1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

UNITED STATES DISTRICT COURT

1

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

_________________

CMS Mechanical Services, LLC, )

) No. CV 15-2040-PHX-NVW

Plaintiff, )

)

vs. ) Phoenix, Arizona

) July 11, 2017

PetSmart, Inc., ) 1:49 p.m.

)

Defendant. )

_____________________________ )

BEFORE: THE HONORABLE NEIL V. WAKE, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS

(Motion Hearing)

Official Court Reporter:

Laurie A. Adams, RMR, CRR

Sandra Day O'Connor U.S. Courthouse, Suite 312

401 West Washington Street, Spc 43

Phoenix, Arizona 85003-2151

(602) 322-7256

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 1 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:49PM

UNITED STATES DISTRICT COURT

2

APPEARANCES:

For the Plaintiff:

OSBORN MALEDON PA

By: Geoffrey MT Sturr, Esq.

By: Hayleigh S. Crawford, Esq.

P.O. Box 36379

Phoenix, Arizona 85067

ALLWEISS & ALLWEISS

By: Michael D. Allweiss, Esq.

913 31st Terrace NE

St. Petersburg, Florida 33704

For the Defendant:

BRYAN CAVE LLP

By: Meridyth M. Andresen, Esq.

2 North Central Avenue

Suite 2200

Phoenix, Arizona 85004

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 2 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:49PM

01:50PM

01:50PM

01:51PM

01:51PM

UNITED STATES DISTRICT COURT

3

P R O C E E D I N G S

THE COURTROOM DEPUTY: Case Number CV 15-2040, CMS

Mechanical Services, LLC, versus PetsMart, before the Court for

oral argument.

Will counsel please announce.

MR. STURR: Good afternoon, Your Honor. Geoffrey

Sturr on behalf of the plaintiff. With me is Hayleigh Crawford

from my firm, and Michael Allweiss is also with me, Your Honor.

MS. ANDRESEN: Meridyth Andresen on behalf of

PetsMart, Inc.

THE COURT: Well, this all started with a disputed

early termination of the contract, right?

MR. STURR: Yes, Your Honor.

THE COURT: And there's a time limit to the contract,

and that's what we're fighting about.

First I want to hear -- we'll discuss the defendant's

motion, which is -- I have too much paper here -- Motion to

Exclude Plaintiff's Untimely, et cetera, damage motion,

Document Number 137. So Ms. Andresen, I guess that's your

motion. Come up to the podium. The microphone is better

there.

I will tell you all when we were here before, the

thought occurred to me as to why the defendant didn't just move

to exclude these new damages as not disclosed in a time

sufficient to meet the case schedule, and in the nature of it,

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 3 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:52PM

01:52PM

01:53PM

01:53PM

01:53PM

UNITED STATES DISTRICT COURT

4

it could not have been newly discovered. But that was not the

relief that was sought. And so I tried to sort it out, and we

have just charged into a swamp.

I suppose, Ms. Andresen, your answer is, well, you had

your assurances they would get you what you needed. You went

and hired Mr. Mroz?

MS. ANDRESEN: That's correct.

THE COURT: And you shouldn't be punished for your

attempt to proceed in good faith to finish up what you had been

assured you would be given. But it does cut against the relief

you seek that we have charged now for five months into this.

I have another thought on this, which is -- and this

is a macro observation. This is totally defeated by case

schedule. Everything just fell apart. So one approach to this

is to -- two approaches. One approach is, all right, accept

defeat. Everything got blown up. People had a lot of money

they were fighting over and three months near the end it all

changed so we are just starting all over with a whole new set

of discovery, attorney's fees and all of that. It's one way to

come at it.

Another way to come at it is, I guess, somewhat

similar to what your motion says, not quite the same, but let's

go back to the idea I'm putting on the table. And the idea is

let's just go back to where we were when we were on track to

have all the money your clients enjoy spending on legal fees

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 4 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:54PM

01:54PM

01:55PM

01:55PM

01:55PM

UNITED STATES DISTRICT COURT

5

come to fruition with a schedule, the schedules are not

aspirational, without having to, if it's avoidable, without

having to make specific determinations of bad faith here and

there and whatnot; just saying, let's go back and ex post facto

retroactively honor that schedule as well as can be done.

MS. ANDRESEN: You are talking, Your Honor, about the

November scheduling order?

THE COURT: Correct.

MS. ANDRESEN: Okay. And is that proceeding without

the lost profits?

THE COURT: I'm just musing.

MS. ANDRESEN: Oh. Okay. I will let you continue.

I'm sorry.

THE COURT: And that would necessarily involve

something like what you are requesting. On the one hand, maybe

one -- this has morphed, mushroom clouded into something far

different than what it started out to and what we were close to

having ready for motions and trial. And so it would mean

having to exclude the damage calculations that could not have

been a secret to the plaintiff from day one. They just didn't

put it on the table.

MS. ANDRESEN: Correct.

THE COURT: Until a few months before the close of

discovery. And if we went back and said, all right, what would

have been needed to be done to finish this up and we would do

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 5 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:56PM

01:56PM

01:57PM

01:57PM

01:58PM

UNITED STATES DISTRICT COURT

6

that, here we are six months later, rather than rewarding what

with hindsight -- and I suppose you didn't see it this way --

but with hindsight has turned out to be an opening of new doors

that keep opening to another door, to another door, to another

door of damages theory every expanding.

So, I mean, I guess -- I know I'm fond of saying

lawyers are trained to be paranoid because you have to worry

about things, but that would be excessive paranoia to have

thought that was going to happen.

So I put it on the table. That sort of would be a

move somewhere in the direction that you are asking but not

exactly the same reasons you were moving for, I mean, not to

exclude any of your reasons. But the alternative is, as I just

said, start over. We've got a new lawsuit. We've got new

damages. And I do recall from going through the discovery

dispute the last time that there was clearly a lot of discovery

that was needed.

You know, I have actually tried jury trials, lost

profits damages, and this dispute looks to me like an embryonic

version of the massive expert witness motions I get at the back

end about experts who are not allowed to testify because

there's just wishful thinking and advocacy, but, you know,

maybe they are allowed to testify if you don't -- lost profits

is not a mechanical process but it has to have reasonable

basis. So anyway, I digress because I'm just -- I'm seeing all

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 6 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

01:58PM

01:58PM

01:59PM

01:59PM

02:00PM

UNITED STATES DISTRICT COURT

7

that tens if not hundreds of thousands of dollars of legal fees

into the future.

Well, I'm musing to let you all think about what

I'm -- to alert you to what my large concerns are. And

depending on how we go, we're not going home until we have this

discovery stuff worked out. You all can't do it, you want to

dump all of this on me where I am far less able to do it

sensibly than you are, you are going to sit through my

suffering and educate me on everything I have to decide. And

we're not going home until it's done. We'll come back

tomorrow. I am leaving town on Saturday, but I'm available

until then. We're going to get that done if it comes to it or

something.

So anyway, with that preface, I guess the main event

for you, Ms. Andresen, is two events, is how bad was it that

this was disclosed late; and did your vigorous pursuit of

discovery on it, including seeking and obtaining relief,

somehow make it -- I don't like these words about waiver of

estoppel because the law has a way of using words and

attributing phony meanings to them and we are all supposed to

know the phony meanings when we use the words. But a broader

way to describe it would be that as the course of action the

defendants pursued on this, retaining an expert, seeking

discovery, not getting a lot you are entitled to, does that

somehow commit you in a basic fairness way to playing out the

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 7 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:00PM

02:00PM

02:01PM

02:01PM

02:02PM

UNITED STATES DISTRICT COURT

8

hand that you drew instead of going back and saying, let's just

trash this whole game. This game shouldn't have gone forward

at all, and we were just being nice guys when we thought they

told us they could get us everything we need, and here we are.

So I have had an enormous amount of work lately and I

have done the work that's more worthy of my time. So it's your

motion, Ms. Andresen.

MS. ANDRESEN: Okay. Thank you, Your Honor.

I didn't prepare a traditional PowerPoint, but I do

have a printout of slides, if you don't mind if I approach to

hand this to you.

THE COURT: You may.

MS. ANDRESEN: I'd like to start with the basics.

There was some confusion in the motion, and I will accept

responsibility for some of that, about exactly what was the

basis for our motion to strike. And, Your Honor, you focused

in a little bit on that in your opening comments.

The motion is based solely on the failure to disclose

under Rule 26(a) and (e), not on the failure to comply with the

Court's order on the Motion to Compel, though we do have issues

with that and we believe there has been non-compliance. The

purpose of referring to that non-compliance has been only to

demonstrate to the Court how the lack of a disclosure has

really affected and harmed PetsMart and its ability to prepare

its rebuttal to the damages claim and prepare for trial.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 8 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:02PM

02:02PM

02:03PM

02:03PM

02:03PM

UNITED STATES DISTRICT COURT

9

So in the motion we were not asking for a disclosure,

instead we were asking and trying to make the point that it is

simply too late for CMS to change its damages calculation again

or try to supplement the record with information that might

support its claim after we have identified all of the

deficiencies with its damages through our deposition and

through our expert report.

So the request is simple: Rule 26(a) says that a

party must disclose this information without waiting a

discovery request, a computation of the damages, and the

evidence supporting that. The purpose of that rule is to give

the other party an opportunity to organize and prioritize its

discovery; to promote fair and cost-effective discovery; put

PetsMart, for example, on notice of the claims that it is

facing and give it a reasonable opportunity to prepare for

trial.

In the Smith versus Walmart Stores case that we cited

in our motion at 13, the Court cautioned and said that Rule

26(e) which allows supplements does not create a loophole for

parties who wish to revise their initial disclosures to its

advantage after the deadline has passed. And it does not allow

them to add information to the record. It's really meant to

correct based on information that is made available to them

after the initial disclosures.

And as the Court pointed out in your opening comments,

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 9 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:04PM

02:04PM

02:04PM

02:05PM

02:05PM

UNITED STATES DISTRICT COURT

10

nothing that has been disclosed at any point in this litigation

relating to lost revenues or lost profits was information that

was not solely within CMS's possession since the inception of

the litigation.

If you turn to Page 5 of this PowerPoint, I just cite

again to the Court's standing order that's in all of the

scheduling orders that makes clear that the discovery deadlines

in this case are real and that there are real penalties that

will be imposed if the parties fail to meet those deadlines.

THE COURT: I actually say that twice in my order.

Nobody believes anything you say just once. So go ahead.

MS. ANDRESEN: Thank you. I appreciate that.

And including dismissal of the action in its entirety

or an entry of default if those deadlines are not complied

with. PetsMart complied with all such deadlines. CMS did not.

If you turn the Page 6, in CMS's initial Disclosure

Statement in December of 2015 it indicated that it was going to

seek lost profits and it would later disclose in a supplemental

Disclosure Statement the basis of those damages in the

calculation. CMS never ever supplemented that disclosure and

ever put in a Rule 26 disclosure that evidence, that

calculation of that evidence except until last Thursday. And

on last Thursday, within 10 minutes of the Court issuing its

order, we received a 23-page Disclosure Statement on lost

profits and this stack of Excel spreadsheets that support those

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 10 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:06PM

02:06PM

02:06PM

02:06PM

02:07PM

UNITED STATES DISTRICT COURT

11

calculations. And I will say to the Court that this is a

condensed version of the documents. They were reduced by 40 to

50 percent from the size they appeared in the Excel file so

that we could actually fit them in a box to bring them here.

THE COURT: You know, I won a big motion once by

bringing in front of the judge a handcart full of documents and

it scared him and he ruled for me. The Court of Appeals

reversed it.

MS. ANDRESEN: Hopefully I have the same effect but

with a better appellate position.

That disclosure was seven months after the December

29th disclosure deadline. That disclosure came after PetsMart

deposed CMS's president, took a 30(b)(6) deposition, and issued

its initial expert report.

THE COURT: Let me just stop you for a minute.

Remember exactly where you are. I want you to go back there.

I want to go back and make sure I have my feet on the ground

here.

Walk me through again the difference between the

initial damage disclosure and these new chances as they began

to evolve. I thought it was just they had a contract. What

was their initial measure of damages they disclosed?

MS. ANDRESEN: Their initial measure of damages was

that they were seeking what we referred to as deferred billing.

So that is -- the PetsMart contract was a five-year contract,

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 11 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:07PM

02:07PM

02:08PM

02:08PM

02:08PM

UNITED STATES DISTRICT COURT

12

so 60 months. It continued for 26 months. And it was paid at

a certain rate. When it was terminated, CMS said that that

lower rate was only applied to that contract with the promise

that the contract would continue for five years. And when

PetsMart terminated the contract early pursuant to the

termination for convenience provision, it now owed the

difference for the first 26 months of that contract to pay the

higher rate and not the discounted rate that it was being

offered.

THE COURT: Was that for the first 24 months, or how

did that project into the remaining term of the contract

assuming it was wrongfully terminated?

MS. ANDRESEN: That was for the first 26 months of the

contract when the contract was performed, and for the remaining

34 months they put a placeholder for lost profits. And

importantly, the Court addressed this on January 21st, 2016 in

the Rule 16 conference specifically. And you asked directly to

Mr. Sturr, "When do you think you have to fish or cut bait on

your lost profits theory? Do you think you can do that at the

close of evidence?"

In response, Mr. Sturr said, "Well, I think, Your

Honor, perhaps before then. Under Rule 26 we have to make

disclosures. And at this point, we have just put a placeholder

in our initial Disclosure Statement for anything other than

contractual damages."

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 12 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:09PM

02:09PM

02:09PM

02:10PM

02:10PM

UNITED STATES DISTRICT COURT

13

THE COURT: Well, I mean, I just want to make sure

that I'm not losing my footing here. Contractual damages

covers everything, so be more specific. I understand the claim

of this is coming back because I remember I thought that's an

unusual -- not that there's anything wrong with it but I have

never seen a case with that kind of approach to damages that he

had the discounted rate and since you terminated we get the

normal rate. I understand that. And that was for 26 months,

so it's 34 months. Why couldn't it have -- well, all right.

I'm not going to --

MS. ANDRESEN: So my understanding was it was for 26

months, and at that time they were saying that was $2.5 million

in damages. That was the differences between the discounted

rate and what they believed was the contracted rate that should

have been paid for the first 26 months. They had a placeholder

for lost profits for the remaining 34 months. Then there was

this exchange at the Rule 16 conference.

And, Your Honor, you said that you were getting to the

lost profits aspect of the damages, and you essentially said

that's very difficult to prove. You should think about whether

you want to pursue it. And Mr. Sturr said, "I think it's

unlikely that we're going to pursue that, but I don't want to

say that definitively."

THE COURT: They weren't going to walk away from the

last 34 months.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 13 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:10PM

02:10PM

02:10PM

02:11PM

02:11PM

UNITED STATES DISTRICT COURT

14

MS. ANDRESEN: I'm sorry?

THE COURT: They were not going to walk away from the

last 34 months assuming it was a wrongful termination, correct?

MS. ANDRESEN: They were in the beginning, yes, that

was the lost profits that they were going to try to determine

if they were going to proceed or if they were just going to

seek the 2.5 million.

THE COURT: Of course -- well, all right. Please

continue.

MS. ANDRESEN: And, in fact, the exchange, in that

exchange, the Court specifically said, "$2.5 million is a lot

of money. You still have a lot of damages, and lost profits

very difficult to prove. It's going to increase your fees and

be messy." And that is when they said they intended to

disclose that early in the process.

Then six months after that Rule 16 conference they

amended their complaint and removed the lost profits claim

altogether. So everyone was proceeding under the $2.5 million

deferred billing damages. Then in September they amended their

Disclosure Statement and increased the deferred billing damages

from roughly 2.5 or 2.6 to $3.5 million in damages. They said

it was a deeper discount. They had miscalculated what was

owed.

THE COURT: Miscalculated what would have been the

rate or whatever but for the five-year commitment?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 14 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:11PM

02:12PM

02:12PM

02:12PM

02:12PM

UNITED STATES DISTRICT COURT

15

MS. ANDRESEN: Correct, what would have been the

contract rate versus what was paid under the contract for 26

months. So they increased that roughly a million dollars. And

that is when they also disclosed that they were going to seek

lost revenues. And for that, they disclosed in the Disclosure

Statement here's what the monthly capped fee was. We're

multiplying that by 34 months. This gives us $20 million in

lost revenue.

THE COURT: Tell me what the monthly capped fee was.

MS. ANDRESEN: There's a dispute over what that should

be.

THE COURT: I'm not asking you for the number. I'm

asking you for the theory of it.

MS. ANDRESEN: Okay. So there was, under the

contract, the Statement of Work attached to it, there was a

listing of all the PetsMart stores. And next to that listing

there was a price indicating what they were going to pay per

month for that store. That was the price that PetsMart

believed it was going to pay, although it understood that may

adjust upward or downward when they got into the stores and

started performing site surveys. And if that occurred,

PetsMart thought they would then come back together and, in

writing, amend the contract if the price needed to be adjusted.

CMS says their position is that in their contract

there was a formula. And the formula in the contract said it

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 15 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:13PM

02:13PM

02:13PM

02:13PM

02:14PM

UNITED STATES DISTRICT COURT

16

would apply to all additional stores that were added because

PetsMart was growing and adding new stores. Their position is

that when the contract terminated that that formula applied to

all the stores, including the stores that were listed with a

price next to them in the attachment to the contract. And then

there was an adjustment because there's a dispute on how that

calculation is actually applied to each store because you can

apply it two different ways and come up with two very different

prices. So there's been quite a bit of movement on the

deferred damages amounts and how that should be calculated as

well.

So right when the contract was terminated, CMS sent a

demand letter to PetsMart and said, here is what you owe us,

and here's the calculation of this deferred billing. And that

was $2.5 million. A couple years later they changed it and

said we calculated that wrong. It's actually $3.5 million,

roughly.

So that is an issue of itself whether the deferred

billing was appropriately disclosed. But with respect to the

lost profits, it appeared that they had made a placeholder.

They had promised to disclose the detail of that if they

intended to pursue it, and they never did. Instead they

dropped the complaint, the allegation of lost profits

altogether last summer, approximately a year ago.

THE COURT: What I'm trying to get a rough handle on

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 16 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:14PM

02:14PM

02:14PM

02:15PM

02:15PM

UNITED STATES DISTRICT COURT

17

is this lost profits for the last, what, 24?

MS. ANDRESEN: 36 months. 34 months. I'm sorry.

THE COURT: 34 months. That's different from the 2.5,

3.5 million?

MS. ANDRESEN: Correct.

THE COURT: It covers a different time period of

damage, correct?

MS. ANDRESEN: Correct. The 2.5 million is those

months were all paid for. The first 26 months PetsMart paid

for those months. After they terminated the contract CMS says

we're now going to back bill you for this difference in the

amount from what we think the contract required and what you

were actually paying for those 26 months. We think you owe us

the difference.

THE COURT: Because of the wrongful termination?

MS. ANDRESEN: That was their original position. They

have changed that position now and said that at all times

PetsMart was going to be obligated to pay the full amount, but

it was going to be sometime at the end of the contract. So

they were just deferring those billings not giving PetsMart a

discount for agreeing to a five-year term.

THE COURT: I'd hate to be the lawyer who wrote that

contract if you have uncertainties of that magnitude.

MS. ANDRESEN: There's going to be a lot of motions, I

fear, in front of you on contract interpretation and

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 17 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:15PM

02:16PM

02:16PM

02:16PM

02:17PM

UNITED STATES DISTRICT COURT

18

modifications and meeting of the minds in your not so distant

future.

THE COURT: All right.

MS. ANDRESEN: So back to the lost profits. So a year

ago, PetsMart is proceeding in the litigation thinking there is

no lost profits claim until September or October when the

Disclosure Statement was amended. And again, that was amended

to reflect a lost revenue claim which PetsMart thought was

absolutely unsustainable that they would get 100 percent of the

contract fees revenue without performing any of the contract,

that it wouldn't be reduced by any avoided expenses.

THE COURT: Doesn't sound like that could survive even

as a matter of law.

MS. ANDRESEN: That was our position, and that was

what was disclosed. They amended the complaint. PetsMart

allowed them to amend the complaint, reserved all of its rights

to challenge legally the new theory but for efficiency sake

decided not to file a motion on that but said give us your

discovery. So they immediately served discovery. And

actually, if we turn to Page -- there's a little timeline with

very small print. I apologize. It did not fit well on Page

10.

So on October 21st, PetsMart served its written

discovery and CMS agreed to an expedited response time to try

and get the information to PetsMart sooner because we were

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 18 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:17PM

02:17PM

02:17PM

02:18PM

02:18PM

UNITED STATES DISTRICT COURT

19

approaching that December 29th deadline. They answered those

discovery on November 15th. Interestingly enough, the last day

to serve any additional written discovery was the prior day,

November 14th. So once PetsMart received those interrogatory

responses it no longer had the ability under the scheduling

order to serve any follow-up discovery, which is part of the

problem here.

So CMS and PetsMart engaged in meet-and-confer going

back and forth. I won't belabor that because most of that was

addressed in the Motion to Compel. So they continue with that.

December 29 comes and goes, which was the deadline for all fact

discovery. There was just a few exceptions for the expert

report and two lingering depositions that were excluded from

that. And that was the deadline for the Rule 26(a)(3) final

pretrial disclosures. PetsMart made its disclosures. CMS made

no such disclosures.

Thereafter the discussions continued because we had

approached the Court and had an ongoing dispute about the

discovery, and you allowed us to brief the issue. And so while

we were discussing that, CMS started producing additional

documents, large volumes of documents, documents PetsMart did

not request.

THE COURT: Yes. I recall that. If that's what

happened, that's extremely troubling, just a data dump instead

of answers to interrogatories or discovery. Anyway, go ahead.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 19 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:18PM

02:19PM

02:19PM

02:19PM

02:20PM

UNITED STATES DISTRICT COURT

20

MS. ANDRESEN: On January 12th, PetsMart filed, well,

lodged under seal its Motion to Compel. So that's the date it

was served on opposing counsel. And on that very same day CMS

filed a supplemental interrogatory response, which we did not

ask for, and disclosed a whole new theory of its expenses.

Prior to that date we had been pushing them to find out what

their expenses were. We said what are the expenses for

servicing a national account like PetsMart and they said labor,

material, and miscellaneous and refused to give us any more

information than that.

On that same date that we filed our Motion to Compel

and they supplemented their interrogatory. They disclosed a

burdened labor rate, which they had never previously before

disclosed to PetsMart and said the labor rates we had

previously been using in our analysis, it's actually a burdened

labor rate that incorporates all these other variable expenses

from our statement. And it identified some categories that did

not give any other underlying calculations.

THE COURT: Back up. That's made up -- what do you

mean by "burdened labor rate"?

MS. ANDRESEN: The documents that we had received

would show a margin analysis on a particular work order and

would say, this is the value of 33.46, I think it is. That's

the labor rate, and that would be multiplied by a certain

number of hours. We were assuming that was the actual rate of

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 20 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:20PM

02:20PM

02:20PM

02:21PM

02:21PM

UNITED STATES DISTRICT COURT

21

pay for the employee performing it. They just called it labor.

That's all we knew.

So on January 12th when they disclosed a burdened

labor rate, they said no, that's not the rate of pay. That is

actually the rate of pay plus a percentage of these overhead

expenses that are variable.

THE COURT: All the company's overhead?

MS. ANDRESEN: Yes. And they attributed certain

categories to that. But we didn't understand how they did

that. We just knew that they were telling us this burdened

labor rate included those things. And again, that's the day we

filed our Motion to Compel. So at this point we have no

ability to take any further discovery on that other than to ask

some questions during the deposition that happened a little bit

after. And in that deposition, it was suggested to us that

there is a document that calculated this, some kind of a

schedule that CMS had calculating that labor rate. And we did

ask for that in our Motion to Compel. We adjusted our Motion

to Compel to ask for that, although when we asked for it in the

Motion to Compel, we had not yet taken the deposition so we

weren't sure what it was called. But we wanted no know what it

was they were relying upon for this rate that they had

disclosed.

Then they continued to produce another 130,000 pages

of documents.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 21 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:21PM

02:21PM

02:22PM

02:22PM

02:22PM

UNITED STATES DISTRICT COURT

22

THE COURT: Before we get to that, this is just a

heads up for Mr. Sturr, my recollection is these lost profits

are because you are dealing with marginal costs. 32 years ago

I tried a six-week jury trial on lost profits and it's all

marginal cost. You don't get to grab in overhead that you

otherwise have. So that's for Mr. Sturr to satisfy my

curiosity. But go ahead.

MS. ANDRESEN: That is an analysis that Mr. Mroz was

conducting. But at that time we had roughly just some work

orders and we had their financial statement. So he was trying

to do the analysis with the minimal amount of information we

had preparing for his upcoming expert report and the

depositions. And then each time new information was given, we

would have to evaluate that, see if there was any use to it.

As I said, most of that was information we did not request, and

trying to continually adjust our preparations.

Then in early February, because the motion was

completely briefed at this point and it was pending before the

Court, we asked CMS on two different times if we could move the

depositions and move the expert report deadline to see how the

Court ruled on the motion. Because we knew if it was granted

there was going to be a significant amount of information that

would come that would be helpful in those two endeavors, and

they refused both requests. So we felt we had no option but to

go forward with the deposition and to have Mr. Mroz issue his

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 22 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:23PM

02:23PM

02:23PM

02:24PM

02:24PM

UNITED STATES DISTRICT COURT

23

expert report, which we did.

After both of those were completed, we received the

Court's order. And at that point we quickly tried to get a new

schedule before the Court. We were unable to agree with CMS on

exactly what would be warranted, but in the few days we had

before we had to submit something to the Court it was clear

that there was going to be some disagreement about what we

thought we wanted and what CMS wanted to produce to us.

I think the reading of the Court's order may have

suggested to CMS that you had concerns about their disclosures

to date and the information they had provided, and they saw

that order as an opportunity to start filling the record with

information to support their claims; otherwise they may be

stricken. And we wanted to resist that. We wanted only the

documents that we had requested. And again, the landscape had

changed somewhat because after we filed the motion we took

those depositions and we issued our expert initial report.

After that, CMS continued to supplement on the

deadline that they had proposed in the Court order. They

produced all of the things that they had proposed, many of

which were not requested by PetsMart, many of which we still

don't understand why we received. And then, of course, last

week we get this stack of documents and a brand new disclosure

disclosing yet again a new damages calculations on the lost

profits.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 23 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:24PM

02:25PM

02:25PM

02:25PM

02:26PM

UNITED STATES DISTRICT COURT

24

That disclosure specifically says it's addressing

points that were made in our deposition where we identified

deficiency in the information. They had been telling us that

these giant Excel spreadsheets were taken essentially cut and

paste directly from their underlying accounting system, and we

were finding errors in there. So now they have corrected the

documents. We thought that drew some questions as to the

reliability of the data, and it was further evidence as to why

we didn't think they could support their lost profits with any

reasonable certainty as would be required.

And Mr. Mroz's expert report also identified several

problems with their damages, and lo and behold, they also

supplemented their interrogatory response on this burdened

labor rate which he, if you turn to -- let's see. Page 16,

here's an excerpt from Mr. Mroz's expert report where he says

that plaintiff did not provide any calculation detail or

support documentation to show how it derived the burdened labor

rate used in the claim nor any support documentation for the

accuracy and completeness of these rates.

On the May 1st disclosure following the Court's order

on the Motion to Compel, they supplemented an interrogatory

that we had not moved on. It was not included with what we had

requested. We asked for the burdened labor rate schedule,

meaning the documents Mr. Bull talked about in his deposition

he said he created in 2001 in the deposition. Instead, they

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 24 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:26PM

02:26PM

02:27PM

02:27PM

02:27PM

UNITED STATES DISTRICT COURT

25

supplemented the interrogatory, provided much more detail,

essentially went directly to what Mr. Mroz had said in his

report were deficiencies and tried to correct them. And not

only did they do that but they also offered another alternative

burdened labor rate calculation method.

Essentially, it seems as though our win on the Motion

to Compel has been used as opening the door for CMS to change

its theory. And as the Court indicated, lots of money has been

spent through our expert, through our attorney time, trying to

get these documents, trying to get our heads wrapped around it,

trying to move this case forward and aim at what has become a

shifting theory and a moving target. And it has continued to

cause prejudice.

THE COURT: All of it after my schedule had expired.

MS. ANDRESEN: Correct.

THE COURT: Please continue.

MS. ANDRESEN: Under the rules, under Rule 37, I think

there can be no dispute. And I think the fact that CMS

supplemented -- didn't supplement, I'm sorry -- issued its

first Rule 26 Disclosure Statement on the lost profits

calculations with that backup data last week is an admission

that they did not comply with the Court's order. And they

issued that without talking to PetsMart. I saw no movement

with the Court asking for permission to file that late.

So that's a clear violation of Rule 37(c). And under

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 25 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:27PM

02:28PM

02:28PM

02:28PM

02:29PM

UNITED STATES DISTRICT COURT

26

the rules, if you look at Page 11, the cases call that an

automatic self-executing sanction. It means that the

information that was not timely disclosed must be disclosed

from a trial, from a motion, or a hearing.

THE COURT: I think I have to make a ruling to exclude

it. So I don't think you can show up at a trial and say, oh,

that was automatically excluded. Anyway, please continue.

MS. ANDRESEN: Yeah. Sorry. I agree.

The only way to save that belated disclosure was to

show that it was substantially justified or harmless. And the

cases that look at this issue focus on when did the party that

failed to disclose it in a timely fashion, when did they know

about that information? Was it in the hands of the other party

and it was, you know, put into their hands late in the game and

that's why it took so long for them to disclose it? We know

that's not the case here that's all of their financial

information. And we also know that they identified lost

profits at the very beginning of this case, and they chose

later to remove that from their complaint and decide not to

seek lost profits. So they can't say this is an idea they came

up with late in the game, either.

Because they have not shown substantial justification,

and they have not shown that it's harmless, we believe that the

Rule 37(c) sanction to exclude their lost profits evidence and

calculations is required under the rules. And even though

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 26 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:29PM

02:29PM

02:30PM

02:30PM

02:30PM

UNITED STATES DISTRICT COURT

27

PetsMart is not -- the burden is on CMS to prove that it was

harmless or to prove that it was substantially justified. And

even though it's not PetsMart's burden, there is a lot of

evidence before this Court in our motions showing that there

was harm to PetsMart.

THE COURT: Harm seems obvious. But go ahead.

MS. ANDRESEN: And I agree. And the harm is

multi-fold. The money and the time and expenses wasted as we

keep readjusting and re-evaluating the new theories as they

come forward; the inability to conduct complete and follow-up

discovery on that initial lost profits interrogatory answer and

then also having our theories and our analysis exposed and the

opportunity for CMS to respond to it in a way that betters

their position and weakens ours after the close of discovery

and prohibiting us from having a closed record on which we were

moving on our expert analysis.

We believe that the Court's May 22nd order

specifically warned CMS not to put new information into the

record, that it did not believe it would be appropriate for CMS

to use your order compelling discovery as an opportunity to

inject new information into the record. But despite that fact

if you turn to Page 15, there's a list in this PowerPoint of

documents and information that was provided that we did not

specifically request. And then, of course, there is a list of

things that we did request that have not yet been provided.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 27 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:31PM

02:31PM

02:31PM

02:32PM

02:32PM

UNITED STATES DISTRICT COURT

28

For those reasons, we think there's no justification.

We think the harm is evident, and we believe that the lost

profits calculations and the supporting evidence should be

stricken.

THE COURT: Let me walk through the mechanics of this.

How is that different, or is it different, from what I

just hypothesized at the beginning of we just wind back the

clock, wrap this case up the way it was as properly disclosed?

Maybe it is no different.

MS. ANDRESEN: I don't think it is any different.

THE COURT: Maybe more discovery. If there was some

discovery that could have been done that would have been done

that would be unfair to let it go unfinished then I would allow

that. But is that any different from what you are asking for?

I'm not sure.

MS. ANDRESEN: No. No, it is not. It would

essentially be to wind the clock back to the last appropriately

disclosed damages, which I believe would be just the deferred

billing of the $3.5 million revised calculation.

THE COURT: All right.

Ms. ANDRESEN: Unless the Court has any further

questions.

THE COURT: All right. No. I will hear from whoever.

MR. STURR: Good afternoon, Your Honor. Geoffrey

Sturr on behalf of the plaintiff.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 28 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:32PM

02:32PM

02:33PM

02:33PM

02:34PM

UNITED STATES DISTRICT COURT

29

Thank you for your musings. I see I have some tough

sledding ahead of me. The good news, Your Honor, is --

THE COURT: Well, let me just supplement my musing.

I'm trying to think through a practical way out of this swamp

that's fundamentally fair. Anyway, go ahead.

MR. STURR: I'm going to do my best, Your Honor, to

re-create the image of the swamp that we think is not entirely

accurate. We don't think it's a swamp.

THE COURT: I feel very much in the middle of a swamp.

MR. STURR: Well, the good news, Your Honor, I just

want to highlight this point. On the second point you issued

the lack of time you have in the discovery issues, we have met

and conferred. We have made substantial progress. We have a

document to share with you that we can walk through efficiently

that I think will close out those issues when we get to that

point. So I don't expect to be with you tomorrow.

Your Honor, let me go back to a point you made in your

musings that you thought that this was a lost profits claim

that was no secret that could have been pursued from the

outset. And I want to correct what Ms. Andresen said about the

early stages of the case. She was not here. That the original

theory of the case in the original complaint sought damages

solely for what we call deferred billings. These were payments

that should have been paid before termination that were not

paid.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 29 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:34PM

02:34PM

02:34PM

02:35PM

02:35PM

UNITED STATES DISTRICT COURT

30

THE COURT: I have got to be sure I'm clear on that.

I thought they got paid monthly, whatever the contract said.

MR. STURR: They were paid monthly. There was an --

we alleged in the complaint there was an agreement to reduce

the monthly payments to help PetsMart meet its budget

requirements. And we said, in reliance on that, we believed

this was a five-year contract and the that we were entitled to

the difference between the deferred billings that we received

and the full amount we could have charged. That was the

original theory of the case. And that was a breach of contract

claim that only addressed the damages that were not -- excuse

me -- billings that were not fully paid on the date of

termination.

THE COURT: Okay. Let me, again, I want to explore

that a little bit. This is coming back to me. But --

MR. STURR: I will get to your question --

THE COURT: Hold on. I want to get that foundation,

make sure I'm clear in my mind. They had a contract that paid

a certain amount, and did it say straight out this is a

five-year contract, or is that a matter of inference? You had

a contract with a monthly rate, right?

MR. STURR: We had a contract for which we were

allowed to bill certain amounts for services, so it fluctuated

based on the services performed.

THE COURT: Right.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 30 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:35PM

02:36PM

02:36PM

02:36PM

02:36PM

UNITED STATES DISTRICT COURT

31

MR. STURR: The client came to us and said, I can't

meet my budget. So we said, okay. In exchange for making this

a five-year contract, we will reduce those billings to a flat

amount. So we billed that for a period of time. The contract

gets terminated, and we say, the contract says you can't

terminate unless you have paid for all services. Well, if you

back up and say we didn't bill you for the full amount, we are

entitled to the delta, that was the damage claim. It was for

the full amount we were entitled to receive but did not receive

because of this oral agreement. So that was --

THE COURT: Oral agreement?

MR. STURR: Oral agreement with PetsMart to modify the

contract to allow for these payments.

THE COURT: I'm sorry. Was the five-year term an oral

term?

MR. STURR: We allege that we had detrimentally relied

on the promise that the contract would extend five years.

THE COURT: The answer is was the five-year term an

oral term?

MR. STURR: No. It's written in the contract.

THE COURT: Whatever she says is right.

MR. STURR: My point, Your Honor, is that was the

theory of the case. We were not seeking future lost profits,

as Ms. Andresen said. In fact, if you look at the complaint,

all we said was -- and this was that you challenged us at the

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 31 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:37PM

02:37PM

02:37PM

02:38PM

02:38PM

UNITED STATES DISTRICT COURT

32

initial Rule 16 conference -- was we alleged in the complaint

that we were entitled to recover either our damages or profit.

And you said how are you going to do that? We had a discussion

about which is it? It was an election of remedies. And we

agreed with you.

Remember also Mr. Akbar was here, Your Honor, and

PetsMart's position at the time was they were -- they had

justifiably terminated the contract. They asserted a

counterclaim to say, you had poorly performed services. So

when we brought the case to you, we were only seeking damages

for the unpaid amounts. We did not think based on the contract

that we had a basis for pursuing a separate lost profits claim.

THE COURT: Hold on. I have to -- I have not

assimilated your tailor-made vocabulary yet for this case.

What word do you want to use to identify the additional

increments of what you say you should have gotten and they

impliedly agreed to if you terminated as opposed to the term

that had a lower rate --

MR. STURR: We referred to that as deferred billing.

THE COURT: Deferred billing.

MR. STURR: Deferred billing. Okay. And we initially

targeted that number at two and-a-half million. We amended the

disclosure to say we didn't calculate it properly. It's

actually 3.4 million. But the term you see is deferred

billing.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 32 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:38PM

02:38PM

02:38PM

02:39PM

02:39PM

UNITED STATES DISTRICT COURT

33

THE COURT: What would that be if that were a

terminable at will contract? Those would be the rates that

would be paid?

MR. STURR: That's what makes the case interesting,

Your Honor.

THE COURT: There's a whole lot of interesting stuff.

MR. STURR: This is an unusual contract. It's a

commercial contract, but it has a termination for convenience

provision. And I don't know if you did any government

contracting work. Termination for convenience is a term of art

in the government contracting world. You rarely ever see it in

a commercial contract. When we took on the case, we looked at

it. We didn't know why PetsMart terminated the contract. We

saw from the counterclaim that their theory was we had been

poor performers as evidenced by the counterclaim. So when we

were here with Mr. Akbar, we were not talking about lost

profits for future revenue. We were saying for that past

billing, deferred billing, and you sensibly said, come on. You

are either going to get the benefit of the bargain or you are

not going to try to prove lost profits from that. We said, you

are right. So we dropped it.

Now, you also said to Mr. Akbar, what's your proof?

Are you going to get expert testimony about our poor

performance? PetsMart decided they couldn't prove the case, so

they dropped their counterclaim. We then took two key

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 33 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:39PM

02:39PM

02:40PM

02:40PM

02:40PM

UNITED STATES DISTRICT COURT

34

depositions. And this goes back to your point, Your Honor,

that how on earth could we not have disclosed this. We didn't

know until we received their discovery, we analyzed their

internal communications about the contract, we received the

grounds for termination. We learned they hired a consulting

firm to come in and say, hey, you can make money by canning

this company.

THE COURT: You can get a better price with somebody

else.

MR. STURR: If you get a better price. We then took

these depositions two key witnesses; the person who negotiated

the contract and the person who decided to terminate it. They

said unequivocally, no question with performance. Great work.

Not an issue. We're only doing it to get a better price.

Now, going back to the government contracting model

and this rare concept of a termination for convenience, we have

researched the issue under various states. Courts have looked

at these contracts and said, you cannot terminate for

convenience and say I have the unilateral right to terminate a

contract. It's governed by the Covenant of Good Faith and Fair

Dealing. So you can't just cancel the contract to get a better

price.

THE COURT: What kind of words can you put that label

on? Label is termination. What does it actually say?

MR. STURR: The language --

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 34 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:40PM

02:41PM

02:41PM

02:41PM

02:42PM

UNITED STATES DISTRICT COURT

35

THE COURT: You don't have to read it to me.

MR. STURR: It says termination -- in government

contracts you see it all the time and there's a whole body of

case law that says you can terminate for any reason. But what

it says is they have the right to terminate for -- any party

may terminate this agreement or any sale for convenience upon

30 days notice. So what does that mean? Our belief --

THE COURT: It sounds like a contract terminable at

will by either side.

MR. STURR: Our belief, Your Honor, and you may

disagree.

THE COURT: I'm just talking.

MR. STURR: The case law says you incorporate the

Covenant of Good Faith and Fair Dealing and it doesn't give

somebody a right to cancel the contract for no reason at all.

Now, you may ultimately disagree with this. This is why,

Judge, you say why didn't you assert this earlier? We couldn't

have made that claim in good faith until we took that

discovery. And we concluded that discovery in September, I

believe, of last year.

THE COURT: You have got to walk me back because that

goes to whether you have a breach of contract at all. What

does it have to do with not being able to figure out or at

least assert a theory of damages?

MR. STURR: Well, we didn't know we had the evidence

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 35 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:42PM

02:42PM

02:42PM

02:43PM

02:43PM

UNITED STATES DISTRICT COURT

36

to argue that the termination had been in bad faith.

Essentially we were saying they do not have the unilateral

right to terminate.

THE COURT: That's liability. That's not damages.

MR. STURR: We needed the evidence to even make the

argument. Particularly when they came in with a counterclaim

saying poor performance, we had found out they had no reason

for terminating except to get a better price. That's how we

got here.

THE COURT: I understand that. But I'm lost as to how

that has to do with your inability to say, hey, we're going to

go for lost profits. You found out that their defense -- well,

it's complicated. But that makes no sense to me how that

prohibited you from deciding on day one, we've got a breach of

contract. We've had some historic time. We've got this theory

how we can back charge. We've got some future time on it.

That's lost profits. That's not rocket science.

MR. STURR: Well, I'm not as smart a lawyer as you,

Your Honor. I'm telling you the truth about how we got to this

point, okay. We did not believe we could have asserted that

claim until we had that discovery.

THE COURT: I don't find that to be persuasive, not --

it's because I don't understand it.

MR. STURR: Let me get to the more important point

about the record before you as to what was disclosed and when

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 36 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:43PM

02:44PM

02:44PM

02:44PM

02:44PM

UNITED STATES DISTRICT COURT

37

and whether there is, in fact, as Ms. Andresen has said, any

prejudice here.

So and I also want to address your point broadly

before I get to it. This is not a case where we keep opening

doors and finding and changing theories. That's not what

occurred here. What occurred here is we made a disclosure once

we thought we could pursue the claim. So we served a Rule 26

disclosure putting PetsMart on notice that we're going to

pursue the claim. We were still trying to address what the

claim was and what the damages would be. Our Disclosure

Statement says we're currently estimating it to be a claim

based on an extrapolation of the monthly revenues we did not

receive.

We quickly corrected that. We engaged in discussions

with PetsMart's counsel. We engaged in letters. They served

discovery on us. And by November of 2016, they had written

discovery responses that identified the theory of the case,

which is lost profits, and the method of calculation. All of

that was --

THE COURT: But method of calculation, what I heard

from Ms. Andresen was revenues minus cost. Well, is there more

than that?

MR. STURR: It was much more than that. And the best

evidence for this, the best evidence in the record for you, and

this goes to the Rule 37(c) question of whether this was

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 37 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:45PM

02:45PM

02:46PM

02:46PM

02:46PM

UNITED STATES DISTRICT COURT

38

harmless or not. Now, if you look at the plaintiff's -- you

don't have it in front of you but let me cite it to you. The

plaintiff's Motion to Compel, which is Doc 101, that was filed

on January 7th. It expressly says, Pages 4 and 5 of Doc 101,

that it acknowledges that in November we served interrogatory

answers which disclosed an undisclosed damages calculation

based on lost profits for contract services as well as lost

profits for two other revenue sources, out of contract

services, ancillary work. It goes on to quantify in the motion

what that was, the precise amounts: 3.5 million for the

deferred billing, 13.4 million in lost profits for contract

services.

THE COURT: Go head.

MR. STURR: All of that was disclosed.

THE COURT: Footnote, right there. Those two damages

sound inconsistent.

MR. STURR: I'm sorry, what?

THE COURT: Those two damages sound inconsistent.

Hard to see how you get both, both the back billing charge

because of the termination and this theory of lost profits for

the future.

MR. STURR: Your Honor, I don't want to get too -- the

question for you is what did they know and when did they know

it, okay? And was this as they claim, or are they completely

in the dark and did we keep shifting our theories? I want to

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 38 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:46PM

02:47PM

02:47PM

02:47PM

02:47PM

UNITED STATES DISTRICT COURT

39

make the point that in November of 2016 there is no question,

none at all, that they knew that we were seeking approximately

$20.5 million of damages.

THE COURT: Had you done an adequate Rule 26(a)

disclosure on it, and -- I mean, again, I don't want to throw

you off your train of thought. But one of my concerns, you

don't have to answer it now, is was this done in a time frame

where it reasonably could have been completed discovery within

our case management schedule? Because if it was done later

than that, there's a big problem.

MR. STURR: This information was disclosed, the

damages we were seeking, it was disclosed initially in October

and the specific interrogatory answers that identified that the

amount we were seeking and the method of calculation and, most

importantly, Your Honor, our damage witness.

THE COURT: What was my -- I'm sorry. What was my

close of discovery time?

MR. STURR: For fact discovery, it was late December.

And we did agree, we negotiated with Mr. Akbar, who was

predecessor counsel, to extend discovery deadlines in order to

accomplish the discovery based on these disclosures. This was

agreed to by the parties.

THE COURT: But it was not successfully accomplished

or else I wouldn't have been here to deal with this.

MR. STURR: Judge, with due respect, I think your

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 39 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:48PM

02:48PM

02:48PM

02:48PM

02:49PM

UNITED STATES DISTRICT COURT

40

understanding of the record I hope to correct, because I don't

think that's really accurate.

THE COURT: Everybody can correct -- my understanding

of the record is inferior to that of all others.

MR. STURR: Let me take you, Judge, we're in November.

If there's any fact discovery to be taken it could have been

done. We decided, after taking the depositions of only those

two PetsMart witnesses, we didn't want to take any more

discovery.

THE COURT: Slow down five miles an hour. My court

reporter is authorized to issue speeding tickets.

MR. STURR: Am I that bad? Guilty as charged.

So what discovery occurred before the December cutoff?

We took the depositions of two of PetsMart's witnesses. Ms.

Andresen was able to take the depositions of three witnesses in

Florida, I believe. And the only other material witness in

this is Mr. Bull, the president of CMS, who we identified as

our damages witness.

So we understood that they could take discovery in the

damages portion of the case which had not been completed. So

yes, this theory of the case, the method of calculating

damages, and the source material for that was disclosed in

November.

I want to take you back to Doc 101. Before you issue

anything in this case, I'd like you to go back and look at it.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 40 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:49PM

02:49PM

02:50PM

02:50PM

02:50PM

UNITED STATES DISTRICT COURT

41

Doc 101, Pages 4 to 5, here's why it's important, Your Honor.

PetsMart summarized in its Motion to Compel what we had

disclosed, by category, how it was calculated. They attached

an affidavit from Mr. Mroz. Mr. Mroz conducts an analysis of

our damages. He has no trouble understanding the theory of

damage, the amount of damage, and how they are calculated. The

only question that was presented by the motion was, do they

have enough evidence of our costs in order to get --

THE COURT: Well, I don't think I read Mr. Mroz's full

report, but I think I had a general understanding of it. But

my general recollection is the facts to underlie it, it's one

thing to come up with a simple theory of economics. It's

another to have documents to back it up. I thought that's what

he was complaining about.

MR. STURR: Let me make one point here. Hopefully

this will stick.

THE COURT: You get to make all the points you want.

So go ahead.

MR. STURR: The key point, and you've got your

highlighter out, from Doc 101 is this sentence: After

summarizing what our interrogatory answers said, $20 million of

damage, CMS never formally disclosed in any Rule 26 filing an

intent to seek damages for lost profits from these revenue

sources. They knew then -- now, I will get to why we didn't

issue a Disclosure Statement. But the point is for purposes of

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 41 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:51PM

02:51PM

02:51PM

02:51PM

02:52PM

UNITED STATES DISTRICT COURT

42

26(a), they knew in November, they have admitted in November,

even if it wasn't in a formal Disclosure Statement, the nature

of the damage claim and how it was calculated. They attached

Mr. Mroz's declaration. If you read his declaration he goes

into detail, Your Honor, about what we had already provided.

We had already provided information about our cost accounting

system, how we allocated for cost.

Ultimately the motion came down to two things: They

wanted more information on our costs and they wanted more

information on mitigation. But there was no question that they

understood and knew what the claim was. We did not change it.

It was disclosed in November before the fact discovery cutoff.

THE COURT: Well, you know, but that's part of their

challenge. Another part of it is even if you actually

disclosed everything you had to, it was too late to be usable.

If you had disclosed it the day before the deadline, that's not

enough. A month before the deadline, we're talking a month or

two months before the deadline. So there's a practicality --

that's why the rule says that the supplements have to be

timely.

MR. STURR: But, Your Honor, let me go to another

point. I just want to dispute what Ms. Andresen has told you

that our theories keep changing and shifting, et cetera.

THE COURT: What about these two new components of

damages?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 42 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:52PM

02:52PM

02:52PM

02:53PM

02:53PM

UNITED STATES DISTRICT COURT

43

MR. STURR: They are not new components. Let me jump

ahead to a point I want to make to you that you may not accept.

This is not in our papers, but I did tell Ms. Andresen this

yesterday in our meeting on the question of why didn't we do a

supplemental disclosure statement. This may not constitute, it

probably doesn't in your mind, substantial justification but I

think you need to know why didn't we.

The answer is we were preparing a supplemental

Disclosure Statement in December in time for the deadline that

was consistent with the amendments we were making to our

interrogatory answers. It was in draft form. It was ready to

be served. We didn't do it, and that's my fault, Your Honor.

And then we set it aside because we received a Motion to Compel

that said we know what your damage theory is. So the truth to

you, Your Honor --

THE COURT: They knew the theory. They didn't have

the basis to see whether it's valid or not.

MR. STURR: No. No. No. No. Go back.

THE COURT: Go ahead.

MR. STURR: Your Honor, that's not what they say.

They don't dispute the validity of the theory. The Motion to

Compel says we need more information to bring their profit

number down. It's not that they don't understand it or they

can't challenge it. They just say we need more information.

And this is a direct quote from the motion. All they were

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 43 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:53PM

02:53PM

02:54PM

02:54PM

02:54PM

UNITED STATES DISTRICT COURT

44

seeking in that motion, "We're unable to determine if any of

these expenses should be excluded from the lost profits

analysis. We need this additional financial information to

identify all variable expenses." This was not a question of

sufficiency under --

THE COURT: I thought your approach was you had just

as a general -- you looked to all your subsidiaries and came up

with a gross number as your overhead and you subtracted that

out. I thought that was -- at least I remembered that earlier.

MR. STURR: We provided as much as we could informally

and formally with information about the company's financial

situation. We produced financial statements for the parent

company, all the subsidiaries. We provided explanations for

cost. We provided a tremendous amount of information. Most of

the information they seek, and this is part of the challenge in

this case, this is a paperless company. There are some 700,000

work orders that are relevant to the work it performs. We have

tried, we began doing it back in December and January, to

provide them with all of that information. It is a lot of

information but it's been provided.

Ultimately, Your Honor, after the Motion to Compel was

granted, they have the entire general ledger.

THE COURT: Part of what I want to say here is, and I

remember this from the Motion to Compel, it is not sufficient

to dump primary business data from which accounting data would

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 44 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:55PM

02:55PM

02:55PM

02:56PM

02:56PM

UNITED STATES DISTRICT COURT

45

be compiled. They don't have to compile the data.

MR. STURR: Your Honor, we didn't do that. We gave

them a summary of all of these costs and expenses. And in

addition, in addition, we gave them the source documents, the

work orders. We have since given them the entire general

ledger for the company. We provided them, instead of dumping

700,000 work orders on them, we instead distilled all that

information into an Excel file that gives them, for every work

order the company has ever issued, the cost, who worked on it,

and other information that they say they needed.

THE COURT: So you are coming up with a, well, a sort

of a cost rate based on your averages of all your companies and

your subsidiaries, right?

MR. STURR: We are -- the damages are based, in part,

on the revenue that was billed reduced for its costs. And

there's been a very extensive and thorough analysis of what our

costs are.

THE COURT: For your whole company?

MR. STURR: Exactly. Now the other point --

THE COURT: Man, I can smell this Daubert motion

coming in six months. But let's not worry about that now.

MR. STURR: That's another trench I've got to get out

of with you.

But the point I want to make, Your Honor, going back

to the disclosure, because I want this -- I want you to

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 45 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:56PM

02:56PM

02:57PM

02:57PM

02:57PM

UNITED STATES DISTRICT COURT

46

understand this. I have said this to Ms. Andresen. The

failure to serve it I will take responsibility for. We set it

aside because we were so involved in trying to give them what

they wanted, comply with the Motion to Compel, and give them

information. What we ended up doing, not because of your order

or not because we thought we had done anything wrong, we wanted

to give them a disclosure that synthesized in one place all of

our previous damages disclosure. And the way this case has

worked, because of the nature of the financial information, we

have given them very large financial statements, Excel files,

these enormous spreadsheets that summarize various factors or

costs. In fact, during Mr. Bull's deposition, in order to

facilitate the deposition we were providing, at their request,

additional spreadsheets.

THE COURT: They complain about that in their brief

that they were shooting in the dark at a target that was

supposed to have a spotlight shined on it.

MR. STURR: I don't know if it's shooting in the dark

or a minor error. We disclosed before the deposition a minor

error in calculation and we give them a new spreadsheet and

it's a discussion at the 30(b)(6) deposition.

Now, let me get to my main point, Your Honor. We felt

that we had an obligation to provide -- and you may fault us

for doing this -- an updated Disclosure Statement that --

THE COURT: You do not get to improve your case.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 46 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:57PM

02:58PM

02:58PM

02:58PM

02:59PM

UNITED STATES DISTRICT COURT

47

MR. STURR: I'm not improving the case, Your Honor.

What the Disclosure Statement does is goes back in time and

summarizes on prior dates what information we disclosed. And

the point I want to make to you, and because Ms. Andresen has

mentioned it, I'd like -- if I may approach, Your Honor.

THE COURT: You may.

MR. STURR: This is Page 11 from the Disclosure

Statement. There's a chart there, and I'm going to have to

speak from memory because I don't have it in front of me now.

You can see on various days that the amount of damages we seek

has not changed except incrementally, it's been reduced

slightly to correct the errors that we discovered in the

process in the method of calculation. So if you go back and

look at each of those dates, our theory of the case, what we

have claimed has not changed at all. And the reason we

provided this information is not to dump more information.

That printout of the spreadsheet Mr. Andresen has brought with

her for effect, all that is is a compilation of previously

disclosed spreadsheets.

There's no hiding of the ball here, Your Honor. We

have said from November forward these are the elements of

damages. These are lost profits. This is how they are

calculated. We discovered an error in January of 2017. We

corrected it. But we're still -- that correction was a 1

percent reduction in the total amount sought. This is not a

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 47 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

02:59PM

02:59PM

02:59PM

03:00PM

03:00PM

UNITED STATES DISTRICT COURT

48

case where we're impeding their ability to get information.

So what occurred since then? So you granted the

Motion to Compel, and I know we'll talk in a minute about the

discovery there. I disagree with what Ms. Andresen has said to

you. We couldn't agree on what the scope of the order should

be. When we began producing documents on May 1 and

interrogatory responses we tried to deadlines responsive to the

specific categories in Doc 118 that they had requested, and we

have done that.

THE COURT: You had a big data dump, too.

MR. STURR: There's no data dump, Your Honor. What we

provided is, in response to the request for information, we

provided a very large file. We, A, we gave them the entire

general ledger.

THE COURT: Well, I can't think of a better data dump

than the entire general ledger.

MR. STURR: Your Honor, they asked for it. Excuse me,

Your Honor. This was the key point -- this is no data dump at

all. So you have a company that's $150 million company.

Right, Michael?

MR. ALLWEISS: 120 million.

MR. STURR: They have the keys to the kingdom. They

wanted it so we gave it to them. We produced the entire sequel

file.

THE COURT: I guess I'm wrong about that, but it is

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 48 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:00PM

03:00PM

03:01PM

03:01PM

03:01PM

UNITED STATES DISTRICT COURT

49

clear to me they complained about being delivered with massive

data they did not request.

MR. STURR: The complaint in the past may have been

that they didn't want all of the .pdfs of all the work orders

but we separately gave them a summary of what they said. Now

we have 700,000 work orders. They want to know what's our cost

structure. So they want to analyze all those. So what have we

done? We gave them the entire general ledger so they can do

all that analysis. And Mr. Mroz and his firm are capable of

doing that analysis.

We gave them, in a spreadsheet form, 700,000 work

orders. So in that spreadsheet, it's going to summarize each

work order. When I went to your house and fixed your air

conditioning unit it's going to give the date, the work order,

who performed the work and other information. We could have

just dumped that on them. We prepared this massive electronic

file and gave it to them at their request so they could use it

to further analyze the claims.

We have given them what they wanted. We refrained

from producing the additional documents that we identified

because we didn't want them to accuse us of data dumping. All

we're trying to do is to move forward, give them what they

want, and complete discovery here.

So if you look back, Your Honor, our position here is

we have not hidden the ball. We have not changed our theories.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 49 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:02PM

03:02PM

03:02PM

03:02PM

03:02PM

UNITED STATES DISTRICT COURT

50

You may disagree with us as to why we didn't disclose this lost

profits theory until the summer of last year, but it's what it

is. And once we did it, we tried to act in good faith by

writing letters, meeting, giving them information.

And for purposes of this motion, Your Honor, we

believe that the admission or the acknowledgment in their

Motion to Compel that we had not made a disclosure pursuant to

Rule 26, we haven't updated it, but they knew the substantial

equivalent is right here. It's summarized, it's analyzed, and

it hasn't changed since then.

So for purposes of the rule, did they know our theory,

how we were calculating? Yes. They have had it since

November. It has not changed. The method of calculation we

have tried to adjust to make more accurate.

THE COURT: Was that 30 days before the discovery

deadline?

MR. STURR: Beg your pardon?

THE COURT: You disclosed on November 15. Was the

deadline December 15?

MR. STURR: The fact discovery was the end of

December, I believe.

THE COURT: Really? I never set -- this is an old

case because I think I never set discovery deadlines at the end

of December because I don't want to ruin people's holidays.

MR. STURR: No, we asked for it, Your Honor. We went

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 50 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:03PM

03:03PM

03:03PM

03:04PM

03:04PM

UNITED STATES DISTRICT COURT

51

to predecessor counsel and we said, here's what we're doing.

No surprise here. We're amending.

THE COURT: I mean my original deadline.

MR. STURR: We stipulated to extend it.

THE COURT: I'm not asking you that. What was my

original deadline?

MR. STURR: I believe, Your Honor, it was in --

THE COURT: I'm going to guess mid-December.

Mid-December is my guess, but I haven't looked it up.

MR. STURR: Our discovery plan had the initial

completion of fact discovery by September 30, which I think is

what you adopted.

THE COURT: Well, if you disclosed this in November 15

and you are already past the deadline? It must have been

extended before then.

MR. STURR: I believe it was, Your Honor. The

deadline as of August 30, Your Honor, the deadline was December

29 for completion of fact discovery.

THE COURT: All right.

MR. STURR: So, Your Honor, looking back at the big

picture, I'm sorry you feel you are in this swamp here. From

our perspective, the story that you have been told that we have

deliberately delayed and hidden and concealed information

simply is not borne out by the record.

THE COURT: I don't know that you need to have

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 51 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:04PM

03:04PM

03:05PM

03:05PM

03:05PM

UNITED STATES DISTRICT COURT

52

deliberately delayed. You just have to have delayed

prejudicially, if it was within your ability to disclose.

MR. STURR: Well, my point is the information was

disclosed. If you go back to their Motion to Compel, they knew

exactly what we were claiming. The only issue was did they

have enough evidence; not to understand our theory, they wanted

more evidence to try to bring our damages number down.

THE COURT: They wanted the data to see if your theory

actually cashed out. That's what lawyers do. They don't say,

oh, that's how much you want? That's not how lawyers operate.

So anyway, go ahead.

MR. STURR: Well, Your Honor, on this issue, our

position is -- I have tried to make it as clear as I can. I do

believe that for purposes of Rule 37(c), whatever -- we don't

think that there was a -- that this was really a harmful

non-disclosure. They knew what it was. We don't think the

sanction they are seeking is warranted under these

circumstances, which is to preclude us from bringing this

claim.

THE COURT: No, it's just holding you to your timely

disclosed damage computations.

MR. STURR: Well, Your Honor, the damage calculations,

although they weren't set forth in a Disclosure Statement, were

known to them before the end of fact discovery in November of

2016.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 52 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:06PM

03:06PM

03:07PM

03:07PM

03:07PM

UNITED STATES DISTRICT COURT

53

THE COURT: Well, let me -- I don't want to cut off

anything you want to say. I want to -- I touched on this

earlier. But this is a very big consideration. The discovery

rules and the case management schedules, it's not a "Gotcha."

If there's justification and good reason they will be extended.

But the -- forgive me for telling you what you already know,

but I deeply believe it or I would not be doing this job. It

is essential to civil justice that disputes be organized,

prosecuted in an organized, timely way and that deadlines be

effectively honored. You can get some slack here or there.

But the failure to do that back in the days when I was

a young lawyer was what brought the civil litigation system

into public disrepute. It was a scandal because the process

could be abused. People had ruinous expense. And one of the

key solutions to that adopted in Arizona and in the federal

rules is have reasonable, effective case management where

people say, all right, here's what we've got to do. We don't

get to do it when we feel like it. We have to do it in a time

when other people can respond. And all of the data show that

is essential to managing and keeping the cost of litigation

down. So we don't enforce the schedule just to be mean. We

enforce them because it's necessary to bring the still

ruinously expensive cost of litigation down some.

Now, what is -- most of the time that feels like an

abstraction because it's telling -- empowers the lawyers. I

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 53 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:08PM

03:08PM

03:08PM

03:09PM

03:09PM

UNITED STATES DISTRICT COURT

54

empower you to tell your clients, you have to get this done in

this time frame. I remember it's a -- you are my lawyer, I

can't deal with this now. Just give me more time. No, no, we

have now empowered you to make your clients do things on time

and we make you do things on time. In the long run, everything

gets done quicker. You don't have reinventing the wheels with

lawyers and clients going back over and over. You get it done

in an orderly time.

What is remarkable about this swamp is that I'm seeing

here a dramatic demonstration of exactly that, that here we are

seemingly at the -- approaching the end of discovery, a month

before discovery is done after having been extended with a

profound transformation in the nature of the lawsuit that here

we are now still fighting about what has to be done. Other

stuff has been done, maybe to naught.

But the broad theory of taking the timely discovery

and disclosures is part of it, taking those responsibilities

seriously so as to prevent the mushrooming of the expense of

litigation, this is the poster child for it. So most of the

time I enforce it because I fear the risks in the future. Here

I see it in an absolutely dramatic, concrete way that a case

that was litigated on schedule, plan -- you reminded me, I

appreciate it, in the Rule 16 conference you put it all on the

table. You knew that you had to fish or cut bait and you

didn't do it until a month before the disclosure. So now this

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 54 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:09PM

03:10PM

03:10PM

03:10PM

03:11PM

UNITED STATES DISTRICT COURT

55

has mushroomed.

So the question I have to address is -- I have to

address everything, but what's the best thing to do about that?

Do I just accept this 11th hour explosion of the litigation

into something new making it into a dramatically different

lawsuit five, six times the damages? Do I accept that or do I

go back and see what I can do to salvage what should have been

done? I have never had a discovery -- I have never had this

problem. It's never come up. This is the worst discovery

mess.

I managed for two and-a-half years the big class

action -- your firm might have been on it. Everybody was on

it -- challenging the health care of the state prison system,

all 10 prisons. I had one or two discovery matters a week and

I had them decided within 24 hours and I had that case ready

for trial in two years and seven -- nine months. So I promised

them that. They said it's impossible, It happened, only

because we had a trial date and they did settle right before

trial. But my point is at least that one I succeeded. I got

everything done. This one, this is a failure. Just the whole

case has mushroomed into a whole different case right on the

eve of -- so this counts as more musings.

But I'm also telling you why I am seeing this as a

serious problem. It's not just bean counting about time

limits. That has a purpose to it, and the purpose here has

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 55 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:11PM

03:12PM

03:12PM

03:23PM

03:23PM

UNITED STATES DISTRICT COURT

56

dramatically failed. So what can I do, what should I do, what

do I have authority to do, to bring this litigation? I don't

care whether you try your case or settle it. But we are going

to get it moved along. You can do whichever you want. But now

I'm -- so part of what I'm saying, Mr. Sturr, is all this stuff

has a real world consequence to it. It comes down to fairness

of preparation, cost of preparation. And that's why I said

Rule 26 is you have to timely supplement once you know. Well,

you knew when we sat in the Rule 16 that this is something you

had to deal with. So you dealt with it a month before the

close of discovery.

So anyway, I'm musing. Here's what I want to do.

We've been going an hour and a half. I want to take a short

break. I'm always in fear OSHA will come after me for abusing

my court reporter. We'll take a 10-minute break. Then I will

hear your brief reply and we'll see where we are. All right.

(Recess from 3:12 p.m. until 3:23 p.m.)

THE COURT: Ms. Andresen, you may reply.

MR. STURR: Your Honor, may I --

THE COURT: If you are not done, that's fine. Go on.

MR. STURR: Your Honor, frankly, I am concerned with

your closing comments that you are of the view, I take it, that

this is a theory that we could have pursued and didn't pursue

from the beginning. If I wasn't clear before, let me try one

more time.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 56 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:23PM

03:24PM

03:24PM

03:24PM

03:24PM

UNITED STATES DISTRICT COURT

57

If there is -- if there was a proper termination, this

was the original theory of the case that they had the right to

terminate, then we were suing for our contractual remedy, the

deferred billing. That was the theory of the case.

THE COURT: You know, that's taking me -- I thought

you were suing for wrongful termination, but maybe I am

assuming that.

MR. STURR: We asserted that they did not properly

follow the contract which said you can only terminate if you

have paid all invoices in full, and they hadn't.

THE COURT: What invoices were not paid?

MR. STURR: The deferred billing amounts.

THE COURT: That sounds like a chicken and egg

argument.

MR. STURR: That was the theory, Your Honor. And if

you then conclude that you don't have the right to terminate at

all, which is what we discovered, then we say you have

wrongfully exercised that right. We didn't know that, and we

didn't think we could seek damages for the balance of the

contract until we completed that discovery which was in

September -- taken on September 9th. We made the disclosures

by the end of that month.

So we did disclose this information. And I'm sorry.

I have done the best I can to try to convince you, Your Honor,

this is not something we sat on. We didn't think we had the

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 57 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:25PM

03:25PM

03:25PM

03:26PM

03:26PM

UNITED STATES DISTRICT COURT

58

ability to pursue that argument until the summer of last year.

We then had the balance of the year to complete the discovery.

When we amended our complaint, we did so with plaintiff's

consent, understanding what the theory was, what was remaining.

The other thing I hope -- I want to leave you with,

Your Honor, is that in terms of the schedule, what we're

talking really about is what you would normally call expert

discovery or damages discovery. We bifurcated it. We

concluded the fact discovery, but we deferred after the first

of the year at what damage is discovery. We are not using an

expert. We disclosed we would be using Mr. Bull as our damages

witness, and so all of that was still deferred.

So whatever late disclosure you may think occurred, it

didn't affect --

THE COURT: They complain that Mr. Bull is an

I-don't-know-nothing witness at the end of discovery.

MR. STURR: Your Honor, we could have supplemented,

and I should have supplemented the record to show the balance

of that deposition transcript. We don't think it's a fair

summary.

THE COURT: Everybody always quotes the best part of

the deposition.

MR. STURR: Exactly. It was a two-day deposition.

The point is, is there any mystery now about what the theory of

the claims are now? No. So our closing remark, or concluding

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 58 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:26PM

03:26PM

03:26PM

03:27PM

03:27PM

UNITED STATES DISTRICT COURT

59

remark, is we don't think that in terms of the harm this has

had on the plaintiff, it really has not. They have already

taken two days of deposition. They have gathered all the

information they need. Whatever additional information they

want to challenge or question our costs, which is what Mr.

Mroz --

THE COURT: You are not going to put on an expert, you

are just going to have Mr. Bull get up and propound --

MR. STURR: 701 witness, yes, Your Honor, as a person

with knowledge. We may call -- we have built into the

schedule, Your Honor, the ability to call a rebuttal witness.

So as we contemplated this back in the fall and the plaintiff

agreed we would finish fact discovery by the end of the year,

they didn't identify knowing our --

THE COURT: This is expert testimony. How does --

just because he's a litigant, how does he get --

MR. STURR: He has personal knowledge to give an

opinion, I believe, under 701 -- 702, excuse me -- as to -- as

an opinion as to the damages the company has experienced. That

was fully disclosed, Your Honor. That's in our Disclosure

Statement. So they have known that so we were bifurcating the

case from fact discovery.

THE COURT: What has been the disclosure, just what

came out in the deposition? Have they ever put together

anything other than I'm the guy and here's what I think?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 59 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:27PM

03:28PM

03:28PM

03:28PM

03:28PM

UNITED STATES DISTRICT COURT

60

MR. STURR: It was disclosed in a number of places.

The interrogatory answers disclosed that Mr. Bull would be the

expert witness providing damages. It provided information

about how they were calculated. We have sent a lengthy letter

December 6, other letters that are in the record. All that

information was provided. Now, by the end of the year if they

had concerns that they needed more fact discovery they didn't

ask us to extend the fact discovery deadline. What we're

talking about at that point is we had a period of time within

which for them to depose Mr. Bull, for their expert to issue a

report, for us to then depose their expert. If we wanted to we

could call a rebuttal expert then take additional discovery.

So the impact of this on the case is, really, is all on the

expert side or damages side of the case which is ongoing and

not concluded.

So in terms of unwinding the clock, I'm not sure what

there is to do. They have known since November what the theory

is. They don't have any other facts witnesses.

THE COURT: You and I speak past each other by knowing

what the theory is. You can say the theory in three sentences.

That doesn't make a case or give you a discoverable case.

MR. STURR: I'm sorry, Your Honor. What I'm not very

well saying is I'm trying to say for purposes of the Rule 26,

what is the claim that is being pursued, how are the damages to

be calculated, and what is the amount. That information,

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 60 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:29PM

03:29PM

03:29PM

03:29PM

03:30PM

UNITED STATES DISTRICT COURT

61

that's really the thrust of 37(c), or the motion, rather.

That's all we're supposed to disclose in our 26(a)(1).

THE COURT: How it's calculated. Anyway, I

understand.

MR. STURR: It's there. So, Your Honor, I wanted to

make that last point. And lastly, if you were contemplating,

Your Honor, striking the claim --

THE COURT: I'm contemplating everything.

MR. STURR: Well, my request would be --

THE COURT: I'm not striking the claim, it's just --

go ahead.

MR. STURR: We would ask, Your Honor, I have given you

just an excerpt from our supplemental Disclosure Statement.

But the purpose of that supplemental Disclosure Statement is

not as Ms. Andresen suggested to come up with new theories but

it does lay out in one place, start to finish, when we

disclosed, what we disclosed, what the amounts are, and how

they have really not varied. We would ask the Court to grant

leave --

THE COURT: If you would like to hand me --

MR. STURR: We would like to submit it for the record.

I don't have it with me. I don't know that you want it, Your

Honor, but I can give you the balance of the disclosure. May I

leave that with you?

THE COURT: Balance of what?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 61 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:30PM

03:30PM

03:30PM

03:30PM

03:31PM

UNITED STATES DISTRICT COURT

62

MR. STURR: I gave you one page out of our Disclosure

Statement.

THE COURT: This is the stuff you just gave today?

MR. STURR: Yes.

THE COURT: Oh. You may. Sure. I have to figure out

whether it matters.

MS. ANDRESEN: I have a spare copy if you would like

it. I was planning on using it myself. You are saving me the

trouble.

MR. STURR: If I may approach.

THE COURT: Is this my copy?

MR. STURR: This is your copy.

THE COURT: Do I get both of you to autograph it?

MS. ANDRESEN: There's one signature on it already.

MR. STURR: Your Honor, again, the purpose of the

supplemental disclosure, as untimely as it is, was really to

summarize in one place all that has occurred in the past. We

think it rebuts the arguments you have heard today and it

really makes --

THE COURT: You know, I have read the papers that we

come here with.

MR. STURR: We wanted to have this argument because we

believe the record is confusing and complex. But this will

distill in one place what happened and when and where things

stand. So with that, anything else?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 62 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:31PM

03:32PM

03:32PM

03:32PM

03:33PM

UNITED STATES DISTRICT COURT

63

THE COURT: All right. Good.

MR. STURR: Thank you for the time, Your Honor.

THE COURT: Any reply?

MS. ANDRESEN: I will try and keep this -- have some

flow to it, although I have got a lot of points kind of across

the board I would like to hit.

With respect to Mr. Sturr's last statement about Mr.

Bull being disclosed as their witness on the damages, that

disclosure came in the Disclosure Statement that was just

handed to you. That was the first time he was disclosed as a

witness on the damages. So if you turn to Page 2 of that

Disclosure Statement, you can see in bold and italics where he

was disclosed to testify on the calculation of damages. That

was the disclosure we received last Thursday.

THE COURT: I thought he just told me he's always been

their witness for damages.

MS. ANDRESEN: He was never disclosed as a witness on

that. The prior disclosure statement listed him as a fact

witness on the, let's see, on the termination, the agreement,

the five-year, the statement of work, the reasons for

terminations, and it says CMS's resulting damage. That's the

most it says about him on damages. So the first time he was

disclosed as a witness on the expert damages, on the lost

profits claim in a formal Disclosure Statement was last

Thursday.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 63 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:33PM

03:33PM

03:34PM

03:34PM

03:34PM

UNITED STATES DISTRICT COURT

64

They have said all along, and I'm sure you recall this

from our Motion to Compel, when we had questions about things

they kept saying when you take Mr. Bull's deposition, you will

understand. He'll be able to answer all the questions. He's

the only witness that knows anything about this. So they did

say that informally in our meet-and-confer process but there

was no formal disclosure by him of that by any deadline.

The other reason I intended on handing you this

Disclosure Statement myself is on Page 11, the table that

identifies what CMS is claiming to be their disclosure of these

damages. The very first date that they say they disclosed a

lost profits claim is November 15th of 2016. That was one day

after the last day to serve any written discovery. So PetsMart

found out about that the day after that deadline. So they were

unable to serve any additional written discovery under the

scheduling order on that newly disclosed claim. And again,

that was disclosed by attaching a separate set of documents

like the pile over there. There was a summary sheet and a

giant Excel spreadsheet that was more than a foot high. And

that was the disclosure. They had an interrogatory response

that referred us to that pile of an Excel spreadsheet that

required Mr. Mroz and his team to go through it before I could

come close to understanding what had been disclosed.

Prior to that the only Rule 26 disclosure was a

disclosure of lost revenues. That was all that was formally

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 64 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:35PM

03:35PM

03:35PM

03:36PM

03:36PM

UNITED STATES DISTRICT COURT

65

disclosed. And as a result, PetsMart tailored its discovery

that it served in October, last round of discovery, to that

lost revenue claim. Specifically, they said -- we asked: What

is your legal and factual basis for saying you are entitled to

the full monthly contract price for the remainder of the

contract? And yes, of course, we sought discovery on expenses

and variables costs because our intent was to say lost revenue

is not an appropriate claim. We're going to say that it must

at least at a minimum be reduced by some of the expenses.

And there was back and forth on every single document

that we received. Initially, we received only the consolidated

financial statement for the parent and they told us the

individual statements did not exist. We pushed and pushed and

they agreed to create financial statements. Then they produced

some supplemental documents that were the individual financial

statements that they said they created for purposes of the

litigation.

They also continued to produce volumes of Excel

spreadsheets related to work orders for other customers that we

did not request. These were the 130,000 pages, the 170,000

pages and this included until after the Court's order. Again

they produced large volumes of Excel spreadsheets that we did

not ask for and did not have meaningful information.

As to the sequel database that supports their general

ledger, that is something we requested. Because all along --

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 65 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:36PM

03:37PM

03:37PM

03:37PM

03:38PM

UNITED STATES DISTRICT COURT

66

THE COURT: What is that again?

MS. ANDRESEN: The sequel database. So that is the

database for a select number of years where the general ledger

balance sheets' financial statements are created out of that

underlying evidence. And so our expert wanted that evidence to

test and make sure it tied into the financial statements and

that it matched this Excel spreadsheet that they gave us of

their damages, those Excel spreadsheets that they gave us there

that suggested that it copied all of the expenses and labor

rates that they were attributing to the PetsMart contract.

We believe that they were vastly undervaluing the

variable costs. And the only way to test that, because they

kept telling us it was only labor and materials, was to get

underlying documentation so that we could look at the financial

statement and figure out which expenses went into that

financial statement that should be attributable to the PetsMart

contract. The reason we wanted the sequel database, the actual

database is so we could run searches and reports out of that

database in order to support their analysis of the underlying

claim. So that was one of the things we asked for in the

Motion to Compel.

But the important thing is so November 14th, the last

day to serve written discovery, the day after that we get the

interrogatory response. In that interrogatory response it was

the first time they had ever mentioned these two other

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 66 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:38PM

03:38PM

03:38PM

03:39PM

03:39PM

UNITED STATES DISTRICT COURT

67

categories of revenue that they thought they could seek.

THE COURT: I'm sorry, what was the date on that

again?

MS. ANDRESEN: November 14th was the date of the last

day to serve written discovery. So on the PowerPoint handout I

gave you, on Page 10, there is this timeline. So November 14th

was the last day to serve written discovery. November 15th is

the date they give us the interrogatory response. And the

first set of spreadsheets like that, this is now a modified, a

new set of spreadsheets with modified data that's correcting

errors and changing some things. We have not yet been able to

figure out what all has changed in there, but our experts are

working on that as we speak.

There was nothing else given to us before the December

29th deadline. They rely on their Disclosure Statement in a

letter that was sent from Mr. Allweiss to me in which they said

he disclosed another calculation of the lost profits. That is

in their Disclosure Statement. It's referenced in the chart.

That letter from Mr. Allweiss was a letter in our

meet-and-confer process. We were asking for additional

information from him.

And specifically, we said, you can't possibly be

seeking lost profits for ancillary work and out-of-contract

work on your breach of contract claim. It's never been

discussed in this litigation. We think we see some analysis of

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 67 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:39PM

03:40PM

03:40PM

03:40PM

03:40PM

UNITED STATES DISTRICT COURT

68

that in this Excel spreadsheet. That can't possibly be what

you are seeking here, because that does not make sense. It's

never been disclosed. And in response, Mr. Allweiss says, yes,

we are. And here, and references back to the Excel

spreadsheets that he gave us. And there was numbers in there

and when I read the letter, I did not notice that the numbers

did not match the summary that's in this foot-tall thing. And

he told us to essentially pound sand. We're not giving you any

more information.

I did not view that letter as a supplement to any kind

of disclosure whatsoever. I don't think there is any case out

there that suggests a letter telling us they are not going to

give us additional discovery and referencing a lost profit

amount in referencing back to a supplemental interrogatory

response is compliant with Rule 26.

And if you look again at Page 11 of that Disclosure

Statement, every other disclosure what they are calling a

disclosure, these were never in a Disclosure Statement -- these

were supplemental interrogatories responses -- or the

deposition. Every single one of those is after the close of

fact discovery. Every single one of those is changing the

damages calculation. It's changing the amount. And every time

they change an amount it results in us having to reevaluate the

claim and try and determine in that stack what is changing, why

is it changing, what errors were they correcting.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 68 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:41PM

03:41PM

03:41PM

03:42PM

03:42PM

UNITED STATES DISTRICT COURT

69

And again, a lot of this was done in response to

PetsMart's expert report, PetsMart's deposition questioning,

all of the things PetsMart was doing to break down their

damages and show why they were unreliable and shouldn't be

sustained. And instead of responding in a rebuttal they

decided to just correct the factual record and change the

factual record after we had already made our position firm in

formal disclosures.

That caused a lot of harm. That is not what -- and

again, all of this is after the close of discovery. That is

the problem here. No matter -- every time we ask for some

additional information to evaluate something the response is we

get something we didn't ask for. And it's usually something

voluminous and something we don't understand and then there's a

whole lot of back and forth again, and that is now injected

into the record. We haven't produced or put anything in record

after the close of the discovery deadline on December 29th.

CMS has put giant volumes of information into the record, most

of which we did not request.

That is the fairness argument. That is why we believe

that the damages should go back to the last final Disclosure

Statement that had an actual disclosure of damages, and that is

what CMS should be required to live with.

In response to the argument that they didn't know that

PetsMart terminated the contract under the termination for

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 69 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:42PM

03:43PM

03:43PM

03:43PM

03:43PM

UNITED STATES DISTRICT COURT

70

convenience provision, because, in part, because of price is

absolutely unfounded. In our Motion to Compel we attached an

exhibit as one example of that. When PetsMart was looking to

change contract providers, again, PetsMart all along, in every

contract, it always has a right to terminate for convenience

for either party upon 30 days notice.

THE COURT: I do recall that and that allegedly it was

just done for a better price. I recall that. I can't remember

if it was at the Rule 16 conference or later. But that's -- I

remember that.

MS. ANDRESEN: It's a standard term. And CMS was

trying to entice PetsMart to take that out of --

THE COURT: Specifically I remember the contention

that that's why this one was terminated.

MS. ANDRESEN: Correct.

THE COURT: Go ahead.

MS. ANDRESEN: And when it did that it issued a new

request for proposal to bunch of difference HVAC providers

including CMS. It sent them a proposal and said, we're looking

to have a new provider, and it gave them documents that said

specifically they were looking for a more cost-effective and

cost-competitive price so that it would be a total cost savings

to them. It was in the RFP. That was their main consideration

in finding a new provider. This was before the contract was

terminated.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 70 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:44PM

03:44PM

03:44PM

03:44PM

03:45PM

UNITED STATES DISTRICT COURT

71

So for CMS to sit here and suggest they didn't know

PetsMart was looking for a better price, PetsMart had been

complaining all along that it couldn't afford the cost that it

was is just simply untrue.

THE COURT: That was their discounted cost.

MS. ANDRESEN: And that was their discounted cost, and

PetsMart couldn't afford the discounted cost. It was taking it

out of its budget. The discounted cost was higher than what

the attachment to the agreement said would be the price. So

there's a disagreement there. No need to digress.

In the Motion to Compel reply, Exhibit 2 at Page 5, we

provided at least one document that showed this RFP that

PetsMart issued to CMS as well as others said we're looking to

replace the provider, and cost-competitiveness was a

consideration. So there's no secret they were looking for a

better price. And again, the Court already pointed out at the

Rule 16 conference it was discussed that lost profits, they

needed to fish or cut bait. Their very initial Disclosure

Statement suggested they had a placeholder for lost profits and

they eventually deleted that out of their Disclosure Statement.

We just think everything that has happened from

November 15th forward is untimely and it's caused prejudice to

PetsMart. PetsMart has been unable to keep up with, in fact,

it feels at times we have been drinking from a firehose of

information in trying to figure out what is helpful, what is

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 71 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:45PM

03:45PM

03:46PM

03:46PM

03:46PM

UNITED STATES DISTRICT COURT

72

harmful, what was requested, what is it matching the different

information they are giving us. And because this happened

after written discovery closed when we were no longer able to

serve any more, we could not serve any requests on their new

lost profits instead of lost revenues theory, there were two

new revenue sources that had never been disclosed. That's the

ancillary work and the out-of-contract work. No discovery on

those.

THE COURT: And that was disclosed in November?

MS. ANDRESEN: That was in response to our

interrogatory. That was included in our spreadsheet on

November 15th.

The burdened labor rate, which was not disclosed until

January 13, and then their supplemental burdened labor rate

that was not disclosed until May 1st in response to this

Court's order, which was not something we requested them to

supplement. We have not been able to have discovery on any of

those things. And importantly, we have already drawn a line in

the sand on a lot of issue and put forth our position and

formal disclosures on these damages and now they are adjusting

the factual record after the fact, correcting errors, fixing

all the mistakes in their database and their underlying, you

know, document calculations and changing their disclosure,

trying to disclose a new witness on the damages. And part of

the problem for this is they chose not to have an expert submit

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 72 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:46PM

03:47PM

03:47PM

03:47PM

03:48PM

UNITED STATES DISTRICT COURT

73

a report for PetsMart to aim at. And that was just doubly

difficult because they didn't disclose it in a Rule 26

disclosure, and they didn't have a formal expert disclosure.

So this sifting sands approach of changing their calculations,

changing the documents, its been difficult.

There was some discussion about the documents given to

PetsMart in advance of the deposition, and I wanted to correct

that. Those documents were given in the middle of the

deposition when we put the documents from the database that we

had been given up until that point in front of the witness. We

not only had printouts, giant printouts of documents like this,

we also had a computer and we were putting it up on a screen so

we could manipulate the Excel files and change tabs if that was

necessary. And when we were talking to the witness and

questioning him on that, he said he didn't recognize what we

were looking at. He said that was not the spreadsheet he

prepared, and he needed to look at the one on his computer to

answer our questions. And, of course, this is after he told us

he did nothing to prepare for the deposition other than create

the first round of that Excel spreadsheet which we believe was

produced in November.

At that point we had to take a break. We had to get a

thumb drive. We had to download on the --

THE COURT: Five miles slower for you, too.

MS. ANDRESEN: We had to download on thumb drive that

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 73 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:48PM

03:48PM

03:49PM

03:49PM

03:50PM

UNITED STATES DISTRICT COURT

74

full database which disclosed a new calculation that had a

summary sheet on the front of that, on that thumb drive, that

adjusted their calculations again. So on the spot we had to

adjust and respond to that and asking questions on that.

So whether he found out about those changes and

mistakes in advance of the deposition, we didn't learn about it

voluntarily. We walked into it when we questioned him and he

couldn't answer our questions on the documents they had

disclosed. And this, again, just continues to demonstrate the

problems we face because there has not been any formal

disclosure. And we just don't think any amount of discovery at

this point could cure that prejudice, which is why we would

like the Court to go back to the original disclosure and the

damages that were asserted in a timely fashion.

Other than that, I think I have addressed all the

points Mr. Sturr made that I wanted to respond to. So unless

the Court has any questions for me.

THE COURT: No. Take a seat. I just want to look at

something.

MR. STURR: Your Honor?

THE COURT: Yes.

MR. STURR: Sorry to interrupt. Mr. Allweiss is the

lead counsel on this case. I know it's unusual because you

have already heard argument from me and Ms. Andresen has

already replied, I think there are a few key points.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 74 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:50PM

03:57PM

03:57PM

03:58PM

03:58PM

UNITED STATES DISTRICT COURT

75

THE COURT: You know, we only allow one lawyer to

argue per side and there's good reasons for that. If you want

to confer with him, I'm reading something, and I will give you

a few moments if you want to say something further.

MR. STURR: No, Your Honor. That's fine.

THE COURT: All right. I was looking back at the

complaint, and the complaint only alleges a failure to pay the,

what do you call it again, the increased standard rate?

MS. CRAWFORD: Deferred billing.

THE COURT: The deferred billing. It's the stuff in

Exhibit C, right?

Well, I will tell you, I didn't have a plan as to how

I was going to deal with this when I set this hearing. And the

discussion has been very helpful. I just knew we had to get it

moving along.

First, I do conclude, I am persuaded, that the

disclosure of these lost profits was untimely; did not meet the

requirements of Rule 26 of timely disclosure. And it's not an

abstraction, as I incorporate my prior speech on that. It

serves as a real purpose. The disclosures have to be done in

time for people to prepare the case, do the discovery, and so

you don't just get to hold back.

Now, what I am seeing here is what we see and used to

see all the time of people just not getting down to doing

things. But in this process, it can be highly prejudicial and

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 75 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

03:59PM

03:59PM

04:00PM

04:00PM

04:00PM

UNITED STATES DISTRICT COURT

76

it causes exactly what we have seen here. So Rule 26(a) is

not, you know, you have to timely disclose it when you know it.

I was leafing through the transcript of our January 2016

hearing, and it was quite clear there that this had to be

addressed. Frankly, as I read the complaint, I don't even see

lost -- it's a suit for the deferred whatever. That's what

it's for. There was a discussion about lost profits, but it's

not in the complaint and there was no -- certainly not a timely

disclosure that has resulted in dramatic prejudice in very,

very concrete multiplication of the expense of litigation from

what it was as set up and is ready to go to what it has turned

into now.

So I frankly have no difficulty concluding that these,

wholly apart from the fact there's no expert, these disclosures

of damages were not done at a time that could be reasonably

responded to within the case management plan, not even close.

And there's another dimension here that has been

expanding. Mr. Bull couldn't testify about things, didn't know

about things; the evolving disclosures; the use of my order to

beef up the plaintiff's case is directly contrary to what I

contemplated and proves, yet again, that the failure to

disclose this in a timely fashion has caused great expense and

burden.

So there's a complication here that the defendant

didn't seek this relief initially. Reviewing all this, first

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 76 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:01PM

04:01PM

04:02PM

04:02PM

04:03PM

UNITED STATES DISTRICT COURT

77

of all, I have -- I appreciate it in every case, and I have

appreciated it in this case as to what I thought was the

cooperation of the parties and counsel. And the next question

is what do I make of the fact that the defendant did not seek

this relief and it went further. Well, my conclusion is I

expect good faith from everybody, and the question do I hold it

against the defendant that they thought they could deal with

this, well, I think I should not hold it against them that they

tried in good faith to accommodate things. But I am persuaded

that rather than just racking it up quickly with a little more

time it has just continued to expand and expand and expand as

disclosures were made and details changed and, in effect, new

-- I take the defendant at their word that there have been

attempts here to rebut the expert report.

So it's ongoing discovery. It's improvement of

ongoing discovery. It is exactly what the disclosure, timely

disclosure, is meant to restrain. I'm having difficulty seeing

very severe prejudice in the multiplication of the litigation.

Even now I think my characterization earlier on is correct that

we're just seeing a new damage case, a new discovery. The

plaintiff elects not to present an expert witness, I have not

encountered it so I don't know the answer, but I'm not sure an

owner can come in and testify about something that is

intrinsically expert as opposed to I'm just a guy and I know.

I'm not foreclosing that. I haven't run into anybody who tried

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 77 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:03PM

04:04PM

04:04PM

04:05PM

04:05PM

UNITED STATES DISTRICT COURT

78

to do that before. I know an owner of real property can

testify. And I don't have to resolve that. But so -- no. I

have heard from everyone. I'm delivering my ruling.

There's been finger pointing here about bad faith.

This looks like customary procrastination that is exactly what

the rules in the schedule are meant to hem in, except the harm,

the prejudice, has been obvious and dramatic in this situation.

So I'm inclined not to hold it against the defendant

that they tried to work this out and that things just kept not

getting nailed down. And it is unrebutted here that massive

new data not requested has been delivered. It's trying to set

the stage for a different lawsuit.

So I'm persuaded that this is a serious violation of

Rule 26. I conclude the defendant should not be prejudiced by

having tried to work with it. But the events have showed that

that was a failure. And so now I either accept failure and

push the reset button on a major part of this case, here we are

six months after the expiration of the discovery date. And my

judgment is not to do that, to try to repair this as best we

can, to take this case back as close as we can to where it

would be without excusing the untimely disclosure of the lost

profits issues and untimely in a way that could have -- it

could not possibly have been met the time, could not possibly

have met the case schedule, even with some modest extensions

could not have met it.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 78 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:06PM

04:06PM

04:07PM

04:07PM

04:08PM

UNITED STATES DISTRICT COURT

79

So this is a case where people have to formulate their

lawsuit and their defense, and the train leaves the station.

And you can't have an unwilling passenger on the train that you

would want to take back to the station.

So I will add just a footnote, if the universe had

turned out different, it's not at all clear it would be any

different, that such damages would have been provable. But, of

course, we don't know. As I said before, I have never had to

confront this situation before going back because I don't think

it would be just to deem the defendant estopped because they

tried in good faith to deal with this ever-expanding damage

stuff. But then I have never experienced anything like this

either, 13 years on the bench or 30 years in law practice, I

have never experienced anything post-discovery multiplying

damages like this. So I fashion the resolution that I think

most fair and I, right or wrong, I'm comfortable this is well

within my authority under the rules under Rule 26.

So now I want to talk through how to best achieve

that. Let me start with the defendant. Was there anything

left that needed to be done with respect to the initially

disclosed damage theory, or did you -- do you have what you

needed on that?

MS. ANDRESEN: The deferred billing, that discovery is

complete.

THE COURT: So that means we don't -- I don't think I

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 79 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:08PM

04:08PM

04:08PM

04:08PM

04:09PM

UNITED STATES DISTRICT COURT

80

need to set anything with respect to discovery. And we need

to -- our schedule is completely off now so I need to reset a

schedule for motions. I guess we're up -- I'm not asking for

any motions for summary judgment. Does anybody plan to file

any?

MS. ANDRESEN: The defendants do plan on filing.

THE COURT: Is it -- well, I'm not going to hold you

to it, but the whole case, or what issues particularly are you

thinking of moving on?

MS. ANDRESEN: Contract interpretation, the legal

interpretation of the contract. Thinking off the top of my

head I know that's the one.

THE COURT: Have you had discovery on parol evidence

on that?

MS. ANDRESEN: Yes.

THE COURT: Are there different stories?

MS. ANDRESEN: Yes.

THE COURT: That shouldn't be a Motion for Summary

Judgment then.

MS. ANDRESEN: Well, there's some merger clauses in

the contract, and so that's the motion that we're currently

exploring.

THE COURT: All right. Does the plaintiff contemplate

any motions? I'm not holding you to it. If you decide later,

that's fine. I'm just trying to plan a schedule.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 80 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:09PM

04:09PM

04:10PM

04:10PM

04:10PM

UNITED STATES DISTRICT COURT

81

MR. ALLWEISS: Yes, Your Honor, we do. We have a

Motion for Summary Judgment.

THE COURT: Tell me what it's going to be.

MR. ALLWEISS: It's going to be on the issue of

liability as to their termination for convenience.

THE COURT: What's the sub-issue there that --

MR. ALLWEISS: That by law a termination for

convenience is not equivalent to a termination at will, and

it's a matter of black letter law that if you terminate for

convenience but the only reason you cite is in order to get a

better bargain or a better price that is per se a bad faith

violation of a termination for convenience clause.

THE COURT: You know, I understand that.

MR. ALLWEISS: And the person that made the decision

to terminate the contract, we took his deposition in September

and he admitted to it 15 ways to Sunday.

THE COURT: Sounds like there's no secret about it.

MR. ALLWEISS: Oh, no. There was actually a secret,

Judge. They didn't tell us until like, I don't know, whenever

they gave us the notice in April. They had led us to believe

all along that they were going to continue to work with us and

they were -- but what we found in discovery was they had their

own meeting in December of 2014 and amongst themselves with

their consultant, they had already decided to fire us. But for

the next four months they led us to believe --

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 81 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:11PM

04:11PM

04:11PM

04:11PM

04:12PM

UNITED STATES DISTRICT COURT

82

THE COURT: What about the requests for proposals

that -- tell me your name again.

MS. ANDRESEN: Meridyth Andresen.

THE COURT: Andresen. Those Scandinavian names all

sound the same.

But she said they sent out requests for proposals

before they terminated your contract.

MR. ALLWEISS: That's right, they did. We objected.

THE COURT: How is there a secret then?

MR. ALLWEISS: Well, when -- the decision to terminate

us, the reason for why that was, was kept a secret. They had

decided already in December without telling us that they were

going to fire us. The real question I think that Your Honor is

getting to is when they send out the request for proposal while

there's a contract in place, did we object to that? Did we go

to them and say, you can't do this. We have a contract in

place. And the answer to that is, yes, everybody acknowledges

there was a meeting about that you couldn't do that. And

afterwards we were the low bidder anyway in terms of real

contractors.

THE COURT: Qualified bidders. No. I'm laughing at

the irony of it. I'm not questioning what you are saying.

MR. ALLWEISS: You know what? I have to agree with

you. It's pretty ironic. And what's more ironic is how we

have been mischaracterized throughout this entire proceeding

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 82 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:12PM

04:12PM

04:12PM

04:13PM

04:13PM

UNITED STATES DISTRICT COURT

83

about hiding the ball and not disclosing things timely. The

entire record here shows that it was PetsMart that behaved

poorly. We had a contract that was breached.

THE COURT: Okay. I understand that. You have

answered my question.

There aren't any Arizona cases on that, are there, Mr.

Sturr?

MR. STURR: Yes, there is. There is a case that

addresses this issue.

THE COURT: What case is it? From what period?

MR. ALLWEISS: Fairly recently, like within the

last --

MR. STURR: Arizona Court of Appeals opinion. I don't

have the citation.

MR. ALLWEISS: We can get the cite to you, Judge.

THE COURT: That's why I don't know. I read all the

Arizona appellate cases for 30 years, but I don't read them

anymore. I can't even read the Ninth Circuit opinions. So

that's new law. Never ran across that. But it makes sense

because it's reading all the clauses together with the covenant

of good faith and fair dealing.

So anyway, that's not an opinion. That's just

musings. So let me ask you both to suggest a time to set for

Motions For Summary Judgment.

MR. ALLWEISS: Well, the one question I have

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 83 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:13PM

04:14PM

04:14PM

04:14PM

04:15PM

UNITED STATES DISTRICT COURT

84

obviously, Judge, based on what you have ruled from the bench

we want to file a Motion For Reconsideration.

THE COURT: I am not interested in a Motion For

Reconsideration. We are moving forward. I can't prohibit you

from filing a Motion For Reconsideration but I don't have to

call for a response. So I'm setting a schedule. How much time

do each of you -- how much time do you want for your motions?

You know, frankly, your motions are on different issues,

different points. So we might do simultaneous motions. I

usually don't like simultaneous motions because there's usually

some overlap.

MS. ANDRESEN: I think there will be quite a bit of

overlap. I think our position is going to be that the law on

termination for convenience is different than --

THE COURT: I know, but I'm talking about your issue's

about contract interpretation, his issues about termination for

convenience, are they going to overlap?

MS. ANDRESEN: Yes.

THE COURT: Who wants to file the first motion? I

don't care. I don't want to have simultaneous motions. You

know, maybe, Ms. Andresen, maybe you should go first on the

theory that you are going to be attacking the general structure

of the contract, what it means, and they are going to be

counter-attacking on a specific term. So maybe that's a more

practical way to proceed. Anybody disagree with that?

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 84 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:15PM

04:15PM

04:17PM

04:17PM

04:17PM

UNITED STATES DISTRICT COURT

85

MS. ANDRESEN: I'm happy to go first.

THE COURT: So when do you want to file that motion?

MS. ANDRESEN: The end of next month. Sometime mid to

latter half of next month.

THE COURT: End of August. So how about, well,

Friday, August 28.

MS. ANDRESEN: That works, Your Honor.

THE COURT: And how much time do the plaintiffs want

to do -- it will be your response and cross motion. It would

be 33 days under our rules unless you want to change that.

MR. STURR: Standard time, Your Honor.

THE COURT: Are you thinking, or -- I'm asking how

much time do you want? You will get their motion on Friday,

August 28th.

MR. STURR: Forgive me, Your Honor. I said the

standard time would be fine.

THE COURT: Tell you what. We don't need to set a

schedule. It is ordered that the defendant's Motion for

Summary Judgment is due by August 28 and response and cross

motions in accordance with the local rules.

So Ms. Andresen, sounds like their theory, under their

theory, if they win on that point, doesn't matter what the

contract means, right? They would win, even if we construed

the contract generally your way, if they are right about what

this kind of a clause means, they win. You don't have to admit

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 85 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

04:18PM

04:18PM

04:18PM

04:19PM

04:19PM

UNITED STATES DISTRICT COURT

86

anything, but I'm just thinking through how this would play

out.

MS. ANDRESEN: They would win and then the issue would

be damages because I think there's a dispute over what they

think the contract price was versus what we think it was.

THE COURT: And it is coming back to me now. We

discussed this at the Rule 11 -- Rule 16.

MR. STURR: Rule 16. There hasn't been Rule 11.

THE COURT: Rule 11 is a big rule in the criminal

rules, too. Rule 16. This isn't a ruling it's just an

observation that it struck me the time that this deferred

payment theory damages was inconsistent with seeking lost

profits for the future. But don't -- as I think I told you

back then I scare lawyers by saying things off the top of my

head, and it's not -- it just looked like that could be a

problem. So that I think I was thinking back then that if the

plaintiffs win they may have to choose one way or the other.

They don't get three and-a-half million as a starting point.

If they want to go for more, their starting point is zero.

Now, I haven't thought it through. I remember having

that thought way back then. So you think through what you

think is best.

All right. If there's nothing else, then, I fully

intended to do the rest of that schedule but in light of this

ruling now, we don't have to do the rest of that schedule.

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 86 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

UNITED STATES DISTRICT COURT

87

So thank you for your time. The discussion has been

helpful. We'll be adjourned.

MS. ANDRESEN: Thank you, Your Honor.

(Proceeding concluded at 4:19 p.m.)

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 87 of 88
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

UNITED STATES DISTRICT COURT

88

C E R T I F I C A T E

I, LAURIE A. ADAMS, do hereby certify that I am duly

appointed and qualified to act as Official Court Reporter for

the United States District Court for the District of Arizona.

I FURTHER CERTIFY that the foregoing pages constitute

a full, true, and accurate transcript of all of that portion of

the proceedings contained herein, had in the above-entitled

cause on the date specified therein, and that said transcript

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 13th day of July,

2017.

s/Laurie A. Adams

_______________________________

Laurie A. Adams, RMR, CRR

Case 2:15-cv-02040-NVW Document 151 Filed 07/13/17 Page 88 of 88