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Steady State Imaging, LLC v. General Electric Co.

United States District Court, D. Minnesota

May 2, 2018

Steady State Imaging, LLC, Plaintiff,
General Electric Company, Defendant.

          Devan V. Padmanabhan, Lisa B. Ellingson, and Paul J. Robbennolt, Winthrop & Weinstine, PA, counsel for plaintiff

          Marla Butler and Nicole S. Frank, Robins Kaplan LLP, counsel for defendant


          Katherine Menendez United States Magistrate Judge

         This case is before the Court on two motions seeking sanctions for alleged untimely supplementation of answers to interrogatories. Steady State Imaging, LLC (“SSI”) has filed a Motion to Exclude Evidence Not Disclosed in Response to Interrogatories. [ECF No. 132.] General Electric Company (“GE”) has filed a Motion to Strike Portions of Plaintiff SSI's Second and Third Supplemental Answers to Interrogatory No. 1. [ECF No. 138.] For the reasons that follow, GE's motion is GRANTED IN PART and DENIED IN PART and SSI's motion is DENIED.

         I. General Background

         This litigation arises from GE's purchase of the assets of SSI. SSI's primary business involved a silent MRI technology, referred to as SWIFT, which SSI licensed from the University of Minnesota. In April of 2011, GE and SSI entered an asset purchase agreement (“APA”), which transferred SSI's rights in the SWIFT technology to GE in exchange for a substantial sum of money and according to a number of carefully drafted contractual terms. In its May 19, 2017 Amended Complaint, SSI alleged that GE breached certain provisions of the APA. Specifically, in the APA, GE promised to put the SWIFT technology through a research and development program, known as an “ATD” program, but SSI asserts that GE did not actually do so. [Am. Compl. ¶ 45 & Count 1, ECF No. 22.]

         After the APA was executed, SSI alleges that GE made “repeated” promises to SSI that GE would commercialize SWIFT. SSI described one example of such a post-APA promise in its Amended Complaint. It alleged that in September of 2014, GE employees Jason Polzin and Baldev Ahluwalia promised Danny Cunagin of SSI that GE would commercialize the SWIFT Technology. [Am. Compl. ¶ 37.] SSI also claims that it made additional investments to assist GE's commercialization efforts and refrained from suing to enforce the APA or from reacquiring the rights to SWIFT in exchange for GE's post-APA promises. According to SSI, this exchange formed one or more post-APA agreements, which GE breached by ultimately failing to commercialize SWIFT. [Am. Compl., Count III.] Alternatively, SSI contends that even if no enforceable post-APA contract was formed, GE is liable under the equitable theory of promissory estoppel. [Am. Compl., Count IV.] Of particular importance here, SSI's reference to “repeated” post-APA promises in the Amended Complaint made it clear that SSI based its post-APA claims on additional promises that were not identified in the amended pleading.

         GE denies that it breached the APA and asserts that it fulfilled all of its obligations under that contact. GE asserts that it conducted an ATD program to evaluate SWIFT as the APA required, but it determined that SWIFT was not appropriate for inclusion in a subsequent marketing program for clinical and other reasons. With respect to the post-APA contract claim, GE asserts that no post-APA agreement exists. It claims that any post-APA agreement would be barred by the APA's explicit integration clause and precluded by a provision requiring any modifications, amendments, or future agreements to be in writing. In addition, GE denies that it ever made any post-APA promise to commercialize SWIFT.

         On June 2, 2017, GE brought an early partial motion to dismiss the Amended Complaint that was aimed, in part, at SSI's claims that GE breached a post-APA agreement or was liable under a promissory estoppel theory. GE argued that: SSI had failed to provide sufficient detail about any alleged post-APA promises to sustain a claim under either theory; SSI could not demonstrate that any GE employee had the authority to bind GE to any post-APA promise; and SSI's claims concerning post-APA agreements were barred because they were not in writing. [ECF Nos. 24, 26.]

         The parties conducted a Rule 26(f) meeting on June 9, 2017. They agreed that fact discovery would be concluded on February 16, 2018, a deadline which the Court adopted in a Scheduling Order. [Rule 26(f) Report at 3, ECF No. 32; Scheduling Order (June 28, 2017) at 1 ¶ 3, ECF No. 38.] Shortly after the Scheduling Order was issued, the parties served the following discovery relevant to the current dispute: (1) GE served an interrogatory asking SSI to provide detailed factual information about each of the promises that formed the basis of SSI's post-APA contract and promissory estoppel claims; and (2) SSI served contention interrogatories asking GE to identify the factual basis for GE's assertion that it is not liable for breach of the APA or any post-APA promise, and interrogatories asking for information about GE's ATD programs.

         On August 29, 2017, the Court concluded that Rule 12(a)(4) extended the time for GE to serve an Answer to the Amended Complaint such that no responsive pleading would be due until fourteen days after the District Court ruled on the motion to dismiss. [Order (Aug. 29, 2017), ECF No. 55.] On November 2, 2017, this Court recommended that GE's motion to dismiss be granted in part and denied in part. In particular, the Court concluded that despite a lack of clarity regarding SSI's post-APA contract and promissory estoppel claims, SSI had done enough to survive Rule 12(b)(6) dismissal. [ECF No. 85 at 19-24.] The District Court adopted the report and recommendation and GE served its Answer to the Amended Complaint on January 31, 2018. [Ans., ECF No. 122.]

         In the motions now before the Court, each side seeks exclusion of certain evidence because the other party supplemented its answers to the interrogatories at issue at the end of the fact-discovery period. GE's motion concerns SSI's January 25, 2018 and February 16, 2018 supplemental answers to GE's interrogatory about post-APA promises. GE argues that these supplemental answers are untimely because SSI waited until the end of the discovery period to provide the information. SSI's motion challenges the timeliness of GE's disclosure of several affirmative defenses, which GE identified in its January 31, 2018 Answer, but had not previously included in its responses to SSI's contention interrogatories asking GE to describe the factual basis for its position that it was not liable for breach of the APA or a post-APA agreement. SSI also challenges GE's allegedly untimely supplementation of answers to interrogatories seeking information about GE's ATD programs.

         II. Federal Rules of Civil Procedure 26(e) and 37(c)

         Both SSI's and GE's motions seek sanctions pursuant to Rule 37(c) for violations of obligations to timely supplement interrogatory responses. If a party learns that its previous response to an interrogatory is materially incomplete or incorrect, it must supplement or correct that answer in a timely manner. Fed.R.Civ.P. 26(e)(1). But providing such supplementation is unnecessary where the additional or corrective information has “otherwise been made known to the other parties during the discovery process or in writing. . . .” Id.

         To give teeth to Rule 26(e)'s supplementation requirement, the Federal Rules of Civil Procedure create a consequence for failure to timely supplement. If a party fails to provide information as required by Rule 26(e), that party may not use the undisclosed 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). In the face of a failure to supplement, a court can impose additional sanctions beyond exclusion or can fashion an alternative appropriate remedy. Fed.R.Civ.P. 37(c)(1)(A)-(C) (providing that the court can consider requiring payment of fees, informing the jury of the failure, or imposing other appropriate sanctions “in addition to or instead of” exclusion); see also Design Strategy, Inc. v. Davis, 469 F.3d 284, 298 (2d Cir. 2006) (“Thus, the plain text of the rule provides that if an appropriate motion is made and a hearing has been held, the court does have discretion to impose other, less drastic sanctions.”).

         The Court has considerable discretion in fashioning an appropriate sanction for discovery violations under Rule 37(c)(1). Wagener v. Johnson, 527 F.3d 687, 692 (8th Cir. 2008). However, the more serious the sanction to be imposed, the more circumscribed that discretion becomes. Id. (explaining that “discretion narrows as the severity of the sanction or remedy [the district court] elects increases”). Because “the exclusion of evidence is a harsh penalty [that] should be used sparingly, ” id., courts should consider whether lesser sanctions can create an appropriate remedy, see Heartland Bank v. Heartland Home Finance, Inc., 335 F.3d 810, 817 (8th Cir. 2003). “Generally speaking, federal courts favor resolution of cases on their merits over the imposition of drastic, tactical sanctions.” Byrd v. J Rayl Transp., Inc., No. 13-cv-2279 (RHK/LIB), 2014 WL 12647772, at *2 (D. Minn. Oct. 3, 2014).

         Courts deciding whether to preclude a party from using late-disclosed information or to impose some other sanction pursuant to Rule 37(c)(1) consider several factors, including: (1) how important the excluded material is to the case; (2) the proffered reason for the party's failure to provide the information in a timely fashion or any evidence of bad faith or willfulness; (3) the potential that the other party will be prejudiced if the information is not excluded; and (4) whether a continuance can be provided to cure any prejudice. Transclean Corp. v. Bridgewood Servs., Inc., 77 F.Supp.2d 1045, 1063 (D. Minn. 1999), aff'd in part, vacated in part, 290 F.3d 1364 (Fed. Cir. 2002) (citing Citizens Bank v. Ford Motor Co., 16 F.3d 965, 966 (8th Cir. 1994); Millen v. Mayo Foundation, 170 F.R.D. 462, 465 (1996); Trilogy Communications, Inc. v. Times Fiber Communications, Inc., 109 F.3d 739, 744 (Fed. Cir. 1997)).

         III. GE's Motion

         GE's motion seeks to preclude SSI from being able to offer certain evidence in support of its post-APA contract and promissory estoppel claims. [ECF No. 138.] For the reasons that follow, the Court concludes that SSI's January 25, 2018 and February 16, 2018 supplemental responses to Interrogatory No. 1 were not timely. The Court also finds the late supplementation of these responses was not substantially justified, nor was it entirely harmless. However, the Court concludes that the remedy of exclusion is not warranted because any prejudice GE suffered as a result of the late supplementation can be remedied through a continuance to allow GE some additional limited discovery.

         A. GE's Efforts to Discover the Alleged “Promises”

         A confounding aspect of this case has been SSI's entrenched unwillingness to identify precisely what its post-APA breach of contract and promissory estoppel claims are about. SSI's Amended Complaint alluded to “repeated” post-APA promises by GE personnel to commercialize SWIFT, promises that either formed a new contract or contracts or that gave rise to promissory estoppel. But the Amended Complaint itself only provided limited information about one: the only post-APA promise identified in SSI's pleading was allegedly made by GE employees Jason Polzin and Baldev Ahluwalia to Danny Cunagin of SSI in September 2014. Unfortunately, despite repeated efforts on the part of GE to learn additional information regarding this critical aspect of SSI's case, only in the last month of discovery did SSI actually reveal several essential components of its post-APA claims.

         GE's Interrogatory No. 1

         On July 13, 2017, GE served SSI with its First Set of Interrogatories. GE's Interrogatory No. 1 asks SSI to provide information about all of the promises that form the basis of its post-APA contract and promissory estoppel claims. GE's Interrogatory No. 1 reads:

Identify and describe every “promise” or “representation” that SSI alleges GE made, after execution of the APA, to commercialize SWIFT as alleged in Paragraphs 36, 37, 53 and 59 of the Amended Complaint, including, but not limited to providing for each “promise”: the date of the alleged promise; each person who was aware of, made, or received the alleged promise; a description of each identified person's knowledge related to the alleged promise; the obligations of each party in relation to the alleged promise; the date(s) by which each party was required to satisfy its obligations in relation to the alleged promise; the details of any consideration offered and/or provided by SSI in relation to the alleged promise, including the details of any “investments” made by SSI as alleged in Paragraphs 38 and 54 of the Amended Complaint; the date(s) by which SSI satisfied any of its obligations in relation to the promise; and any documents that evidence the existence or substance of the alleged promise.

[ECF No. 141-1.] This is just the kind of “who, what, when and where” interrogatory that a defendant should ask and a plaintiff should answer early on in a case when a plaintiff contends that the defendant breached an oral contract.

         SSI's Initial Response a nd the Parties' Disagreements

         SSI responded to GE's Interrogatory No. 1 on August 14, 2017. SSI had filed its Amended Complaint nearly three months earlier, so plenty of time had passed for SSI to get its ducks in a row. In its original response to the interrogatory, SSI again identified the alleged September 2014 promise to commercialize SWIFT made by Mr. Polzin and Mr. Ahluwalia to Mr. Cunagin. SSI's original answer identified an additional post-APA promise as well. SSI added that in late November or early December of 2011, Jacques Coumans of GE promised Mr. Cunagin and Troy Kopischke (another SSI representative) at GE's RSNA booth that GE would commercialize SWIFT. Finally, SSI repeated the assertion from its Amended Complaint that SSI made investments to assist with SWIFT commercialization and refrained from taking action to enforce the APA or to reacquire rights to SWIFT. No other details were provided (such as the timing of performance or the specific obligations GE allegedly incurred as a result of any promise) and no other promises were identified.

         On September 7, 2017, GE sent SSI a deficiency letter raising concerns about SSI's answer to GE's Interrogatory No. 1. GE complained that SSI had simply repeated what it included in its Amended Complaint about the September 2014 promise and added one additional promise by Mr. Coumans, but had not provided the detailed information called for by the interrogatory. [ECF No. 141-3.] On September 12, 2017, SSI responded that it was continuing to investigate and intended to supplement its answer to Interrogatory No. 1 as additional information was discovered. [ECF No. 141-4.]

         On October 4, 2017, GE again told SSI that its response to GE's Interrogatory No. 1 was deficient. GE stated: “GE is entitled to discover what facts, if any, SSI has that support its claim for breach of contract, including the consideration SSI alleges it gave in exchange for GE's alleged promises.” [ECF No. 141-5.] On October 9, 2017, SSI complained that GE's repeated demands for confirmation that SSI would supplement its discovery responses were unnecessary and unproductive. SSI again stated that it would supplement in a timely manner. [ECF No. 141-6.]

         On October 24, 2017, GE demanded that SSI provide a date within the next two weeks when SSI would provide a supplemental response to GE's Interrogatory No. 1. GE articulated the reason it believed such supplementation was required:

As GE noted in its Motion to Dismiss, SSI's Amended complaint is devoid of any factual basis upon which GE can ascertain either (a) the existence of the post-APA agreement, or (b) the terms of the alleged agreement. SSI's continued refusal to provide information concerning the existence and terms of that alleged agreement 6 months after filing its amended complaint is hindering GE's ability to defend against SSI's allegations.

[ECF No. 141-7.] In response, SSI stated that it intended to supplement its discovery responses by November 7, 2017, though it ultimately did so in December. [ECF No. 141-8; ECF No. 141-10.]

         SSI's First Supplemental Responses to Interrogatory No. 1

         On December 11, 2017, almost seven months after filing its Amended Complaint, SSI provided its First Supplemental Answer to GE's Interrogatory No. 1. In this first supplemental response, SSI disclosed one additional post-APA promise. It stated that:

on or about April 20-26, 2013, outside the main conference hall at the ISMRM meeting in Salt Lake City, Mike Garwood of SSI expressed concern to Jacques Coumans of GE that GE would not commercialize SWIFT. Mr. Coumans put his arm around Mike Garwood and promised him that GE would commercialize SWIFT.

[ECF No. 141-12.] SSI also provided additional details about the September 2014 promise that Messrs. Polzin and Ahluwalia of GE allegedly made to Mr. Cunagin of SSI, including asking for SSI to help developing SWIFT using resources at Stanford University. SSI pointed to a Bates-labeled document, indicating that GE could discern from that document additional information sought by its interrogatory. [Id.] SSI further provided information about the alleged consideration exchanged for this April 2013 promise by Mr. Coumans. [Id.] Again, SSI identified no other promises or provided more details about previously alleged promises.

         SSI's Second Supplemental Response to Interrogatory No. 1

         On January 25, 2018, just three weeks before the close of fact discovery, SSI served its Second Supplemental Answers to Interrogatory No. 1. It provided additional material details about the previously-disclosed promises and described what appear to be two entirely new promises. As with its earlier supplementation, the second supplemental answers were somewhat short on the specifics called for by GE's Interrogatory No. 1. SSI added that GE's promises to commercialize SWIFT “contemplated the development and introduction to the market of a SWIFT brain imaging, or neuro, application.” [ECF No. 141-13 at 8.] That SSI considered this neuro application to be a part of the promises allegedly made by GE had not been previously disclosed.

         In addition to Mr. Coumans' alleged promise to Mr. Cunagin and Mr. Kopischke in late November or early December of 2011 at the RSNA meeting (which SSI identified in its initial response to the interrogatory), SSI stated for the first time that at the same meeting, Mr. Cunagin and Mr. Kopischke met with GE's then CEO Michael Harsh. Mr. Harsh allegedly “represented that GE wanted to get to market fast with the RUFIS product, but that it would then follow with the commercialization of SWIFT products.” [ECF No. 141-13 at 8.]

         With respect to the promise made by Mr. Polzin and Mr. Ahulwalia at the ISMRM meeting between April 20-26, 2013, SSI added some additional information. SSI stated that during the meeting, “Mr. Polzin and Mr. Ahluwalia gave excuses about GE's lack of progress with SWIFT commercialization. Mr. Polzin and Mr. Ahluwalia represented that although GE was prioritizing other things like PET MR over SWIFT, SSI should not worry, because GE would commercialize SWIFT as soon as practicable.” [ECF No. 141-13 at 8-9.] SSI gave a little more information about what happened when Mr. Coumans allegedly made a promise at the same meeting: “Mr. Coumans greeted Mr. Kopischke and Mr. Cunagin by shaking their hands and assuring them that they were going to make a lot of money from SWIFT commercialization.” [Id. at 9.]

         SSI also identified new information about a conversation between Messrs. Polzin, Ahluwalia, Kopischke, and Cunagin that took place on May 17, 2013. On ...

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