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 The court previously ruled that a joint Rule 37-251 statement was not necessary and 1

that the parties could submit argument by regular motion practice. 

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

JAMES P. DeFAZIO,

Plaintiff, No. CIV S-04-1358 WBS GGH

vs.

HOLLISTER, INC., et al., ORDER

Defendants. 

 /

INTRODUCTION

Previously pending on this court’s law and motion calendar for November 20,

2008, were two motions to strike expert reports by defendants, filed October 17, 2008 and

October 20, 2008. Daniel Wilcoxen and Martin Jensen appeared for plaintiff Ellis, and Scottlynn

Hubbard appeared for the DeFazio/Dimaro plaintiffs. Andrew Brehm, James Adducci, and

William Gould appeared for defendants. Having heard oral argument and reviewed the record,

the court now issues the following order.

1

Defendants filed two separate motions to strike experts. In their first motion, filed

October 17, 2008, defendants move to strike plaintiffs’ expert witness reports by Kevin Long,

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 The Long report was submitted by plaintiff Ellis and is attached as Exhibit 1 to docket 2

number 410. The Handorf and Pratt reports were submitted by the Defazio/Dimaro plaintiffs and

are at docket numbers 395, 385 and 411 respectively.

2

Karen Handorf and the initial report of Dr. Shannon Pratt. Defendants’ second motion to strike, 2

filed October 20, 2008, seeks to strike the Pratt valuation report, filed October 17, 2008. Both

Pratt reports will be addressed together. The motion to strike the Pratt reports applies only to the

DeFazio/Dimaro plaintiffs.

DISCUSSION

I. Long and Handorf Reports

Defendants move to strike the reports of Long and Handorf , claiming that these

opinions are solely legal conclusions which invade the province of the court. This part of the

motion is not properly before the undersigned as it does not involve discovery. Therefore, it will

be denied without prejudice to its renewal before the district judge.

II. Pratt Reports (DeFazio/Dimaro Plaintiff’s Only)

 The deadline for rebuttal reports was October 17, 2008. (Dkt. # 321). Moreover,

the scheduling order required disclosure of experts and their reports by September 19, 2008, and

disclosure and reports “intended solely for rebuttal” by October 17, 2008. Order, filed February

19, 2008, at 2. (Docket #321.) Defendants seek to strike both of the reports submitted by

Shannon Pratt on behalf of the DeFazio/Dimaro plaintiffs. Defendants object to the initial report,

filed August 26, 2008, as irrelevant and containing only generalities on valuation, i.e., accounting

platitudes, but lacking an opinion applying valuation to the specific facts of this case. They also

object to the valuation report, served on October 17, 2008, arguing that it is not a rebuttal report

but rather, belatedly an initial (specific) report on valuation, and therefore it is untimely. 

Rule 26(a)(2), governing required disclosures, provides in part:

(2) Disclosure of Expert Testimony. 

 (A) In General. In addition to the disclosures required by

paragraph Rule 26(a)(1), a party must disclose to other parties the

identity of any witness it may use at trial to present evidence under

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Federal Rule of Evidence 702, 703, or 705. 

 (B) Written Report. Unless otherwise stipulated or ordered by

the court, this disclosure must 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. The report must contain:

(i) a complete statement of all opinions the witness

will express and the basis and reasons for them;

(ii) the data or other information considered by the

witness in forming them;

(iii) any exhibits that will be used to summarize or 

support them;

(iv) the witness’s qualifications, including a list of

all publications authored in the previous 10 years;

(v) a list of all other cases in which, during the

previous four years, the witness testified as an

expert at trial or by deposition; and

(vi) a statement of compensation to be paid for the

study and testimony in the case.

The teeth behind the requirements of expert disclosure are found in Fed. R. Civ.

P. 37(c)(1). As seen from this rule, exclusion of a witness for late or incomplete designation is

not automatic:

If a party fails to provide information or identify a witness as

required by Rule 26(a) or (e), 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. In addition to or instead of this sanction, the court, on

motion and after giving an opportunity to be heard: [may impose

other appropriate sanctions].

The burden is on the party facing sanctions to prove harmlessness. Yeti by Molly,

Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1107 (9th Cir. 2001). 

Supplementary disclosures are intended only to supplement, and are not to be used

to provide an extension of the deadline to provide expert reports. Metro Ford Truck Sales, Inc. v.

Ford Motor Co., 145 F.3d 320, 324 (5 Cir. 1998). The Ford court refused to permit a th

supplemental expert report where the initial expert designation failed to include a written report. 

To permit the report, submitted three months later, would be tantamount to granting a three

month extension of time. Where an initial disclosure is so incomplete that it does not satisfy

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Rule 26(a)(2)(B), and the second report contains the information, reasoning, and opinions which

must be disclosed in the initial disclosure, the expert may be limited to testifying to only opinions

disclosed in the timely initial report. Keener v. U.S., 181 F.R.D. 639, 642 (D. Mont. 1998). The

Keener court applied the Wanderer v. Johnston, 910 F.2d 652, 656 (9 Cir. 1990), factors th

(includes prejudice) to determine this sanction.

Analogously, in Wong v. Regents of University of California, 410 F.3d 1052 (9th

Cir. 2005), the court of appeals upheld the district court’s decision to exclude plaintiff’s late

designated experts. Significant to that decision was plaintiff’s inability to convince the district

court “that the necessity of the witness could not have been reasonably anticipated at the time the

lists were exchanged,” pursuant to the terms of the pretrial order. Id. at 1060. The court

explained:

The same status conference order which set the deadline for expert

identification and the completion of discovery also set a deadline

for resolving pretrial motions, such as the University’s motion for

summary judgment. In this instance, it appears that the University

filed its motion about as late as it could while still complying with

the schedule set by the court. If Wong had been permitted to

disregard the deadline for identifying expert witnesses, the rest of

the schedule laid out by the court months in advance, and

understood by the parties, would have to have been altered as well.

Disruption to the schedule of the court and other parties in that

manner is not harmless. Courts set such schedules to permit the

court and the parties to deal with cases in a thorough and orderly

manner, and they must be allowed to enforce them, unless there are

good reasons not to.

Id. at 1062.

Clearly, the Rules do not contemplate sham first reports, only to be

“supplemented,” after one’s adversary shows his hand. Plaintiffs cite to the undersigned’s

opinion in Johnson v. Sacramento County, 2007 WL 127799 (E.D. Cal. 2007), in support of their

position that Pratt’s one-two punch in the initial and supplemental reports respectively were

proper. There, the undersigned found that plaintiff’s counsel was not justified “in the patently

incomplete expression of opinions in the first disclosure.” Id. at *3. In fact, the sanctions

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 For example, the Pratt Report’s concludes that “book value as stated in the 3

interrogatories is not a standard of value but rather an accounting term; that a valuation needs to

consider all three approaches to value; and that each approach needs to be justly analyzed for its

applicability.” (Dkt. 385 at 7.) The approaches referred to in the conclusion are the income

approach, the market approach and the asset approach, but this report does not give an opinion as

to which approach should be applied to render a value to the JDS shares. 

5

imposed there are for the most part appropriate to the circumstances here. 

The initial Pratt report will not be stricken because although it contains only

general accounting platitudes and is not necessarily helpful, it was timely served. It is also 3

instructive in demonstrating by stark contrast that the second Pratt report is not a rebuttal report

but rather a late initial report. The District Judge can determine the probative value of these

platitudes in the initial report, if any.

The Pratt valuation report is another matter. It is in actuality an initial report

because it renders an opinion on fair market value based on an analysis and reconciliation of

indicated values with an adjustment for lack of marketability, and comes to a dollar amount

figure of value. (Dkt. 411.) In contrast to the five page initial report of Dr. Pratt, the valuation

report is 27 pages long. It was filed on October 17 in the same filing as Pratt’s rebuttal report to

defendants’ expert reports, and Pratt’s cover letter clearly states that the production on that date

included a “report of the fair market value of The Firm of John Dickinson Schneider, Inc. (JDS)

... and our rebuttal of the Expert Report of Roger J. Grabowski and John Levitske, dated

September 19, 2008, by Duff & Phelps (D&P report).” (emphasis added) (Dkt. #411.) The two

reports are physically separate in the disclosure of October 17. Consequently, defendants do not

seek to strike the rebuttal portion of the report. The physical separation of the two reports is

further indicative of how they should be treated. The valuation report was clearly not intended to

be a rebuttal report. 

 Although plaintiffs claim that they did not have to provide an expert opinion on

fair market value of shares until after defendants’ experts raised it in their opinions, this assertion

of – “I don’t have to give an opinion on an ‘affirmative defense’ in my initial disclosures”– finds

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no support in Rule 26. Even assuming that defendants have the burden of proof on the issue of

proper valuation, see Howard v. Shay, 100 F.3d 1484, 1490 (9 Cir. 1996), plaintiffs certainly

th

have a burden of production. And that production should have been made in the court-ordered

simultaneous disclosures; an expert in such a situation must give all opinions regardless of

whether those opinions are directed to a claim on which the plaintiffs have the burden of proof,

do not have the burden of proof, or an affirmative defense. Rebuttals are reserved for those

issues on which a party was “surprised” by the initial disclosure of the adversary.

Moreover, the record in this case belies any assertion that specific valuation was a

“surprise issue.” In fact plaintiffs knew they had to give an opinion on market share valuation

because they utilized an expert to give such an opinion in their motion for summary judgment in

2005. (Docket #s 32-37.) In addition, the various motions to dismiss focused like a laser on the

issue:

Judge Karlton’s conclusion is that the settlor doctrine cannot insulate defendants

from liability for following the terms of the Plan if those terms violate ERISA.

And he believes that whether the Plan's terms violate ERISA depends on the fair

market value of JDS stock-a question of fact-which means that plaintiffs' claims

cannot be decided on a motion to dismiss. Judge Karlton's conclusions are

essentially correct. 

 ***

(“[W]hether defendants' utilization of book value constitutes ‘adequate

consideration’ [under 29 U.S.C. § 1108(e) ] is a question requiring examination of

evidence and the merits, thus precluding dismissal at this stage.”). Judge Karlton

was correct. If there was a market for JDS stock at a price above book value, and

if the Plan's fiduciaries nevertheless sold Plan shares at book value, then they may

have violated ERISA's requirement that securities be sold only for “adequate

consideration.” 29 U.S.C. § 1002(18).

DeFazio v. Hollister, Inc., 2007 WL 3231670 *5(E.D. Cal. 2007).

Thus, proof of fair market value in excess of book value was a key fact at issue in the litigation.

Furthermore, the fifth amended complaint seeks numerous remedies including

distribution of monies based on a fair market valuation. The prayer for relief includes:

8. Requiring the defendants to determine the fair market value of

JDS securities held by the Plan (independent of the aforementioned

stock restrictions), and to revalue all participants’ accounts

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accordingly;

9. Requiring all retired participant’s accounts to be revalued at fair

market value as of the date of the partial distribution thereof, and to

distribute the remaining balance as soon as administratively

feasible;

Fifth Am. Compl. at 66 (Docket # 368.) This complaint also contains numerous references to the

distinctions between fair market value and book value, and that fair market value is greater than

book value. (Id., ¶¶ 92, 94, 95, 99, 123, 138, 175.). See also Item 7 of the prayer which seeks a

disgorgement of profits ostensibly based on the alleged improper evaluation.

In striking contrast to the excuses by the DeFazio/Dimaro plaintiffs, plaintiff Ellis

provided her valuation reports timely, indicating not only that she knew that valuation was a

central issue, but that it was reasonable to include valuation in an initial report. 

Also telling of plaintiffs’ knowledge that valuation should have been calculated in

their initial expert report is the reference in the Pratt valuation report to plaintiffs’ request for

permission to interview Hollister management. Defendants did give permission with certain

restrictions, but plaintiffs did not respond to this offer. These facts indicate that plaintiffs

originally attempted to obtain valuation information prior to Pratt’s initial report. Plaintiffs also

never bothered to conduct a Rule 30(b)(6) deposition of a Hollister representative to obtain

information needed for Dr. Pratt’s valuation report. Rather than try to slip in an initial report

late, plaintiffs could have sought an extension from the court if they needed more time to

complete the initial report. 

Plaintiffs make much of their argument that a prima facie case does not require a

showing of actual harm, but that they need only show breach of fiduciary duty. Defendants,

however, cite numerous cases to refute this argument. “To establish a breach of fiduciary duty

claim under ERISA, a plaintiff must show a breach of a fiduciary duty and ‘a prima facie case of

loss to the plan.’” Eckelkamp v. Beste, 315 F.3d 863, 867 (8 Cir. 2002); McDonald v. th

Provident Indem. Life Ins. Co., 60 F.3d 234, 237 (5 Cir. 1995) (same). See also Chao v. Hall th

Holding Co., 285 F.3d 415, 430-438 (6 Cir. 2002) (discussing valuation of stock in an ESOP); th

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Kuper v. Iovenko, 66 F.3d 1447, 1459-60 (6 Cir. 1995) (finding plaintiff required to show th

causal link between fiduciary’s failure and harm suffered by plan). These cases show that the

valuation of the shares is important to determine if holding them at book value was far less than

fair market value, and if so, whether a fiduciary was imprudent for selling them back to the

corporation at this value when a retiree desired benefits. 

Clearly, an opinion specific to valuation was important for plaintiffs’ case. 

Therefore, the court finds that plaintiffs lacked substantial justification for not including the Pratt

report in their initial disclosures.

Defendants have shown some harm as a result of plaintiffs’ late disclosure of

initial information. Defendants’ experts had one less month to do their valuation report than did

Pratt. Defendants’ experts had no way to rebut Pratt’s valuation report, but Pratt was able to

rebut defendants’ valuation reports. Pratt also had a one month head start to prepare plaintiffs’

counsel for depositions of defendants’ experts, but defendants’ experts did not have that extra

month to prepare defendants for Pratt’s deposition.

Nevertheless, defendants are incorrect that striking of the report, or exclusion of

the witness, is an automatic sanction. Prejudice does count in the equation. Although the

plaintiff in Wong received the penalty of exclusion of an expert, the same circumstances present

in that case are not present here. The Wong experts to be designated late were proffered after a

dispositive motion had been filed. The Ninth Circuit found that the district court did not abuse

its discretion in disallowing the experts because the entire scheduling order would have been

placed in jeopardy because of the late designations. Id at 1062. In the present case, however, the

late disclosure can take place without affecting the other scheduled dates in this litigation. 

Defendants cannot read the “harmless” or “lesser sanctions” exceptions out of the

enforcement rule, Rule 37(c)(1) – especially where the failure to disclose is not accompanied by

gamesmanship, bad faith or deliberate disobedience of a court order. Prejudice is a component of

any sanctions analysis as is the need to explore the existence of lesser, yet still effective

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sanctions. See Wills v. Amerada Hess, 379 F.3d 32, 51 (2 Cir. 2004); Collins v. Beazer Homes

nd

USA, Inc, 334 F. Supp. 2d 1365, 1371 (N.D. GA. 2004); Engineered Products Co. v. Donaldson

Co., 313 F. Supp. 2d 951, 1006 (N.D. Iowa); compare El Dorado Irrigation Dist. v. Traylor Bros.,

2006 WL 191960 (E.D. Cal. 2006) where the undersigned and Judge Karlton found a late

disclosure to be gamesmanship, in direct contravention of court orders against a backdrop of

discovery abuse, and not harmless.

Defendants’ claims of prejudice are not substantial enough for draconian

sanctions. They timely had the benefit of the Ellis expert’s valuations, and those valuations are

not that different from those of Pratt. Moreover, the acceptability of defendants’ valuations will

stand on their own for the large part, and not so much on impeachment of Pratt’s valuations. 

Impeachment is important, but it is certainly not the end-all and be-all of the valuation which the

district judge or trier of fact will finally accept. Finally, there are remedies which the court can

fashion which will mitigate any prejudice. This is not to say that a party may ignore the

scheduling order requirements – these orders are important in order to preserve the fairness of

proceedings. However, the penalty must fit the crime.

Although one can validly question the bona fides of plaintiffs’ counsel in delaying

the Pratt evaluation in light of the clear importance of the valuation of fair market value, given

the above discussion, the court ultimately does not find the gamesmanship which would permit

greater sanctions. Plaintiffs’ counsel Hubbard was clearly wrong, but appeared to the court to be

sincere in his error.

The court fashions a less drastic remedy as follows. As discussed at hearing,

depositions of the experts will take place. Plaintiffs are to proffer Pratt first. Defendants will not

have to pay this expert for his time at deposition. Also, defendants’ expert(s) may express

opinions outside of his/her/their current report insofar as impeachment of Pratt’s report is

concerned. They are free to comment at will about the Pratt valuation report; any rebuttal report

to the Pratt valuation report is unnecessary.

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CONCLUSION

Accordingly, IT IS ORDERED that:

1. Defendants’ motion to strike the expert witness reports of plaintiffs’ experts

Kevin Long and Karen Handorf, filed October 17, 2008, (docket # 409), is denied without

prejudice to renew the matter before the district judge.

2. Defendants’ motions to strike the expert witness reports of plaintiffs’ expert

Shannon Pratt, filed October 17 and 20, 2008, (docket #s 409, 412), are denied.

a. Defendants are permitted to take this expert’s deposition prior to

plaintiffs taking the depositions of any of defendants’ experts on the same subject matter.

4

b. The DiFazio/Dimaro plaintiffs shall pay the expenses of Pratt’s

deposition, insofar as such expenses are charges made for Pratt’s time.

Dated: December 1, 2008

 /s/ Gregory G. Hollows

_____________________________

U.S. MAGISTRATE JUDGE

GGH:076/Defazio1358.str

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