Karum Latin America S. de R.L. v. Lowe's Companies, Incorporate, 895 F.3d 944

Background

Lowe’s Inc. expanded into Mexico and entered a Private Label Credit Card Program with Karum entities; later a Funding Agreement had Lowe’s Mexico fund ~99% of the credit portfolio.
Karum produced a detailed 37‑page damages model (Portfolio Component + Services Component); Services Component was later struck by summary judgment.
Karum never retained a damages expert; it listed Peter Johnson and Russell Ouchida as fact witnesses and intended to present the damages model via their testimony.
Two months before trial Lowe’s moved to exclude Johnson/Ouchida from presenting the damages model as impermissible lay opinion under FRE 701 and for failure to comply with Rule 26(a)(2).
The district court excluded Johnson’s expert testimony under Fed. R. Civ. P. 37(c)(1) for failing to make the required expert disclosure, found the violation neither substantially justified nor harmless, and entered judgment for Lowe’s because Karum conceded it could not prove damages.
Karum’s additional appeals (challenging strikes of supplemental model/Services Component, dismissal of Karum LA/Services Agreement claims, and the permissive/counterclaim ruling) were rejected as either moot or correctly decided.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Karum properly disclosed Johnson as an expert under Fed. R. Civ. P. 26(a)(2)	Karum argued it had sufficiently disclosed Johnson by identifying him in initial disclosures and producing the damages model; Johnson could testify as lay or non‑retained expert.	Lowe’s argued Karum never made the required written expert disclosure summarizing facts/opinions and thus violated Rule 26(a)(2).	Court held Karum failed to make a Rule 26(a)(2) expert disclosure; disclosure as a fact witness was inadequate.
Whether excluding Johnson’s testimony was barred by harmless‑error or substantial justification exceptions to Rule 37(c)(1)	Karum argued Lowe’s knew Johnson’s opinions from depositions and had a rebuttal expert, so non‑disclosure was harmless.	Lowe’s argued it was prejudiced because it lacked proper notice to investigate qualifications, take targeted discovery, or develop Daubert challenges.	Court held the violation was neither harmless nor substantially justified; exclusion under Rule 37(c)(1) was appropriate.
Whether lesser sanctions (reopening discovery, short continuance) were required instead of exclusion	Karum argued district court could reopen limited discovery or allow a one‑day deposition and keep the trial date.	Lowe’s argued additional discovery would cause delay, added expense and Daubert briefing; prejudice justified exclusion.	Court found district court did not abuse discretion; less drastic remedies would have caused prejudice and delay, so exclusion was proportionate.
Whether Lowe’s setoff/loan claim was a compulsory counterclaim	Karum argued the loans arose from the same transaction so counterclaim was compulsory.	Lowe’s contended the asserted default and counterclaim arose only in 2017 after Karum Card Services’ closure plans, so claim did not exist when answer filed.	Court held the counterclaim was permissive because it did not exist at the time Lowe’s served its answer.

Key Cases Cited

Musser v. Gentiva Health Servs., 356 F.3d 751 (7th Cir. 2004) (automatic exclusion under Rule 37(c)(1) absent justification or harmlessness)
Sherrod v. Lingle, 223 F.3d 605 (7th Cir. 2000) (standard for reviewing discovery sanctions and proportionality requirement for case‑dispositive sanctions)
Tribble v. Evangelides, 670 F.3d 753 (7th Cir. 2012) (disclosure as fact witness does not excuse separate expert disclosure obligations)
David v. Caterpillar, Inc., 324 F.3d 851 (7th Cir. 2003) (factors for evaluating prejudice from discovery violations)
Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993) (gatekeeping standards for expert admissibility)
Salgado v. Gen. Motors Corp., 150 F.3d 735 (7th Cir. 1998) (analysis of exclusionary sanctions and proportionality)
Haywood v. Massage Envy Franchising, LLC, 887 F.3d 329 (7th Cir. 2018) (de novo review standard for Rule 12(b)(6) dismissals)