MSP Recovery Claims Series, LLC v. Sanofi-Aventis U.S., LLC
MSP Recovery Claims Series, LLC v. Sanofi-Aventis U.S., LLC
2023 WL 4563321 (D.N.J. 2023)
January 19, 2023
Cavanaugh, Dennis, Special Master (Ret.)
Summary
The Special Master found that Plaintiffs had failed to comply with discovery orders regarding ESI, resulting in prejudice to Defendants. The Special Master ordered Plaintiffs to satisfy all discovery deficiencies within 45 days and to pay reasonable counsel fees incurred on behalf of Defendants.
Additional Decisions
MSP RECOVERY CLAIMS, SERIES, LLC, MAO-MSO RECOVERY II, LLC, SERIES PMPI, and MSPA CLAIMS I, LLC, Plaintiffs,
v.
SANOFI-AVENTIS U.S. LLC, NOVO NORDISK INC. and ELI LILLY AND COMPANY, Defendants
v.
SANOFI-AVENTIS U.S. LLC, NOVO NORDISK INC. and ELI LILLY AND COMPANY, Defendants
Case No. 2:18-cv-2211(BRM)(LHG)
United States District Court, D. New Jersey
Filed January 19, 2023
Counsel
Glenn R. Reiser, Shapiro Croland Reiser Apfel & Di Iorio, Hackensack, NJ, for Plaintiffs.Liza M. Walsh, William T. Walsh, Jr, Selina Miriam Ellis, Lauren Ruth Malakoff, Katelyn O'Reilly, Walsh Pizzi O'Reilly Falanga LLP, Newark, NJ, for Defendants.
Cavanaugh, Dennis, Special Master (Ret.)
ORDER AND OPINION OF THE SPECIAL MASTER JUDGE DENNIS CAVANAUGH, RET.
*1 The motion before the Special Master has been filed by Defendants Novo Nordisk, Inc., Eli Lilly and Company, and Sanofi-Aventis U.S., LLC (“Defendants”) stemming from ongoing discovery disputes with Plaintiffs. Specifically, Defendants have moved for sanctions under Fed. R. Civ. P. 37 and effectively seek to dismiss claims advanced by Plaintiffs on behalf of certain “assignors” who are the underlying parties at interest in this lawsuit.
In considering and then deciding this motion, the Special Master has reviewed the following: (1) Defendants’ October 11, 2022 Memorandum of Law in support of motion for sanctions with attached exhibits; (2) Plaintiffs’ November 14, 2022 Letter Memorandum of Law in opposition with attached exhibits; and (3) Plaintiffs’ Reply Memorandum of December 5, 2022 with attached exhibits.
Additionally, the Special Master has considered the arguments voiced by the parties during a zoom conference of December 22, 2022, and has reviewed the litigants’ written presentations submitted in conjunction with that proceeding.
After considering all of the submissions and the parties’ respective arguments, and based upon the following analysis, it is the opinion of the Special Master that Defendants’ motion is DENIED to the extent set forth in this Order & Opinion, including the directives enumerated on page 27.
I. Procedural History and Statement of Facts
Once again, the Special Master assumes the parties’ familiarity with the procedural events and underlying facts upon which this motion is based and will limit the discussion to facts directly relevant to this application.
Plaintiffs are MSP Recovery Claims, Series, LLC; MAO-MSO Recovery II, LLC; Series PMPI; and MSPA Claims I, LLC (collectively “Plaintiffs” or singularly “MSP”). Plaintiffs assert state law fraud and consumer protection claims on behalf of now 19 “assignors.” These assignors fall into two broad categories: (1) “first tier” Medicare Advantage Organizations (MAOs) that sponsor private health plans providing prescription drug coverage under Medicare Part D; and (2) “downstream” entities either Managed Service Organizations (MSOs) or Independent Physicians Associations (IPAs) that provide health services to consumers. In effect, Plaintiffs are acting as the debt collectors for these entities.
Defendants, on the other hand, manufacture analog insulin which are medications used to treat patients with diabetes. Simply put, Plaintiffs contend that Defendants have employed an insulin pricing scheme which has unlawfully increased the purchase price of that medicine to Defendants’ financial benefit and to the detriment of the healthcare regulated entities who have assigned their claims to MSP. That is, Plaintiffs in this litigation are seeking to recover, as assignees, damages which they assert were caused by this allegedly unlawful pricing scheme.
On October 22, 2020, Hon. Brian R. Martinotti, U.S.D.J. entered a stipulation regarding the appointment of a Special Master. That stipulation, among other things, directed the Special Master to decide all discovery disputes and to issue appropriate written orders regarding the same when managing the discovery process during this litigation. Consequently, the Special Master had done so through a series of status conferences, discovery orders and orders arising out of discovery motions when the parties had reached an impasse. Among other orders, and as a result of one of those disputes, the Special Master ruled that Plaintiffs were compelled to “produce the same documents and information from each assignor that Defendants would have been entitled to if the assignors had brought the lawsuit themselves...” [ECF No. 150.] Judge Martinotti thereafter affirmed the Special Master's decision. [ECF No. 203.]
*2 Without belaboring the point, it has been – and continues to be – Defendants’ contention that MSP has consistently failed to honor an obligation to provide complete discovery from each of the assignors. Defendants also charge that as a result of Plaintiffs’ serial failures to provide assignor discovery, they have had no choice but to file this motion for sanctions in an effort to dismiss the claims of certain assignors whose deficiencies remain outstanding and for which there is no alternative relief.
In a nutshell, Defendants contend that 15 of Plaintiffs’ 19 remaining assignors have committed discovery violations so severe that these sanctions are warranted. These assignors are divided into two broad categories. Defendants assert that seven have openly disobeyed court orders to participate in discovery by refusing to communicate with MSP. As to the remaining eight, despite Plaintiffs’ representations that these assignors have no additional responsive documents, ongoing discovery shows that these representations are inaccurate. Defendants also contend that the Plaintiffs themselves have additionally misrepresented efforts to cure these problems despite multiple discovery extensions and court interventions.
Consequently, the Court is called upon to resolve this issue.
II. Defendants Arguments
In support of their motion, Defendants emphasize certain factual and procedural aspects of this litigation.
First, as set forth in their pleadings, Plaintiffs are bringing this action on behalf of the assignors and consequently have no direct knowledge about substantive allegations voiced in the complaint. Therefore, say Defendants, every allegation made by MSP is framed in terms of the knowledge of, decisions by, and injury to the assignors. Given this, Plaintiffs cannot prove their claims on behalf of each assignor, nor can Defendants defend themselves, without evidence from each entity.
The original deadline for MSP to substantially complete document production was March 5, 2021. Thereafter, the deadline has been extended five times, the first two with Defendants’ consent. Even now, nine months after the last deadline (April 25, 2022), four assignors say they still may have documents to produce.
Defendants point out that the Special Master has needed to deal with the discovery failures necessitating several motions and has also addressed these issues during the course of status conferences, yet discovery remains outstanding. This situation exists even though the Court has cautioned MSP that, having accepted assignments, they cannot distance themselves from discovery obligations, even though Plaintiffs have regularly maintained they have limited control over the assignors.
As noted, Defendants have divided the assignors into two groups – seven assignors who have “openly violated” discovery orders (“Group 1”) and eight assignors that MSP has “falsely asserted have no more responsive documents” (“Group 2”). Each will be discussed in order.
As to “Group 1,” Defendants say these seven assignors have blatantly disregarded orders by refusing to participate in discovery and/or to cooperate with MSP. As to three of these seven, despite prior court orders entered in July, MSP has admitted that there have been no additional efforts to collect data. As to another, AvMed, Inc., Defendants say, MSP has given up on obtaining cooperation from this entity. Similarly, as to ConnectiCare and Emblem Health, Defendants say that MSP misrepresented that there were no more responsive documents to produce from these assignors but as late as September 2022, seven months after an order compelling production, MSP reported that they were in a “pre-processing stage” and that a “rolling production” might begin within a few weeks. Finally, as to two other assignors, Arse, Inc. and Corporation Medica Oriental which have yet to produce any documentation, MSP asserts that it is still in the process of collecting documents as to these entities.
*3 As to “Group 2,” constituting eight assignors, Defendants say that the production to date is paltry.[1] In February, the Court ordered these assignors to produce materials including documents regarding the administration of Medicare benefits, documents regarding insulin and drug rebates, documents exchanged with CMS (Centers for Medicare and Medicaid Services) and the like. Defendants say that none of these assignors have produced a single document in response to the order. Instead, according to Defendants, MSP has constantly maintained that these assignors lack responsive documents since they are “downstream entities”. In other words, these entities did not directly contract with PBMs, have limited involvement with drug manufacturers and otherwise have minimal paperwork pertinent to this matter.
This assertion, say Defendants, “cannot be correct” and makes no sense. First, MSP has admitted that there are more documents for downstream assignors and had agreed to produce contracts and risk sharing agreements in August, but have failed to do so. Secondly, under CMS regulations, the assignors are required to maintain all books, records, documents and other evidence which would be encompassed by the document requests including information regarding Medicare claims and manufacturer rebates. Additionally, during depositions, employees of these same downstream entities have admitted they are indeed statutorily obligated to maintain such records.
Finally, Defendants say, it is not possible for the assignors to operate under a federal healthcare program yet have no contracts, no emails, no policies or manuals, no books and records, and no other evidence that they are operating in compliance with Medicare's requirements. Defendants also contend the depositions taken thus far confirm that assignors do possess such materials.
Defendants charge that Plaintiffs have misrepresented their discovery compliance citing colloquy during status conferences held on November 8, 2021, January 18, 2022 and May 5, 2022 in which Plaintiffs effectively represented that all documentation had or was about to be produced. MSP thereafter backtracked and conceded that certain documents had not been produced because the assignors were continuing to be uncooperative. Defendants insist this shows that in reality, “MSP has given up on collecting these documents – not because they do not exist, but because these assignors will not comply with this Court's orders.”
III. Legal Standard (Asserted by Defendants)
The moving parties insist that this case has been completely one sided in terms of discovery. Defendants have produced some 900,000 documents and Plaintiffs have deposed 23 defense witnesses. Yet, more than half of the assignors have failed to make any meaningful production. This has occurred despite court intervention and the setting of discovery deadlines which MSP has disregarded. Defendants urge that the only workable sanction is dismissal of MSP's claims on behalf of the relevant assignors.
Plaintiffs rely on Federal Rule of Civil Procedure 37 in seeking this relief, a rule which governs sanctions against litigants who fail to cooperate in discovery. In this Circuit, there are six factors to be considered in determining whether dismissal is appropriate:
1. The extent of a party's personal responsibility;
2. Prejudice to the adversary in failing to respond to discovery;
3. A history of dilatoriness;
*4 4. Whether the conduct was willful or in bad faith;
5. Effectiveness of sanctions other than dismissal; and
6. The meritoriousness of the claim or defense.
The factors noted above are set forth in Poulis v. State Farm Fire & Cas. Co., 747 F. 2d 863, 868 (3d Cir. 1984). Defendants say every Poulis factor supports dismissal.
As to factor 1, MSP is responsible for their assignors’ discovery compliance. Many of the agreements expressly place responsibility for document discovery on MSP and require the assignors to provide documents upon Plaintiffs’ request. As to MSP's insistence that assignors have refused to cooperate, this Court has already ruled Plaintiffs are obligated to produce discovery from each assignor as if they were individual litigants so Plaintiffs cannot distance themselves on the grounds that the assignors are non-parties over whom they have limited control. Defendants also note that this is far from the first time that MSP has disregarded its obligation to obtain discovery from its assignors. Defendants cite multiple federal court decisions characterizing Plaintiffs as litigants who file suit in the hope that discovery might reveal a cause of action and who play fast and loose with discovery obligations.
As to the second factor, Defendants say they are prejudiced by serial non-compliance. Defendants cannot defend themselves against claims that the assignors were defrauded without the assignors’ participation. As to certain assignors, failure to provide discovery makes it difficult, if not virtually impossible, to prepare a defense since they have failed to provide basic information to prepare for depositions, bring motions or ultimately fight MSP's allegations at trial. This is particularly true of the downstream entities as to which Defendants are heading into depositions “essentially blind.” They also waste resources deposing witnesses who disclaim knowledge of relevant facts and who defer to others. The delays have forced Defendants to engage in persistent motion practice. Moreover, depositions have now established that relevant documents do exist and were even given to MSP raising the possibility that Defendants will need to reopen depositions. Along these lines, MSP has repeatedly misidentified individuals in supplemental interrogatory responses who have failed to possess relevant knowledge or who have disavowed knowledge pertinent to the claims. One individual, a Network Health employee, who had been listed as an individual with knowledge about how payments for insulin were calculated, died months before supplemental interrogatory responses identifying him were served.
As to the third factor, Defendants say Plaintiffs have shown a pattern and history of being dilatory in this matter, seeking extensions or missing deadlines a half dozen times. Moreover, MSP often goes weeks or months without responding to Defendants’ efforts to obtain basic information. Plaintiffs have persistently failed to comply with court orders which, in turn, require follow up and motion practice.
As to factor four, Defendants say that this conduct – delays and non-compliance – is evidence in and of itself of willfulness and bad faith. Moreover, there is evidence that Plaintiffs have made misrepresentations to this Court citing, as an example, the fact that Plaintiffs had concealed for more than two months that ConnectiCare and Emblem Health were refusing to search for responsive documents. As to the existence of other documents which have not been identified or produced, Defendants note that depositions have validated their concern that MSP has failed to preserve “and may well have spoliated evidence.” That is, several witnesses have denied receiving any communications which would constitute a litigation hold even though this suit was filed in 2018.
*5 As to the fifth factor, Defendants maintain that no sanction other than dismissal would be effective. The alternative sanctions under Rule 37(b)(2)(A) have no usefulness here. Directing that certain facts “be taken as established” is inconsequential since Plaintiffs are not attempting to support their claims for these assignors. Striking pleadings is also useless since Defendants are not seeking dismissal of all the assignors.[2] Rendering a default judgment is useless in that Defendants have not asserted a counterclaim. Similarly, staying the proceedings until the order is obeyed or holding Plaintiffs in contempt fail to accomplish anything since Plaintiffs have had abundant opportunities to produce documents and time has never been the issue. Indeed imposing a stay or contempt order would only result in prejudice to Defendants who have an interest in speedily resolving this matter.
As to factor six, Defendants assert that MSP's claims are without merit. This assertion is based upon assignor deposition testimony that purportedly undermines certain aspects of Plaintiffs’ allegations voiced in MSP's second amended complaint. [See, Defendants’ letter brief in support of motion for sanctions, pp. 18-19.]
In short, Defendants contend that as a consequence of a bevy of repeated discovery violations, they are entitled to Rule 37 sanctions against the 15 identified assignors for which there is no meaningful alternative relief.
IV. Plaintiffs’ Opposition
In opposing the motion, Plaintiffs emphasize that Defendants are seeking the “ultimate sanction” – dismissing the claims of 15 assignors with prejudice. However, say Plaintiffs, their adversaries are basing these dismissals largely upon discovery violations that have either been ruled upon by the Special Master, mooted or premature. Plaintiffs emphasize that there is no basis for doing so and that at all times they have acted in good faith in their efforts to provide discovery in a complicated and document-intensive matter.
Contrary to Defendants’ assertions, MSP maintains that it has produced substantial discovery. Plaintiffs reiterate the position that they have taken throughout this litigation to the effect that there are difficulties inherent in collecting records from MAOs, MSOs and IPAs. Each assignor has different levels of sophistication and discovery is generally related to the size of the organization.
MSP notes that it first began to contact the assignors in October 2020 – starting with larger organizations – and in December of that year, Plaintiffs’ vendor (SiFT Discovery) approached small assignors and downstream entities. Steps were then taken through SiFT to retrieve responsive documents. Those steps included “collections call[s],” collection processes which varied assignor by assignor, document review by outside attorneys and MSP's counsel, and physical production of documents. Ultimately, some 8.3 million documents were collected of which 1.3 million were manually reviewed and some 123,583 documents produced. At present, the expenses associated with this effort have totaled more than $1.4 million.
It is Plaintiffs’ position that “nearly every issue raised” has been “resolved, in the process of being resolved, or cannot be resolved any further.” Plaintiffs maintain that if each of the assignors’ situations are examined individually, it is evident that the issues are non-existent or have been mooted.
Before addressing Plaintiffs’ arguments as to each assignor, based upon what was presented in Plaintiffs’ submissions, the Court provides a summary as to the status of the discovery due from each entity:
Claims Withdrawn
• ARSE, Inc.
• Administracion de Servicios de Atencion Primaria Inc. (ASAP).
• Policlinicas Medicas Asociadas, Inc.
• Policlinica General de Coamo C.S.P.
No Additional Documents
*6 • SE Primary Care
Resolved Disputes
• AvMed
Productions Made or Unavailable
• ConnectiCare
• Emblem
• Physicians Access Urgent Care Group (PAUCG)
• Corporacion Medica Oriental (CMO)
In Process of Being Resolved
• Suncoast Provider Network, Inc.
• Suncoast Medical Network 2, Inc.
• Interamerican Medical Center Group, Inc. (IMC)
• Clinica Las Mercedes
In summary then, as it stands now, there is no apparent dispute as to 5 of the 15 entities. That is, the four downstream entities located in Puerto Rico and listed above have withdrawn their claims. As to AvMed, the issues relating to Steven Zeigler, its general counsel were addressed in the Special Master's prior order and Plaintiffs have also agreed to produce responsive non-privileged documents from his email.
Plaintiffs state the following as to the remaining entities.
SE Primary Care – Plaintiffs assert that this downstream entity also based in Puerto Rico has in fact produced documents and made its witnesses available for deposition. Hence, this entity has participated in discovery but Defendants are unhappy with the number of documents produced. Furthermore, MSP's counsel traveled to Puerto Rico to meet with the company's president while conducting a manual search of its offices and off site storage facility. No additional documents were found.
ConnectiCare/Emblem – These entities, corporate siblings, produced documentation from an additional set of custodians on November 7, 2022 and, according to Plaintiffs, this issue is moot. Plaintiffs emphasize that these two assignors have been the subject of discussions at status conferences and Defendants are aware that supplemental production would take time to complete. Plaintiffs also emphasize that these entities’ initial productions were substantial and that Defendants filed this motion without conducting a single deposition.
Physician Access Urgent Care Group (PAUCG) – Plaintiffs say that on October 31, 2022, MSP made an additional production of PAUCG's documents following the deposition of its representative during which Defendants identified additional responsive documents they desired. The depositions of the company's operation manager and Rule 30(b)(6) representative are still pending.
Premier Care Partners (PCP) – This entity has made two productions but, nevertheless, not a single deposition of PCP has taken place. Not until the filing of this motion did Plaintiffs know of issues with this entity's prior production and, consequently, on November 14, 2022, MSP made a supplemental production.
Corporacion Medica Oriental (CMO) – While Defendants claim that this entity has refused to participate in discovery, Plaintiffs insist this is not true. CMO made an initial production before depositions and then on October 31, 2022, made an additional production for a global total of 1,366 pages. Moreover, CMO's president, when deposed, testified that the entity did not have access to documents that Defendants sought which were, in fact, under the control of an upstream entity – Humana. Accordingly, the remaining documents have been requested but are simply “beyond CMO's reach.”
*7 Suncoast Entities – These assignors consist of Suncoast Provider Network, Inc. and Suncoast Medical Network 2, Inc. Only one responsive document has been identified, but since the deposition of the companies’ CEO, “MSP has been working with Suncoast to gather additional documents.”
IMC – This entity has produced 1,876 documents and MSP has reached out again to IMC which has agreed to produce “additional documents that are not within its possession, custody, or control from its health plans.”
Clinica Las Mercedes – Here, MSP says it is still attempting to gather additional documents that it has produced for other assignors. No depositions of its personnel have been taken, so a dismissal would be premature.
Plaintiffs generally argue that Defendants’ motion should be denied since, under local Rule 37.1(a), they have refused to meet and confer regarding their motion. Plaintiffs assert that they were not aware of any issues necessitating sanctions until receiving an email on October 6, 2022. Thereafter, they conferred with Defendants’ counsel, but failing to get a response as to the specific grounds for the Rule 37 motion, MSP agreed to a briefing schedule.
More significantly, Plaintiffs argue that under Third Circuit law, dismissals with prejudice or defaults are drastic sanctions and only available in extreme cases when Plaintiffs have acted in flagrant bad faith and counsel have flaunted their responsibilities with callous disregard, citing National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639 (1976) and Poulis. Furthermore, all six factors set forth in Poulis support MSP's position that there is no basis for an involuntary dismissal of the remaining claims.
As to factor one, MSP has spent millions of dollars and devoted thousands of man hours to collect and product discovery. It has complied in good faith with agreed upon ESI and TAR protocols. This has resulted in an 80% responsive rate required for validation. Hence, any documents unidentified represent a statistically minor amount of materials. In short, MSP maintains that it has diligently tracked down relevant documents for production.
As to factor two, any sanction must match the severity of the harm caused. While MSP is not minimizing the significance of delays and increased costs which have occurred, it maintains that the discovery produced thus far has been substantial and whatever deficiencies remain do not equate to material prejudice or a serious disruption of the court's functioning, citing Wachtel v. Health Net, Inc., 239 F.R.D. 81, 112 (D.N.J. 2006). Here, discovery is still ongoing and MSP has remedied “nearly all of the discovery issues” in cooperation with Defendants.
As to factor three, while Defendants assert that the initial substantial completion deadline was March 5, 2021, this date is misleading. Not until August 30, 2021, did the litigants agree upon discovery search terms. Since doing so, MSP has been an active party in this litigation with significant, ongoing efforts in discovery. None of this represents a discovery history showing a pattern of dilatoriness that calls for dismissal.
As to factor four, there is no evidence that MSP or its counsel acted in bad faith. Plaintiffs say that they have made efforts to cure issues which negates the claim that they had been flouting court authority or have engaged in professional irresponsibility equating with bad faith. Additionally, MSP's counsel's previous statement to the effect that all documents had been produced “is a mischaracterization of counsel's intent.” That is, the representation was made in the context of the 80% response rate used under TAR to validate production. Finally, not until this motion was filed did Plaintiffs have sufficient notice that certain assignors’ claims would be subject to dismissal and Defendants motion is also premature because discovery is open.
*8 As to factor five, Plaintiffs reemphasize the proposition that dismissal with prejudice is a severe sanction and in this case not tailored to address the harm identified. That is, dismissing the assignor's claims would be disproportionate and unfitting.
As to factor six, regarding the “meritoriousness of the claim,” Plaintiffs maintain that Defendants incorrectly interpret this factor. In this Circuit, the meritoriousness of a claim for this purpose “must be evaluated on the basis of a facial validity of the pleadings, and not on summary judgment standards,” citing Scarborough v. Eubanks, 747 F. 2d 871, 875 (3d Cir. 1984). Given that Plaintiffs’ second amended complaint contains “potentially meritorious allegations,” it is legally sufficient and meets the standard of “meritoriousness” under Poulis.
V. Defendants’ Reply
Defendants have provided a detailed and extensive reply. They reiterate many of the points made above but the bottom line is this: Even at this stage of the litigation and even after Defendants were forced to file a sanctions motion, the assignors’ discovery remains incomplete. Furthermore, MSP has effectively conceded it has engaged in sanctionable conduct.
Briefly stated, Defendants emphasize the following points in reply:
• There is no legitimate explanation as to why MSP continues to produce documents months after a sixth substantial completion deadline. Contrary to Plaintiffs’ opposition, they have still not produced all responsive documents identified by Defendants during depositions as promised. Defendants cite as an example documents still outstanding from the Suncoast Entities, CLM and Interamerican. Additionally, say Defendants, even if MSP's more recent efforts actually cured the discovery violations (which is not the case), the fact that Plaintiffs failed to make these efforts before Defendants were forced to bring this motion supports the notion that the discovery delays are sanctionable.
• The parties agree that the sixth-factor Poulis test (cited above) governs this motion and Defendants reiterate their contention that all six Poulis factors favor dismissal. In short: (1) Plaintiffs are responsible for noncompliance having missed multiple completion deadlines, by conducting searches only after motions have been filed and by accepting “impossible representations” from their clients (meaning the assignors) and only after Defendants uncovered the existence of additional documents; (2) Defendants have been materially prejudiced by being forced to take full-day depositions to uncover unproduced documents – a cost in time, money and effort; (3) Plaintiffs have exhibited a history of dilatoriness by failing to meet the multiple discovery deadlines and some assignors still have not produced responsive documents which Plaintiffs say they will produce at some unspecified future date; (4) Plaintiffs’ actions have been willful and in bad faith citing previous representations to the court to the effect that all known documents had been produced and Plaintiffs are relying on a TAR protocol unrelated to this failure; (5) Plaintiffs effectively concede that there is no viable, alternative sanction but for dismissal; and (6) Plaintiffs’ claims lack merit since MSP does not contest that multiple assignor witnesses have expressly disavowed the factual basis for MSP's claims.
*9 • As to MSP's claim that it lacked notice, Defendants emphasize the fact in correspondence to MSP and during the course of multiple status conferences, they have expressly raised their position that sanctions are necessary. In fact, the Court expressly authorized Defendants to file this pending motion for sanctions during a June 2022 conference. Moreover, as MSP concedes, there is no technical requirement for a meet and confer related to a Rule 37 motion. Hence, MSP has been on notice for an extended time about Defendants’ intention to file for Rule 37 sanctions.
In short, Defendants contend the underlying discovery failures have not been cured and Plaintiffs’ opposition merely consists of a post-motion attempt at damage control.
VI. Legal Standard
The parties do not in any sense disagree as to the legal standard upon which this motion must be decided. That is, this motion is governed by Fed. R. Civ. P. 37 and the cases which address that rule, most notably, Poulis, cited by both parties in support of and in opposition to this application.
The Rule, entitled “Failure to Make Disclosures or to Cooperate in Discovery; Sanctions”, indeed governs this motion. More specifically, the crucial provision is Fed. R. Civ. P. 37(b)(2)(A) which reads, in pertinent part:
If a party...fails to obey an order to provide or permit discovery...the court where the action is pending may issue further just orders. They may include the following:
(i) Directing that the matters embraced in the order or other designated facts be taken as established for the purpose of the action, as the prevailing party claims;
(ii) Prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;
(iii) Striking pleadings in whole or in part;
(iv) Staying further proceedings until the order is obeyed;
(v) Dismissing the action or proceeding in whole or in part;
(vi) Rendering a default judgment against the disobedient party; or
(vii) Treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination.
[Emphasis added.]
Here, Defendants seek only one sanction – dismissal of the claims of the deficient assignors – and also insist that there are no alternative, lesser sanctions which would provide appropriate relief. Plaintiffs argue, and Defendants effectively concede, that this is the most serious sanction available under the Federal Rules and that dismissals with prejudice are drastic sanctions and should only be considered a sanction of last resort. See, Fields v. Fed. Bureau of Prison, No. 18-2704, 787 Fed. Appx. 115, 118 (3d Cir. Sept. 18, 2019) and Poulis, 747 F. 2d 863 at 869. Therefore, Plaintiffs also argue, when a party seeks a dismissal as a sanction for a discovery violation, courts are implored to resolve all disputes in favor of reaching a decision on the merits. See, Liggon-Reading v. Willingboro Tp., No. 08-1802, 351 Fed. Appx. 674, 678 (3d Cir. Sept. 28, 2009) (citing Briscoe v. Klauss, 538 F. 3d 252, 257 (3d Cir. 2008)).
As noted, Poulis, appears to be the leading case in this Circuit laying out six factors determining whether a dismissal is an appropriate and just sanction. In deciding such a motion, the court needs to examine (1) a party's personal responsibility; (2) prejudice to the adversary; (3) a history of dilatoriness; (4) whether the conduct was willful or in bad faith; (5) the effectiveness of alternative sanctions; and (6) meritoriousness of the claim. However, as Defendants argue, there is no single Poulis factor determinative as to when dismissal may be appropriate and a party need not prove that all of the factors are met to compel a dismissal. See, Vittas v. Brooks Bros. Inc. Grp., 3:14-cv-3617, 2017 WL 6316633 at *2 (D.N.J. Dec. 11, 2017) and the other cases cited in support of this proposition on page 10 of Plaintiffs’ October 11, 2022 letter memorandum.
*10 Before analyzing the full extent of this motion, the Special Master will address and quickly dispose of one aspect of Plaintiffs’ argument.
Plaintiffs argue that a sanctions motion should not be considered when the parties have failed to meet and confer on a discovery dispute and also imply that they were somehow shocked when Defendants filed this motion. However, Plaintiffs fail to provide any support for the proposition that the litigants must meet and confer before an aggrieved party files a sanctions motion and indeed Plaintiffs effectively concede that no such technical requirement exists under the Federal or local rules.
The Special Master finds that as to MSP's surprise that a sanctions motion was filed, this position is unsupported and contrary to the facts. As Defendants submit, their complaints regarding the discovery deficiencies – and the potential need to file a sanctions motion – have been discussed on multiple occasions during serial status conferences and in written exchanges between the parties. Indeed, as Defendants accurately state, Defendants’ intention to file a sanctions motion was addressed in detail at the time of the June 24, 2022 conference and the Special Master acknowledged Defendants’ plan to put this motion before the Court. [See transcript of conference attached to Defendants’ Reply, Exhibit 14, pp. 17-20.] Accordingly, the Special Master finds that Plaintiffs’ assertion that the motion should fail as a result of the absence of a formal meet and confer or that MSP was not adequately on notice fully lacks merit.
As previously noted, for more than two years, the Special Master has been assigned to manage discovery in this litigation and has been called upon on a regular basis to do so. This motion under Rule 37 seeking sanctions is, by the Court's count, the sixth time the Special Master has been called upon to decide a motion arising out of some aspect of a discovery owed by Plaintiffs’ assignors to Defendants. This does not include directives made during status conferences during which less significant discovery disputes were resolved.
Throughout that course of time, during essentially each step along the way, MSP has advanced the same essential arguments. Those arguments can be paraphrased as follows.
This is a document intensive case. We've done the best we can and have produced a substantial number of documents to Defendants at a significant cost. We are hampered by the fact that the assignors have little or no interest in cooperating with us and some have indeed (at times) outright refused to do so. Anyway, in some cases, the assignors tell us they do not have or are unable to locate any documents responsive to Defendants’ demands. Our hands are tied.
Yet, as Defendants set forth in their briefings, as discovery has progressed in this case, MSP's assertions have proved often to be inaccurate or incomplete. Supplemental productions of documents which were said not to exist occurred in response to motions or were discovered as a consequence of deposition testimony elicited from assignor witnesses. Additionally, years into this litigation, Plaintiffs have dropped the claims against multiple assignors, raising a strong inference that those claims should never have been advanced in the first place and that Plaintiffs had failed to adequately investigate the validity of those claims prior to filing suit. Representations have been made to this Court during conferences that certain aspects of productions were complete but, as it turns out, this was not the case and Plaintiffs backtracked.
*11 While this Court has no way of establishing this with certainty, but as Defendants have argued in their briefing, it is hard to fathom how the assignor entities, whose businesses are intricately entwined in the reimbursement process of federal healthcare programs (CMS), have little or no documentation regarding this process. Indeed, as Defendants point out, several deponents (employees or representatives of these entities) have testified that those entities were obligated under CMS regulations to maintain certain records and, in fact, did so.
Also striking is the fact that assignor personnel were designated in sworn discovery responses as individuals possessing relevant knowledge about the underlying issues in this case, yet when deposed, pleaded ignorance (or deferred to others) as to knowledge concerning insulin payments, costs, rebates or discounts – issues at the heart of this litigation. While mistakes happen, and while the Special Master does not conclude that this was a deliberate attempt to mislead, by identifying these individuals as knowledgeable and moving forth with their depositions, MSP has displayed a cavalier and less than diligent attitude towards its discovery obligations.
In briefings and even to a greater extent at oral argument, MSP focused overwhelmingly on an assertion that they are (or represent through assignors) injured parties who have meritorious claims against the three defendant pharmaceutical manufacturers arising from an unlawful insulin pricing scheme. But this misses the point. While MSP may yet prove these accusations, in the Special Master's view, MSP in opposing this application has skirted around the fundamental issue which forms the basis of this motion – why hasn't complete assignor discovery been provided as ordered by the Court, as to the entities designated in this motion, despite multiple deadlines? This answer remains outstanding. Furthermore, it is insufficient for MSP to argue that under our broad discovery rules, what Defendants seek, in MSP's estimation, doesn't bear on the merits of the claim or on affirmative defenses. MSP has been ordered to provide certain discovery and must meet this obligation.
The Special Master has in the context of this case carefully analyzed the Poulis factors which have been detailed previously. It is the finding of the Special Master that those factors generally weigh in favor of Defendants.
As to a party's personal responsibility, MSP has been on notice of its obligation to provide assignor discovery as if those assignors were individual litigants in the lawsuit. Indeed, Plaintiffs should have recognized even before the inception of this litigation that MSP would be obligated to produce pertinent documentation from their assignors and should have weighed into its assessment the time, money and effort needed to collect and produce this discovery from individuals or entities who may not have been motivated to provide assistance. In turn, the assignors, having benefited from transferring their claims to MSP, and having signed agreements in which they promised to and were obligated to assist in providing discovery, bear responsibility in cooperating with this litigation.
Nevertheless, despite discovery extensions, and despite assurances along the way from MSP that discovery as to these assignors was complete (or nearly so), this has not been the case. Indeed, as Defendants highlight, as of the time of the May 5, 2022 status conference, when the Court was assured that the documents produced at that point were all that were there, there was every reason to believe that the written discovery aspects of this litigation were about to be wrapped up. Yet, the issues continued thereafter and the Court later learned that several of the assignors were, in fact, then refusing to cooperate in production.
*12 This, in the Special Master's view, constitutes a failure of a party to meet its personal responsibility to cooperate in discovery.[3]
As to prejudice, the Special Master finds that serial noncompliance acts to prejudice the defense of this lawsuit. Defendants have made a cogent presentation that they have been forced to expend time, money, effort and legal resources pressing ahead with discovery under circumstances where they have been “blind” (or at least blinded to) information essential to their defense of this lawsuit. Particularly troubling are the documented instances in which assignor representatives were proffered as individuals having relevant knowledge about the issues of this lawsuit, yet when deposed, were baffled by why they had been so identified or disavowed knowledge on the topics at issue. [See, for example, deposition of Jacqueline Crews (AvMed), pp. 86-87; deposition of Felix German, Defendants’ Exhibit 11, pp. 17-18.] The term “prejudice” does not mean that an act is fatal to a party's claim or defense (in other words causing irremediable harm) but can include extra costs, repeated delays and the need to file additional motions to address abusive behavior of the responsible party. See, Barney v. Gloucester Twp. Police Dept., 19-cv-19310, 2020 WL 6216948 (D.N.J. June 27, 2020). Here, the Special Master finds that Defendants’ conduct has been prejudicial to the defense.
*13 As to a history of dilatoriness, this is only a somewhat closer question. As Defendants concede, two of the six discovery deadlines were extended by the parties’ consent. However, that does not fully explain MSP's failure to substantially comply with the remaining deadlines. Plaintiffs have admitted in both their written submissions and at oral argument that their discovery responses have indeed been delayed, although for what they say are legitimate, understandable reasons. More significantly, however, as Defendants emphasize, when there has been compliance, the productions followed motions or applications to the Court. While this is not a “history” of dilatoriness (meaning substantially long-term and relentless), it certainly establishes a “pattern of dilatoriness” as described in Poulis.
As to whether this conduct has been willful and in bad faith, this factor is much more difficult to assess and is relatively subjective. Neither Poulis nor the cases which address Poulis, provide a clear cut definition or concrete examples of willfulness or bad faith in the context of a party's discovery violations. The closest the courts come to a definition of willfulness or bad faith is to term it “contumacious” conduct, meaning conduct stubbornly or willfully disobedient to authority, which the court in Poulis felt did not apply to the plaintiff's attorney's conduct. Poulis, 747 F. 2d at 869. While MSP's repetitive discovery failures here certainly raised the question as to the seriousness in which this litigation has been conducted, the Special Master cannot say (as yet) that the conduct constitutes willful or bad faith action. Nevertheless, the repeated discovery violations have brought MSP perilously close to that line.
As to the meritoriousness of the Plaintiffs’ claim, the Special Master finds that MSP's interpretation of this factor more closely meets the definition provided by the court in Poulis. That is, a claim will be deemed meritorious “when the allegations of the pleadings if established at trial, would support recovery by plaintiff or would constitute a complete defense.” Citing United States v. $55,518.05 in U.S. Currency, 728 F. 2d. 192 at 195 (3d Cir. 1984); Feliciano v. Reliant Tooling Co., 691 F. 2d. 653, 657 (3d Cir. 1982); and Farnese v. Bagnasco, 687 F. 2d. 761, 764 (3d Cir. 1982).
Here, MSP's assertions – if proven – would support recovery in the event this matter was tried. As an example of an absence of merit, Defendants merely point to the testimony of AvMed's Director of Pharmacy [see, Defendants’ October 11, 2022 Memorandum of Law in support of motion, pp. 18-19] but this is insufficient to fully undermine the claims of the remaining deficient assignors. The fact that a single employee of one assignor provided testimony which arguably refuted “core allegations” in MSP's complaint fails to establish that MSP's overarching cause of action is fundamentally without merit. Instead, as Plaintiffs argue, meritoriousness of a claim should be evaluated on the basis of the facial validity of the pleadings, not on a summary judgment standard. See, Scarborough v. Eubanks, 747 F. 2d. 871, 875 (D.N.J. Aug. 15, 2011).
This leads us back to the fifth of the sixth Poulis factors – whether there are alternative, more suitable sanctions. Defendants here make a strong argument that – ultimately – the only viable sanction for repeated discovery violations is outright dismissal of a claim. But, as our courts have repeatedly stated, “dismissal with prejudice or default are drastic sanctions, termed ‘extreme’ by the Supreme Court...and are to be reserved for comparable cases.” Poulis, 747 F. 2d at 867-868 (citing National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643 (1976)). Therefore, the Special Master is reluctant at this juncture to enter outright dismissals as to the claims of the assignors who are the subject matter of this motion.
*14 Instead, in an effort to provide MSP with one last chance to cure its discovery deficiencies, the Special Master orders as follows:
1. Within forty-five (45) days of the date of this Order & Opinion, Plaintiffs shall satisfy all discovery deficiencies which are the subject matter of this application;
2. At the conclusion of this forty-five (45) day period, MSP shall submit to the court a certification by counsel setting forth clearly as to each individual assignor that either discovery for that assignor has been complete or that discovery remains deficient, specifying any deficiencies which exist;
3. Within seven (7) days of the date of service of MSP's certification, Defendants shall submit a certification setting forth as to each individual assignor whether, in fact, Plaintiffs’ certification as to the completeness of discovery is accurate and if not so, how the discovery is defined; and
4. MSP is ordered to pay reasonable counsel fees incurred on behalf of Defendants directly related to the filing of this motion. Defendants counsel are directed to provide a detailed affidavit of services and costs to the Special Master in order to determine an appropriate fee award.
The Special Master stresses to all parties that the submission of the certification and the response to the certification is not another opportunity to re-litigate the issues at the heart of this motion. Instead, the Special Master seeks to ascertain exactly where discovery stands as to each of the assignors after having provided Plaintiffs with an additional opportunity to correct the outstanding discovery deficiencies. Should it be demonstrated that an assignor has yet to excusably fulfill its discovery obligations, upon Defendants’ application, that assignors’ claims will be dismissed.
For these reasons, Defendants’ motion is DENIED to the extent set forth in this Order & Opinion, including the directives enumerated on page 27.
Footnotes
These assignors are Suncoast Medical Network 2, Inc., Suncoast Provider Network, Inc., Clinca la Mercedes, Policlinica General de Coamo C.S.P., Physician Access Urgent Care Group, LLC, Premiere Care Partners, LLC, Administration de Servicios, de Atenscion Primaria, Inc. and InterAmerican Medical Center Group, LLC. These eight together have produced approximately 250 documents.
It certainly seems that Defendants are, in fact, seeking a complete dismissal of certain assignor claims.
While not dispositive here, as Defendants emphasize in arguing that MSP itself bears responsibility for its assignors’ discovery compliance, this is not the first time that these Plaintiffs have been found by the courts to have seriously disregarded obligations to investigate assignor claims. Federal courts from New York to California have criticized Plaintiffs’ conduct in the context of suits alleging violations of the Medicare Secondary Payer Act, a statute which creates a private right of action for double damages against payers who fail to reimburse MAOs for covered expenses. For example, see, MSP Recovery Claims Series LLC v. USAA General Indemnity Company, 2018 WL 5112998 (S.D.Fla. Oct. 19, 2018) (the court concludes plaintiff lacked standing to bring claims since the assignor was not, in fact, an MAO despite knowing the identity of the actual assignor); MSP Recovery Claims Series LLC v. New York Central Mutual Fire Insurance Company, 2019 WL 422654 (N.D.N.Y Sept. 5, 2019) (the court dismisses complaint for lack of standing, while questioning the validity of documents submitted in opposition and commenting “plaintiffs’ history of untruthfulness is well documented”); MSP Recovery Claims Series LLC v. AIG Property & Casualty Company, 2021 WL 1164091 (S.D.N.Y. Mar. 26, 2021) (the court dismisses complaint due to, among other reasons, a failure to establish that the MAOs incurred reimbursable costs and in which the court stated “plaintiff has done absolutely nothing to obtain relevant information from its assignors...”); MAO-MSO Recovery II, LLC v. State Farm Mutual Automobile Insurance Company, 994 F. 3d. 869 (7th Cir. 2021) (the court states MSP has been shown to “sue to collect on receivables they paid little or nothing for and then rely on the discovery process to show they acquired something of value and thus have an enforceable right to collect”); MAO-MSO Recovery Series II, LLC v. The Farmers Insurance Exchange, 2022 WL 1690151 (C.D.Cal. May 25, 2022), (the court dismisses complaint again for lack of standing under circumstances where plaintiffs asserted that they had no copies of bills their assignors received, no documents evidencing payments that were made nor even accounting ledgers to establish that the assignors made covered payments).