Hyundai Motor Co. et al. v. Hyundai Tech. Group, Inc. et al Case No. SA CV 23-01709-CBM (DFMx) United States District Court, C.D. California Filed May 20, 2025 McCormick, Douglas F., United States Magistrate Judge Proceedings: (IN CHAMBERS) Order re: Motion to Strike Late-Produced Documents (Dkt. 199) *1 Plaintiffs Hyundai Motor Company (“HMC”) and Hyundai Motor America, Inc. (“HMA”) (together, “Plaintiffs”) move to strike (1) 21 documents that they allege were produced after the close of fact discovery and (2) any expert opinions that rely on those documents. See Dkt. 199; Dkt. 201-1 (“Joint Stipulation”). Specifically, Plaintiffs move to strike 21 financial documents that were produced with the rebuttal report of Rodney Crawford, a damages expert for Defendants Hyundai Technology Group, Inc., General Procurement, Inc., and Hyundai Technology, Inc. (together, “Defendants”). See id. at 5. Under the Lanham Act, Plaintiffs may be entitled to recover Defendants' profits. See U.S.C. § 1117. Plaintiffs must prove Defendants' sales; Defendants must prove all elements of any cost or deduction claimed. See id. The instant dispute arises out of Defendants' production of documents about operating expenses and how those operating expenses should be allocated to the U.S. sales that are at issue in this dispute. Plaintiffs sought extensive discovery of Defendants' financial records. Among the documents Defendants produced was HTI336731, a document that purported to show Defendants' allocation of operating expenses to their U.S. sales from 2016 to 2023. See Dkt. 201-4 (“HTI336731”) at 2; see also Dkt. 201-5 at 7 (explaining that HTI336731 was an allocation of operating expenses to the business selling Hyundai brand products in the U.S.). On the deadline for disclosing opening expert reports, Plaintiffs disclosed a report from a damages expert, Justin Lewis. See Dkt. 201-11 (“Lewis Report”) at 12. Lewis opined that Defendants' gross profits on its U.S. sales of the products at issue were $6,318,965. Id. at 11. Lewis reviewed documents produced by Defendants, including HTI336731, and identified several “discrepancies” between those documents and other financial records. Lewis ultimately opined that Defendants' financial records did not support allocating operating expenses to Defendants' gross profits; accordingly, Lewis concluded that “[n]o other expense deductions are currently supported beyond [gross profits].” Id. at 10. On January 10, 2025, Defendants produced Crawford's rebuttal report. See Dkt. 201-12 (“Crawford Report”). Crawford conceded that Lewis's criticism of HTI336731 was well-taken: “I have noted an error in the cost allocation methodology employed in that company-prepared schedule and independently prepared a revised analysis of costs appropriately attributable to U.S. sales of Hyundai branded products that is presented in this Report.” Id. at 3. Crawford calculated Defendants' operating expenses and then allocated those expenses to U.S. sales, determining that Defendants had almost $2.6 million in allocated operating expenses that should be deducted from gross profits. See id. at 4. Crawford's calculation of those operating expenses and his allocation of those expenses is reflected in a two-page spreadsheet attached to his report as Exhibit “B.” See id. at 7-8. Exhibit “B” itself has several footnotes, in which it identifies the documents on which the calculations rely. See id. In his deposition, Crawford confirmed that those documents were among the 21 documents attached to his report. See Dkt. 201-14 at 25-30. *2 Defendants submitted a declaration from Crawford in support of their portion of the parties' Joint Stipulation. See Dkt. 201-22 (“Crawford Decl.”). In his declaration, Crawford explains that “Defendants' accounting systems do not allocate operating expenses among product lines, individual products, or customers.” Id. ¶ 4. Thus, he explains, “upon my engagement in this matter, I undertook to perform such an allocation of the previously non-allocated operating expenses to sales of Hyundai branded products in the United States.” Id. ¶ 5. Crawford then goes on to describe how he allocated those operating expenses: “Operating costs such as administrative costs, utilities and general overhead expenses are typically incurred at the corporate level and are not directly attributed to individual product lines. While financial records may provide insight into total operating expenses, allocating these costs to specific HT Products sold into the United States necessarily involves estimation and reasonable apportionment assumptions.” Id. ¶¶ 7-8. Defendants also submitted a declaration from Janet Ocon, an employee who described herself as the “acting” Chief Financial Officer. See Dkt. 201-21 (“Ocon Decl.”). Like Crawford, Ocon explains that “Defendants did not maintain their accounting records to reflect an exact itemized breakdown of expenses ... because there was considerable overlap among the entities' expenses.” Id. ¶ 2. Moreover, she explains, Hyundai's business was not represented as a “separate entity in the financials,” such that sales and expenses were reflected on the financial statements of General Procurement, Inc. Id. ¶ 3. As a result, “[t]here are no documents or records available that provide a granular level of detail regarding the percentage or amount of allocation for HY/Hyundai products.” Id. ¶ 4. Plaintiffs bring their motion under Rule 37(c)(1), which provides that when “a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1); see also Goodman v.Staples The Office Superstore, LLC, 644 F.3d 817, 827 (9th Cir. 2011). The burden is on the party facing sanctions to demonstrate that its delay was substantially justified or harmless. See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106-07 (9th Cir. 2001). In determining whether to preclude introduction of evidence under Rule 37, the court considers (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 non-disclosing party's explanation for its failure to disclose the evidence. See Dey, L.P. v. Ivax Pharm., Inc., 233 F.R.D. 567, 571 (C.D. Cal. 2005). The initial question is whether the expense allocation documents attached to Crawford's report should have been produced by Defendants during fact discovery. Defendants argue that they produced all relevant documents and that the documents attached to Crawford's report “were not maintained by Defendants.” Put differently, Defendants argue that “[i]t is not proportional to require Defendants to create and produce new expense reports that granularly delineate expenses among product lines or sales locations as methods of allocation when Defendants did not maintain their records as such.” JS at 32-33. It is certainly true that a party cannot be compelled to create a document that does not exist. See Rogers v. Giurbino, 288 F.R.D. 469, 485 (S.D. Cal. 2012) (“A party, however, is not required to create a document where none exists.”). But the expense allocation documents existed, or at least the data reflected in those documents existed, before the fact discovery cutoff. In Crawford's deposition, he describes how the expense allocation documents were obtained from the company's financial records, making clear that the information was present in Defendants' records before the discovery cutoff. See Dkt. 201-24 at 24 (“I believe he did run it off the company's accounting system”); 30 (“it's basically – you know it's an extract from the company's ERP system”). *3 The parties had numerous disputes during the fact discovery period. One of the consistent themes was Defendants' position that Plaintiffs' demands were unreasonable and disproportionate to the needs of the case. Ultimately, the parties reached countless compromises resulting from discovery conferences with the Court and their own efforts to meet-and-confer. It now appears that one of the results of those efforts is that Defendants did not produce all or even nearly all of their financial records. Instead, they produced more limited reports like HTI336731. Then, once Crawford was retained, he realized that a proper analysis of Defendants' profits would require extracting data from Defendants' financial records and relying on that data to formulate an allocation of operating expenses to Defendants' U.S. sales. Crawford's declaration describes making “estimations” and “reasonable apportionment assumptions” to allocate Defendants' operating costs to relevant U.S. sales. Those estimations and assumptions may well be the proper subject of an expert's testimony. But to make those estimations or assumptions, Crawford had to have financial documents that he apparently directed Defendants' employees to assemble (or “run” or “extract”) from Defendants' financial records. The Court thus rejects Defendants' contention that they are being faulted for not creating financial documents that did not exist; rather, Defendants violated Rule 26 by not producing financial records on which they now intend to rely. Plaintiffs argue that the production of the expense allocation documents are a surprise, as Defendants had not produced any of the records despite the extensive discovery efforts surrounding Defendants' financial records during discovery. See JS at 15-16. Plaintiffs also argue that the prejudice from the late production of the expense allocation documents cannot be cured, as they have been deprived of an opportunity to analyze Defendants' expenses, ask for additional documents, seek discovery from third parties, and ask deposition questions of Defendants' witnesses. See id. at 17-18. Further, Plaintiffs point out that they are unable to offer any expert testimony of their own about Crawford's methodology and its reliance on the expense allocation documents, as the deadline for rebuttal expert reports has passed. See id. at 18. Plaintiffs also argue that the expense allocation documents are relatively unimportant, as they do not relate to a case-dispositive issue. See id. at 20. Finally, Plaintiffs argue that Defendants have offered no explanation for their failure to produce the expense allocation documents earlier. See id. at 21-22. Defendants argue that the production of the expense allocation documents were not a surprise to Plaintiffs because they knew from Ocon's deposition testimony that “alternative methods of calculation” could be used to allocate Defendants' operating expenses. See JS at 36. Defendants also argue that Plaintiffs could have cured any prejudice by doing their own analysis of information Defendants had already produced. See id. at 37-38. Surprise. The Court has little difficulty in concluding that Plaintiffs were surprised by Crawford's reliance on the previously undisclosed expense allocation documents. Before Crawford's report, the only document Defendants had disclosed about the allocation of expenses was HTI336731. Nor is it true, contrary to Defendants' suggestion, that the expense allocation documents were “promptly produced.” The records were produced on the last possible day for Crawford's rebuttal report, despite the fact that Crawford had evidently had those records for weeks if not months already. Cure/Disruption. At this point, any cure would involve a significant disruption to the pretrial schedule. Although the trial date has been vacated, see Dkt. 261, re-opening fact discovery and expert discovery to give Plaintiffs an opportunity to address the expense allocation documents and Crawford's analysis of those documents would threaten to disrupt the Court's ability to resolve this case in a timely and expeditious fashion. Defendants' contention that Plaintiffs could perform their own analysis of documents Defendants produced during the discovery period is misleading; both Ocon and Crawford plainly state such records are not maintained, and Crawford asked for new information to be “extracted” or “run” from Defendants' financial records to enable him to perform the analysis in his rebuttal report. *4 Importance. The Court finds less than persuasive Plaintiffs' argument that the exclusion of the expense allocation documents and Crawford's opinion would only impact approximately 14% of its damages claim of $18.5 million. Without the expense allocation documents and Crawford's opinion, Defendants will be unable to argue that its overhead expenses should be allocated to its U.S. sales. By Crawford's reckoning, that allocation is nearly $2.6 million. Explanation. For the reasons already stated, the Court finds unpersuasive Defendants' explanation that they only became aware of the expense allocation documents after the close of fact discovery. Conclusion. Far from being “frivolous” as Defendants suggest, Plaintiffs' motion is well-taken. Should a party wish for their expert to rely on financial reports to form his opinion, those financial reports must be disclosed during fact discovery. That should be neither a controversial nor remarkable statement under the Federal Rules. That did not happen here, and applying the factors set forth above, the Court finds that exclusion is an appropriate remedy. For the foregoing reasons, Plaintiffs' motion to strike is GRANTED. The documents identified in footnote 1 of the parties' Joint Stipulation (Dkt. 201-1 at 5, n.1) are hereby EXCLUDED. Likewise, those portions of James Crawford's rebuttal expert opinion are EXCLUDED to the extent they rely on those same documents. Plaintiffs also seek attorney's fees. I find that the imposition of attorney's fees is not warranted.