Bessemer & Lake Erie Railroad v. Seaway Marine Transport ( 2010 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0055p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
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BESSEMER & LAKE ERIE RAILROAD
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COMPANY and THE PITTSBURGH AND
CONNEAUT DOCK COMPANY, -
Plaintiffs-Appellees/Cross-Appellants, -
Nos. 08-4676/4678
,
>
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v.
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SEAWAY MARINE TRANSPORT, UPPER LAKES
SHIPPING LTD., UPPER LAKES SHIPPING INC., -
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LEITCH UPPER LAKES SHIPPING In Personam, -
and UPPER LAKES GROUP INC., a/k/a JACK
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and the MOTOR VESSEL CANADIAN
ENTERPRISE In rem, -
Defendants-Appellants/Cross-Appellees. -
N
Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 06-02392—Patricia A. Gaughan, District Judge.
Argued: November 19, 2009
Decided and Filed: February 25, 2010
Before: NORRIS, CLAY and SUTTON, Circuit Judges.
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COUNSEL
ARGUED: Brian J. Miles, D’LUGE, MILES, MILES & CAMERON P.L.C., Mount
Clemens, Michigan, for Appellants. Richard A. Dietz, FOSTER, MEADOWS &
BALLARD, P.C., Detroit, Michigan, for Appellees. ON BRIEF: Brian J. Miles, D’LUGE,
MILES, MILES & CAMERON P.L.C., Mount Clemens, Michigan, for Appellants. Richard
A. Dietz, Camille A. Raffa Dietz, A. Poppy Goudsmit, FOSTER, MEADOWS &
BALLARD, P.C., Detroit, Michigan, for Appellees.
1
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Seaway Marine Transport, et al.
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OPINION
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SUTTON, Circuit Judge. When the Enterprise, a large cargo ship, positioned itself
to receive a load of coal on the shores of Lake Erie, it struck a land-based coal-loading
machine operated by Bessemer & Lake Erie Railroad Company and The Pittsburgh &
Conneaut Dock Company. Bessemer and its affiliate filed this admiralty action against the
Enterprise and its owners and operators, Seaway Marine Transport, Upper Lakes Shipping
Inc. and Upper Lakes Group Inc., seeking recovery of repair costs and lost profits. The
district court granted Bessemer summary judgment as to liability, finding Seaway and its
affiliates wholly at fault. When it came to damages, the district court awarded $522,000 in
cost-of-repair damages to Bessemer but determined that Bessemer did not adequately
disclose the basis of its lost-profits claim and thus granted Seaway summary judgment on
that claim. We affirm the district court’s rejection of Bessemer’s lost-profits claim but
reverse in part as to liability, finding a genuine dispute of fact over Bessemer’s comparative
negligence.
I.
The shiploader. Bessemer owns and operates several docks on the coast of Lake Erie
in Conneaut, Ohio. Ships arrive at Dock 3 to receive loads of coal from the dock’s
shiploader, a large, land-based steel structure. Conveyor belts transport coal from silos to
the shiploader, and a part of the shiploader known as the boom—a steel, drawbridge-like
apparatus—lowers from its upright storage position to extend horizontally across the ship
receiving the load. A chute hangs from the boom and deposits coal in the ship’s hatches.
Shiploader operators employed by Bessemer control the movement of the boom and
the chute. An operator initially lowers the boom from its vertical stowed position using
controls in a small compartment in the shiploader. After positioning the boom over the ship,
the operator walks out across the boom and enters the operator’s cab, which is suspended
from the center of the boom. From inside the cab, the operator adjusts the angle of the chute
and controls the dispensing of coal into the ship. The operator also has some control over
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the boom, with in-cab controls that allow the operator to raise the boom by as much as
fifteen degrees.
The Enterprise. Seaway operates the Enterprise, a 730-foot cargo ship, which has
twenty-two hatches for storing coal. On its deck near the stern, it has a 250-foot-long self-
unloading boom, a crane-like device that allows the ship to unload its own cargo. On-deck
controls allow the crew to swing the self-unloader to either side of the vessel.
The incident. In October 2005, the Enterprise pulled into Dock 3 to receive a load
of coal from the shiploader. Captain Frederick Penney secured the ship and turned control
over to First Mate Louis Drolet, who coordinates the loading process. With the boom
extended across the ship and shiploader operator James Fertig in the cab, the shiploader
emptied coal into hatch five, which is near the bow of the vessel. The loading plan then
called for the shiploader to empty coal into hatch fourteen, located midship, which required
the ship to move forward 210 feet to align hatch fourteen with the boom and the chute.
Because the ship’s self-unloader obstructs access to hatch fourteen when it is in a resting
position, the crew swung the self-unloader to the side of the ship away from the dock before
beginning the shift.
With the self-unloader off to the ship’s side, Drolet radioed Fertig and asked for
permission to shift the ship, which Fertig granted. The crew began to move the boat slowly,
with Drolet using controls at the bow, Wheelsman Jim Donnelly using controls at the stern
and two deck hands handling the ship’s wires from the dock. Drolet could not see the self-
unloader from his location, and Donnelly acknowledges that he was looking at the controls,
not the self-unloader. Fertig watched the ship move beneath him from his cab suspended
over the deck of the ship. He faced forward with the shiploader behind him, and he had
windows in front of and behind him but watched the ship only from the front windows.
Throughout the maneuver, Fertig counted off the distance the ship needed to travel and
radioed the distances to Drolet.
With about 45 feet to go, the ship’s self-unloader struck the shiploader’s boom,
causing damage to the boom, which took five weeks to repair. Bessemer sued, alleging that
the ship’s crew negligently failed to swing the self-unloader out far enough to clear the
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shiploader’s boom. Relying on the rule of The Oregon, 158 U.S. 186 (1895)—a rebuttable
presumption that, when a moving object strikes a stationary object, the moving object is at
fault—the district court granted summary judgment on liability, holding Seaway solely
responsible for the incident and entitling Bessemer to $522,605.73 in cost-of-repair damages.
At the same time, however, the district court found that Bessemer had failed to comply with
Civil Rule 26's requirement that it produce documents supporting its claim for lost profits
damages. In view of Bessemer’s noncompliance with Rule 26, the court excluded evidence
of lost profits under Civil Rule 37(c)(1) and granted summary judgment on the lost-profits
claim to Seaway. Seaway appeals the liability ruling, and Bessmer appeals the lost-profits
ruling.
II.
As to liability, Seaway concedes that it bears some fault for what happened, but it
argues that it should not be held solely to account for the accident. Seaway principally
claims that the district court misapplied the Oregon Rule’s presumption of fault and failed
to account for genuine issues of fact concerning Bessemer’s comparative negligence.
A.
Admiralty law draws a distinction between allisions and collisions. An allision
occurs when a moving vessel strikes a stationary object, and a collision occurs when two
moving vessels strike each other. See Fischer v. S/Y NERAIDA, 508 F.3d 586, 589 n.1 (11th
Cir. 2007). (An elision occurs when lawyers mistakenly lump the two concepts together.)
The Oregon Rule applies to allisions, establishing a rebuttable presumption that, when a
moving object hits a stationary object, the moving object is at fault. See The Oregon, 158
U.S. at 197; see also Superior Constr. Co. v. Brock, 445 F.3d 1334, 1339 (11th Cir. 2006).
In their appellate papers, the parties primarily square off over whether the Oregon Rule
applies—Seaway claiming that the rule does not apply because Bessemer’s movable boom
is not a stationary object and Bessemer insisting that simply because the boom can move
does not show whether it was stationary at the time of the incident.
But the outcome of this case does not turn on this distinction or for that matter on
whether the Oregon Rule applies. Not unlike the doctrine of res ipsa loquitur, the Oregon
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Rule creates a prima facie case of negligence, not a final case of sole negligence. See In re
Mid-South Towing Co., 418 F.3d 526, 532 n.6 (5th Cir. 2005); see also Thomas J.
Schoenbaum, 2 Admiralty and Maritime Law § 14-3, 104–05 (4th ed. 2004). Based on “the
common-sense observation that moving vessels do not usually [a]llide with stationary objects
unless the vessel is mishandled in some way,” the rule presumptively allocates fault when
the circumstances of an allision are unknown—requiring the party most likely to know what
happened (the moving vessel) to present evidence to rebut the presumption of fault. City of
Chicago v. M/V Morgan, 375 F.3d 563, 572 (7th Cir. 2004). But when “the parties have
introduced evidence to dispel the mysteries that gave rise to the presumption,” the Oregon
Rule has no factual void to fill. In re Mid-South Towing, 418 F.3d at 531.
That is true here, as Seaway has admitted some negligence, but not full
responsibility, for the accident. What matters then is not whether the vessel bears some
responsibility for the accident. It admits that it does. The question is whether, even if the
vessel was negligent, may it still shift some responsibility for the accident to the dock owner
due to its alleged comparative fault? The answer to that question does not turn on the
Oregon Rule. Cf. id.
Perhaps as a result of the way the parties briefed the case, the district court took the
view that, once it determined that the Oregon Rule’s presumption of fault applied to this
case, Seaway had to “rebut the presumption” of fault before it could consider Seaway’s
comparative negligence defense. R.45 at 16. When Seaway could not do so, the court found
Seaway solely liable for the accident.
That is not how the Oregon Rule works. It is a burden-shifting doctrine, “not a rule
of ultimate liability.” City of Chicago, 375 F.3d at 572. While it may be the case that a
moving vessel must rebut the presumption to absolve itself of all liability, id. at 573, we
know of no case law to the effect that the vessel must rebut the presumption to relieve itself
of some liability—that is, to raise a comparative fault defense against the stationary object.
“[T]he Oregon Rule . . . speaks explicitly only to a presumed breach on the part of the
alliding vessel, and is not a presumption regarding either the question of causation . . . or the
percentages of fault assigned parties adjudged negligent.” In re Mid-South Towing Co., 418
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F.3d at 532; accord Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d
206, 212 (2d Cir. 2009).
Were it otherwise, the moving vessel could never raise a comparative fault defense.
Once the Oregon Rule is triggered, the moving vessel has three ways to rebut all liability:
“(1) the allision was actually the [sole] fault of the stationary object; (2) the moving vessel
acted with reasonable care; or (3) the allision was the result of an inevitable accident.” City
of Chicago, 375 F.3d at 573. No matter which of these routes the vessel takes, all of them
require the vessel to prove it bore none of the fault. That leaves the moving vessel in an all-
or-nothing-at-all position. If it cannot rebut the presumption, that puts it completely at fault.
And if it can rebut the presumption, that makes it completely fault free. Either way, the
approach leaves no room for a comparative negligence defense. Yet comparative and
contributory negligence not only are venerable doctrines in general, but they also turn on
principles that have centuries of relevance in the context of admiralty law. See Rolls of
Oleron, Article XIV (circa 1150 A.D.) (fault should ordinarily be apportioned between
moving vessel and stationary object), contained in Schoenbaum, 3 Admiralty and Maritime
Law 118 and cited with approval by United States v. Reliable Transfer Co., 421 U.S. 397,
402 n.3 (1975). “The rule in admiralty, when property damage results from a[n] [a]llision
. . . between ship and shore, is comparative negligence.” Bhd. Shipping Co. v. St. Paul Fire
& Marine Ins. Co., 985 F.2d 323, 325 (7th Cir. 1993). It would be odd, we think, to
transform a modest evidentiary presumption into a rule that wiped away a longstanding
tradition of shared fault in allision cases.
City of Chicago does not support a different rule. After finding that the moving
vessel had not rebutted the Oregon Rule’s presumption, City of Chicago apportioned
damages between the moving vessel and the stationary object based on the stationary
object’s comparative fault. See 375 F.3d at 578–80.
B.
Seaway also challenges the district court’s alternative conclusion that, even if the
vessel was entitled to prove comparative fault without rebutting the Oregon Rule, there was
no triable issue of fact over Bessemer’s comparative negligence. Seaway raises three
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theories of comparative fault: (1) that Bessemer did not show that it had a proper permit for
the boom, suggesting it was an illegal obstruction to navigation; (2) that the boom, even if
authorized by permit, became a “de facto obstruction to navigation” during the loading
process, Seaway Br. 15; and (3) that factual issues remain over whether Bessemer should
have moved the boom out of the ship’s way or checked to see whether the self-unloader
would clear the boom. We consider each in turn.
1.
Federal law prohibits “build[ing] . . . any wharf, pier, . . . boom . . . or other
structure[]” without a permit from the United States. 33 U.S.C. § 403. Yet, as Seaway
points out, the only permit that Bessemer has produced authorizes “two steel sheet pile cells
to support a coal conveyor system,” not the boom itself. See R.44-3 at 7. In the absence of
the requisite permit for the boom, Seaway says, Bessemer would be negligent as a matter of
law.
A statutory violation, it is true, may provide a basis for negligence. See Phillips
Petroleum Co. v. Stokes Oil Co., 863 F.2d 1250, 1254–55 (6th Cir. 1988); The Pennsylvania,
86 U.S. (19 Wall.) 125, 136 (1873) (placing burden on the party in breach of a navigational
statute to prove that its violation could not have been a contributing cause). But if the
statutory violation did not affect the allision, a party’s noncompliance does not factor into
the apportionment of fault. See Folkstone Mar. Ltd. v. CSX Corp., 64 F.3d 1037, 1047 (7th
Cir. 1995) (describing ways to rebut the presumption of fault against the party in breach of
a navigational statute).
Here, we cannot say (and Seaway has not argued) that the statutory violation, if any,
proximately caused the allision. The Enterprise pulled into Bessemer’s docks so that the
boom could lower over the vessel and load coal into its hatches. There is no reason to think
that the absence of a permit for the boom affected this sequence of events. When § 403
supplies a premise for liability, that is normally because the violation involves unauthorized
and unattended machinery extended over the water with “enough permanency to bring
[them] within the prohibition of the statute.” See City of Portland v. Luckenbach S.S. Co.,
217 F.2d 894, 898 (9th Cir. 1954) (city positioned a crane over the water in violation of its
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permit and left it there for more than a year); F.S. Royster Guano Co. v. Outten, 266 F. 484,
487 (4th Cir. 1920) (illegal obstruction of navigation to extend a crane “over the navigable
water” “while not in use”). When, by contrast, a temporary obstruction occurs as a necessary
part of the loading process, that is not the kind of obstruction that § 403 was designed to
prevent. See City of Portland, 217 F.2d at 898 (“If the boom . . . were lowered only for
unloading operations . . . there would have been no violation of 33 U.S.C. § 403.”). Because
Bessemer’s alleged noncompliance was not a contributing cause of the allision and because
the damage was not the kind the statute was designed to prevent, see Folkstone, 64 F.2d at
1047, the district court properly rejected this theory of comparative fault as a matter of law.
2.
Seaway adds that, even if § 403 does not supply a basis for liability, the boom
became a “de facto obstruction to navigation” when Bessemer left it positioned
inappropriately over the Enterprise while the vessel completed its shift. Seaway Br. 15–19.
In support, Seaway points to three cases where a moving vessel recovered damages for
striking machinery that obstructed its path across a waterway. See City of Portland, 217 F.2d
894; Royster Guano, 266 F. 484; Consolidated Rail Corp. v. M/V Lagada Beach, 1983
A.M.C. 1242 (E.D. Pa. 1982). But all of these cases involved machinery left extended over
the waterway while not in use and with a sufficient degree of permanency to become an
obstruction to navigation. See Consolidated Rail, 1983 A.M.C. 1242, R.42-9 at 4 (finding
owner of a crane negligent for “allowing the operator’s cab to extend, when in a stowed
position” over the water); City of Portland, 217 F.2d at 897; Royster Guano, 266 F. at 487.
An obstruction-to-navigation theory of liability does not apply where the alleged obstruction
was a temporary, anticipated and necessary part of the loading process.
Worse, Royster Guano and City of Portland found liability primarily on the basis of
a demonstrated violation of § 403, which has not been shown here. City of Portland, 217
F.2d at 898; Royster Guano, 266 F. at 486 (violation of predecessor statute to § 403, U.S.
comp. Statutes 1916, Sec. 9910). Nor does City of Portland alternatively hold that, even in
the absence of a statutory violation, an inappropriately extended crane can become a “de
facto obstruction to navigation.” Contrary to Seaway’s argument, the court speculated that
the district court “would have found Portland entirely responsible” even without a statutory
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violation and noted that it might not have arrived at the same conclusion. 217 F.2d at 897.
Royster Guano, for its part, theorized that “even if [the crane] had [not violated the
permitting statute], it would have been . . . an obstruction to navigation,” but based its
holding on a proven statutory violation. 266 F. at 487. In the end, the only holding Seaway
has to support its theory that a stationary object can become an “obstruction to navigation”
absent a § 403 violation is a factually dissimilar district court case involving a crane
extended over navigable water while not in use. See Consolidated Rail, 1983 A.M.C. 1242,
R.42-9 at 4. The district court properly rejected this theory of comparative fault.
3.
That does not end the matter. As the operator of a dock, Bessemer had a duty to
provide safe facilities to vessels using its facilities. Smith v. Burnett, 173 U.S. 430, 433
(1899); see also Algoma Cent. Corp. v. Michigan Limestone Operations, No. 94-1917, 1996
WL 23214, at *7 (6th Cir. Jan. 22, 1996). And in this instance Bessemer’s alleged
noncompliance with its own internal operating procedures establishes a material issue of fact
over whether Bessemer met this standard of care. See In re City of New York, 522 F.3d 279,
283, 288 (2d Cir. 2008) (ferry boat’s internal rules bear on the “reasonable care under the
circumstances”).
Bessemer’s internal operating procedure required “shiploader operators . . . to raise
the boom . . . each time a vessel shifts to a compartment that is immediately adjacent to or
in close proximity to any vessel structure which would come in contact with the shiploader
chute, boom, cab, and/or etc.” R.44-9. Bessemer personnel acknowledged that the self-
unloader was part of the Enterprise’s “vessel structure” and that the internal rule suggests
that the operator had some responsibility to ensure that the boom would not contact the self-
unloader. The record, moreover, contains sufficient evidence to create a dispute over
whether Fertig’s decision not to raise the boom was a proximate cause of the allision. Fertig
acknowledged at his deposition that raising the boom high enough to avoid the Enterprise’s
self-unloader was feasible and “maybe” would have avoided the accident. See R.42-2 at 66.
The parties, to be sure, spar over whether the rule applies to the self-unloader, with Bessemer
insisting that Seaway has somehow taken the statements from Bessemer personnel regarding
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the rule’s applicability out of context. But that debate is one for the trier of fact, not for us,
to resolve.
Seaway adds that some of the fault belongs to Bessemer because Fertig did not check
to see whether the self-unloader would clear the boom before the maneuver began.
According to First Mate Drolet, the vessel must receive clearance from the shiploader
operator prior to beginning the maneuver “because it’s a serious matter” if one of the vessel’s
structures strikes the boom. R.42-3 at 32. Bessemer’s dock foreman concurred, saying that
“[i]n order to give permission to shift the boat, the Shiploader operator verifies his equipment
is in the clear of all vessel structures . . . including the self unload[er].” R.42-6 at 25–26.
Fertig acknowledges that, on prior occasions, he has checked behind him before giving
clearance to see if any vessel structures might hit the boom. Yet during his deposition he
“[could not] say whether” he “look[ed] out the back window to see whether the boom was
swung out or not” prior to giving the go-ahead. R.42-2 at 51, R.60 at 54:22–55:3. Taken
together, the evidence of the operator’s responsibility to ensure proper clearance prior to the
shift and Fertig’s uncertainty as to whether he did so creates a genuine factual issue over
Bessemer’s comparative negligence. Cf. Penn. R.R. Co. v. S.S. Marie Leonhardt, 320 F.2d
262, 267 (3d Cir. 1963) (drawbridge operator who signals that he will allow passage and
who fails to provide adequate clearance at fault when vessel hits bridge).
Bessemer resists this conclusion, claiming that “applicable law” dictates that “the
crew of the vessel is solely responsible . . . even where the vessel’s crew receives assistance
from shore.” Bessemer Br. 55. But the only case it offers to support its position—an
unpublished district court case from another circuit—is neither “applicable law” nor
supportive of its proposition. See Kure Shipping S.A. v. Louisiana Pac. Corp., No. 98-CV-
648, 2001 WL 34037327 (N.D. Cal. Aug. 27, 2001) (shore personnel did not assist vessel
with a maneuver that resulted in an allision).
To the extent Seaway claims that there remains a triable issue over whether Fertig
should have checked the self-unloader’s position once the vessel began moving, we disagree.
Once the vessel started shifting, his role was to let the vessel know “how close” it was to
reaching its next loading position. R.42-2 at 55. That task requires the operator to “look[]
north and down,” not behind him to the south, where he might have realized that the self-
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unloader was headed for the boom. R.42-6 at 26–27. Perhaps Fertig could have looked
behind him once the shift began and done something to avert the allision. But Seaway has
not shown a genuine issue as to whether doing so fell within the scope of the operator’s
responsibilities, especially because turning around would have taken him away from his duty
to spot the distances the Enterprise needed to travel.
III.
In its cross-appeal, Bessemer argues that the district court abused its discretion when
it determined that Bessemer did not adequately disclose the basis for its lost-profits claim
during discovery, when it excluded evidence of the claim under Rule 37 as a result of the
inadequate disclosure and when it ultimately granted summary judgment to Seaway on the
lost-profits claim.
A.
Rule 26 of the Federal Rules of Civil Procedure requires a party to provide the
opposing party “a computation of each category of damages claimed” as well as “the
documents or other evidentiary material . . . on which each computation is based, including
materials bearing on the nature and extent of injuries suffered.” Fed. R. Civ. P.
26(a)(1)(A)(iii). The district court found that, with regard to its lost-profits claim, Bessemer
fell short of this basic requirement in two respects: by not disclosing the costs it saved
during the time its machinery was under repair and by not timely disclosing a further claim
for lost profits based on its loss of a major customer. We agree.
1.
Bessemer’s disclosures consistently failed to account for a critical factor in its lost-
profits claim: the costs it saved by not incurring the expenses necessary to earn revenue
while the shiploader underwent repairs. See The Potomac, 105 U.S. 630, 632 (1881) (lost
profits are calculated by deducting costs saved from the lost gross revenue). Bessemer first
announced its intent to seek “loss of business damages” in a pre-suit letter demanding
approximately $1.4 million from Seaway. Before Bessemer turned over its initial
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disclosures, Seaway notified Bessemer that it was “especially looking forward to receipt of
all documents relating to the issue of damages.” R.33-2.
But Bessemer’s initial disclosures gave few answers. Under the heading “A
computation of damages claimed by disclosing party pursuant to FRCP 26(a)(1)[(A)(iii)],”
Bessemer referred Seaway only to its pre-suit demand letter and noted its intent to claim as
damages “any future loss of business revenue that may become known through the course
of discovery.” R.33-3 at 4–5. Bessemer submitted with its disclosures a one-page
spreadsheet entitled “Canadian Enterprise Incident 10-04-05” and listing dollar amounts for
“managers time,” “employees lay-off,” “trains diverted” and “tonnage lost.” R.33-4. At the
bottom of the page, Bessemer noted that each of these dollar amounts came to the “Grand
Total” of $1,601,675, but provided no explanation and no supporting documentation to back
up the calculations. R.33-4. Bessemer also submitted a letter from a railroad company
documenting one train diversion as a result of the incident. R.33-5.
Understandably dissatisfied with Bessemer’s initial disclosures, Seaway continued
to demand lost-profits documentation. Seaway’s first request for production asked for “a
copy of all documents that relate to, support, or are in any way connected with the allegation
of lost business,” R.33-7 at 7. Bessemer responded by referring Seaway to “documents
previously provided.” R.33-7 at 8. Subsequent rounds of requests yielded little additional
information about the basis of Bessemer’s lost profits claim, with Bessemer alternatively
claiming that “no . . . documents exist” that would address “overhead savings” as a result of
the interruption in operations or referring Seaway to documents “already in [Seaway’s
possession].” R.33-8, Req. No. 21; see also R.33-11 Interrog. No. 2. Seaway continued to
ask for supplementation on the issue of net lost profits, without any significant response from
Bessemer.
Seaway fared no better in its depositions of Bessemer employees. Seaway’s
deposition notices to Bessemer’s corporate representatives detailed its expectation that the
witnesses could provide “an estimate and breakdown as to the actual costs that would have
been incurred . . . as a result of the planned carriage” as well as “a breakdown of the actual
costs incurred” relating to canceled shipments. A314.
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None of Bessemer’s corporate representatives could do the job. James Streett, who
oversaw Bessemer’s docking and railroad operations, confirmed that the one-page
spreadsheet was a calculation of Bessemer’s lost gross revenue, not its lost profits. A544.
Streett had no information about any costs Bessemer may have saved and said that he did not
know of anyone who would. A544–46. James Rogers, a second corporate representative,
also testified about lost gross revenue, and he too had no information about costs saved and
did not know of anyone who would. A462–63.
After Streett and Rogers failed to answer these questions, Seaway issued a detailed
deposition notice, asking a Bessemer corporate representative to produce “all documents in
any way supporting plaintiffs’ loss of revenue claim, including savings realized as a result
of the cancellation of the shipments described in” the one-page spreadsheet. R. 33-21 at 3.
Michael Suter appeared in response to the request, but he did not have the information either.
When asked whether Bessemer saved any costs by not having to assemble, load and fuel
train cars bound for the shiploader while it was under repair, Suter answered that he could
not “tell you whether it was a cost saved or a cost incurred.” A191; see also A178, A179.
When Seaway pressed Suter for documents detailing other costs saved (including the number
of railroad cars, the number of engines required, the personnel needed and the number of
miles trains would have traveled and the cost per mile, see R.33-21 at ¶¶ 6, 7), Suter
responded that he “simply [didn’t] know what those documents would be.” A222.
Seaway presented the uncontested opinion of its economic expert to underscore the
inadequacies of Bessemer’s disclosures. Bessemer, the expert said, did not turn over
“payroll journals,” “payroll tax returns,” “financial statements,” “financial summary reports”
and “general ledgers” necessary to verify and analyze Bessemer’s claim for lost profits.
R.33-22, 7–8. The expert confirmed the summary nature of the financial documents
Bessemer disclosed and concluded that Bessemer “provided insufficient data for a proper
determination of avoided costs,” which precluded the expert from “express[ing] an opinion
as to the actual amount of damages, other than that [Bessemer’s] presentation [was]
significantly flawed.” R.33-22, 8. Given Bessemer’s chronically inadequate disclosures and
given their relevance to the lost-profits claim, the district court did not abuse its discretion
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Seaway Marine Transport, et al.
in finding that Bessemer failed to satisfy Rule 26. See Dortch v. Fowler, 588 F.3d 396, 400
(6th Cir. 2009).
Bessemer takes on the district court’s ruling from several angles. First, it touts the
“simpl[icity]” and “efficien[cy]” of the one-page spreadsheet it produced, claiming it
“properly identified the exact amount of [Bessemer’s] claimed lost profits for diverted trains
and trapped coal.” Bessemer Reply 9. But “simplicity” and “efficiency” are virtues only if
the one-page spreadsheet conveyed all of the necessary information—including costs
saved—to support the “exact” amount of lost profits. It did not. As Bessemer’s corporate
representatives acknowledged, the spreadsheet showed the exact amount of lost gross
revenues, not the exact amount of lost profits.
Second, Bessemer argues that, even if the one-page spreadsheet did not satisfy Rule
26, Bessemer produced “all evidence as to ‘lost profits’” after the district court entered a
protective order for its proprietary information in May 2007. Bessemer Reply at 9. The
protective order, it is true, enabled Bessemer to produce additional information in support
of its claim. Bessemer turned over tonnage rates for its various clients and train schedules
identifying which trains it diverted in the aftermath of the allision. A324, A623–A633. But
the rates Bessemer would have charged for the loads that did not run or were diverted
elsewhere also go only to lost gross revenues. Still missing, even after entry of the protective
order, were figures addressing the costs Bessemer saved.
Third, Bessemer claims that there was nothing to turn over because it saved nothing
from the interruption. Bessemer Reply 12–19. But it suspends reality to suggest that
Bessemer would not have avoided any costs when it did not have to transport millions of
pounds of coal as a result of the dock shutdown, whether it be from fuel not used, employees
laid off or the day-to-day cost of operating a shiploader. See R.33-22 (report of Seaway’s
expert detailing incompleteness of Bessemer’s initial disclosures).
Finally, Bessemer claims that Seaway asks for too much. Rule 26, Bessemer argues,
requires disclosure only of enough evidence to put Seaway on notice of the lost-profits
claim. But that is not what Rule 26 says. It requires documents “on which each computation
is based, including materials bearing on the nature and extent of injuries suffered.” Fed. R.
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Seaway Marine Transport, et al.
Civ. Pro. 26(a)(1)(A)(iii). Because Bessemer never provided a critical piece of the lost-
profits puzzle—evidence of avoided costs—the district court did not abuse its discretion in
concluding that Bessemer came up short in meeting its Rule 26 obligations.
2.
Bessemer also did not timely disclose its approximately $1 million claim for loss of
business related to the decision of one of its major customers, Stelco, not to renew a contract
with Bessemer. Bessemer’s initial Rule 26 disclosure in December 2006 stated as a loss
“any future loss of business revenue that may become known through the course of
discovery.” R.33-3 at 5. It did not mention that Stelco had not renewed its contract with
Bessemer for the year 2006 and that Bessemer intended to claim damages for the loss.
Although Bessemer would have known by the last month of 2006 that Stelco had not
renewed its contract for that year, the first mention of Bessemer’s intent to claim damages
for losing the Stelco contract came at Suter’s deposition approximately six months later.
A183, 184. Bessemer insists that it provided sufficient notice of this claim by including with
its initial disclosures an October 27, 2005 letter from Stelco stating that it was considering
not renewing its contract. But the district court did not abuse its discretion in finding that
a letter saying that Stelco might cancel its contract did not adequately inform Seaway about
the extent of damages claimed if Stelco canceled the contract.
B.
Given these shortfalls in Bessemer’s compliance with its discovery obligations, the
district court did not abuse its discretion in excluding evidence of lost-profits damages and,
because it had no evidence of lost profits left to consider, granting summary judgment to
Seaway. When “a party fails to provide information . . . the party is not allowed to use that
information . . . to supply evidence on a motion, at a hearing, or at a trial, unless the failure
was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1).
Bessemer has not justified its actions. The requested records, according to the
unrebutted opinion of Seaway’s expert, were “standard accounting records that are clearly
maintained and available.” R.33-23, ¶ 10. Bessemer thus cannot excuse its conduct by
insisting it had no documents to produce. Nor can it justify its actions on the ground that it
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Seaway Marine Transport, et al.
was merely waiting for a protective order before turning over what Seaway needed. Even
with the entry of a protective order in May 2007, Bessemer continued to evade Seaway’s
requests for information about costs avoided (save for its release of additional information
regarding tonnage rates and train schedules) and waited nearly two months more before
notifying Seaway of its Stelco lost-contract claim. Bessemer’s meager excuses, the court
permissibly concluded, did not amount to substantial justification.
Nor did the district court exceed its discretion in concluding that Bessemer’s
omissions were not harmless. Because Bessemer never turned over supporting
documentation for its lost-profits calculation, Seaway’s expert could not independently
analyze Bessemer’s claim. And Bessemer’s six-month delay in disclosing its million-dollar
Stelco contract claim prevented Seaway from exploring the basis of that claim during
depositions and discovery.
Bessemer responds that the district court used the wrong standard in evaluating
whether discovery sanctions were appropriate. Rather than Rule 37(c)’s “substantially
justified or harmless” standard for determining whether to excuse inadequate disclosures,
Bessemer claims that the district court should have used a four-part test used to determine
the appropriateness of dismissal as a discovery sanction under Rule 37(b). See Phillips v.
Cohen, 400 F.3d 388, 402 (6th Cir. 2005) (to justify dismissal as a discovery sanction under
Rule 37(b), courts should consider “(1) evidence of willfulness or bad faith; (2) prejudice to
the adversary; (3) whether the violating party had notice of the potential sanction;
(4) whether less drastic sanctions have been imposed or ordered”). But that four-part test
is “an altogether different test” than the one for exclusion of the evidence under Rule 37(c),
for which “the test is very simple: the sanction is mandatory unless there is a reasonable
explanation of why Rule 26 was not complied with or the mistake was harmless.” Vance ex
rel Hammons v. United States, No. 98-5488, 1999 WL 455435, at *6 (6th Cir. June 25,
1999) (rejecting a similar argument).
IV.
For these reasons we affirm as to lost-profits damages, reverse in part as to liability
and remand for further proceedings.