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# United States Court of Appeals Forthe Seventh Cir c uit

Nos. 18-1007 & 18-1074

K AR UM H OL D I N G S L LC, et al ., and K AR UM L ATI N A M E RI CA S

. D E R.L. D E C.V., P laintiffs-Appellants ,

v.

L OWE ’ S C OMPANI E S

, I N C ORPOR

AT E D, et al ., Defendants-Appellees.

A ppea l s fro m the U ni ted S ta tes Di stri ct Co urt fo r the No rthern Di stri ct o f Il l i no i s, Ea stern Di v i s i o n. No . 1 5 C 3 8 0 — John Z. Le e , Jud g e.

A RGU E D M A

Y 29, 2018

— D E C I D E D J ULY 13, 2018

Befor e B AU E R

, B AR RE TT , and S T

. E V E, Circuit Judges

. B A UE R , C i rc u i t Ju d

ge
. When Low e’s Compani es, Inc. ( Lowe ’ s Inc.) expanded i ts r eta i l h o m e im p r o ve ment stor es into Mexi co, Low e’s Compani es Mexi co, S

. de R.L. de C.V

. (Low e’s Mexi co)2 Nos. 18-1007 & 18-1074

contr acted wi th Kar um Holdings LLC and a few of i ts subsi di ar i es, Kar u m Gr oup LLC, and Kar um Car d S e r v ic es S .A. de C.V ., S OFOM, E.N.R. (collecti v ely , Kar um), to pr ov i d e p r i v atelabel cr edi t car d ser v i ces ther e. Th e pr ogr am fai l ed t o m eet expectati ons, and Kar um br ought thi s lawsui t a gainst b oth Low e’s Inc. and Low e’s Mexi co (collecti v ely , Low e’s) clai ming br each of contr act. The focus of thi s appeal i s Kar um’s p r oof of da m a ges and exper t di sclosur e s , or l ack ther eof. Ear ly on, Kar u m di sclosed i ts summary “ damages m o d e l ,” a 3 7-page esti m ate of damages wi th hundr eds of f i gur es contained in char ts and gr aphs. Kar um int ended to hav e i ts Chai rman and for mer CEO Peter Johnson and/or i ts cur r ent CEO and CFO Russell Ouchi da pr esent the damages model at tr i al as lay opin ion testi mony; Kar um ne v er r etai ned a damages exper t. T w o months befor e tr i al, Low e’s fi led a m oti on in limine to pr eclude Johnson a nd Ouchi da fr om testi fying as to the damages model because any testi mony r egar ding the model r equi r ed the speci ali zed knowledge of an exper t. The di str i ct c our t gr anted the moti on, finding that Kar um had neverpr oper l y di sclosed

an exper t pur suant to Feder al Rule of Ci v i l Pr ocedur e 26(a)(2). S ince thi s w a s a case-di spo s it iv e s a n c ti on, the c our t gr anted j udgment in fav or of Low e’s and Kar um appealed. W e affi r m. I. BACKGROUND A. The Agreements Between Lowe’s and Karum Low e’s Inc. i s the second lar gest home i mpr ov ement stor e in the Uni t e d S tates, and in 2010, i t expanded i ts Nor th Amer i c an pr esence into Mexi co by opening tw o stor es. Pr i or to opening those stor es, Low e’s Mexi c o enter ed into the “Pr i v ateNos. 18-1007 & 18-1074 3
L a b el Cr edi t Car d Pr ogr am Agr eement” (“Pr ogr am Agr eement”) wi th Kar u m. The ter m of t he a gr eement w as sev en y ear s, and i t c ould only be ter minated if c e r t a in c ondi ti ons
w er e met, or by mutual consent. The par ti es ini ti a lly a gr eed to j oi ntly fund the cr edi t po r t f o l io 50/50, but changed cour se in 2014 r esulting in the “Pr ofi t S har ing and Funding Agr eement” (the “Funding Agr eement”), wher eby Low e’s Mexi co agr eed to fund 9 9%. Kar um Car d S er v i ces w a s an enti ty cr e a t e d a s a j oi nt v entur e by Low e’s Mexi c o a nd Kar um Gr oup to manage and oper ate the p r ogr am, i.e. , i ssue cr edi t c ar ds to customer s in Mexi co. In tur n, K a r u m C ar d S er v i ces also had a separ ate “Master s Cr edi t S er v i ce s A g reement” ( the “S er v i ces Agr eement”) wi th Kar u m Latin Amer i ca S

. de L.A. d e C.V

. (Kar u m LA), a subsi di ar y of Kar um Gr oup, to fur ther ca r r y o u t the pr ogr am in Mexi co. The a r r angement fa il ed to meet Low e’s expectati ons, and Low e’s sought to ter minate i t s r e lati onshi p wi th Kar u m in 2 014. After medi ati on pr ov ed unsuccessful, Kar um and Kar um LA fi led thi s l awsui t on Januar y 1 4 , 2015. Kar u m alleged that a contr actual r e l ati onshi p betw een L owe’s and Kar um w as r eflected in all thr ee agr eements descr ibed abov e, and that Low e’s had uni later al l y t er minated the agr eements. Low e’s fi led a moti on to di smi ss all clai m s re lati ng to the S er v i c es A g r e e me n t since Low e’s w as not a par ty to that par ti cular agr eement, and di smi ss Kar um LA, because i t w as not a par ty to any agr eement to whi ch Low e’s w as a par ty

. The di str i ct cour t gr anted Low e’s moti on w i thout pr ej udi ce, and Kar um’s amende d complaint r emov ed Kar um LA as a par ty and any clai ms for br each of contr a c t o f t h e S er v i ces Agr eement.4 Nos. 18-1007 & 18-1074
B. Karum’s Witness Disclosures, D amages Model, a nd Procedural History
Kar um made i ts ini ti al Rule 2 6(a) d i sclosur es on Mar ch 13, 2015. Kar um pr ov i ded Low e’s, pu r suant to Rule 26(a)(1)(A), wi th a l is t of names li kely to hav e “di s cov er able infor m ati on
r elev a nt to di sputed facts,” whi ch included both Johnson and Ouchi da. Kar um’s di sclosur es di d not desi gnate any potenti al wi tnesses as exper ts underRule 26(a)(2).
In Apr i l 2 015, Kar um pr oduc e d a 3 7-page summary “damages model, ” a s r equi r ed by Rule 26(a)(1)(A)(ii i ). The model had tw o c omponents: (1) the “P or tfoli o Component,” whi ch, a c cor ding to Kar um, pr oj ected i ts shar e of the esti mated

v alue of the p or tfoli o in the absence of Low e’s br each; and (2) the “S er v i ces Comp o ne nt , ” whi ch p r o

je c t e d ser v i ce fees that non-par ty Kar um enti ti es, such as Kar um LA , w ould hav e
r eceiv e d f r om Kar um Car d S er vi c es pur suant to the S er vi c es Agr eement. Kar um desi gnated both Johnson and Ouchi da as i ts Rule 30(b)(6) w i tnesses on damages, and L owe’s deposed both in Apr i l 2016. Notably , the damages m odel nev er r efer r ed to Johnson or Ouchi da, nor summar i zed what they w ould s ay
r egar ding i ts cont e n t

. 1 Low e’s fi led a moti on for par ti al

summary judgment wi th r e s p ect to the S er v i ces Component,

a n d t h e d i str i ct cour t gr anted Low e’s moti on on Mar ch 28, 2017, thus str i ki ng that component fr om the damages model.

1 The mo del wa s n o t s o l e l y b ui l t b y Jo hnso n o r Ouchi da

. A cco rdi ng t o thei r depo s i ti ons, the mo del wa s b ui l t w i t h t h e a ssi stance o f two “ v ery ta l ented fi nanci a l a na l ysts” wh o h a d “ v ery si gni fi ca nt ex perti se,” a nd Jo hnso n a nd Ouchi daserv ed i n amo re superv i so ry ro le.Nos. 18-1007 & 18-1074 5
Followi ng the gr ant of par ti al summary j udgment in f av or of Low e’s, the di str i ct cour t held a status hear ing on Apr i l 12, 2017, in or der to set exper t di sclosur e deadlines and a tr i al date. Dur ing the hear ing, Kar u m s o u ght to supplement a
r ev i sed damages model in or der to confor m to the co u r t’s
summary j u dgment r ulin g, whi ch the cour t gr anted. The cour t then asked Kar u m’s counsel whethe r it i ntended to offer “ an affi rmati v e ex p e r t on damages” to whi ch Kar um’s c ounsel

r epli ed “No, Y

our Honor

. The plain ti ff wi ll testi f y to i t hi mself. He i s the exper t on i t.” Relyi ng on thi s statement, the cour t set
a d eadline for Low e’s exper t di sclosur es u nder Rule 26(a)(2), but made no si mi lar deadline for Kar um
. The cour t set a tr i al dat e for Nov ember

, but later changed that date to December11, 2017. Kar um’s supplemental da m a ges model substanti ally alter ed the P or tfoli o Component and added a n ew component that had not been pr ev i ously di sclosed or subj ect to di scov er y
. Low e’s swi ftly mov ed to str i ke the supplemental mod e l as unti mely under Rule 26 and pr ej udi ci al. In i ts memor a n d um in opposi ti on to Low e’s moti on t o str i ke, Kar um di s cussed h ow i t intended to pr esent the damages model at tr i al. Kar um told the c our t that i t had “adv i sed Lowe’s that i t d i d not intend to
use a r etained exper t t o p r e s ent damages, but r ather w ould

r ely on opi ni on testi mony thr ough ... Johnson.” In a footnote to that s entence, Kar um elabor at ed fur ther on Johnson’s testi mony: Johnson can opine as a la y w i tness under Feder al Rule of Ev idence 701 on the subj ect of Kar um’s es t i mated damages by v i r tue of hi s per cepti on of Kar um’s business gained thr ough6 Nos. 18-1007 & 18-1074
hi s management of that business. But he might

a l s o qualify as an expert u nder Feder a l Rule o f Ev i dence 702, thr ough the knowledge and exper i ence h e has gather ed fr om d ecades in the

cr edi t business. In f act, Johnson has ser v ed on the audi t commi ttees of multi ple publi c compani es, and as such, i s r ecogni zed b y the S EC to hav e financi al exper ti se. E i ther w ay , Low e’s knows Johnson and wi ll not be sur pr i s ed by hi s testi mony

. (emphasi s added). The cour t gr anted Low e’s moti on to str i ke the supplemental damages model on S eptemb e r 6, 2017, and Kar um’s damages model fortr i a l w as r educed to the or i gin al Por tfoli o Component fr om Apr i l 2015. Dur ing a status hear ing the following day

, the par ti e s updated the cour t on thei r exper t dis c l o s ur es. Low e’s counsel stated that i ts r etai n ed exper t
w ould pr oduce a r epor t by the end of the month. In the cour t’s minute entr y

, t h e cour t r econfi rmed that Kar um’s c ounsel “[di d] n ot a nti ci pate offer ing an exper t at tr i al b ut may offer a
r ebuttal exper t after [r ev i ewing Low e’s] exper ts r epor t.” C. Lowe’s Motion In Limine T o Exclude Johnson’s Expert T e stimony On October 4, 2017, wi th the tr i al d a te appr oaching, Low e’s fi led “Moti on In Limine No. 1 to Exclude Ev i dence of Plainti ffs’ Damages Model.” In that moti on, L owe’s a dv anced a number of ar guments, only one of whi ch i s r elev ant to thi s appeal: that

no Kar um wi tness, including Johnson a n d/or Ouchi d a, could p r o pe r l y testi fy a s to the damages model because i t w oul dNos. 18-1007 & 18-1074 7
consti tute i mper mi ssi

ble lay opini on testi mony
. Low e’s noted t h a t t h e damages m odel pr oj ected “how the cr edi t por tfoli o allegedly would have g rown thr ough the end of the par ti es’ agr eements in Febr uar y 2017 and calculates Kar um’s theor eti

cal shar e
. ” A s s uch, Johnson and Ouchi da could not offer lay opini on testi mony under FRE 701 becau s e the model w as “pr edi cated o n dozens of assumpti ons and pr oj ecti ons, includin g the number of esti mated c r edi t c ar d applicati ons, appr ov als, cr e d it car d pur chases, the ti m in g and amount of payments, finance char ges, and many other v ar i ables.” Kar um conceded that no wi tness c ould pr ov i de lay opini on testi mony as to the damages m odel, but r a ther asser ted that i t had “ u nambi guously” di sclosed Johnson as an exper t wi tness pur suant to Rule 2 6 ( a ) (2)(C). 2 Kar um contended that b y di sclosing Johnson’ s i denti ty in i ts ini ti a l di sclosur es and pr ov i d ing the damages model, i t had c ompli ed wi th the exper t di sclosur e r equi r ements. It f ur ther noted that it “ reminded” L o w e ’ s of i ts exper t di sclosur e in the footnote quoted abov e fr om the supplemental damages model br i efin g. On N o v ember 21, 2017, the di str i ct cour t gr anted Low e’s mot io n in limine to exclude Johnson fr om offer in g exper t testim ony on the damages model. The cour t found that “Kar um’s p ur por ted di sclosur e o f J o hn s o n a s an e x p e r t wi tness
w as plainly in a d e quate” and consequently , the fai lur e to di sclose Johnson as an exper t w as a Rule 26 ( a) v i olati on. Fur ther mor e, the cour t concluded that Kar um’s v i olati on w as

2 K a rum di d no t pro v i de such a v o ci f e r o u s defense a s it rel a ted t o Ouchi da

. Inst e a d , Ka rum o nl y sta ted tha t s i nce 2 0 1 5 , i t ha d i nfo rmed Lo we’s tha t “ perha ps” Ouchi dawo u l d testi fy a s to the da ma ges mo del

.8 Nos. 18-1007 & 18-1074
nei ther substanti ally j usti fi ed n or ha r m l e s s, p a r t i cu l a r ly in l i ght of the u pcoming tr i al date. Thus, exclusi on of Johnson’s exper t testi mony w as automati c underRule 37(c)(1). Kar um fi led a moti on to reconsi der the c our t’s r uling,
ar guing that the exclusi on of Johnson’s exper t t e s ti m ony amounte d t o a case-di sposi ti v e sancti on by eli minating i ts abi li ty to pr esent ev i dence of damages. Kar um also r equested

a v ar i ety of alter nati v es to the cour t’s ruling, fr om bi fur cating the tr i al to fi ling an inter locutor y appeal. On Nov emb e r 28, 2 0 1 7 , the cour t held a lengthy hear in g a nd affi r med i ts pr ev i

ous r ulin g. The cour t questi oned the par ti es on other w a ys to intr oduce ev i dence of damages wi thout Johnson r elying on the damages m odel, and explor ed the alter n ati v e r e m edi es pr oposed by Kar um. How ev er , the cou r t fo u n d “that ther e i s
no lesser r emedy av ai lable at thi s point,” a nd “that no other alter nati v es
... w ould be av a i lable to K ar um that w ould not other wi se infli ct undue pr ej udi ce to Low e’s.” Accor ding to the

cour t, the exclusi on of Johnson’s exper t testi mony w as “pr opor ti onate not only to Kar um’s fa i l u r e to abi de b y Rule 26(a)(2), but also to the substanti a l p r ej udi ce to Low e’s i f the Cour t w ould allow hi s testi mony to pr oceed.” The cour t allow ed Kar um to go back thr ough the di scov er y to i denti f

y any other ev i dence of damages i t mi ght be able to intr oduce. The following day , Kar um wr ote a letter explaining i ts alter nati v e method of pr ov ing d amag e s
. Low e’s fi led a moti on in limine to exclud e t hat m ethod, and the cour t h eld another lengthy h ear in g on December 4, 2017. Applying the

same Rule 26(a) and Rule 37(c)(1) analysi s, the cour t again concluded that Kar um’s latest submi ssi o n wa s ne i the r s ubstanti ally j usti fi ed nor har mless.Nos. 18-1007 & 18-1074 9
Kar um conceded that in li ght of the cour t’s r uling, i t could not pr ov e d amages. Thus, the cour t enter ed j udgment in f av or of Low e’s. D. Lowe’s “Setoff” and Permissive Counterclaim
In i ts answer to the complain t, Low e’s s et for th an affi r mati v e d efense stati ng that i t w as enti tled t o a setoff against any
r eli ef sought by Kar um in li ght of the m oni es ow ed to Low e’s. It explai n ed the affi r mati v e defense as follows: Low e’s pr o v i ded the funding to [Kar um Car d S e r v i ces] to pr ov i de the v ar i ous cr edi t ser v i ce s under the Pr ogr am Agr eement and Funding A gr eement. Low e’s pr ov i d ed that f un d in g in the for m of d ebt, including pr omi s sor y notes e x ecuted by [Kar um Car d S er vi ces] and Kar um G r oup. Ther e r emains an outstanding b alance

ow ed to L owe’s (the exact amount to be pr ov en at tr i al), a nd these payments a nd loans m ade to Kar um should be s et off fr om any damages that Kar um mi ght obtai n
. Low e’s made thr ee separ ate loans in 2014 and 2015 secur ed b y pr omi ssor y notes to Kar um Car d S er v i ces whi ch wer e schedu l e d to matur e in 2019 and 2020 absent a default. Kar u m Car d S er v i ces continued to oper ate thr oughout the li ti gati on, pr ov i din g m onthly statements to Low e’s. How ev er , in ear ly 2017, Kar um infor med Low e’s that i t intended to shut d own Kar um Car d S er v i c es. Concer ned about the status of i ts loans, Low e’s sent a letter on August 30, 2017, noti fying Kar u m that i t had defaulted on the notes, pur suant to a secti on in the note that allows L ow e ’s to declar e a default wher e i t beli ev es the10 Nos. 18-1007 & 18-1074
pr osp ect of payment or per for mance i s i mpai r ed. Low e’s sought payment of appr oxi mately $6.28 mi lli on whi ch Kar u m
r efused to pay

. On Sept e mb er 28, 2017, Kar u m fi led a moti on in limine to exclude Low e’s setoff affi r m ati v e defense and any ev i dence i t intended to offer to suppor t i t. Befor e the d i str i ct cour t r uled

on that m oti on, Low e’s fi l e d a moti on to conv er t i ts setoff affi rmati v e defense into a counter clai m u nder Rule 8(c)(2), or in the alter nati v e, for leav e, pur suant to Rule 1 3(e), to asser t a new counter clai m wi th r espect to the n otes. The di str i ct cour t gr anted Kar um’s moti on in limine and deni ed Low e’s motio n to conv er t the s etoff defense in to a counter clai m. The cour t
c o ncluded that Low e’s counter clai m w as per mi ssiv e r ather than c ompulsor y because the pur por ted d e fa ult ci ted in the August 2 017 l etter took place w ell after the ev ents that gav e
r i se to Kar um’s claims.

II. DISCUSSION Kar um’s main contenti on on appeal i s that the d i str i ct cour t
er r ed in excluding Johnson’s exper t testi mony on the damages model. Kar um also ar gues that the cour t made a v ar ie ty of

er r or s pr i or to i ts r u ling on Johnson’s testi mony
. A. Karum’s Rule 2 6(a) Violation and Exclusion Under Rule 37(c)(1)
Kar um contends that i t compli ed wi th R u l e 26(a)(2) and ti mely di sclosed J ohnson as an exp e r t; as i t d i d below , i t concedes that no w i tness could offer lay opini on testi m ony as to the damages m odel. Ev en i f i t f a i led to p r oper ly di sclose Johnson as a n exper t, Kar um ar gues that Low e’s suffer ed noNos. 18-1007 & 18-1074 11
pr ej udi ce, and that the cour t could hav e i mposed a less d rasti c sancti on. A di str i ct cour t’s di scov er y rulings, including a deci si on to exclude exper t testi mony , a r e r ev i ew ed for an abuse of di scr eti on. Musser v
. Gentiva Health Servs. , 356 F .3d 751, 755 (7th Ci r
. 2004)

. “ A c o ur t does not abuse i ts d i scr eti on unless

... (1) the r ecor d contains no ev i dence upon whi ch the cour t could hav e r a ti onally based i ts deci si on; (2) the deci s i on i s based on

an er r oneous conclusi on of law; (3) the deci si on i s based on cle a r ly er r oneous factual fin dings; or ( 4) the deci si on clear ly appear s arbi tr ar y

.” Sherrod v
. Lingle , 2 23 F .3d 605, 610 (7th Ci r
. 2000) (inter nal quotati on mar ks and ci tati on omi tted). Rule 2 6(a)(2)(A) r equi r es a par ty to di sclose the i denti ty of

a wi tness who wi l l pr esent exper t testi mony under F e d e r al Rule of Ev i dence 702. F E D

. R. C IV

. P

. 26(a)(2)(A). Since J ohnson

w as a n on-r etained exper t, Kar um w a s r equi r ed to di sclose ( 1) the subj ect matter of h i s exper t testi mony and ( 2) “ a
summary of the facts and opini ons” on whi ch J ohnson w ould hav e testi fi ed. F E D

. R. C IV

. P

. 26(a)(2)(C). Kar um had to di sclose Johnson’s e xper t testi mony pur suant to a c our t or der ed deadlin e, and i f n o d eadline w as set, a t least 90 days pr i or to the star t of tr i al. F E D

. R. C IV

. P

. 26(a)(2) ( D ) ( I). Finally , “ all di s closur es under Rule 26(a) must b e in w r i ti ng, si gned, and

ser v ed.” F E D

. R. C IV

. P

. 26(a)(4). Rule 37(c)(1) s ets for th the sanctio n for fai ling to c omply wi th Rule 26(a)’s exper t di sclosur e r equi r ements: If a par ty fai ls to pr ov i d e in for mati on or i denti fy

a wi tness a s r equ i r ed by Rule 26(a) or (e), the par ty i s n o t allow ed to use that infor mati on or12 Nos. 18-1007 & 18-1074
wi tness to sup p l y e v i dence on a moti on, at a hear ing, or at a tr i al, unless the fai lur e w as substanti ally j usti fi ed or i s har mless.
F E D

. R. C IV

. P

. 37(c)(1). Accor dingly

, “[t]he exclusi on of nondi sclosed ev i dence i s au t o m ati c and mandator y under Rule 37(c)(1) unless non-di sclosur e w as j usti fi ed or h ar mless.” Musser, 356 F .3d at 758. W e fi rst a ssess the cour t’s a ppli cati on of Rule 26 to ensur e i t d i d not r each an er r oneous conclusi on of law in finding that Kar um fai l ed to di sclose Johnson as a n exper t. Id. at 755. If the di str i ct cour t incor r ectly found a Rule 26(a) v i olati on, “excluding the ev i dence w ould n ecessar i ly be an abuse of di scr eti on.” Id. Then, wi thout substi tuti ng our own j u dgment, w e examine for an abuse of d i s cr eti on the cour t’s basi s f o r finding that Kar um’s Rule 2 6(a) v i olati on l acked substanti a l j usti fi cati on and w as not har mless. Id. W e agr ee w i th the di str i ct cour t that Kar um ’s pur por ted exper t di sclosur e of Joh n s o n w as plainly inadequate; in fact, i t w as non-exi stent. The plain meaning of Rule 26(a)(2) demands a for mal desi gnati on for exper t di sclosur es. S e e id. a t 757. Kar um d i sclosed Johnson as a “ fa c t” wi tness under R u l e 26(a)(1)(A) in i ts Mar ch 2015 di sclosur es; n othi ng i n the Mar ch 2015 d i sclosur e stated or suggested J ohnson

w as an exper t wi tness. T h e r e i s a si gni fi cant di stincti on betw een di sclosin g an indi v i dual as a f a c t wi tness under R u l e 26(a)(1)(A) and di sclosing an exper t wi tness under Rule 26(a)(2). Id. “ That d u t y t o di sclose a wi tness as an expert i s not excused when a wi tness who wi ll testi fy as a fact wi tnessNos. 18-1007 & 18-1074 13
andas an exper t wi tness i s di sclosed a s a fact wi tness.” T ribble

v. Evangelides , 670 F .3d 753, 759 (7th Ci r . 2012). At tw o separ ate status hear ings after the c lose of di scov er y , Kar um affi r med that i t di d not in tend to offer an a ffi r mati v e exper t at tr i al. K a r u m told Low e’s and the di str i ct cour t that Johnson w ould testi fy on the damages model, a n d in a footnote contained in a br i ef, stated that Johnson could “opin e as a lay wi tness” under FRE 701. Its equi v ocal statement that J ohnson “mi ght also quali fy as an exper t” w as w oefully insuffi ci ent to consti tute a for mal exper t di sclosur e. Mor eo v e r

, the damages model alone w as insuffi ci ent to consti tute “ a s ummar y of the facts a n d opini ons” on whi ch Johnson w ould testi fy to regar d ing the model. The damages model nev er r efer r ed to Johnson, nor di d i t contain a summary of what he m i ght hav e sai d at tr i al r egar ding i ts hundr eds of fi gur es and assumpti ons. Kar um str esses that Low e’s w as aw ar e that Johnson w ould pr ov i d e exper t testi mony
. Low e’s had deposed Johnson about the model a n d knew Kar u m intended to call hi m to testi fy about i ts content. H ow ev er , Low e’s should not hav e to assume
a par t i cu l a r w i tness wi ll testi f y as an exper t. See Musser, 356 F .3d a t 757. As we hav e r ei ter ated befor e, “[f ]or mal di sclosur e of exper ts i s not pointless. Knowing the i denti ty o f t h e o pponent’s exper t w i tnesses allows a par ty to pr oper ly pr epar e for tr i al.” I d. S i mply put, the di s tr i ct cour t c or r ectly found Kar u m
v i olated Rule 26(a). Kar um does not tr y to j usti fy i ts Rule 26(a) v i olati on s ince i t incor r ec t l y beli ev es i t compli ed wi th Rule 26(a). Instead, Kar um ar gues that ev en i f i t di d vi olate Rule 26(a), Low e’s w as14 Nos. 18-1007 & 18-1074 not pr ej udi ced and any er r or w a s har mless. Th e di str i ct cour t
r ej ected that ar gument, and on a ppeal, Kar um rai ses the same
ar guments i t p ut for w ar d below: that Low e’s knew Johnson’s i denti ty , opini ons, and qual i fi cati ons fr om the tw o-day d e p o si ti on of Johnson; and that Low e’s had alr eady h i r e d a
r ebuttal exper t to attack the damages model. The di str i ct cour t di d not abuse i ts di scr eti on in finding that Kar um’s Rule 26(a) v i olati on w as not har mle s s , a nd accor dingly , J ohnson’s exper t testi mony w as subj ect to automati c
exc l u s io n under Rule 37(c)(1). In i ts analysi s, the cour t stated that i t c onsi der ed cer t a in f a c tor s w e enumer ated in David v
. Caterpillar

, Inc. , 324 F .3d 851, 8 57 (7th Ci r . 2003), that w ei ghed in f av or of a finding of pr ej udi ce. The cour t noted t h a t although Low e’s w as fami li ar wi th Johnson, i t had no r eason to take di scov er y on hi s quali fi cati ons and exper ti se, nor could i t then challenge hi s qu a l ifi cati ons or the admi ssi bi li ty of hi s exper t testi mony u nder the gr ounds se t f o r t h in Daubert v
. Merrell D o w Pharm., Inc. , 509 U.S

. 579 (1993). Addi ti onally , Low e’s r ebuttal exper t w ould hav e pr epar ed a di ffer ent r epor t had he been p r ov i ded Johnson’s expe r t quali fi cati ons and a
summary of hi s opini ons. Finally , as the c our t cor r ectly noted,

w e hav e p r ev i ously r ej e c t e d ar guments that a Rule 26(a)

v i olati on i s har mless si mply b ecause the opposing par ty knew the wi tness w ould testi fy in some capaci ty

. See T ribble, 670 F .3d at 760. Kar um maint a ins that the cour t could h av e r eopened di scov er y and allow ed Low e’s one d a y to r e-depose J ohnson

a b o u t hi s quali fi cati ons whi le maintaining the December 1 1 tr i al d ate. B u t agai n

, the di str i c t cour t expr essly r ej ected that i dea. T he cour t found that excusin g Kar um’s Rule 26(a)Nos. 18-1007 & 18-1074 15

v i ola ti on w ould necessar i ly delay the tr i al d a te because Low e’s

w ould li kely s eek n ot onl y to r e-depose Johnson, but a lso to obtai n addi ti onal d i scov er y r egar ding h i s quali fi cati ons and opini ons. Mor eov er

, the cour t p r edi cted that w ould lead to Dau b ert br i efing a nd that Low e’s w ould li kely seek leav e to amend i ts r ebuttal e x p er t r epor t. Agai n, w e hav e pr ev i ously found these p r eci s e ci r cumstances to be pr ej u di ci al. See Musser, 356 F .3d a t 754–59. And whi le the cour t could hav e delay ed the tr i al date, i t i s cer tai nly not an abuse of di scr eti on to find that Low e’s w ould hav e been pr ej u d ic ed by the addi ti onal cost of excusing Kar u m’s Rule 26(a) v i olatio n w e e ks befor e tr i al and continuin g the li ti gati on. Fi nally , Kar um asser ts that the cour t er r ed by i m posing what am o u n t e d to be a case-di sposi ti v e sancti on in stead of a less dr asti c measur e. W e hav e stated befor e that when a di s tr i ct
cour t’s di scov er y sancti on “necessar i ly entai ls di smi ssal of the case, the sancti on ‘must be on e t h at a r easonable j ur i st, appr i sed of all the ci r cumstances, w ould hav e chosen as pr opor ti onate to the infr acti on.’” Sherrod, 223 F .3d at 612 (quoting Salgado v
. G en. Motors Corp. , 150 F .3d 735, 740 (7th Ci r
. 1998)). Indeed, w e hav e “ ur ge[d] di str i ct cour ts to car efully consi der Rule 37(c), in cluding the alter na t e s ancti ons av a i lable, when i mposin g exclusi onar y sancti ons that ar e outcome deter m inati v e.” Musser, 356 F .3d at 760. W e ar e sati sfi ed that t he di str i ct cour t’s s ancti on w as
r easonable and m ade wi th car eful consi der ati on of the ci r cumstances. After i ssuing it s d eci si on, the c our t held a lengthy hear ing on a m oti on to r econsi der i ts r u ling, and hear d

ar guments fr om b o t h par ti es ov er a v ar i ety of a lter nati v e
r emedi es. At t h at hear in g, the cour t inv oked the cor r ect legal16 Nos. 18-1007 & 18-1074
standar ds and concl u d e d that ther e w a s “no lesser r emedy

av ai lable” wi th the tr i al date weeks aw ay , and that the e xclusi on of J ohnson’s tes t im o ny wa s pr opor ti onate to the Rule 26(a)

v i o l a t io n
. Instead of ending the matter ther e, the cour t gav e Kar um an oppor tuni ty to go back thr ough di scov er y to see whether i t could pr esent damages ev i dence wi thout Johnson’s exper t testi mony

, and then held another lengthy hear ing. The

cour t’s acti ons a ssur e us that i t c ar efully consi der ed Rule 37(c) and d i d not abuse i ts di scr eti on in i mposin g a case-deter m inati v e sancti on. B. Karum’s Other Arguments
Kar um a r gues that, p r i or to excluding Johnson’s exper t testi mony

, the cour t er red in (1) str i kin g b o t h the S er vi c es Compon ent of the damages model and the supplemental model i t pr ov i ded in Apr i l 2017; (2) di smi ssing Kar um LA and clai m s r elated to the S er vi c es A gr eement; and (3) fin ding Low e’s counter c lai m per mi s si v e. Kar um’s fi r s t a r gument canno t o v er come our deci si on abov e to affi r m the dis tr i ct c our t’s exclusi on of Johnson’s exper t testi mony u nder Rule 37(c)(1). Johnson w a s K a r um’s Rule 30(b)(6) d amages w itness, and any testi mony fr om Johnson as to the S er v i ces Component of the damages model

or the supplemental model c e rtai nly w ould hav e r an into the

same challenge fr om Low e’s, i .e. , that Johnson’s testi m ony
w ould consti tute i m pr oper lay opin io n testi m ony
. Both the S er v i c es Component an d the supplemental model r eli ed on the

same assumpti ons a nd p r oj ecti ons for the hundr eds of fi gur esNos. 18-1007 & 18-1074 17
that w er e u s ed in the P or tfoli o Component. 3 Thus, ev en i f w e
w er e to find that the cour t er r ed by str i king ei ther the S er vi c es Comp o n e n t or the supplemental model, Kar um’s Rule 26(a)

v i olati on and the exclusi on of Johnson’s exper t testim o n y o n the damages model r ender ed any er r or i r r elev ant. Next, Kar um a ttacks the di str i ct cour t’s ear ly r ul in g to di smi ss, wi thout pr ej udi c e, a ll c l a im s r elated to the S er vi c es Agr eement a nd Kar um LA as a p ar ty t o t he l awsui t. “W e
r ev i ew de novo a di s tr i ct cour t’s ruling that a complaint fai ls to state a c l a im u pon whi ch r eli ef m ay be gr anted under Rule 12(b)(6).” Haywood v. Massage Envy Franchising, LLC , 887 F .3d 329, 332 (7th Ci r . 2018). Kar um ar gues that ev en though Low e’s w a s not a par ty to the S er vi ces Agr eement, i t w as a necessary par t of the par ti es’

r elati onshi p. In other w or ds, Kar um Car d S e r v i ces had to
execu t e the S er vi ces Agr eement wi th Kar u m LA in or d er to
car ry out the Pr ogr am Agr eement wi th Low e’s. Y et, the di s tr i ct
cour t cor r ectly d i smi ssed thi s ar gument because nothi ng in the thr ee agr eements suggests that tog e ther they for m a “master agr eement” wher e br eaching one w ould consti tute a br each of the other

. In fact, the cour t poin ted to the in tegr ati on c lauses in

3 K a rum co nceded b el o w a nd on a ppea l tha t the Po rtfo li o Co mpo nent t o the da ma ges mo del requi red ex pert te s t i m o ny. Ho wev er, in a fo o tno t e t o i ts repl y b ri ef on a ppea l , Ka rum suggests tha t Jo h nso n’s t esti mo ny a s t o b o th the S erv i ces Co mp o n e n t a n d th e suppl ementa l mo del wo ul d b e fa ct testi mo ny under FR E 7 01 , no t e x p e r t te s timo ny. Thi s po si ti o n si mpl y canno t b e reco nci l ed wi th the fa ct tha t the S erv i ces Co m po nent a nd suppl ementa l

mo del rel y o n the s a me a ssumpti o ns a nd proj e c ti o ns a s the Po rtfo l i o Co mpo nent.18 Nos. 18-1007 & 18-1074
both the Pr ogr am and Funding Agr eements, whi ch state they “consti tute the enti re agr eement.” As i t r elates to Kar um LA, Kar um adv ances a d if f e r ent
ar gument than i t r ai sed below: that Kar u m LA i s a thi rd-par ty benefi ci ar y under New Y or k l aw
. 4 Leav ing asi de the fact t hat thi s ar gument w as w ai v ed, Kar um di d not ple a d in the complaint that Kar um LA i s a t h i r d-par ty benefi ci ar y , nor could i t hav e since t h e Pr ogr am Agr eement speci fi cally contained a clause ti tled “No Thi r d P ar ty Benefi ci ar i es.” Fi nally , Kar um asser ts that the cour t e r r ed in finding that Low e’s counter clai m w as per mi ssiv e r ather than compulsor y
. Rule 13(a) gov er ns compulsor y counter clai ms, and s tates that “[a] pleading m ust state as a counter cl a i m any c lai m that—at the ti m e o f its s er v i ce—the p leader has again st an opposing par ty i f the c lai m
... ar i ses out of the tr ansacti on or occur r ence that i s the subj ect matter of the opposing par ty's clai m.” F E D

. R. C IV

. P

. 13(a)(1)(A). Kar um contends that the pr omi s sor y notes
on whi ch Low e’s sought payment a r i se o u t o f the same tr ansacti on that for ms the basi s of Kar u m’s clai ms because the money w as loaned as par t of the Fundi ng Agr eement. How ev er

, as Rule 13(a ) makes clear , the counter clai m i s only compu l s o r y i f i t exi sted at the ti me Low e’s ser v ed i ts
answer on Kar um in 2015. As the di str i ct c our t c or r ectly found, the counter clai m di d n ot e x is t u nti l someti me in 2017 when Low e’s di scov er ed that Kar um Car d S er v i ces w ould shut down wi thout a ny r epayment on the loans. Thi s a cti on led

4 Ea ch o f the three “ a greements” co n t a i ns a cho i ce o f l a w p r o vi si o n
a do pti n g New Yo rk l a w
.Nos. 18-1007 & 18-1074 19
Low e’s to declar e a default on the notes in August 2017. S ince the counter clai m di d not e x ist at the ti me L owe’s ser v ed i ts
answer , the d i str i c t cour t cor rectly found that Low e’s c ounter

clai mi s per m i ssiv e. III. CONCLUSION For the for egoi ng reasons, w e AFFIRM t h e j udgment in fav or of Low e’s.