1. As to both Defendants, the answers obfuscate the substance of the admission sought by failing to clearly admit or deny the truth of the statements. Accordingly, Plaintiffs ask the court to either deem these Requests admitted or compel direct responses.

2. As to Pearson, Plaintiffs assert that a number of his responses provide extraneous narrative to bolster his defense. This narrative, Plaintiffs maintain, has been inserted to support Pearson's theory of the case, not as a qualification to the admission, which is permitted under the rule. As to these responses, the Special Master is asked to either deem them as admissions or compel Pearson to amend and remove extraneous statements.

*2 3. As to both Defendants, Plaintiffs take issue with their objection to the relevance of Requests regarding Valeant's reliance on price appreciation credits (“PACs”), which Defendants assert are irrelevant to this litigation. Plaintiffs ask that Defendants be ordered to respond fully to these Requests or deem them admitted.

1. The subject RFAs are either inaccurate or misleading. Hence, Defendants made good faith qualifications to prevent misuse of these admissions which would prejudice them in this litigation.

2. As to Pearson's extraneous responses (according to Plaintiffs), Defendants say he included explanations to provide necessary context and avoid inappropriate inferences, also permissible under the rules.

3. As to Defendants’ response to Requests relating to PACs, Defendants say the PACs go unmentioned in Plaintiffs’ pleadings and have no relevance to any claims or allegations. “Because these RFAs seek to expand the case beyond its proper scope, Defendants lodged relevant objections...” [See, Defendants’ Memorandum of Law, p. 2.] Moreover, Defendants say, although they objected to the relevance of these inquiries, nevertheless, Defendants admitted or denied the RFAs as appropriate.

 

(a) Scope and Procedure.

(1) Scope. A party may serve on any other party a written request to admit for purposes of the pending action only, the truth of any matters within the scope of Rule 26(b)(1) relating to:

(A) facts, the application of law to fact, or opinions about either; and

(B) the genuiness of any described documents...

(4) Answer. If a matter is not admitted, the answer must specifically deny it or state in detail why the answering party cannot truthfully admit or deny it. A denial must fairly respond to the substance of the matter; and when good faith requires that a party qualify an answer or deny only a part of a matter, the answer must specify the part admitted and qualify or deny the rest. The answering party may assert lack of knowledge or information as a reason for failing to admit or deny only if the party states that it has made reasonable inquiry and that the information it knows or can readily obtain is insufficient to enable it to admit or deny.

*3 (5) Objections. The grounds for objecting to a request must be stated. A party must not object solely on the ground that the request presents a genuine issue for trial...

(6) Motion Regarding the Sufficiency of an Answer or Objection. The requesting party may move to determine the sufficiency of an answer or objection. Unless the court finds an objection justified, it must order that an answer be served. On finding that an answer does not comply with this rule, the court may order either that the matter is admitted or that an amended answer be served...

 

As courts have stated, and as the parties agree, Requests for Admission under this Rule serve two significant purposes – to facilitate proof as to issues that cannot be eliminated from the case and to narrow the issues by limiting those that can be. United States v. Nicolet, Inc., 1989 WL 51734, at *1 (E.D.Pa. May 12, 1989), citing United Coal Cos. v. Powell Constr. Co., 839 F. 2d 958, 967 (3d Cir. 1988). As noted, the Rule provides a litigant an option to move before the court to seek redress for a deficient response. That is, where a party has answered or objected to a Request, “the requesting party is allowed to move for a judicial determination of the sufficiency of the answers and whether any objections were justifiable.” United States v. Lorenzo, 1990 WL 83388, at *1 (E.D.Pa. June 14, 1990).

 

In order to determine whether an objection is justifiable and to evaluate the sufficiency of a response to an RFA, a court needs to consider the following: (1) Whether the denial fairly meets the substance of the Request; (2) Whether good faith requires that the denial be qualified; (3) Whether any qualification which has been supplied is a good faith qualification. See, Thalheim v. Eberheim, 124 F.R.D. 34, 35 (D.Conn. 1988); Anthony v. Cabot Corp., 2008 WL 2645152, at *1 (E.D.Pa. July 3, 2008).

 

When determining the validity of an objection, as Defendants emphasize, a court must also take into consideration the “phraseology of the Requests as carefully as that of the answers or objections.” State Farm Mut. Auto. Ins. Co. v. Cordua, 2010 WL 1223588, at *2 (E.D.Pa. Mar. 29, 2010) citing United States v. Chevron, U.S.A. Inc., 1989 WL 100927, at *1 (E.D.Pa. August 30, 1989).

 

Finally, on finding that a response does not comply with the Rule, a court may order that a matter is admitted or that an amended answer be served. Rule 36(a)(6).

 

The Special Master is called upon here to evaluate the sufficiency of essentially three categories of Requests for Admission and their respective responses: (1) Responses by both Defendants which, Plaintiffs assert, contain inappropriate qualifications; (2) Responses by Pearson which allegedly contain extraneous comments added to bolster his defense; (3) Responses to Requests regarding PACs which, Defendants say, are objectionable as irrelevant to this litigation and/or have been appropriately answered.

 

V. Findings

As set forth previously, Plaintiffs assert that a number of responses to RFAs of Defendants Valeant and Pearson are deficient by either failing to squarely admit or deny a request, or by providing extraneous statements beyond the Request or by raising inappropriate objections or qualifications. Plaintiffs now move for a judicial determination of the sufficiency of the answers and whether any objections were justifiable. Plaintiffs further request that the Special Master either order that a matter is admitted or order that Defendants serve an amended answer.

 

*4 The Special Master has reviewed each briefed RFA and each response. Certain RFAs said to be deficient were directed at Valeant; other RFAs were directed at Pearson; and the remainder were directed at both Defendants (as to Requests concerning PACs). The disputed RFAs are listed below along with the exhibit and page number that corresponds with each Request and response.

 

As to the disputed RFAs as to Valeant:

 

 

As to the disputed RFAs as to Pearson:

 

 

As to Valeant and Pearson:

[3]

 

As a general principle, in reviewing the RFAs and responses, while several of the disputed Requests could be pithier, as a whole, Plaintiffs’ RFAs are straightforward and understandable Requests for factual information which could reasonably lead to narrowing both the proofs and issues if this matter were tried. On the other hand, as Plaintiffs urge, a number of Defendants’ responses were worded in a fashion which prevents a reader from understanding whether the responses constitute an admission or a denial or neither. As to many of these responses, a judge or jury would be hard pressed to reach a determination as to Defendants’ position, whether the Defendants are saying the facts set forth are true or whether they are false.

 

With that said, the Special Master makes the following findings with regard to the disputed RFAs. Each will be addressed in the order in which they appear in Plaintiffs’ moving papers.

 

RFA 2 (Valeant) – Plaintiffs ask Valeant to admit that internal controls over financial reporting exhibited material weaknesses in the years 2014 and 2015. Valeant's response appears to contain an admission, but the initial response and its supplement contain qualifications which obfuscate the admission. It is unclear whether Valeant is admitting that the controls were, in fact, deficient and/or whether Defendant is contending that the time period referenced in the Request is inaccurate. Further, as Plaintiffs urge, Defendant's reference to a document (2015 Form 10-K) is inappropriate. Accordingly, the Special Master finds that the response does not comply with Rule 36 and orders that an amended answer be served which addresses whether Valeant admits that the reporting exhibited material weaknesses in 2014 and 2015. If Defendant is asserting that the time frame therein is inaccurate, its response should clearly state so.

 

RFA 11 (Valeant) – This short Request simply asks whether Valeant provided an “advance” of $2 million to Philidor in 2013. Defendant seems to admit it did so, but then undercuts the admission by stating that it merely agreed to provide “contractual milestone payments as prepayments for future services...” As Plaintiffs correctly argue, this is hairsplitting. In most of the English speaking world, prepayments for future services are generally known as advances. The Special Master finds that this is an attempt to evade the substance of the Request and orders that it be admitted.

 

RFA 18 (Valeant) – This Request addresses the Philidor Purchase Option Agreement and its provisions. It is a marginally complex, compound Request requiring Defendant to address the contents of the Agreement. The Special Master finds that Defendant's response fairly meets the substance of the Request.

 

*5 RFA 29 (Valeant) – Plaintiffs seek an admission that when Valeant approved a $70 million credit (referenced in another Request), Philidor's accounts receivable balance was $32 million “with $8.5 million of the balance over 61 days past due.” Defendant, relying on “contemporaneous documents” provides an admission as to the receivable balance, but denies the remainder of the Request. While Defendant's reliance on “contemporaneous documents” is problematic, the admission as to accounts receivable balance, and the denial as to the remainder, does fairly meet the Request. Accordingly, the Special Master finds that this response is acceptable.

 

RFA 34 (Valeant) – This RFA also addresses a credit increase “in relation to Philidor's $130 million order” referenced in another Request. Plaintiffs ask for an admission as to Philidor's account receivable balance at the time. In response, Defendant denies this RFA but then adds a “qualifier” that this is a denial “to the extent that it states that Valeant received a single order for $130 million from Philidor.” Defendant then doubles back and admits (again based on “contemporaneous documents”) that at the pertinent time, the accounts receivable balance was $78.3 million. Nowhere does the RFA suggest that the $130 million order was a single order or otherwise. Valeant goes on to seemingly admit the veracity of the accounts receivable balance ($78.3 million). In its supplemental response, Defendant then confirms the veracity of the amount due ($41 million). Yet, Valeant states in both responses “except as otherwise admitted, [it] denies Request for Admission number 34.” In short, despite much verbiage, the responses appears to be “admitted,” yet Defendant's answer is, to say the least, ambiguous if not downright misleading. Therefore, the Special Master orders that this answer be amended to specify whether Valeant admits or denies the truth of the “contemporaneous documents” and whether the numbers referenced are accurate.

 

RFA 15, 16, 17 (Pearson) – There is a common thread to each Request, i.e., whether Defendant Pearson spoke or failed to speak to specific topics during earnings calls for the third and fourth quarters of 2014. That is, during the course of these calls, did Pearson fail to disclose that Philidor's sales had been a key strategy for dermatology; fail to disclose that Philidor was one of the “growth drivers” of the unit; and fail to disclose that Valeant had increased sales to Philidor. Yet, each time, Defendant merely “admitted” he discussed the performance of the dermatology unit during the call, while otherwise denying the Request. The Special Master finds that these responses do not constitute admissions, denials, qualifications, explanations or an absence of knowledge sufficient to qualify as a good faith response. Either these items were disclosed by Pearson or they were not. Therefore, Pearson is ordered to serve an amended answer which addresses whether or not he disclosed sales to Philidor had been a key strategy for dermatology; that Philidor was one of the “growth drivers” of the dermatology unit; and that Valeant had increased sales due to Philidor.

 

RFA 5, 6, 7, 20, 21 (Pearson) – Each of these RFAs also has a common theme, i.e., whether Pearson approved, signed or certified filing documents and/or earnings presentations. Plaintiffs find Defendant's responses deficient since they contain extraneous statements which have no bearing on any admission or denial but instead provide a lengthy narrative constituting an explanation or defense. Indeed, a review of each of these four responses demonstrates that after essentially admitting the truth of each Request, Pearson voices statements which in no sense provide clarification to the response. None of the RFAs asked Valeant as to its internal processes and controls, reliance on accountants, legal counsel, or otherwise required that Pearson describe how or why he came to certify the documents. Yet each answer, after a functional admission, goes on to do so. The Special Master agrees with Plaintiffs that these comments are extraneous and have no bearing on a response to the RFA. Given that Pearson acknowledged that he did sign, certify and/or approve the documents in question, the Special Master orders that these RFAs be deemed admitted.

 

*6 RFA 74–77 (Valeant) and RFA 8 (Pearson) – The last category of RFAs which Plaintiffs contend are deficient and unresponsive, are certain Requests regarding price appreciation credits (PACs.) These Requests were directed both at Valeant and defendant Pearson, each implicating the use of PACs.[4]

 

Essentially, as to the Requests relating to PACs, it is Defendants’ position that Plaintiffs have not pled any claims directly relating to price appreciation credits. Hence, by inquiring as to PACs, Plaintiffs are, in effect, pursuing new or novel theories of liability at an advanced stage of litigation and, by doing so – pursuing discovery unrelated to their claims – they seek to expand rather than narrow the relevant issues for trial.

 

Plaintiffs deny this is the case and emphasize that although the use of PACs was not specifically pled, Valeant's reliance on price appreciation credits is central to the claims of this suit. Plaintiffs assert that Valeant employed PACs to manipulate its reported growth and particularly timed price increases to falsely jack up reported revenues at the end of fiscal quarters.

 

As explained by Plaintiffs, at relevant times, Valeant's largest customers were major U.S. drug wholesalers who entered into distribution service agreements (“DSAs”) which set fees Valeant paid wholesalers for their distribution and inventory management services. In turn, the DSAs contained price appreciation clauses entitling Valeant to credits when wholesalers increased prices on products then held in stock. PACs offset the DSA fees Valeant owed to shareholders. Valeant then recorded the net revenue impact of PACs at the time the customers were notified of the price increase. Often, the price increases occurred toward the end of a quarter. All of this, Plaintiffs say, allowed Valeant to report continued revenue growth in its public filings and statements.

 

As noted previously, Rule 36 permits a party to serve such a request “for the purposes of the pending action only, the truth of any matters within the scope of Rule 26(b)(1)” as to facts, the application of law to fact or opinions and the genuiness of any document. In turn, Rule 26(b)(1) governs the scope of discovery generally and allows a party to obtain discovery “regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case...”

 

*7 As Plaintiffs urge, courts have construed Rule 26 liberally “creating a broad range of discovery which would encompass any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or may be in the case.” Munich Reinsurance Am. Inc. v. Am. Nat'l Ins. Co., 2011 WL 1466369, at *10 (D.N.J. April 18, 2011) (citing Jones v. Derosa, 238 F.R.D. 157, 163 (D.N.J. 2006)). Further, as Plaintiffs also correctly argue, our courts have generally held that relevancy is to be “broadly construed for Rule 26(b) purposes and is not limited to the precise issues set out in the pleadings or to the merits of the case. Rather, discovery requests may be deemed relevant if there is any possibility that the information may be relevant to the general subject matter of the action.” Rhone-Poulenc Rorer, Inc. v. Home Idem. Co., 1992 WL 394425, at *3 (E.D.Pa. Dec. 28, 1992), citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978).

 

While Plaintiffs may not have specifically referenced or pled the use of PACs, Plaintiffs’ detailed allegations in the complaint certainly go to charges that Defendants engaged in numerous activities which directly or indirectly were said to have artificially inflated financial information relied upon by investors impacting the market price of Valeant securities; both debt and equity. Plaintiffs clearly set forth allegations of a “price gouging” strategy designed to manipulate misleading growth and revenue figures. Moreover, this matter is still in the midst of discovery which is not limited to the precise issues set out in the pleadings. While it is conceivable that at the time of a trial, the Court may find that Defendants’ reliance upon the use of PACs has no direct bearing on Plaintiffs’ broader allegations of growth and revenue figure manipulation, inquiring into the use of these devices now in the specified RFAs is appropriate.

 

As to the RFAs directed at Valeant (numbers 74-77), Defendants couch each response with an objection that the Request is not relevant to any party's claims or defenses and not proportional to the needs of the case. Effectively, Valeant goes on to admit that it entered into DSAs with several wholesalers, and then refers Plaintiffs to the agreements “for a complete and accurate statement of their contents.” Then, Valeant states, “except as otherwise admitted,” each Request is denied. No reasonable jurist or juror could read or hear these responses and reach a conclusion as to whether the factual assertion in the Request was admitted or denied. Reliance on documents, here the DSAs, does not serve to clarify the response but only confuse it.

 

Accordingly, the Special Master finds that Valeant should be required to amend its answer to directly address the factual assertions as to each RFA (74-77) addressed here –without relevancy objections.

 

As to the remaining RFA as to Pearson, RFA number 8, after objecting to the relevance of the Glumentza PACs, he goes on to state that he “lacks knowledge or information sufficient to admit or deny Request number 8.” Plaintiffs insist that this absence of knowledge lacks credibility and also contradicts sworn testimony. While that may be the case, pursuant to the plain language of Rule 36, a party is given the option of answering that he or she cannot truthfully admit or deny the Request. However, the Rule also obligates a party to “state in detail why the answering party cannot truthfully admit or deny [the RFA].” Defendant fails to provide any explanation as to his inability to state whether or not he was aware that “$110 million in Glumentza PACs were attributed by Valeant to products other than Glumentza.” Therefore, the Special Master finds that defendant Pearson must amend his response to state in detail why he cannot truthfully admit or deny the Request and whether his “lack of knowledge or information as a reason for failing to admit or deny” followed a “reasonable inquiry” as required by the Rule. See Rule 36(a)(4).

 

VI. Conclusion.

*8 For the reasons set forth in this Report and Recommendation, the Special Master GRANTS in part and DENIES in part Plaintiffs’ motion regarding the sufficiency of certain responses and objections to a First Set of Requests for Admission.