Apex Industries v. WGI Heavy Minerals

EXPERT DISCLOSURE: Inadequate disclosure precludes expert testimony at trial, but she is permitted to testify as a fact witness… Molloy.

Apex Abrasives alleges that following construction of a commercial-grade garnet processing facility in Glen it was forced to cease operations and liquidate its inventory because WGI Heavy Minerals violated their purchase agreement. WGI objects to Apex’s expert disclosure for Julie Fagenstrom and seeks to exclude her from offering expert testimony at trial. Argument was heard 3/28/19.

Fagenstrom was disclosed as a non-retained expert under Rule 26(a)(2)(C). While WGI does not dispute that the disclosure adequately states the subject of her testimony, Rule 26(a)(2)(C) (i), it argues that the disclosure fails to provide a summary of the facts and her opinions, Rule 26(a)(2)(C)(ii). Her disclosure states:

Ms. Fagenstrom provided bookkeeping and accounting services for Apex Abrasives. She is a Nelson family member and is not receiving compensation for participating as a witness in this case.

A. The Subject Matter on Which Ms. Julie Fagenstrom Is Expected to Present Evidence under Federal Rule of Evidence 702, 703, or 705

1. Apex Accounting and Ledger Entries.

B. Summary of the Facts and Opinions to which [Ms. Julie Fagenstrom] Is Expected to Testify

1. Ms Fagenstrom will rely on her experience and knowledge as an accountant; and her personal knowledge of Apex’ financial and production records and related exhibits.

2. Based on the foregoing, Ms. Fagenstrom will testify regarding funds Apex was forced to borrow to sustain operations during the contract period when WGI did not purchase the minimum specified tonnages, which borrowed funds are due and owing to the private lender.

3. Based on the foregoing, Ms. Fagenstrom will testify regarding the expenditure and loss of invested capital to design, construct, and permit the mill. In connection with this testimony she will opine regarding the value of the company and the effect Apex’s breach of contract had on that value.

4. Based on the foregoing, Ms. Fagenstrom will offer opinion testimony regarding the profit Apex could have expected to make on the sale of minimum tonnages specified in the parties’ marketing agreement based upon conservative production costs of four cents per pound.

5. Based on the foregoing, Ms. Fagenstrom will testify regarding revenue generated from the sale of tungsten as a by-product of garnet production and offer opinion testimony regarding the amount of revenue Apex lost because WGI failed to purchase the specified amount of garnet in the parties marketing agreement.

Apex’s disclosure is not sufficient under 26(a)(2)(C)(ii). The “disclosure advises the reader that the witness will have opinions in certain areas, but fails to state what the opinions are, and the factual basis for those opinions.” Cooke (D.Ariz. 2013). “An opposing party should be able (and is entitled) to read an expert disclosure, determine what, if any, adverse opinions are being proffered and make an informed decision as to whether it is necessary to take a deposition and whether a responding expert is needed.” Id. While it is clear what topic areas Fagenstrom will cover, her opinions and the underlying facts remain unknown. For example, while she is anticipated to testify to revenue from tungsten sales, the disclosure does not state what the expected revenue was or what her calculation of that revenue is based on.

Because Apex’s expert disclosure of Fagenstrom is not sufficient under the rules it must be excluded unless Apex can show that its failure was substantially justified or harmless. Rule 37(c)(1). Its only response has been to maintain the sufficiency of its present disclosure. Counsel for Apex stated during argument that the proffered calculations walk a fine line between fact and opinion. While he is correct, once it decided to notice her as an expert it was required to meet the requirements of Rule 26(a)(2)(C)(ii), which requires disclosure of both the opinion and a summary of the facts upon which it is based. Counsel also argued that all the underlying data & calculations have been previously disclosed in the course of this proceeding. This ignores Rule 26(a)(2)(C)’s requirement that the disclosure link evidence to opinions. Counsel also argued that the record contained sufficient information for WGI to decide whether or not to depose Fagenstrom. But “without information as to the opinions [Apex’s] non-retained expert witnesses are expected to testify to and the main facts on which these opinions are based, [WGI]’s ability to meaningfully depose or cross-examine these witnesses is undermined.” Pineda (ND Calif. 2012). As argued by WGI, the inadequate disclosure has not given it a meaningful choice of whether to depose Fagenstrom, but rather mandates a deposition. Id.

Fagenstrom is excluded from offering expert testimony at trial; however, this Order does not prevent her from offering fact testimony at trial.

Apex Abrasives v. WGI Heavy Minerals, 44 MFR 200, 3/28/19.

Peter Scott (Scott Law Offices), Bozeman, for Apex; Marshall Mickelson (Corette Black Carlson & Mickelson), Butte, for WGI.