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LLC v. State of Hawaii Land Use Commission

United States District Court, D. Hawaii

November 21, 2017

BRIDGE AINA LE'A, LLC, Plaintiff,
v.
STATE OF HAWAII LAND USE COMMISSION; VLADIMIR P. DEVENS, in his individual and official capacity; KYLE CHOCK, in his individual and official capacity; THOMAS CONTRADES, in his individual and official capacity; LISA M. JUDGE, in her individual and official capacity; NORMAND R. LEZY, in his individual and official capacity; NICHOLAS W. TEVES, JR., in his individual and official capacity; RONALD I. HELLER, in his individual and official capacity; DUANE KANUHA, in his official capacity; CHARLES JENCKS, in his official capacity; JOHN DOES 1-10; JANE DOES 1-10; DOE PARTNERSHIPS 1-10; DOE CORPORATIONS 1-10; DOE ENTITIES 2-10 and DOE GOVERNMENTAL UNITES 1-10, Defendants.

         ORDER AFFIRMING “ORDER GRANTING STATE OF HAWAII'S MOTION TO STRIKE AND EXCLUDE: (1) PLAINTIFF'S SUPPLEMENTAL EXPERT DISCLOSURE OF DAVID J. BURGER, CPA, SERVED ON JUNE 27, 2016 [DCK. 259]; AND (2) PLAINTIFF'S SECOND SUPPLEMENTAL EXPERT DISCLOSURE, FILED ON AUGUST 1, 2017 [DCK. 267]”; ORDER DENYING MOTION TO AMEND FOURTH AMENDED RULE 16 SCHEDULING ORDER [DKT. 170] FILED 5/5/16

          Susan Oki Mollway United States District Judge.

         I. INTRODUCTION.

         In the only claims remaining for adjudication, Plaintiff Bridge Aina Le`a, LLC (“Bridge Aina”), asserts temporary takings arising out of the reclassification of land in violation of the Fifth Amendment of the United States Constitution and Article I, section 20 of the Hawaii constitution. Before this court are (1) Bridge Aina's appeal from a magistrate judge's order striking and excluding two supplemental expert reports of David J. Burger, and (2) Bridge Aina's Motion to Amend the Fourth Amended Rule 16 Scheduling Order to extend the deadline for it to submit those same supplemental reports. The court affirms the magistrate judge's thorough and well-reasoned order striking and excluding the two Burger supplemental reports and denies the motion to amend the scheduling order to allow those reports.

         II. BACKGROUND.

         The factual background of this case has been discussed in the court's previous orders and is incorporated by reference. See, e.g., ECF Nos. 131 and 283. In essence, this case arises out of a decision by Defendant State of Hawaii Land Use Commission (the “LUC”) to reclassify a parcel of land from urban use to agricultural use. The LUC had conditioned the reclassification on the condition that sixty percent of the homes built would be “affordable” units. Id. When the LUC believed that Bridge Aina had failed to abide by the conditions, the LUC issued an order to show cause as to why the land should not revert back to an agricultural classification. Bridge Aina claims that Defendants caused a temporary taking under the federal and Hawaii constitutions for the period the property was subsequently reclassified to agricultural use.

         The Third Amended Rule 16 Scheduling Order set April 1, 2016, as the discovery deadline. See ECF No. 92, PageID # 1206.

         The Third Amended Rule 16 Scheduling Order required Bridge Aina to disclose the identity and written report of any expert no later than November 20, 2015. See Id. Bridge Aina timely served the expert report of David J. Burger, CPA, on the November 30, 2015, deadline for expert disclosures. See Certificate of Service, ECF No. 100; Decl. of John D. Ferry III ¶ 3, ECF No. 284-2, PageID # 6199 (indicating date of service).

         Burger, a certified public accountant, opined in his three-page report as to the rate of return that Bridge Aina would have earned had it been able to reinvest the proceeds from the sale of the property for the duration of the temporary taking, which Bridge Aina claimed ran from April 30, 2009 to November 25, 2014. See ECF No. 284-3. After discussing his resume and hourly rate, Burger opined as to the rate of return applicable, “focus[ing] on the rate of return on invested capital demonstrated by Bridge Capital, LLC, the parent company of Bridge Aina Lea, LLC” and “its majority owned subsidiaries.” Id., PageID # 6302. Burger's analysis reads in its entirety:

         For our analysis, the two definitions of return on invested capital that we used are as follows:

• Net operating profit minus taxes, divided by invested capital
• Net operating profit minus taxes, divided by total assets minus excess cash and non-interest bearing current liabilities

         For our analysis, the two definitions of invested capital that we used are as follows:

• Total equity plus total interest bearing debt
• Total assets minus excess cash minus non-interest bearing current liabilities.
With the two different definitions of return on invested capital, we have calculated the average return on invested capital for the years ended December 31, 2009 to 2014 as follows:
ROIC Formula #1
Net operating profit minus taxes, divided by invested capital #110.45%
Net operating profit minus taxes, divided by invested capital #2 10.12%
ROIC Formula #2
Net operating profit minus taxes, divided by total assets minus excess cash and non-interest bearing current liabilities 10.12%
Given that the second and third formulas above produce nearly identical results, and are based on audited financial statements, we feel it is both reasonable and realistic to use these formulas to derive the return on invested capital. Accordingly, it is our opinion that the return on invested capital for Bridge Capital, LLC and its subsidiaries for the years ended December 31, 2009 to 2014 is 10.12%.

Id., PageID # 6302-03.

         On March 2, 2016, Defendants moved to exclude Burger's expert report, as well as the expert report of Steven D. Chee. See ECF No. 134.

         On April 19, 2016, the audited financial data was produced by Bridge Aina to Defendants. See ECF No. 286-3 (“Attached please see Bridge Capital, LLC's audited financial statements, relied upon by Dave Burger in his expert report. . . .”). This production of financial data occurred after the court ordered discovery deadline had passed on April 1, 2016.

         On May 5, 2016, the court issued a Fourth Amended Rule 16 Scheduling Order, setting trial in this matter for June 15, 2016. See ECF No. 170, PageID # 3837. The order did not change the expert disclosure deadline of November 20, 2015, which had already passed. See id., PageID # 3838; ECF No. 92. Nor did it change the discovery deadline of April 1, 2016, which had also passed. See id.

         On May 11, 2016, the court issued its usual prehearing Inclinations with respect to the motion to exclude expert reports. See ECF No. 172. The court stated:

The court is inclined to rule that the Burger Report should be excluded because (1) Bridge Aina failed to comply with Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure; and (2) the opinions expressed in the Burger Report are not sufficiently reliable under Rule 702 of the Federal Rules of Evidence and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
Under Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure, an expert report must contain, among other things, “a complete statement of all opinions the witness will express and the basis and reasons for them”; “the facts or data considered by the witness in forming them”; and “any exhibits that will be used to summarize or support them.” Fed.R.Civ.P. 26(a)(2)(B).

Id., PageID # 3883. The inclinations noted that Burger failed to provide any of the documents underlying his opinions or the calculations forming the basis for his conclusion that the rate of return should be 10.12%. Id., PageID # 3884. The inclinations stated that, under Rule 37(c)(1) of the Federal Rules of Civil Procedure, a party who fails to provide information required by Rule 26(a) “is not allowed to use that information or expert witness at trial, ‘unless the failure was substantially justified or is harmless.'” Id. The court stated that it was “inclined to rule that Bridge Aina has not shown that its failure to comply with Rule 26(a)(2)(B) was either harmless or substantially justified.” Id. The court also stated that it was inclined to rule that Burger's opinions were not reliable for purposes of Rule 702 of the Federal Rules of Evidence. Id.

         On May 19, 2016, the court held a hearing on the motion to exclude expert reports and took the motion under advisement. See ECF Nos. 207, 209.

         Before this court could rule on the motion to exclude the Burger report, Bridge Aina sought to disqualify this judge. See ECF No. 238. The court therefore refrained from ruling while another judge decided to motion to disqualify. See ECF No. 258. In light of the motion to disqualify, the court continued the trial date to July 27, 2016. See ECF No. 251. On June 9, 2016, the trial date was continued to August 1, 2016. See ECF No. 256. On June 21, 2016, Judge Alan C. Kay denied the motion to disqualify. See ECF No. 258.

         On June 27, 2016, Bridge Aina sent Defendants Burger's purported “supplemental” expert report. See ECF No. 284-4 (copy of report); Ferry Decl. ¶ 4, ECF No. 284-2, PageID # 6299 (indicating that report was served on June 27, 2016). This “supplement” said:

In reviewing our November 20, 2015, report, we see that we only presented the results of the calculations and not the detailed calculations themselves. Had we presented the detailed calculations, we feel that the readers of the report would have been able to better understand the results.

ECF No. 284-4, PageID # 6304. The “supplement” went on to explain that the second and third formulas contained in the original report were different because the third accounted for income tax implications. The “supplement” then stated, however, that Bridge Capital, Bridge Aina's parent company (on which Burger was basing his rate of return), had no income taxes. See id., PageID Nos. 6304-05.

         On July 5, 2016, the parties notified the court that they had settled this case pending legislative approval of the settlement payment. See ECF No. 262. The court therefore terminated Defendant's motion to exclude Berger's expert report without ruling on it.

         On May 30, 2017, Defendants notified the court that the legislature had not approved the settlement. See ECF No. 264. The court therefore set trial in ...


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