A Defendant in an SEC case offered video exhibits for trial. The SEC objected, citing that the videos were not included in the Defendant’s Rule 26(a) initial disclosures and should be excluded under Rule 37(c)(1). United States SEC v. Big Apple Consulting USA, Inc., 2011 U.S. Dist. LEXIS 99352, 6-8 (M.D. Fla. Sept. 2, 2011).
The Defendant argued the failure to disclose the videos was “harmless or substantially justified” under Federal Rule of Civil Procedure Rule 37(c)(1). Big Apple Consulting USA, Inc., at *2, 6.
Courts consider five factors to determine whether the failure to make Rule 26 disclosures were substantially justified or harmless:
(1) The surprise to the party against whom the evidence would be offered;
(2) The ability of that party to cure the surprise;
(3) The extent to which allowing the evidence would disrupt the trial;
(4) The importance of the evidence; and
(5) The nondisclosing party’s explanation for its failure to disclose the evidence.
Big Apple Consulting USA, Inc., at *6-7.
The Court quickly held the Defendants’ failure to comply with Rule 26 was not substantially justified, because they provided “no explanation as to why they failed to disclose that they intended to introduce the videos at trial.” Big Apple Consulting USA, Inc., at *7.
Whether or not the error was harmless was one the Court could not determine, unless the videos were relevant, important and thus the SEC should have had an opportunity to conduct discovery upon the prospective exhibits, but did not because of their “surprised” nature. Big Apple Consulting USA, Inc., at *7.
The Court found there was an opportunity to cure the use of the “surprise” exhibits. Big Apple Consulting USA, Inc., at *7. The Court held:
Nevertheless, investing the time and resources to cure is only appropriate if the videos are both relevant and important evidence. Therefore, the Court will give Defendants an opportunity to proffer the videos. If the Court determines that they are both relevant and important evidence, Defendants will be allowed to use the videos during trial; however, the SEC will be allowed to conduct any necessary discovery regarding the videos and will be awarded reasonable fees and costs related to such discovery.
Big Apple Consulting USA, Inc., at *7-8.
Bow Tie Thoughts
Determining ESI that can support a party’s claims or defenses is time consuming, especially if there is a large volume of data to review. Video, photos and audio files are forms of ESI a party should not forget.
A party could argue that the more relevant and important the non-disclosed ESI is to a case, the more harmful the failure to disclose the prospective trial exhibits was to the opposing party. This would logically weigh in favor of excluding the exhibits from trial. Moreover, it is also plausible that the more harmless and unimportant the non-disclosed information is to the case would mean proposed exhibits are of little relevance to the case, which also weighs against their being admitted at trial on relevancy grounds.
The time to determine the importance and relevance of any ESI is not on the eve of trial, but at the beginning of a case. Early Case Data Assessment software can be extremely helpful in identifying ESI for initial disclosures utilizing keywords, identifying key players, narrowing date ranges and other methodologies to determine relevant ESI that supports a party’s claims or defenses. Trying to slug out in motion practice whether or not prospective exhibits are relevant and important is not cost or time effective. Moreover, even if a party prevails, the opposing side would win on the cost to conduct additional discovery over the non-disclosed prospective trial exhibits.
Moral of the story: Identify early, disclose pursuant to the Rules, avoid motion practice and focus on the merits of your case at trial.
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That’s a good order. But what about the increased disruption and congestion caused by the tardy offering of such evidence, perhaps offered this way to see if the Judge would just let it in? A hearing on why the exhibits were not discovered and produced earlier should have been held upon the trial’s conclusion and, if the offending party was hiding the ball, reasonable sanctions imposed. Holding feet to the fire is long overdue in these cases and the peripheral costs are often enormous.