The plaintiff in this complicated commercial case, which is in the federal courts under the diversity jurisdiction, lost a jury *748 trial and appeals, complaining about three pretrial rulings, all procedural.
In a typical house purchase, involving a mortgage and title insurance, the mortgage lender places the money for the loan in аn escrow account administered by an escrow agent and insured by a title insurance company. A title insurance company named Intercounty National Title Insurance Company (INTIC) reinsured escrow accounts with the plaintiff, Fidelity. As a result of fraud by INTIC’s owners and employees, $46 million disappeared from INTIC’s insured escrow accounts and Fidelity ended up having to pay more than $36 million to persons and firms having claims to money in those accounts. Fidelity brought the present suit against INTIC, the principals of INTIC, and various entities and individuals connected with INTIC to recover as much as it could of that amount. Fidelity named as additional defendants another title insurance company, Stewаrt Title Guaranty Company (STG), together with firms and individuals affiliated with STG that we can ignore.
Fidelity alleged that between 1995 and 2000 INTIC’s escrow agent, Intercounty Title Company (“New Intercounty”), which was controlled by INTIC’s principals, had transferred millions of dollars stolen from the escrow accounts to another escrow agent controlled by INTIC’s principals, “Old Intercounty,” whose escrow accounts were reinsured by STG rather than by Fidelity. Although INTIC’s principals looted the escrow accounts reinsured by STG (a predecessor of INTIC) as well as those reinsured by Fidelity, the diversion of funds from New Intereounty’s escrow accounts, reinsured by Fidelity, to Old In-tercounty’s escrow accounts, reinsured by STG, had (Fidelity argued) unjustly enriched STG at the expense of Fidelity. Fidelity’s theory was that STG hadn’t had to make good the losses in Old Intereounty’s escrow accounts because those accounts had been refilled with money looted from the escrow accounts reinsured by Fidelity. Thus, but for the diversion of funds, STG would have had more liability to the victims of the thefts and Fidelity less.
Even if STG was not a party to the fraud, if it received the proceeds of the fraud it could indeed be liable to Fidelity (in Fidelity’s capacity as subrogee of the escrow account holders whose losses it had had to cover) under the doctrine of unjust enrichment.
HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc.,
What is required in the way of particularity in pleading fraud depends on the purpose of imposing such a heightened requirement of pleading — so at odds with the notice-pleading theory of the federal rules. The purpose is to minimize the extortionate impact that a baseless claim of fraud can have on a firm or an individual. In the typical commercial case there is a substantial interval betweеn the filing of the complaint and the completion of enough pretrial discovery to enable the preparation and disposition of a motion by the defendant for summary judgment.
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Throughout that period a claim of fraud will stand unrefuted, placing what may be undue pressure on the defendant to settle the case in order to lift the cloud оn its reputation. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims.
Ackerman v. Northwestern Mutual Life Ins. Co.,
Fidelity’s 52-page complaint with its 177 numbered paragraphs is sprawling, confusing, redundant — in short a mess. And a district judge has the authority to dismiss a complaint because it is confusing, though only in a rare case would he be justified in dismissing it on this ground with prejudice,
Lindell v. McCallum,
The district court did not purpоrt to dismiss the complaint on this ground. Nor does STG urge it as an alternative basis for upholding the ruling. The court thought that STG couldn’t figure out from the complaint the what, where, and when of the fraud charge against it.
Sears v. Likens,
The complaint was confusing because of such paragraphs as 111, which states that “as described above, at all relevant times, defendants [ten are then listed, including ‘Stewart,’ which denotes STG and its affiliates] were aware of significant deficiencies in the escrow accounts of Old Intercounty and New Intercounty, as well as the reasons therefor.” The “relevant times” сan be found elsewhere in the complaint and it is clear that the “reasons” for the “significant deficiencies” include fraud; the next paragraph, 112, alleges that “these defendants failed to disclose and fraudulently concealed said deficiencies from ... Fidelity.” The particulars of the charge of fraud would be easier to grasр if the acts, the times, the concealment, and a single defendant were placed in a single paragraph. But as long as those data are somewhere in the complaint — and they are — Rule 9(b) is satisfied. See
Schwartz v. Celestial Seasonings, Inc.,
A more difficult issue concerns the judge’s ruling excluding Fidelity’s only expert witness from testifying. William Pollard, a forensic accountant employed by Deloitte & Touche, conducted a detailed investigation into the fraud. In the course of the investigation he interviewed a number of persons accused of having participаted in the fraud, including employees of Old Intercounty. Pollard, or others on the investigative team, destroyed (more precisely, as we are about to see, thought they had destroyed) most of the notes they’d taken of these interviews (and so did not turn them over to STG), on the ground that the notes did not “support” Pollard’s expert opinion. By this was meant, hоwever, not that they contradicted the opinion he planned to offer (that STG had benefited from the fraud because money obtained by the defrauders from accounts insured by Fidelity had been used to replenish Old Intercounty’s escrow account, which STG had reinsured, thus reducing the losses that STG had had to cover) but that they were irrelevant to thаt opinion.
By the time STG learned that it wouldn’t be getting the notes, it couldn’t interview these individuals itself. They had been willing to talk to Pollard, but later, facing criminal prosecution, they refused on Fifth Amendment grounds to be interviewed further.
Most of the notes, it turned out, had not been destroyed. An almost complete set turned up in a related litigation. The notes reveаled that one of Old Intercounty’s employees had fabricated documents with the intention of concealing the fraud from STG. The notes may have contained other material as well that STG could have used in cross-examining Pollard had the latter been permitted to testify. For they indicated that one of the transactions that Pollard had described as a sham in his report (a transfer of looted funds) was legitimate; if so, this meant that some of the losses in the escrow accounts occurred while the accounts were indeed reinsured by Fidelity rather than by STG.
A litigant is required to disclose to his opponent any information “considered” by the litigant’s testifying expert, Fed.R.Civ.P. 26(a)(2)(B);
NutraSweet Co. v. X-L Engineering Co.,
Fidelity’s further argument that because the notes were discarded pursuant to Deloitte’s “document retention” (i.e., document destruction) policy, there was no violation of Rule 26, is also frivolous.
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There is nothing wrong with a policy of destroying documents after the point is reached at which there is no good business reason to retain them. Cf.
Arthur Andersen LLP v. United States,
— U.S.-, at-,
But he is not required to retain every scrap of paper that he created in the course of his preрaration — only documents that would be helpful to an understanding of his expert testimony or that the opposing party might use in cross-examination. See Committee Notes,
supra.
Fidelity argues that the interview notes could not have been used for
any
purpose by STG in this lawsuit because STG’s knowledge or lack thereof of the fraud was irrelevant to the claim of unjust enrichment. It’s not true, however, that knowledge is irrelevant to unjust enrichment. Obviously it could affect a claim for punitive damages, see
Martin v. Heinold Commodities, Inc.,
Fidelity’s remaining argument against the exclusion of Pollard is its strongest: thаt the sanction for the non
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disclosure of the interview notes was too severe. In admeasuring sanctions for violating the rules of pretrial discovery, as in other areas of the law, the punishment should fit the crime.
Rice v. City of Chicago,
The punishment was excessive because the judge had already, on another ground, ruled that Pollard could not testify concerning STG’s knowledge of the fraud. Pollard should have been allowed to give testimony in which he would merely have traced the money from the fraud to Old Intercounty’s escrow account and demonstrated how that movement of funds had benefited STG by reducing its insurance liability. The interview notes would have borne only peripherally on that issue. And although as we noted earlier the complete interview notes might have enabled STG to show that somе of the losses in the escrow accounts occurred while they were insured by Fidelity rather than by STG, STG thinks so little of the point as barely to hint at it in its brief in this court. The reason may be that, as far as we can determine, the set of interview notes that surfaced in the other litigation was almost complete; and since those notes were available to STG nеarly three months before the trial in this case, the prejudice to STG from the delay in disclosure was minimal.
Any (slight) harm to STG caused by Fidelity’s violation of Rule 26 could have been fully compensated by the judge’s granting STG a continuance to enable it to conduct any additional discovery that might have been warranted by information revealed by the interview notes and requiring Fidelity to reimburse STG for the expense of such additional discovery and for any other litigation expenses caused by Fidelity’s failure to make timely and complete disclosure of the notes. Fed.R.Civ.P. 37(c)(1).
The judge did not mention Rule 37, however, and maybe therefore we should consider him to have been exercising his “inherent” power to control the course of the litigation rather than applying the civil rules. By this is meant only that a judge’s power includes not only what he is expressly empowered to do but also such ancillary powers as are necessary and proper to his exercise of the explicitly conferred ones.
Chambers v. NASCO, Inc.,
STG argues that even if the judge’s bar against Pollard’s testifying was erroneous, the error was harmless because other Fi
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delity witnesses testified to the money flows. Cf.
Hill v. Porter Memorial Hospital,
The final issue concerns the judge’s refusal to allow Fidelity to present summaries, which it furnished to STG only 30 days before the start of trial, of the hundreds of thousands of pages of contracts that it believed demonstrated how STG had been enriched by the fraud. The judge gave two grounds for his action. First, he said that “a court should be wary lest a party use a summary as an opportunity to argue its view of the evidence or to misstate the evidence causing the jury to misconstrue the evidence,” and therefore “we do not find that the usage [sic] of summaries were [sic ] warranted in this instance.” Second, the judge thought 30 days before trial too little time to enable STG’s counsel to review the summaries. The first ground was unreasoned, and the second incorrect. Rule 1006 of the Federal Rules of Evidence, which makes summaries of “voluminous writings” admissible at trial, does not express any “wariness” concerning the legitimacy of summаries; the fact that they
might
be inaccurate is not a ground for excluding them without any determination of whether they are inaccurate. Fidelity submitted several affidavits, which STG did not contest in the district court, that purported to demonstrate the accuracy of the summaries.
United States v. Robinson, 114,
F.2d 261, 276 (8th Cir.1985);
State Office Systems, Inc. v. Olivetti Corp. of America,
As for the summaries being untimely, Rule 1006 requires only that the summarized documents be made available to the opposing party at a “reasonable time”; it does not say when the summaries must be made available to the party — for that matter, it nowhere states that the
summaries
must be made available to the opposing party.
Coates v. Johnson & Johnson,
We are not certain how badly Fidelity was hurt by the exclusion of the summaries. But since there must be a new trial
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because of the exclusion of Pollard’s testimony, the issue of harmless error in the exclusion of the summaries is academic; STG will have plenty of time to check their accuracy. STG also argues that some of the summarized documents should be ruled inadmissible, which if correct would obviously affect the accuracy of the summaries,
AMPAT/Midwest, Inc. v. Illinois Tool Works, Inc.,
REVERSED AND REMANDED.