars at its Roscoe, Texas facility starting in October 2014. See Def.'s Orig. Answer & Counterclaim (doc. 1-2). It alleges that Eagle promised to complete the cleaning and return the railcars to NGL within thirty to forty days of approval of estimated cleaning charges - a process described as “turning.” See Id. Contemporaneously with the removal of this action, NGL filed (1) a Certificate of Interested Parties (doc. 1-3) that merely lists the parties and their attorneys and (2) a Corporate Disclosure Statement (doc. 2) that identifies its parent company as NGL Energy Operating, LLC.

         The next month, Eagle filed its Original Answer to Defendant's Counterclaim (doc. 4). It asserted eight affirmative defenses: (1) accord and satisfaction; (2) waiver; (3) NGL consented to, approved, acquiesced in, and/or ratified the alleged conduct; (4) estoppel; (5) failure to mitigate damages; (6) excuse, justification, and/or privilege; (7) statute of frauds; and (8) absence of reasonable or justifiable reliance. Doc. 4 at 4.

         Initially, this case proceeded fairly typically schedule-wise with the entry of a Pretrial Scheduling Order (doc. 10) on October 11, 2016, including setting a November 9, 2016 deadline for compliance with Fed.R.Civ.P. 26(a)(1); a March 1, 2017 deadline for seeking leave to amend pleadings and to add parties; and expert designation deadlines in April and May 2017. On December 5, 2016, NGL made initial disclosures, including (1) production of 697 pages of documents that it may use to support its claims and (2) identification of an Eagle representative, Adolf Deloera, and a NGL representative, Mitch Wood, as individuals likely to have discoverable information that NGL may use to support its counterclaims. Doc. 50 at 1-3. These initial disclosures identified no affiliate or parent company of NGL. See Id. Nevertheless, NGL did produce a spreadsheet with the following information: “HSCOM/NGL LEASE IDENTIFICATION”; Car Number; date cleaning was complete; total days at ERSR;[4] days at ERSR after May 1, 2015; lease rates per day for each railcar both before and after May 1, 2015; and claimed total extra lease payments incurred. See Doc. 54 at 18-20. Ten listed railcars include a notation that they had been assigned to “Centennial.” See Id. at 19.

         On April 11, 2017, the Court granted an agreed motion to extend deadlines. See ECF No. 18. Two weeks later, Eagle filed a notice of acceptance of an offer of judgment. See Doc. 19. The next day, on April 26, 2017, NGL produced documents in response to Eagle's First Request for Production. See Doc. 50 at 6-13. Eagle contends that the production consisted of approximately 6, 500 pages and NGL is not identified within any produced document. See Doc. 49 at 3; Doc. 57 at 2. The production, nevertheless, included the following agreements: (1) Car Leasing Agreement 9750-97 between General Electric Railcar Services Corp. (“GE Rail”) and High Sierra Crude Oil and Marketing LLC (“HSCOM”); (2) Assignment, Assumption and Amendment Agreement among HSCOM, GE Rail, and Centennial Energy LLC (“Centennial”); (3) Car Leasing Agreement 5942-97-0 between GE Rail and Centennial; (4) Crude Rail Transportation Agreement between Green Plains Trade Group LLC (“GPTG”) and Trans Montaigne Product Services, Inc.;[5] (5) Rider No. 1 to Master Rail Car Lease and Service Contract No. L-1 between Transportation Equipment, Inc. and HSCOM; and (6) Rider No. 15 between First Union Rail Corp. (“First Union”) and Gavilon, LLC (“Gavilon”).[6]See Doc. 50 at 14-19.

         NGL designated its experts on May 3, 2017. See Doc. 21. On May 11, 2017, and pursuant to Fed.R.Civ.P. 54(b), the Court entered judgment in favor of Eagle for the full amount of its alleged damages, plus attorneys' fees and costs. See Agreed J. Pursuant to Rule 54(b) (doc. 23). The Court thus dismissed all claims asserted by Eagle with prejudice and recognized that NGL's counterclaims remain pending. See id.

         On June 6, 2017, the Court granted a second agreed motion to extend deadlines and extended the deadline for rebuttal expert witnesses to June 30, 2017. See ECF No. 18. Eagle served its rebuttal expert disclosures on June 30, 2017. See Doc. 29. It therein identified an employee (Jaime Calfee) and officer (Marc Walraven) as experts under Fed.R.Civ.P. 26(a)(2)(C) not requiring a written report and an independent expert (Gary Hunter) under Fed.R.Civ.P. 26(a)(2)(B) who provided a written expert report. See Id. It designated these experts to provide opinions about industry standards, whether damages to NGL were foreseeable, and the commercial reasonableness of “turn times” at the relevant Eagle facility in Roscoe. See Id. Before stating his expert opinions in his written report, Hunter set out his background and experience, history of his fees and expert testimony in other cases, the documents he reviewed, and a factual history of this case. Doc. 44 at 4-7. He then opined that (1) no industry standard exists that governs turn times for railcar cleaning and repair, (2) Eagle's turn times were commercially reasonable under the facts of this case, and (3) NGL's claimed damages in this action could not have been reasonably foreseeable to Eagle. See Id. at 7-9.

         On July 20, 2017, the Court allowed Eagle to substitute counsel. See Order Granting Agreed Mot. to Substitute Counsel (doc. 31). Four days later, the Court granted an unopposed motion to amend the pretrial scheduling order. See ECF No. 33. It extended the discovery deadline to October 31, 2017, and the dispositive motion deadline to December 8, 2017. See id.

         By email to NGL dated September 15, 2017, Eagle indicated that it wanted to file an amended answer and stated an anticipated need to depose representatives from non-parties GPTG; GE Rail; and Transportation Equipment, Inc. who are parties to subject sublease agreements or owners of the subject railcars. See Doc. 44 at 17. On September 20, 2017, NGL deposed Deloera. See Doc. 54 at 1. He testified about the seventy-one railcars at issue in this litigation and that he understood that Centennial sent some of them to the Roscoe facility. See Id. at 4. He further testified about emails dated April 29, 2015, which reflect that Centennial informed Eagle that Centennial had assumed the lease on nine railcars “from the crude oil group of NGL” and needed them to be cleaned and serviced. See Id. at 5-6.

         During depositions held on September 20 and 21, 2017, Eagle obtained information that non-party Centennial may have transferred its legal rights to NGL. At the conclusion of the latter deposition, NGL produced a June 30, 2016 written assignment of legal claims between it and Centennial that (1) identifies both entities as wholly owned subsidiaries of NGL Energy Partners, LP (“NGL EP”); (2) assigns to NGL “any and all legal and equitable claims [Centennial] has or will have against Eagle”; and (3) is signed by the same individual representing both entities, CFO Robert Karlovich. See Doc. 44 at 115-16; Doc. 50 at 20-21.

         On September 26, 2017, Eagle moved for leave to file a first amended answer based upon (1) an August 15, 2017 document production regarding NGL's damages; (2) a September 19, 2017 confirmation from NGL counsel that a three-page spreadsheet comprises their damages claim; and (3) the newly discovered information from the depositions of September 20 and 21, 2017. See Doc. 34. Early the next month, Eagle moved to modify the pretrial scheduling order, but did not seek to extend any deadline regarding expert witnesses or joining new parties. See Doc. 35.

         After reviewing the briefing and applicable law, the Court granted the first motion and partially granted the second motion in October 2017. See Order (doc. 41). In doing so, the Court found good cause for granting leave to file an out-of-time, amended answer based on significant new evidence that came to light during discovery. It also found the delay excusable and that Plaintiff acted promptly when it learned of the new information. In addition, the Court found good cause to extend the discovery and dispositive motion deadlines, respectively to January 31, 2018, and March 5, 2018. In its First Amended Answer to Defendant's Counterclaim (doc. 42), Eagle adds affirmative defenses nine through sixteen to the original answer: (9) offsets and credit; (10) repudiation of contract; (11) fraud; (12) impossibility of performance; (13) novation; (14) unconscionability; (15) contract modification; and (16) discharge from performance.

         Following that order, Eagle agreed to supplement its discovery responses regarding its defenses of offset and credit. See Doc. 44 at 21-22. On November 22, 2017, Eagle noticed a deposition of an NGL representative pursuant to Fed.R.Civ.P. 30(b)(6). See Doc. 58 at 18-24. It requested a designated representative knowledgeable about fourteen topics, including (3) “Any agreements, contracts, or other understandings between NGL, Centennial, ” GE Rail, HSCOM, GPTG, First Union, TransMontaigne, and Gavilon and (11) “NGL's efforts to locate and produce documents responsive to Eagle's discovery requests.” Id. at 23-24.

         Five days later, NGL supplemented its prior document production with two additional written assignments of legal claims dated June 30, 2016. See Doc. 50 at 22-24. These assignments are materially the same as the assignment between NGL and Centennial other than respectively changing the assignor to HSCOM and TransMontaigne. See Id. The next day, NGL served objections and responses to the Rule 30(b)(6) deposition. See Doc. 58 at 27-33. NGL objected that topic 3 “is vague, ambiguous, completely unlimited in time and scope, and seeks information that is irrelevant.” Id. at 29. Subject to those objections, it designated

Mitch Walker to testify regarding the lease agreements for the 71 railcars at issue in this lawsuit and any agreements, contracts, or understandings beyond the lease agreements between it and the named lessors . . . related to the leases and any agreements, contracts, or understandings between it and its affiliates or successors-in-interest . . . regarding the lease agreements for the 71 railcars at issue.

Id. With respect to topic 11, NGL designated “Walker to testify regarding its efforts to locate and produce documents responsive to Eagle's non-objectionable discovery requests in this matter.” Id. at 32.

         Eagle deposed Walker the next day. See Doc. 48 at 19. He identified NGL EP as the parent company of NGL, NGL Crude Transportation, LLC (“NGL Transport”), and Centennial and stated that an organizational chart exists for NGL EP that lists all the related entities. Id. at 32, 36, 41. He also identified Mitch Wood as a person employed by either NGL or NGL Transport and stated that, in his opinion, the parties to this litigation formed one agreement prior to the arrival of the first rail-car at Eagle's facility and this agreement resulted from communications between Eagle and Wood and/or Byron Stewart.[7] Id. at 31, 32, 34. He further testified that there are written agreements between NGL and NGL Transport related to which entity is responsible for various things. Id. at 34- 36. He stated a belief that either NGL or Centennial paid excess lease charges for railcars at Eagle's facility. Id. at 32-33.

         Walker also testified about NGL's acquisitions of various contracts and leases. See Id. at 38-42. He stated that NGL or NGL EP bought and absorbed certain contracts of TransMontaigne. Id. at 38-39. He further testified that TransMontaigne and HSCOM were subsidiaries and that NGL had assumed their obligations. See Id. at 40. The HSCOM acquisition occurred prior to Gavilon and before any railcars were sent to Eagle. Id. at 41. Likewise, NGL EP acquired Centennial before NGL sent any cars to Eagle. See Id. at 41-42.

         When he testified about the legal assignment of claims, Walker stated that he did not know the date they were executed but had just recently become aware of the assignment from Centennial. Doc. 58 at 90. He testified that he did not believe the assignments were executed prior to the lawsuit, but would need to “look at the assignment to be certain.” Id. at 91. He did not know who drafted them. Id.

         On December 18, 2017, Eagle served supplemental interrogatory answers that identified fact witnesses, including Walraven, Calfee, and Deloera, who have “knowledge of the damages incurred by Eagle” from actions of NGL and its affiliates.[8] See Doc. 44 at 38-40. In addition, Eagle identified Matthew Hurt as an individual who “has knowledge of the services rendered by Eagle and the legal and technical requirements to conduct valve inspection.” Id. at 40. At that time, Eagle had “yet to finalize a total amount of damages.” Id. at 41.

         On December 22, 2017, Eagle served its Second Request for Production of Documents to NGL. See Doc. 58 at 34-40. Thirty-eight separate requests for production (“RFP”) comprise this Second Request. See Id. at 36-39.

         The next month, Eagle served purported supplemental expert designations under Fed.R.Civ.P. 26(a)(2)(B) for Hunter, including a report dated January 12, 2018, and under Rule 26(a)(2)(C) for Calfee, Walraven, and two newly identified employee experts (Adolf Deloera and Matt Hurt).[9] See Doc. 44 at 47-71. Hunter again set out his background and experience, his expert witness case history, the documents he reviewed, and a factual history of this case. Id. at 53-62. He then set out his expert opinions regarding damages to Eagle caused by NGL. See Id. at 62-70.

         On January 22, 2018, NGL served its Objections and Responses to Plaintiff's Second Request for Production. See Doc. 58 at 41-68. NGL objected to each RFP, except RFP 38, which it stated that no responsive documents exist. See Id. at 43-68. NGL produced no additional documents in response to the Second Request for Production. See id.

         Just prior to the close of discovery, NGL filed its objection and motion (doc. 43). The first week of February 2018, Eagle moved for leave to file a third-party complaint (doc. 47). Due to the pendency of these motions, the parties filed an agreed motion to modify the pretrial schedule that the Court granted on February 22, 2018, vacating the dispositive motion deadline and stating that it will reset that deadline and any other necessary pretrial deadline after considering the pending motions. These motions became ripe for ruling with the filing of reply briefs in mid-March 2018. The same day that Eagle's motion became ripe, March 14, 2018, Eagle filed its motion to compel and for sanctions (doc. 57). That motion became ripe for ruling with the filing of Eagle's reply brief on April 23, 2018.

         II. MOTION TO EXCLUDE

         NGL objects to and seeks to exclude Eagle's January 2018 expert designations on grounds of untimeliness. Alternatively, it asks the Court to order Eagle to pay its reasonable and necessary attorneys' fees and expenses caused by the untimely expert designations. Relying on Fed.R.Civ.P. 37(c)(1), which governs sanctions for failing to provide information or identify a witness as required by Fed.R.Civ.P. 26(a), NGL moves to exclude the disclosures entirely or obtain its fees and expenses. Eagle contends that it timely supplemented its expert disclosures, but if the Court disagrees or finds NGL prejudiced, it argues that the requested exclusion or other sanction is unwarranted because any violation of Rule 26(a) was substantially justified or harmless.

         A. Expert Disclosure Requirements

         As relevant to this case, Fed.R.Civ.P. 26(a)(2)(A) provides generally that “a party must disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702, 703, or 705.” Absent a stipulation between the parties or otherwise ordered by the court, subparagraph (B) requires the disclosure to “be accompanied by a written report - prepared and signed by the witness - if the witness is one retained or specially employed to provide expert testimony in the case or one whose duties as the party's employee regularly involve giving expert testimony.” For expert witnesses not required to provide a written report, subparagraph (C) requires the disclosure to state “(i) the subject matter on which the witness is expected to present evidence under Federal Rule of Evidence 702, 703, or 705; and (ii) a summary of the facts and op in- ions to which the witness is expected to testify.” Like subparagraph (B), the requirements of subpar-agraph (C) are contingent on the absence of a stipulation or order of the court. Not only does Rule 26(a)(2) address who and what must be disclosed with respect to expert witnesses, but subparagraph (D) also sets a generally applicable deadline for disclosure of expert testimony absent a stipulation or court order - at least ninety days before trial unless “the evidence is intended solely to contradict or rebut evidence” of another party, in which case, the rebuttal expert disclosure must be made within thirty days of the other party's disclosure.

         The expert disclosure rules also require parties to supplement their “disclosures when required under Rule 26(e).” Fed.R.Civ.P. 26(a)(2)(E). In general, Rule 26(e) requires parties to supplement their Rule 26(a) disclosures

(A) in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing; or
(B) as ordered by the court.

         Furthermore, for Rule 26(a)(2)(B) disclosures, “the party's duty to supplement extends both to information included in the report and to information given during the expert's deposition. Any additions or changes to this information must be disclosed by the time the party's pretrial disclosures under Rule 26(a)(3) are due.” Fed.R.Civ.P. 26(e)(2). Rule 26(a)(3)(B) requires disclosures to “be made at least 30 days before trial” absent a court order setting a different deadline.

         B. Timeliness of Expert Disclosures

         In this case, the Court set deadlines for Rule 26(a)(2) disclosures. In May and June 2017, both parties made timely expert disclosures consistent with those deadlines as extended by the Court on motion of the parties. At that time, Eagle merely made rebuttal disclosures in response to NGL's expert disclosure. No. one questions the timeliness or adequacy of these initial expert disclosures.

         After the deadlines for expert disclosures passed, Eagle moved for leave to file an amended answer with eight new affirmative defenses to NGL's counterclaims. It also moved to modify the governing pretrial scheduling order, but in so doing, it did not seek any change to the expert disclosure deadlines. The Court granted leave to file the amended answer and extended the discovery and dispositive motions deadlines. It did not reset or extend any expert designation deadline.

         Eagle states that, “after the Court granted [it] leave to file its affirmative defenses and extended the discovery period on October 26, 2017, there was no limitation that a party was restricted from discovery of or providing support regarding these new affirmative defenses” and “there were no restrictions regarding expert designations or factual witnesses that limited [its] ability to support these defenses.” Doc. 49 at 5. In other words, Eagle contends that this action lacks a court order setting an expert witness deadline regarding its new defenses because the Court allowed the amended answer without imposing a specific deadline for expert disclosures relative to the new defenses.

         While the Court understands the basis for that line of reasoning, it does not agree that the default deadlines set out in Rule 26(a)(2)(D) automatically spring back into play following leave to file an amended pleading. Once a court issues an order setting expert designation deadlines, those deadlines apply, even if expired, until the court otherwise orders. Through its Pretrial Scheduling Order, the Court set specific deadlines for all expert designations under Rule 26(a)(2). That those deadlines expired before the Court granted Eagle leave to file an amended answer with new affirmative defenses does not revert the case to the general deadline set out in Rule 26(a)(2)(D), i.e., at least ninety days before trial, which only applies absent stipulation or court order. As stated in Rule 26(a)(2)(D), parties must make their expert “disclosure at the times and in the sequence that the court orders.” When a party wants to revive expired deadlines, the proper procedure is to move to extend them. Alternatively, a party may move for leave to take action past an expired deadline. The latter alternative essentially has the same effect as moving to extend the deadline. Eagle pursued neither of these alternatives. Its 2018 expert disclosures are untimely under the court-imposed deadlines set out in the Pretrial Scheduling Order as amended by later orders of the Court.

         Eagle, however, specifically argues that, because its 2018 expert disclosures qualify as supplemental disclosures under Rule 26(a)(2)(E), the expired deadlines do not apply. Under this scenario, the deadline for supplemental expert disclosures would be governed by Rule 26(e) rather than the court-imposed deadlines for initial expert disclosures. NGL contests the characterization of the 2018 disclosures as supplemental.

         The Fifth Circuit has long recognized that supplementary disclosures are merely intended “to supplement, ” not “to provide an extension of the deadline by which a party must deliver the lion's share of its expert information.” Sierra Club, Lone Star Chapter v. Cedar Point Oil Co. Inc., 73 F.3d 546, 571 (5th Cir. 1996). Supplementary “disclosures are not intended to provide an extension of the expert designation and report production deadline.” Metro Ford Truck Sales, Inc. v. Ford Motor Co., 145 F.3d 320, 324 (5th Cir. 1998); accord Harmon v. Ga. Gulf Lake Charles L.L.C., 476 Fed.Appx. 31, 36 (5th Cir. 2012) (per curiam). When a “supplemental report is comprised of new, previously undisclosed opinions, ” it is not truly a supplement and must be filed within the deadline for expert opinions set by the court. See Elliot v. Amadas Indus., Inc., 796 F.Supp.2d 796, 802 (S.D.Miss. 2011). Similarly, when a report “contains entirely new opinions or addresses subject matter outside the scope of [the initial] designation and [the] initial report, it is not a supplement. Rather, it is an untimely designation.” Ishee v. Fed. Nat'l Mortg. Ass'n, No. 2:13-CV-234-KS-MTP, 2015 WL 224800, at *2 (S.D.Miss. Jan. 15, 2015).

         Although Eagle characterizes the 2018 expert disclosures as supplemental, it identifies two entirely new experts and provides a new report from Hunter that expresses opinions regarding damages to Eagle. Furthermore, Eagle's initial expert designations were for rebuttal only. Eagle intends the expert opinions designated in 2018 to support its affirmative defenses. The 2018 disclosures are not supplemental. They are thus untimely unless the Court extends the deadline or otherwise allows Eagle to make the disclosures outside the deadline.

         C. Sanctions for ...


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