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Kabushiki Kaisha v. Lotte International America Corp.

United States District Court, D. New Jersey

February 13, 2019




         Before the Court is the letter application of Ezaki Glico Kabushiki Kaisha and Ezaki Glico USA Corp. ("Plaintiffs" or "Glico") to strike the supplemental expert report of Ambreen Salters and/or for sanctions against Lotte International America Corp. and Lotte Confectionery Co. Ltd. ("Defendants" or "Lotte") pursuant to Rule 37(c) of the Federal Rules of Civil Procedure. (ECF Nos. 191, 197). Defendants oppose the application. (ECF No. 195). The Court heard oral argument on September 28, 2018 and reserved decision. (ECF No. 245). Having considered the parties' written submissions and arguments, and for the reasons set forth below, plaintiffs' application to strike is DENIED, but the application for sanctions is GRANTED.

         I. BACKGROUND

         Familiarity with the facts and extensive procedural history of this case is presumed, and the Court will only discuss those facts that are relevant to the instant decision. Briefly, this is a trademark infringement and unfair competition action involving Glico's Pocky brand and Lotte's Pepero brand biscuit stick products. Pursuant to 15 U.S.C. § 1117(a), a prevailing plaintiff in such an action is entitled to recover a defendant's profits. The statute provides thata[i]n assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed." Id. Thus, plaintiffs retained John Hansen as their damages expert to establish defendants' sales, and defendants retained Ambreen Salters as their damages expert to establish deductible costs and resulting profits. In a stipulation and order dated February 20, 2018, the Court approved the parties' proposal that opening expert reports be served on April 13, 2018 and rebuttal expert reports be served on May 14, 2018. (ECF No. 153).

         Defendants served Ms. Salters' rebuttal expert report on May 14, 2018. In this report, Ms. Salters calculated Lotte's profits by deducting from total Pepero revenues (1) the cost of goods sold and (2) certain operating expenses. (StoneTurn Ex. 4, ECF No. 192-7; Hansen Supp. Report ¶ 14, ECF No. 195-2). In determining the amount of deductible operating expenses, Ms. Salters relied on hundreds of pages of financial documents that defendants had not produced to plaintiffs prior to the February 20, 2018 close of fact discovery or the service of the expert report. Ms. Salters also relied on previously undisclosed interviews she purportedly conducted of defendants' employees, including Lotte's accounting manager, Ms. Joanne Joo Hee Lee, who provided information about which expenses were "directly related to Pepero" and thus properly included in the calculation. (StoneTurn Ex. 4, footnotes (c)-(j), (I)-(o)).

         Because defendants only produced this operating expense financial information after the close of fact discovery, Mr. Hansen was not able to consider it in his own analysis in his opening expert report. (Hansen Decl. ¶ 5, ECF No. 191-1). In an attempt to mitigate the potential prejudice resulting from defendants' untimely production of the financial information on which their expert relied, plaintiffs worked with defendants in good faith to resolve the issue without Court intervention. The parties ultimately entered into a stipulation dated June 11, 2018 whereby defendants agreed to produce Ms. Lee for a deposition pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure to testify on the subject of the late-produced operating expense information. (ECF No. 188). Defendants further agreed to pay for the court reporter, videographer, and translator for the Rule 30(b)(6) deposition. (Id.). Finally, the parties agreed that plaintiffs' economic expert could submit a supplemental report addressing the newly produced operating expense documents, Ms. Salters' opinions relating to those financial documents, and Ms. Lee's Rule 30(b)(6) deposition testimony on behalf of defendants. (Id.). The Court extended the deadline for expert depositions to accommodate the arrangement set forth in the parties' stipulation. (Id.).

         Plaintiffs' counsel reviewed the newly produced operating expense documents in preparation for the Rule 30(b)(6) deposition and traveled to Los Angeles to depose Ms. Lee on June 15, 2018. (ECF No. 191). At deposition, Ms. Lee contradicted many of the facts underlying defendants' own expert's damages analysis. Plaintiffs' damages expert reviewed the newly produced financial documents, as well as Ms. Lee's damaging deposition testimony, and, as agreed, prepared and delivered to defendants a supplemental report dated July 2, 2018. (Hansen Supp. Report, ECF No. 195-2). Believing that they finally had all of the information underlying Ms. Salters' May 14, 2018 expert report, plaintiffs' counsel turned tiieir attention to preparing for her July 12, 2018 deposition.

         On July 12, 2018, minutes before Ms. Salters' deposition was scheduled to begin, defense counsel handed to plaintiffs' counsel a "supplement" to her May 14, 2018 report. (July 12, 2108 Tr. at 3:15-19, ECF No. 193-8). Defense counsel explained that "Ms. Salters received Mr. Hansen's supplemental expert report nine days ago. After considering and analyzing Mr. Hansen's report and the deposition of Joanne Joo [Hee] Lee, Ms. Salters made revisions to her own expert report pursuant to Federal Rule 26 and those revisions were provided to you today." (Id. at 7:22-8:6).

         The revisions in the July 12, 2018 supplement were substantial. They comprised three material changes to her May 14, 2018 expert report. First, whereas the original report calculated Lotte's Pepero profits by deducting from revenues both cost of goods sold and certain operating expenses, the supplemental report deducts only cost of goods sold. (Salters Decl. ¶ 6, ECF No. 195-1; Hansen Decl. ¶¶ 13-14). Next, the supplemental report revises the cost of goods sold calculation to exclude non-Pepero products she claims were "erroneously" included in the original report's analysis. (Salters Decl. ¶ 7; Hansen Decl. ¶ 14; compare StoneTurn Original Workpaper 11, ECF No. 192-15 with StoneTurn Supp. Workpaper 11, ECF No. 192-16). Finally, the supplemental report adopts Mr. Hansen's suggested methodology for estimating cost of goods sold for the years 2009-2012. (Salters Decl. ¶¶ 8-9). In her original report, Ms. Salters estimated the cost of goods sold for 2009-2012 by taking the simple average of cost of goods sold in other years; in her supplemental report, she adopts Mr. Hansen's opinion that a weighted average methodology would produce a "more accurate" estimate of cost of goods sold, "[e]ven though the methodology used in [the] May 14, 2018 report ... is reliable and can be used by damages experts." (Id. ¶ 9). Ms. Salters candidly acknowledges that she created the supplemental report in response to "suggestions" in Mr. Hansen's supplemental report, as well as Ms. Lee's Rule 30(b)(6) deposition testimony. (W.¶¶7-8, 11). Plaintiffs' counsel objected to the late-produced supplemental report on the record at the start of what was to be Ms. Salters' July 12, 2018 deposition:

         The first notice of this supplement that I or anyone from my team had was when counsel handed it to me this morning. This supplement was not authorized by the court or any agreement of the parties. . . . You've had the report of John Hansen for ten days. You knew you were preparing something like this, and you gave us no advance notice. It's totally unreasonable to expect us to digest this in any intelligent way and examine and ask questions about it today. (July 12, 2108 Tr. at 3:20-4:21). Defense counsel nevertheless insisted that plaintiffs' counsel depose Ms. Salters on the new report that had been produced with no advance notice only minutes before. (Id. at 6:1-5). Plaintiffs' counsel declined to proceed on that condition, explaining on the record:

I understand from counsel that Ms. Salters intends to refer to and rely upon the so-called supplement to her rebuttal report if we go forward with this deposition today. Again, this is the report that counsel handed me this morning at the time that the deposition was supposed to begin with no other advance notice. So it was after the deadline for the disclosure of Ms. Salters' expert opinion and it's improper and prejudicial to attempt to supplement now. Lotte can't force us to take a deposition that will be based on substance that we have not been able to analyze and that was disclosed long after the deadline for that opinion.

(Id. at 7:1-15).

         Plaintiffs now move to strike Ms. Salters' supplemental report or, in the alternative, for monetary sanctions in the full amount of the fees, costs, and expenses associated with plaintiffs' efforts to investigate the operating expense information on which Ms, Salters no longer relies.

         Defendants object to monetary sanctions and/or exclusion of the supplemental report, contending that Ms. Salters had a duty to supplement her May 14, 2018 expert report to include "new information" pursuant ...

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