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Gumwood HP Shopping Partners, L.P. v. Simon Property Group, Inc.

United States District Court, N.D. Indiana, South Bend Division

July 17, 2017

GUMWOOD HP SHOPPING PARTNERS, L.P., Plaintiff,
v.
SIMON PROPERTY GROUP, INC., Defendant.

          OPINION AND ORDER

          JON E. DEGUILIO JUDGE

         Gumwood has filed a motion in limine seeking leave to present a new computation of damages at trial, in light of the exclusion under Rule 702 of its expert testimony on damages. Simon opposes the motion, arguing that the Federal Rules of Civil Procedure prohibit Gumwood from offering a new computation at this late stage of the case, and that the evidence does not support Gumwood's new computation. The Court addresses those arguments in turn, and for the following reasons, the Court grants Gumwood's motion in part.

         A. Gumwood's Proposed Damages Theories

         Gumwood asserts in this case that Simon used unlawful coercion to prevent retailers from leasing at Heritage Square, Gumwood's new shopping center, and to instead cause them to lease at University Park Mall, Simon's competing center. Gumwood suggests in passing that Simon engaged in this behavior towards a number of retailers, but the focus of its case is that Simon coerced Ann Taylor. Though Ann Taylor signed a lease with Heritage Square, it never opened its store there, and eventually opened at University Park instead. Gumwood argues that because Ann Taylor Loft is such an important retailer to have in a lifestyle center, the loss of that one tenant substantially impaired its ability to attract other retailers to Heritage Square and reduced the revenues it received from its actual tenants.

         To calculate its damages, Gumwood initially relied entirely on the expert opinion of Dr. Frech. As explained in a previous order, Dr. Frech attempted to calculate damages by measuring the extent to which Simon's conduct caused a reduction in the market value of Heritage Square as of the time that Gumwood lost its ownership of the property through a deed in lieu of foreclosure. Dr. Frech noted that $38 million was invested into the project, and that an appraisal completed in 2006 projected Heritage Square's value to be $45.5 million as of October 2009. He then noted that the loan for which Heritage Square served as a security was sold in November 2010 for $12.5 million. Dr. Frech then estimated the extent to which the recession would have reduced Heritage Square's value, and attributed the remaining difference (between $12 million and $18.6 million) to whatever unlawful conduct the jury might find that Simon engaged in.

         After extensive Daubert motions, the Court granted Simon's motion to exclude Dr. Frech's damages opinion. In response, Gumwood moved for reconsideration, and also indicated that it intended to present Dr. Frech's same damages analysis at trial, only without any expert opinion in support. The Court denied the motion for reconsideration, and also expressed skepticism about the validity of Gumwood's new proposed approach. Thus, Gumwood sought and received permission to file a motion in limine in which it would set forth the damages theories it intended to present at trial, so that the Court could rule as to whether those theories would be permitted.

         Gumwood's present computation breaks its damages calculation into two periods: the periods before and after it lost its ownership of Heritage Square through the deed in lieu of foreclosure. The first period runs from July 1, 2007, just after the beginning of the four-year limitations period prior to its filing of this suit, and extends through December 31, 2010, just prior to when Gumwood executed the deed in lieu of foreclosure. For this period, Gumwood utilized the method that Simon's expert used in her own damages model, and that Dr. Frech's report referenced but did not utilize. This approach seeks to directly trace the damages Heritage Square would have suffered through each of the three mechanisms by which Simon's conduct could have translated to losses for Heritage Square: (1) the revenues Heritage Square would have received from Ann Taylor itself, had it opened at Heritage Square; (2) the revenues Heritage Square would have received from other prospective tenants who would have leased at Heritage Square had Ann Taylor also opened there; and (3) the additional revenues Heritage Square would have received from its actual tenants, which paid reduced rent because the co-tenancy provisions in their leases were not met. For the second category, Gumwood identified ten prospective tenants who it contends would have leased at Heritage Square if Ann Taylor had opened its store there. It further argued that, even if those exact ten retailers had not leased at Heritage Square, they would have been replaced by another similar retailer. To calculate its losses from Ann Taylor and each of the prospective tenants, Gumwood used the annual rents (and contributions towards other expenses) set forth in the various leases or lease proposals, and assumed that Heritage Square would have begun receiving those amounts from each of those retailers on July 1, 2007. To calculate its losses as to the third category, Gumwood identified the entire difference between what the tenants actually paid and what they would have paid had their co-tenancy provisions been met, and attributed those amounts to damages, on the assumption that the cotenancy provisions would have been met but for Simon's conduct. According to Gumwood's calculation, Heritage Square's losses for this period through these three categories came to $5, 669, 302 (prior to accounting for the tenant allowances Heritage Square would have had to pay during this period).

         Because Gumwood lost its ownership of Heritage Square in January 2011, it would not have continued receiving any rental revenues going forward, so it took a different approach to quantifying its damages from 2011 onward. For this period, Gumwood attempted to measure the extent to which Simon's conduct caused a reduction in Heritage Square's market value as of January 2011. To do so, it used the direct capitalization approach, which the appraisal and Dr. Frech's testimony referred to as a means of estimating the value of an income property with stabilized revenues. That methodology works by dividing a single year's revenues by a chosen percentage, or capitalization rate, to estimate the present value of an annual revenue stream of that amount. To apply that methodology here, Gumwood identified the revenues it would have received in 2010 through the three mechanisms just described ($1, 688, 175), and divided that number by the capitalization rate used in the appraisal (9.5%), to produce an estimated loss in value of $17, 770, 263. Gumwood proposes to present this calculation at trial through the testimony of John Phair, the CEO of Gumwood's general partner. It also wishes to note the difference between the projected value in the appraisal, and the sale value of the loan, and to indicate that its damages constitute some portion of that difference.

         Finally, Gumwood notes that it would have had to incur certain costs in order to receive the revenues just described. In particular, each of the prospective tenants' leases would have included tenant allowances, which would have required Heritage Square to reimburse the tenants for a portion of their construction costs. For Ann Taylor and the ten other prospective tenants, those tenant allowances would have amounted to $2, 866, 052. Thus, to calculate its damages, Gumwood added the amounts from the two periods ($5, 669, 302 and $17, 770, 263), and subtracted the tenant allowances ($2, 866, 052), to produce a total damages calculation of $20, 573, 513.

         B. Rules 26 and 37 of the Federal Rules of Civil Procedure

         Simon argues as a threshold matter that Gumwood should be precluded from offering these alternative computations of damages because it failed to properly disclose them pursuant to Rule 26(a)(1)(A)(iii). Simon further argues that Mr. Phair's proposed testimony on the latter half of that computation-the reduction in the market value of Heritage Square as a result of Simon's allegedly unlawful conduct, as of the date Gumwood lost its ownership of the property- constitutes expert testimony, and should be excluded because Gumwood failed to disclose him as an expert as required by Rule 26(a)(2).

         Rule 26(a)(1) requires parties to provide initial disclosures containing a variety of information about their claims. As relevant here, Rule 26(a)(1)(A)(iii) requires parties to provide “a computation of each category of damages claimed by the disclosing party.” Fed.R.Civ.P. 26(a)(1)(A)(iii). Notably, this requires plaintiffs to identify not only the categories of damages that they seek, but also a computation of those damages. The Seventh Circuit has acknowledged that the computation “is especially necessary when plaintiff seeks complex damages such as lost profits.” Robinson v. Champaign Unit 4 Sch. Dist., 412 F.App'x 873, 878 (7th Cir. 2011) (citing Design Strategy, Inc. v. Davis, 469 F.3d 284, 295 (2d Cir. 2006)); see also Design Strategy, 469 F.3d at 295 (“The need for computation and supporting documents is especially necessary in a case like this, where the damages claim is for lost profits from a project of a type with which the plaintiff had little-to-no prior experience.”). Rule 26(e) also requires parties to supplement their disclosures throughout the case “in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect.” Fed.R.Civ.P. 26(e)(1). Thus, though parties may be unable to provide a precise computation of their damages at the outset of discovery, when their initial disclosures are first due, they must promptly supplement their computations as they have the opportunity to develop and refine their theories through discovery. Dynegy Marketing & Trade v. Multiut Corp., 648 F.3d 506, 514-15 (7th Cir. 2011) (noting that the plaintiff's general estimate of its damages might have been sufficient in its initial disclosure, but holding that exclusion of damages evidence was warranted when the party failed to supplement its explanation for that computation as the case proceeded).

         Rule 26 also includes requirements for the disclosure of expert witnesses. Under Rule 26(a)(2), when an expert is not retained for the purpose of providing expert testimony, the proponent of that expert's testimony must disclose “the subject matter on which the witness is expected to present evidence” and “a summary of the facts and opinions to which the witness is expected to testify.” Fed.R.Civ.P. 26(a)(2)(C). This rule is also subject to Rule 26(e)'s supplementation requirement.

         A party that fails to comply with these disclosure requirements will typically be barred from presenting the computation or expert testimony in question at trial. Rule 37(c) states that when a party fails to provide the required information or identify a witness, “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.” Fed.R.Civ.P. 37(c)(1). The rule also permits courts to consider whether alternative sanctions are appropriate instead of or in addition to exclusion. Id. “Whether a failure to comply with Rule 26(a) or (e) is substantially, justified, harmless, or warrants sanctions is left to the broad discretion of the district court.” Dynegy, 648 F.3d at 514.

         The Court first finds that Gumwood failed to comply with Rule 26(a)(1)(A)(iii)'s requirement that it disclose the computation of damages that it now wishes to pursue. Gumwood's initial disclosures did identify the category of damages it sought-“the loss in value of Heritage Square and the loss in rents that it would have otherwise received absent Simon's misconduct”-but it did not provide the computation of those damages on which it now relies.[1]The first time it disclosed that computation was in its present motion in limine, filed over 18 months after the close of discovery. In attempting to defend this late disclosure, Gumwood notes that a supplement to an initial disclosure is considered timely “if it is made within a reasonable time after the new information is discovered.” [DE 319 p. 4 (citing Bancor LLC v. Jupiter Aluminum Corp., 767 F.Supp.2d 959, 969 (N.D. Ill. 2011)]. However, its present computation does not rely on any “new information”-all of the information pertinent to the computation has been available to it for years. The new information Gumwood is referring to is apparently the exclusion of Dr. Frech's damages opinion.[2] However, the present computation does not depend in any way on that new development. Gumwood could have disclosed this same computation long ago; it chose not to, and instead chose to rely on Dr. Frech's opinion, but that ...


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