For the reasons explained below, the Court DENIES IN PART Relator's Motion for Sanctions, DEFERRING RULING on the Motion to the extent it seeks sanctions for Fresenius's failure to produce documents it did not initially uncover because of an apparent issue with searching archived e-mails electronically stored in truncated form. The Court will hold a hearing to address this issue at a date and time to be determined. Otherwise, the Court finds that sanctions are not warranted.

This case, brought under the False Claims Act (“FCA”), 31 U.S.C. § 3729, boils down to whether Fresenius unlawfully billed Medicare for “overfill” included in vials of Zemplar and Epogen, drugs used in the treatment of End Stage Renal Disease (“ESRD”). Overfill is a surplus volume of the drug which ensures that technicians who administer the drug are able to extract at least the labeled amount from the vial. After administering a dose, a technician, under some circumstances, may reenter the vial and recover some of the overfill. After several reentries, the technician can amass enough overfill to assemble and administer an additional dose. It seems fair to say that during the relevant time period, Fresenius had mastered the art of overfill capture. There are no allegations in this case that Fresenius's use of overfill in this manner violated federal law. Instead, this case is about whether Fresenius's practice of seeking reimbursement from Medicare for overfill utilization violated the FCA because Fresenius did not pay for overfill.

Pursuant to a bifurcated discovery and summary judgment schedule agreed to by both parties, the Court stayed discovery while it first considered solely the question whether it is unlawful to bill Medicare for the use of overfill (the “falsity” element of Relator's FCA claim). Consistent with the agreed-upon schedule, the Court would not consider on this first round of summary judgment motions whether Fresenius had the necessary state of mind to support an FCA claim. Fresenius nonetheless moved for summary judgment on the intent element of the FCA claim. According to Fresenius, the record was devoid of evidence that it knowingly submitted false claims for reimbursement of overfill. Fresenius argued that in the context of ambiguous Medicare rules and regulations, the government indicated its non-objection to billing CMS for overfill. The Court denied Fresenius's motion for summary judgment on the intent element because this issue was not properly before the Court.

*2 The Court then considered the falsity element of Plaintiff's FCA claim. The Court held that Medicare does not reimburse a provider for drugs it receives for free. The Court then assessed whether “overfill” was in fact free to the providers. Although it was a close question, the Court determined that, “from 2006 through 2010, dialysis centers like Fresenius did not incur a cost associated with overfill and thus could not bill the Government for providing overfill to patients.” (Sept. 17, 2013 Ord. at 37, Doc. 144.) The 2006 through 2010 period represents the time during which CMS reimbursed Zemplar and Epogen providers using the “Average Sales Price” (“ASP”). The ASP is determined based on cost data provided to Medicare from the drug distributors. And as thoroughly explained in the Court's September 17, 2013 Order, the ASP methodology excludes overfill from its price reimbursement calculation. In other words, “as far as Medicare is concerned, when the cost of the ESRD drug is determined by its average sales price — in this case, from 2006 through 2010 — overfill is by law not part of the cost of the drug to the provider.” (Id. at 34.)

After ruling in Relator's favor on the parties' cross-motions for summary judgment on the threshold falsity issue, the Court lifted the stay of discovery and allowed the parties to further investigate the remaining issue in contention: whether Fresenius knowingly submitted false claims for reimbursement of overfill. The Court recognized that “liability in this case may turn on whether CMS's policy prohibiting reimbursement of overfill was sufficiently clear ..., such that [Fresenius's conduct] if proved, must have been undertaken at least in reckless disregard of the [CMS overfill] policy.” (Id. at 37 (quoting U.S. ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 71 (D. Mass. 2011)).) The parties continue to engage in discovery.[2]

Relator accuses Fresenius of deceptively withholding key documents that indicate Fresenius's knowledge of the ASP methodology and in particular that overfill was not factored into Medicare's reimbursement price. These documents, according to Relator, suggest that Fresenius knew that billing Medicare for overfill was prohibited.

The documents Relator identifies were responsive to Request No. 1 of Relator's August 17, 2012 Second Request for Production of Documents. This Request sought “all documents referring to the method for calculating the Average Sales Price for dialysis drugs.” (Memo Supp. Mot. Sanctions Ex. 1 at 3, Doc. 172-2.) Fresenius, however, took the position that it only needed to provide such documents to the extent they related to the two drugs at issue in this case, Epogen and Zemplar. Moreover, at that time, the parties had not agreed to use the search terms “ASP” and “Average Sales Price” in their review of electronic documents. And the parties had agreed that Fresenius would limit its production to documents within the custody of certain identified employees who had responsibility for Epogen and Zemplar policies and procedures. (See Resp. at 11-12; Relator's Resp. Apr. 28 Ord. at 5, Doc. 186) Fresenius thus did not produce some documents relating to its ASP reporting requirements for Venofer, an ESRD drug that in 2008 Fresenius itself began to distribute and for which Fresenius reported ASP cost information.

To be sure, Fresenius did not hide the fact that it had ASP reporting requirements for Venofer. Although Relator's counsel states that she first learned of Fresenius's Venofer responsibilities sometime after June 21, 2013, when she was conducting research for another case, Fresenius identifies a document, produced in September 2012, stating that Fresenius was “responsible for compiling and utilizing a wide range of sales data elements to determine the ASP of Venofer.” (Resp. Ex. D at 1, Doc. 176-4.) According to Fresenius, it produced this document because the document also discussed Epogen overfill.

*3 In any case, several documents referring to the method for calculating the Average Sales Price for dialysis drugs were not produced before the deposition of several Fresenius employees. According to Relator, one such document, Exhibit 9 to Relator's Motion, should have been produced even under Fresenius's restricted interpretation of Relator's document request. Fresenius had agreed in April 2012 to produce certain documents containing keywords, including the term “overfill,” if the documents were in the custody of individuals with responsibility for Epogen and Zemplar policies and procedures. But Fresenius did not at that time produce an e-mail from Bob McGorty, Fresenius's Senior Vice President for Finance. This July 2008 e-mail attaches “the Fresenius Medical Care Analysis of Epogen purchasing costs for 2006 and 2007” and notes that “[o]verfill is reported but not considered in the number of units purchased.” (Memo. Supp. Mot. Sanctions Ex. 9, Doc. 172-10.)

Fresenius now explains that this e-mail was not captured by the original electronic search of Kathleen Smith's custodial e-mail file because of a technological issue. (Fresenius Resp. Apr. 28 Ord. at 1, Doc. 184.) According to Fresenius, the disputed e-mail was archived in a truncated form known as a “stub.” (Id. at 1-2.) Although Fresenius initially believed that a search of Ms. Smith's e-mail would have retrieved all e-mails containing the agreed-upon search terms, Fresenius realized after the Court's summary judgment Order that “Ms. Smith's e-mail file might not retrieve documents if the term appeared only in a lower part of an e-mail that had been stored as a ‘stub.’ ” (Id. at 2.) Upon this realization, Fresenius employed an expanded search method, using new and existing search terms, and in doing so, discovered Exhibit 9. According to Fresenius, although this expanded search method captures documents that have fallen through the technological cracks, “it is very burdensome.” (Id.) It is not clear how many relevant and responsive e-mails Fresenius failed to produce because of the stub search issue.

Fresenius also failed to produce a November 2005 e-mail from David Kembel, acting Chief Compliance Officer and former Assistant General Counsel of Fresenius, to Todd Kerr, former Chief Compliance Officer, forwarding advice from Fresenius's outside counsel regarding overfill billing. (Id. Ex. 11, Doc. 172-12.) This document, Exhibit 11 to Relator's Motion for Sanctions, indicated that Trailblazer, a Medicare contractor, believed billing for overfill was prohibited because “the use of overfill conflicts with Average Sales Price reimbursement.” (Id.) In the e-mail, Kembel questioned the wisdom of this policy. (Id.) Like the July 2008 e-mail, this one includes the term “overfill,” and involved the drugs at issue.

Fresenius explains, however, that Exhibit 11 was previously withheld as privileged. (Fresenius Resp. Apr. 28 Ord. at 3, Doc. 184.) Fresenius described this document as “[a]dvice regarding use of overfill with Trailblazer” and asserted the attorney-client privilege on its Fourth Privilege Log. The Court ruled on February 21, 2014 that Fresenius had waived its privilege as to communications reflecting Fresenius's understanding about whether overfill billing was permitted by the Medicare statute and implementing regulations. Accordingly, Fresenius produced Exhibit 11, and other documents, on March 5, 2014.

Finally, Fresenius did not produce two additional documents suggesting that Fresenius employees were aware of the ASP methodology during the relevant time period: (1) a May 8, 2006 e-mail with attachment sent to McCorty and Kembel forwarding as an “FYI” a document “regarding what [HHS OIG] deem[s] the correct way to calculate ASP” (Memo. Supp. Mot. Sanctions Ex. 8, Doc. 172-9); and (2) a Fresenius “ASP Program Compliance Policy,” recognizing that the “ASP calculation is performed at the package level” (Id. Ex. 10, Doc. 172-11). According to Relator, because Todd Kerr was the Chief Compliance Officer at the time Fresenius adopted the ASP Program Compliance Policy, he should have been aware of the details regarding ASP.

*4 Fresenius explains that these two documents (Exhibits 8 and 10 to Relator's Motion for Sanctions) did not contain the disclosed search terms. (Fresenius Resp. Apr. 28 Ord. at 2, Doc. 184.) After the parties agreed to expand the search to include the term “ASP,” Exhibits 8 and 10 were located and promptly produced.

In any case, Relator's counsel deposed Castle, McGorty, and Kerr without the benefit of the documents listed above. Had Relator's counsel been armed with these documents, Relator argues, she would have been able to cross-examine the Fresenius deponents when they denied having knowledge of the ASP methodology. Castle, for example, testified in his deposition that he did not know that he or Fresenius understood exactly how ASP was based on cost reports submitted by drug distributors. (Castle Dep. at 11-12, Doc. 112.) “We knew in part what [the reimbursement rate] was based on.” (Id. at 12.) Likewise, when Kerr was asked whether he had any discussions of how overfill was treated in ASP calculations from a compliance point of view, he said he did not recall. (Kerr Dep. at 33-34, Doc. 172-5.) According to Kerr, how overfill was treated in ASP calculations was “more of a technical question that would probably best be directed to Bob McGorty.” (Id. at 34.) Then when Relator's counsel asked McGorty about his understanding of how ASP worked, McGorty responded that he did not “really ... know how the government calculates ASP.” (McGorty Dep. at 50, Doc. 125.) “They get information, I believe, from the pharma suppliers,” he said. “How they calculated it, I don't know.” (Id.) He then testified that he did not know whether the calculation of ASP includes overfill. (Id.)

After the Court ruled largely in Relator's favor on the parties' cross-motions for summary judgment and lifted the stay of discovery, Relator formally requested documents related to Fresenius's “understanding ... of how ASP is calculated for Venofer.” (Resp. Ex. H at 6, Doc. 176-8.) Relator's counsel also requested that Fresenius use the search terms “ASP” and “Average Sale Price” going forward. (Resp. Ex. G, Doc. 176-7.) “It occurred to me,” Relator's counsel wrote, “that given the importance of the ASP calculations to the Court's ruling on our summary judgment motion it would probably be wise to expand the search terms to include ASP, Average Sale Price, and related terms.” (Id.) Fresenius complied with Relator's request and produced documents relating to Venofer's ASP, and in particular the documents identified above.

According to Relator, the documents produced in response to this latest discovery request show that Castle, Kerr and McGorty “lied” when they denied knowledge of how ASP was calculated. Relator thus urges the Court to impose a $5,000 fine per individual as a sanction. Relator also argues that Fresenius, and Mr. Castle as its certifying officer, should be sanctioned for failing to timely produce documents responsive to Relator's Second Request for Production of Documents requesting documents regarding the ASP calculation for dialysis drugs. Relator suggests that an appropriate sanction would be the attorney's fees and costs associated with the preparation and attendance at the depositions of Kerr, McGorty, Kembel and Castle and fees and costs associated with the parties' cross motions for summary judgment.

*5 The Court first declines to impose sanctions based on Relator's assertion that Fresenius's witnesses lied during their deposition when they expressed a lack of knowledge regarding the specific way CMS calculates ASP. The Court has reviewed the deposition testimony of Castle, McGorty, and Kerr and cannot conclude, based solely on the inconsistencies identified by the Relator, that any of these deponents “lied” or otherwise withheld responsive information during their depositions. In particular, the documents upon which Relator relies do not necessarily suggest that the Castle, McGorty, and Kerr had a detailed understanding of Fresenius's obligations regarding overfill billing. Castle, Kerr, and McGorty were unable to recall specifics regarding how ASP is calculated. Even if they had read the handful of isolated e-mails and documents from 2005, 2006 and 2008 — including one e-mail forwarded simply as an “FYI” — these deponents were not necessarily lying when they testified about their inability to recall specifics.

Likewise, the Court finds that sanctions are not warranted for Fresenius's failure to produce Exhibit 11, an e-mail from Mr. Kembel to Mr. Kerr including advice regarding the use of overfill and a Medicare contractor's recommendation not to bill for overfill. Fresenius had a good faith basis to assert the attorney-client privilege as to this document, identified the documents as privileged on its privilege log, and timely produced the document in response to the Court's waiver order.

The closer question is whether Fresenius wrongfully withheld three other responsive documents, attached to Relator's Motion for Sanctions as Exhibits 8, 9 and 10.[3] According to Relator, Fresenius failed to produce these documents and others, which were responsive to Relator's request for documents and in particular his request regarding the ASP calculation. Accordingly, Relator seeks sanctions under Rule 26(g) and this Court's inherent powers to sanction misconduct because.

Rule 26(g) authorizes the imposition of sanctions in certain circumstances. Pursuant to Rule 26(g)(1), every discovery response or objection must be signed by at least one attorney of record in the attorney's own name. Fed. R. Civ. P. 26(g)(1). This signature certifies compliance with the federal rules and the parties' discovery obligations.

By signing, an attorney or party certifies that to the best of the person's knowledge, information, and belief formed after reasonable inquiry ... (B) with respect to a discovery request, response, or objection, it is:

Fed. R. Civ. P. 26(g)(1)(B).

The comments to subsection (g)(1) clarify that Rule 26(g) broadly “imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37.” Fed. R. Civ. P. 26(g) advisory committee's note. “[T]he signature certifies that the lawyer has made a reasonable effort to assure that the client has provided all the information and documents available to him that are responsive to the discovery demand.” Id. Thus, for example, Rule 26(g) “requires that the attorney make a reasonable inquiry into the factual basis of his response, request, or objection.” Id.; see, e.g., In re Delta/AirTran Baggage Fee Antitrust Litigation, 846 F. Supp. 2d 1335, 1351-52 (N.D. Ga. 2012) (Batten, J.). “The duty to make a ‘reasonable inquiry’ is satisfied if the investigation undertaken by the attorney and the conclusions drawn therefrom are reasonable under the circumstances.” Fed. R. Civ. P. 26(g) advisory committee's note.

*6 Rule 26(g)(3) requires the Court to impose sanctions if a certification violates this rule without substantial justification. Fed. R. Civ. P. 26(g)(3); see Chudasama, 123 F.2d at 1372 (recognizing that the decision to impose sanctions is not discretionary when the Court finds that violation has occurred) (citing Malautea, 987 F.2d at 1545). “The sanction may include an order to pay the reasonable expenses, including attorney's fees, caused by the violation.” Id.

Fresenius argues that Rule 26(g) does not call for discovery responses to be certified as “complete” or “correct.” (Resp. at 10, Doc. 176.) According to Fresenius, the certification of “complete” and “correct” explicitly applies to disclosures; the Rule regarding certification of discovery responses does not expressly mention “complete” responses. (Id.) This is true. Compare Fed. R. Civ. P. 26(g)(1)(A)(disclosures) with Fed. R. Civ. P. 26(g)(1)(B) (discovery responses). But as noted above, Rule 26(g)(1)(B) imposes a broader duty to respond in a manner consistent with the federal rules and as such, Fresenius and its counsel have a duty to make a reasonable inquiry to ensure that Fresenius's discovery responses are complete.

On the other hand, as Fresenius states, in cases involving large volumes of electronic discovery, “no lawyer using any search method could honestly certify that its production is complete.” (Resp. at 10-11 (quoting Moore v. Publicis, 287 F.R.D. 182, 188 (S.D.N.Y. 2012)).) According to Fresenius, its response did not include all relevant and responsive documents because (1) the parties had agreed to limit document production to documents within the care, custody or control of those Fresenius employees with responsibility for Epogen and Zemplar policies and procedures and limit the electronic search of these custodian documents to agreed-upon search terms; and (2) searching archived e-mails in stub form requires a more burdensome process and Fresenius did not initially realize that, without this process, relevant, responsive documents were falling through the cracks.

The Court first finds that sanctions are not warranted for Fresenius's failure to initially produce electronic documents, like Exhibits 8 and 10 to Relator's Motion for Sanctions, which were not within the agreed-upon custodial set or did not contain the agreed-upon search terms. As Relator concedes, custodian and search term based searches are proper under the right circumstances to avoid undue burden. The parties initially had not included “ASP” or “average sales price” as required search terms. After both parties realized that these search terms would be helpful, the parties agreed to add the terms “ASP” and “Average Sales Price” to the search-term list. Likewise, when Relator realized that the document production should be expanded to specifically include documents regarding Fresenius's Venofer ASP reporting duties, Fresenius timely responded by providing the responsive documents at issue. Accordingly, Fresenius did not violate Rule 26 by failing to produce documents like Exhibits 8 and 10 until the parties refined the discovery parameters.

The Court, however, also agrees with Relator that the requesting party must rely on the producing party's good faith effort to identify witnesses and use search terms that are likely to produce a thorough set of relevant documents. Fresenius was in the better position to identify gaps in the electronic production that resulted from the parties' discovery parameters. Thus, going forward, Fresenius is expected to work in good faith with Relator to ensure that its production is as complete and thorough as possible given the circumstances, and in particular that the stipulated discovery parameters are not unreasonably limiting Fresenius's disclosure of relevant, responsive documents.

*7 The record is less clear regarding Fresenius's failure to produce archived emails, like Exhibit 9 to Relator's Motion for Sanctions, that were not initially captured due to the technological issue. Fresenius's failure to produce Exhibit 9 is particularly troubling. This July 2008 e-mail attached “the Fresenius Medical Care Analysis of Epogen purchasing costs for 2006 and 2007.” (Memo. Supp. Mot. Sanctions Ex. 9, Doc. 172-10.) This document appears to fall squarely within the scope of discovery as Fresenius understood it in August 2012. And the document notes that “[o]verfill is reported but not considered in the number of units purchased.” Although the July 2008 e-mail is not alone a smoking gun,[4] it is certainly relevant and appears responsive. That Fresenius's system for searching, reviewing, and producing documents failed to yield this document gives the Court cause for concern. The Court is unable to discern from Fresenius's response how “burdensome” the solution to the technological problem is, why Fresenius did not appreciate this problem before the Court's summary judgment ruling, and what prompted it to investigate and correct the problem. And Relator rightfully seeks confirmation that Fresenius has corrected this technological issue for its entire production set.

Accordingly, the Court finds it necessary to hold a hearing to address the email archive search issue exemplified by Fresenius's failure to produce Exhibit 9. No other issues brought to the Court's attention warrant sanctions at this time. The focus of the hearing will be on the archive search issue but the Court will also seek clarification regarding the Fresenius custodians whose documents are part of the agreed-upon custodial set to be searched for production in response to Relator's requests for production.

As discussed above, the Court has reviewed the record and the parties' arguments on Relator's Motion for Sanctions and has determined that, for the most part, sanctions are not warranted at this time and thus DENIES IN PART Relator's Motion for Sanctions. In particular, sanctions will not be imposed for Fresenius's failure to produce documents that were not within the materials searched, pursuant to the parties' agreed upon discover parameters. Although this discovery lapse does not violate the federal rules, the lapse could have been avoided if Fresenius had taken more seriously its obligation to complete its document production in good faith. Fresenius appears to have taken an overly semantic view of its discovery obligations. Fresenius was in the better position to realize that it would need to expand discovery to include additional search terms and perhaps additional custodians in order to fully respond to Relator's request regarding ASP documents. And given this production deficiency, Fresenius's decision to ignore the agreed-upon summary judgment schedule and move for summary judgment on the intent element of Relator's claim — which relies in part on Fresenius's previous understanding of the ASP calculation — is cause for concern. This conduct may suggest that Fresenius skirted the line of appropriate discovery conduct in an effort to obtain a ruling dismissing this case on an incomplete record. But the evidence at this point is insufficient to reach that conclusion. Thus, the Court does not impose sanctions for Fresenius's failure to expand its search terms or custodial document set at this time.

On the other hand, based on the parties' briefing and attached exhibits, the Court is unable to assess Relator's Motion for Sanctions as to Fresenius's failure to produce relevant, responsive documents that, according to Fresenius, were not produced due to a technological issue regarding archived e-mails. This technological failure could be an innocent mistake justified by the complicated electronic discovery involved in this case, or it could be indicative of something more serious. Accordingly, the Court DEFERS RULING IN PART on Relator's Motion for Sanctions as to this issue.

*8 In order to fully understand this issue, and in order to provide Relator and the Court assurance that this technological or discovery issue has been resolved, the Court will hold a hearing at a date and time to be determined. The Court will also seek clarification regarding the identified, agreed-upon custodians whose documents should have been searched. Thus, the parties shall be prepared to address the following topics:

Finally, the Court recognizes that the parties may be resolving the same issues identified above including the issue of searching archived e-mails in stub form. In the event the parties resolve these issues before the hearing, the parties are DIRECTED to notify the Court that no hearing is necessary.

IT IS SO ORDERED this 13th day of May, 2014.

Defendant Fresenius Medical Care Holdings, Inc.'s (“Fresenius”) Motion for Leave to File Supplement to Response [Doc. 181] is GRANTED.

On May 9, 2014, the Parties filed a Consent Motion for Extension of Time to Complete Discovery. (Doc. 187.) The Court granted the parties Consent Motion, extending fact discovery through and including July 7, 2014.

Relator states that these three exhibits are simply “illustrative” of Fresenius's production problems, and provides as an additional example, a document attached as Exhibit 2 to Relator's Supplemental Response (Doc. 186-2). As discussed in this Order, the documents Relator brings to the Court's attention reveal several problems with Fresenius's production, and it is the problems, not the individual documents, on which the Court focuses its attention. Accordingly, the Court does not specifically consider for purposes of sanctions any additional, unidentified documents (or Relator's Exhibt 2 to its Supplemental Response), which are not properly before the Court, and limits its analysis to the production problems the parties have brought to the Court's attention at this time.

The connection between Medicare's disregard for overfill in its ASP calculation and Medicare's prohibition on billing for overfill use is not necessarily transparent, as demonstrated by the Relator's argument on this issue on summary judgment and the Court's discussion of this issue in its summary judgment Order.