Minerva26

LifeScan, Inc. v. Smith

2023 WL 7089662 (D.N.J. 2023)

October 11, 2023

Cavanaugh, Dennis, Special Master (Ret.)

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Summary

The court granted the defendant's motion to compel PBM discovery from LifeScan, requiring them to search for and produce ESI related to the case. This ESI could contain evidence that could be used to support or refute the claims of either party. The court also ordered LifeScan to designate eight additional document custodians to search for relevant documents.

Additional Decisions

LIFESCAN, INC., et al., Plaintiffs,
v.
JEFFREY C. SMITH., et al., Defendants
ROCHE DIAGNOSTICS CORPORATION, et al., Plaintiffs,
v.
JEFFREY C. SMITH., et al., Defendants

Civil Action No. 17-5552 and , Civil Action No.19-8761 (CCC)(JSA)

United States District Court, D. New Jersey

Filed October 11, 2023

Counsel

Peter C. Harvey, Patterson, Belknap, Webb & Tyler, LLP, New York, NY, for Plaintiffs.
Iram Pagan Valentin, Timothy Mark Ortolani, Kaufman Dolowich Voluck LLP, Hackensack, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Jeffrey C. Smith.
Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, David Grant.
James S. Richter, Midlige Richter LLC, Basking Ridge, NJ, Ashley Bryne Akapo, Dentons US LLP, New York, NY, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, Marc Brett Schlesinger, Mintz & Gold LLP, New York, NY, for Defendant, Travis Hughes.
Brian P. O'neill, Brittany A. Manna, Jeffrey Scott Chiesa, Marie L. Mathews, Ronald Lawrence Israel, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Christopher J. Borchert, Alston & Bird LLP, New York, NY, Joseph Marsico, Kyle Edward Vellutato, O'toole Scrivo LLC, Cedar Grove, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Alison Wistner.
Brian P. O'neill, Brittany A. Manna, Jeffrey Scott Chiesa, Marie L. Mathews, Ronald Lawrence Israel, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Christopher J. Borchert, Alston & Bird LLP, New York, NY, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Adam Koopersmith.
Paul A. Carbon, Margolis Edelstein, Berkeley Heights, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Lee H. Rosebush.
Christopher Matthew Hemrick, Katelyn O'reilly, Lauren Ruth Malakoff, Liza M. Walsh, Peter Joseph Pizzi, Stephen V. Falanga, William T. Walsh, Jr, Walsh Pizzi O'reilly Falanga LLP, Newark, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Zions Bancorporation, N.A.
James S. Richter, Midlige Richter LLC, Basking Ridge, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, Kerry C. Donovan, Winston & Strawn LLP, New York, NY, for Defendants, Hughes & Company, Hughes & Company Investment Partners, LLC, Kesman Hughes & Company, LLC, HS Medsource Holdco, LLC.
Christopher J. Borchert, Jenny R. Kramer, Reade William Seligmann, Alston & Bird LLP, New York, NY, Marie L. Mathews, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Mercato Management, LLC.
Christopher J. Borchert, Jenny R. Kramer, Reade William Seligmann, Alston & Bird LLP, New York, NY, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendants, Mercato Partners, LLC, Mercato Partners Growth II GP, LLC, Mercato Partners Growth II, L.P., Mercato Partners Growth Affiliates II, L.P., Mercato Partners AI II, L.P., Mercato Partners Ingram, LLC, Mercato Partners Ingram Co-Invest, LLC.
Brian P. O'neill, Brittany A. Manna, Jeffrey Scott Chiesa, Marie L. Mathews, Ronald Lawrence Israel, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Abodon PT Company.
Brian P. O'neill, Brittany A. Manna, Jeffrey Scott Chiesa, Marie L. Mathews, Ronald Lawrence Israel, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Christopher J. Borchert, Alston & Bird LLP, New York, NY, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, Pritzker Group Venture Capital LLC.
Brian P. O'neill, Brittany A. Manna, Jeffrey Scott Chiesa, Marie L. Mathews, Chiesa Shahinian & Giantomasi PC, Roseland, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Defendant, NWV-Alliance LLC, NWV-Alliance-2 LLC.
Christopher Charles Loeber, Pryor Cashman LLP, New York, NY, for Defendant, Justin Leavitt.

Cavanaugh, Dennis, Special Master (Ret.)

ORDER & OPINION OF THE SPECIAL MASTER JUDGE DENNIS CAVANAUGH, RET. AS TO DEFENDANT ZIONS’ MOTION TO COMPEL PBM DISCOVERY

*1 The matter before the Special Master is a motion filed by Defendant Zions Bancorporation, N.A. (“Zions” or “Defendant”). The motion seeks to compel PBM (pharmacy benefit manager) discovery from Plaintiff LifeScan, Inc. (“LifeScan” or “Plaintiff”).

Specifically, Zions moves for entry of an order compelling Lifescan to:

1. Designate certain individuals as additional document custodians;

2. Search the repositories of these custodians for all discoverable, non-privileged documents, communications and information;

3. Produce these documents, communications and information; and

4. Fashion a new discovery certification detailing its search efforts based on the new custodians.

In analyzing this motion, the Special Master has reviewed these items:

1. Zions’ brief and exhibits in support of its motion;

2. LifeScan's memorandum of law and exhibits in opposition;

3. Zions’ reply;

4. LifeScan's supplemental submission of April 24, 2023.

For the reasons to be set forth below, the Special Master finds that Zions’ motion should be GRANTED.

I. Procedural History and Statement of Facts

The Special Master will only address pertinent procedural and factual events which form the basis of this motion since the litigants are fully familiar with the facts and issues upon which this litigation rests.

This is a coordinated, but not consolidated, lawsuit filed on behalf of LifeScan, and Roche Diagnostics Corporation and Roche Diabetes Care, Inc. (collectively, “Roche”). LifeScan and Roche manufacture diabetic test strips (“DTS”). Plaintiffs charge that a now defunct entity known as Alliance Medical Holdings, LLC (“Alliance”) schemed to sell non-retail DTS to diabetic patients, but were reimbursed by pharmacy benefit managers (“PBMs”) for sales of retail DTS, substantially profiting from the difference. Plaintiffs contend that, as retail DTS manufacturers, they reimbursed the PBMs for rebates paid out to pharmacies to Plaintiffs’ financial detriment. Essentially, Alliance did this through a series of covertly-held pharmacies and distributors, which the parties generally refer to as “Alliance-affiliated entities.” Plaintiffs charge that Zions, a bank, willingly participated in and effectively funded this wide-ranging scheme. Zions, on the other hand, which had a lending relationship with Alliance, counters that it was an innocent victim of this scheme, and that it suffered a $29 million loss when Alliance filed for bankruptcy.

The Special Master has managed discovery during which a series of disputes have arisen, followed by motion practice. On July 21, 2022, as a consequence of one of those disputes, the Special Master entered an order which, among other things, denied Zions’ application to designate additional document custodians, perform reasonably adequate searches for records and to produce all relevant and discoverable materials derived from that search. Specifically, the Special Master found that Zions had failed to meet its burden to demonstrate LifeScan had designated inadequate custodians and that the Special Master was not in position to second guess that company's choice of custodians. (ECF 578.)

*2 Zions then – and now – contends that LifeScan has produced a dearth of discovery as to communications with PBMs concerning overpayment of rebates arising from the Alliance fraud. The crux of Zions’ argument has been that LifeScan designated inappropriate records custodians thereby severely limiting the amount of discovery produced related to PBMs.

However, as a result of ongoing discovery, Zions now claims that a recent production has disclosed a document – a PowerPoint presentation – which constitutes a proverbial “smoking gun,” thereby undermining LifeScan's position that it has produced all relevant communications with PBMs. Consequently, Zions now moves for the entry of an order seeking the relief described above.

II. Zions’ Argument

To support its position here, and to stress the significance of PBM discovery, Zions points to certain facts at the heart of Plaintiffs’ allegations. Zions states that the crux of the Alliance fraud centers on the fact that Alliance was able to “work an arbitrage.” It did so by purchasing DTS at a lower price in one market and then selling them at a higher price in another market (profiting from the differential). LifeScan priced the two types of DTS differently (retail v. non-retail). For example, it would charge a higher sticker price for retail DTS reimbursed by PBMs, but would then offset the higher price by paying rebates directly to its PBM customers. However, neither LifeScan nor Roche have asserted any claims against PBMs, and instead seek damages only from Alliance's investors and lenders, including Zions. Accordingly, says the bank, the transactions and communications between LifeScan and the PBMs are essential to this lawsuit.

Zions’ efforts, however, to obtain discovery as to communications between LifeScan and its PBM “partners” has been unduly hampered by the fact that LifeScan has designated only a limited number of document custodians who may have relevant communications. When the prior motion was argued, LifeScan represented that it was unaware of anyone outside of its Brand Protection Team who communicated with PBMs.[1] In part, as a result of this representation, the Special Master denied the application as to PBM discovery. Now, says Zions, a smoking gun has been uncovered.

On October 20, 2022, Plaintiff came forth with a production that included multiple internal documents revealing LifeScan and its parent company, Johnson & Johnson (“J&J”), had communications with PBMs about Alliance's business practices, including in person meetings involving PBM representatives. LifeScan created a “PBM project team” targeting the type of business practices engaged in by Alliance. The presentation also disclosed that LifeScan employees knew of and were engaged in efforts to stop “gray market”[2] diversion and reimbursement fraud which had been occurring. Moreover, there had been ongoing communications between LifeScan and PBMs about this issue. By 2016, LifeScan had paid more than $23 million in rebates for “untraced” pharmacy sales.

Additionally, Zions says that the presentation was in large part about Alliance and included an entire page devoted solely to the actions of Alliance-associated pharmacies that had submitted claims for tens of millions of DTS. The presentation explicitly states that its final project objectives prioritized stopping claims coming through to PBMs from gray market pharmacies, to prevent further rebate payments, and to recover historical rebates from PBMs for claims submitted by these pharmacies. In short, LifeScan intended to stop future and to recoup past rebates.

*3 The presentation also identified individuals who comprised the “core” and “extended” project team, approximately seventeen employees. Zions argues that the “sheer number” of team members who were not previously designated as custodians, demonstrates that LifeScan's search strategy was “threadbare” and serves as a measure of the volume of relevant discovery, including PBM discovery, withheld.

In addition to the presentation, LifeScan also produced new emails from a key employee and records custodian, Donna Anderson, whose files were previously said to have been complete. The emails reflect that Anderson provided a “diversion database” to LifeScan employees advising that rebates would be withheld because of Alliance's practices. The attached database also revealed that LifeScan prioritized rebate recoveries from PBMs and communicated with them on that issue.

As was the case when the prior motion was filed, Zions concedes that it bears the burden of showing LifeScan either withheld relevant documents or failed to conduct a reasonable search. Winn-Dixie Stores, Inc. v. E. Mushroom Mktg. Coop., No. 15-6480, 2020 WL 3498161 at *2 (E.D. Pa. June 29, 2020). Moreover, to justify an order compelling a responding party to search records of additional custodians, the requesting party must demonstrate that the additional request for custodians would provide unique relevant information not already obtained. Enslin v. Cocoa-Cola Co., No. 14-06476, 2016 WL 7013508 at *3 (E.D. Pa. May 13, 2016).

Defendant asserts that based on this supplemental production, the circumstances have changed and Zions has now met its burden. The presentation, as well as the emails, confirm that LifeScan had communicated with PBMs, as early as 2016, about fraudulent rebates, knew that PBMs had terminated pharmacies, had established processes with each PBM in order to identify rebate reversals to recoup overpayments, and, in one year alone (2016), LifeScan issued $23 million in rebates to PBMs. All of this establishes that LifeScan must have had extensive communications with PBMs including communications concerning Alliance's business practices. Nevertheless, except for a small number of documents, LifeScan has failed to search for relevant materials in any systematic way. Accordingly, Zions asks for entry of an order designating these new custodians and compelling production of PBM discovery from LifeScan.

III. Plaintiff's Argument

In opposing this motion, LifeScan argues that this is the third motion Zions has filed in an effort to compel PBM discovery. The crux of Plaintiff's argument is that the PowerPoint presentation is anything but a smoking gun, and its existence fails to demonstrate that LifeScan's custodial designations are inadequate. This argument is principally based on the proposition that the presentation was created after Alliance had ceased defrauding LifeScan and after the time period that “both LifeScan and Zions have used for document production in this case.” LifeScan maintains that it has repeatedly certified that all relevant custodians have been identified.

As to the presentation, LifeScan emphasizes that it addresses DTS diversion and adjudication fraud as problems faced by LifeScan for which a “project team” from several departments was created to identify objectives, stop diversion and adjudication fraud, and track progress toward that goal. Zions admits that the presentation produced by that team was outside of the timeframe LifeScan deems relevant in this case, meaning beyond the date of April 7, 2017. LifeScan emphasizes that both parties “with limited exceptions” have adhered to that cutoff date, which is not an artificial date, but rather, represents the date Alliance filed for bankruptcy, ceased its operations, and ceased submitting fraudulent claims for LifeScan test strips. Not only was this an agreed upon cutoff, but a reasonable way to control voluminous document discovery. Given this, the future communications Zions believes followed “would be irrelevant to LifeScan's knowledge of Alliance's fraud.”

*4 In a supplemental submission, LifeScan asserts that Zions had made a “recent admission” that April 7, 2017, is the presumptive cut-off date for relevant discovery. That admission was in the form of Zions’ answers to interrogatories served by Roche. In those responses, Zions objects to interrogatories in part because they seek information that postdates Alliance's filing for bankruptcy, which demonstrates that both parties have acted in reliance on this date. Accordingly, Zions should not be permitted to take a position when seeking discovery that is diametrically opposed to its position when responding to discovery requests.[3]

LifeScan goes on to state that contrary to Zions’ argument, nothing in the presentation references communications between that company and PBMs going back to 2016. There is no reference to that year within the presentation. Although one slide references “[c]ontinuous discussions” with PBMs, LifeScan says that this was an “in process” item for which there is no indication when the discussions began or who was involved. Similarly, LifeScan says that Zions has misconstrued the fourth bullet point on slide 3, which references an “[o]ngoing process established with each PBM.” Instead, this process was an objective and the slide does not state such a process had been established when the fraud was operational.

LifeScan asserts that even if the presentation was within the relevant timeframe, the existence of the presentation does not justify the addition of 17 LifeScan and J&J employees as custodians. Alliance was not the subject of the project or its sole focus and is merely referenced as “background” for the larger project, which was not specific to Alliance. In other words, the presentation addresses DTS diversion and adjudication fraud from multiple sources. Hence, Zions is not entitled to broad discovery into anti-diversion operations implemented after the fraud and unrelated to Alliance. Zions’ request would vastly expand the number of custodians and increase costs at a point in time near the close of fact discovery.

Furthermore, the fact that LifeScan created a team to address this ongoing problem in the wake of the Alliance fraud does not mean every member should be considered a custodian and the fact that an individual may have some connection to the event at issue does not require that individual to be designated as a custodian.

Finally, even if LifeScan's ongoing efforts to recoup rebates from PBMs remains relevant to damages, Plaintiff says that it has already produced “the relevant documents on the very issue that post-dates the April 7, 2017 cutoff date.” (LifeScan's Brief in Opposition to the Motion, pg. 17, n.5.)

As to other items Zions identifies (principally emails and written communications), LifeScan maintains that these items do not evidence the need for additional custodians. For example, additional documents from Donna Anderson (the “Anderson Documents”) were appropriately produced in response to the Special Master's Order of July 2022 as to subjects not previously included in the search parameters. The Anderson Documents merely show that this employee, who has been identified as a custodian, was the “hub” for diversion investigation. At best, this demonstrates that Anderson – but not each person with whom she exchanged emails – is an appropriate custodian. Similarly, LifeScan's documents as to the “Know Your Source” campaign (“fraud alert” letters as to test strip diversion) were in the possession of Lisa Smiley, another custodian, and they make no mention of Alliance.

*5 Citing the Special Master's prior order and the cases cited therein, LifeScan maintains that Zions has failed to meet its heavy burden to demonstrate that the custodial choices were deficient and has failed to overcome the presumption that the responding party (LifeScan) is in the best position to choose its custodians. There is no proof that LifeScan withheld relevant documents or failed to conduct a reasonable search and nothing to support the proposition that any newly designated custodians would provide unique, relevant information not already obtained.

IV. Zions’ Reply

In reply, Zions stresses that the June 8, 2017, PowerPoint presentation remains a smoking gun and the fulcrum upon which this motion rests. This slide presentation produced in October 2022 demonstrates that the “PBM project team” is made up of critical custodians whose records have not been searched nor produced. The team consisted of seventeen members with distinct responsibilities as to rebate recoupment efforts from the identified pharmacies including those associated with Alliance.

This new information was unavailable when the Special Master previously ruled on this custodial search issue. New searches, Zions maintains, would demonstrate: (1) LifeScan's knowledge of fraudulent billing; (2) the arbitrage practice carried out by Alliance; (3) LifeScan's failure to mitigate damages; and (4) LifeScan's failure to investigate or correct measures in responses to the wrongs alleged in its pleading.

Briefly stated, Zions also stresses the following points:

• LifeScan has conceded that PBM discovery is relevant and indeed its relevance is clear from the title of the team itself and the individual titles of its members.

• Zions’ motion was prompted by the production of the PowerPoint, not motivated by an interest to cause delay or drive up costs since the newly produced PowerPoint “alters the landscape of relevant, discoverable, custodial data.”

• In response to LifeScan's argument that the presentation was created after Alliance ceased defrauding the company, and therefore falls outside the time period that the litigants used for document production, Zions stresses that it is entitled “leadership update” and that a fair reading references unproduced discovery which precedes June 8, 2017. Therefore, there is nothing about the PowerPoint that indicates that the communications with PBMs were confined to April-June 2017 only. Discovery as to recoupments and mitigation efforts after the April 7, 2017 “cutoff” or even after the PowerPoint date, would relate to Zions’ defenses to claimed damages.

• As to LifeScan's argument that the search of seventeen custodians is a disproportional burden, Zions counters by saying that the size of the team should not deprive Zions of relevant data, but instead reveals the magnitude of relevant PBM discovery withheld thus far.

• LifeScan fails to propose an alternative to the number of custodians while Zions proposes (as a preliminary measure) that searches should be performed as to the “core team” members and two others whose titles reference interactions with PBMs – a total of eight individuals.

• Discovery on fraudulent reimbursement practices by entities other than Alliance is still relevant “as it pertains to LifeScan's notice and knowledge” of the same Alliance practice at issue, meaning it should have known Alliance was engaging in those practices as well.

• Finally, Zions maintains that a logical interpretation of the presentation would only lead to the conclusion that efforts to address gray market diversion were already in motion and points to various items (slides) within the presentation to establish that there had been an existing, ongoing process prior to June 2017 which included, but was not limited to, addressing the Alliance fraud.

*6 (See Zions’ Reply Br., at pp. 11-15.)

V. Review of Exhibits Submitted by Zions

The Special Master has reviewed the exhibits submitted by Zions in support of its motion. As noted, Zions maintains that the contents of these documents and communications are crucial to the outcome of this motion, constituting a “smoking gun,” which now demonstrates the existence of discovery sufficient to compel LifeScan to designate new records custodians and perform related searches.

What follows is a summary of what the Special Master finds to be of import to this motion contained within the documents Zions has submitted.

The exhibits include two certifications signed by Dan Anderson, LifeScan's chief information security officer. Those certifications had been submitted in conjunction with prior motions. Among other things, Anderson's certifications contain the following information:

1. That three LifeScan employees (Donna Anderson, Lisa Smiley and Susan Liu) were selected as custodians because they were individuals responsible for investigations into NDC [National Drug Code] fraud involving the test strips as part of J&J's Brand Protection Team.

2. That “outside of the Brand Protection Team, LifeScan is unaware of other individual custodians likely to possess unique non-privileged documents concerning the fraudulent scheme described in the complaint in this action.”

In short, Anderson's certifications constituted a representation that all knowledgeable individuals associated with LifeScan have been identified as records custodians.

According to Zions, the key exhibit is a slide presentation created by LifeScan concerning an undertaking called the “PBM Project.” Judging from the slides’ content, this project appears to have been designed by LifeScan in an effort to recoup payments it had made to PBMs as a consequence of gray market diversion. This is a relatively extensive presentation (and it is unclear whether, in fact, LifeScan went ahead with the project), but on the surface it does contain information which supports Zions’ proposition that (a) there are other LifeScan employees who should be named as document custodians and (b) there may be more communications between LifeScan and PBMs that have not been produced.

What follows are seemingly significant statements set forth in the presentation:

• LifeScan paid more than $23 million in rebates in 2016 to PBMs “for claims made by pharmacies with no sales tracings.”

• Pharmacies and mail order companies were participating in “gray market diversion.”

• “Reimbursement fraud” was committed by dispensing white box, grey box, OUS [outside U.S.] or other product to patients, but submitting blue box NDC [National Drug Code] claims to the PBMs. This caused “negative profitability,” in other words, LifeScan's profits were lower as a result.

• The projects’ objectives included preventing further rebate payments caused by these claims, recovering historical rebates (also described as “rebate reversals”) from PBMs or withholding of future rebates for claims from identified pharmacies, and engaging in an “ongoing process” established with each PBM and to identify the reversals.

*7 • As to the project's then status, the completed tasks included the establishment of a “core team,” the development of customer “talking points,” the development of a target pharmacy list and “insights on terminated pharmacies PBM processes gathered.”

• The presentation includes a roster of project team members, seventeen individuals in all, which Zions says provides specific names as to the individuals who should be designated as records custodians. On pages 12 and 13, according to Zions, there is an extensive listing of Alliance-related pharmacies from which claims were submitted and rebates paid from 2009 to 2016. In other words, this particular document is specific to Alliance.

• Another slide is headlined by a statement that in 2014 independent pharmacies purchased $1.05 M of blue box (DTS) but submitted $2.36 M worth of blue box rebates in the same time period. Under the headline are shipment and rebate data for a number of pharmacies although none of them appear to be identified as Alliance related.

In addition to the presentation described above, Zions’ Exhibits C through H include emails, some with attachments, between and among LifeScan employees. One of the attachments, a “managed care-diversion update” dated September 25, 2015, includes a slide with findings to date that states, among other things, “out of the top 10, 50% of the volume is related to MedSource/Alliance and we are currently involved in litigation.”

VI. Legal Standard

The parties do not in any significant way disagree as to the legal principles upon which this motion must be decided. Indeed, these are the same legal principles upon which Zions’ previous motion seeking to designate appropriate custodians was based.

Briefly stated, once again, this motion implicates rules and case law as to electronically stored information (ESI). Fed. R. Civ. P. 34(a)(1)(A) states that a party may serve a request to produce any designated document or to produce ESI. Furthermore, a requesting party “is entitled to production of ESI as it is ordinarily maintained or in a form that is reasonably usable.” Fed. R. Civ. P. 34(b)(2)(A).

When a requesting party is dissatisfied with ESI discovery responses obtained through a custodial search, our courts have placed a noticeably heavy burden on the requesting party to demonstrate that the custodial choices, meaning the individuals or entities whose records were accessed, are deficient or lacking. Our courts have emphasized that the responding party has “the best knowledge as to how documents have been preserved and maintained” and consequently, it is the responding party who is “in the best position to determine the method by which [that party] will collect documents.” Ford Motor Co. v. Edgewood Properties, Inc., 257 F.R.D. 418, 427 (D.N.J. 2009). Put another way:

Generally, “[r]esponding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronically stored information.” The Sedona Conference, The Sedona Principles: Second Edition, Best Practices Recommendation & Principles for Addressing Electronic Document Production, at ii princ. 6 (2007), http://www.thesedonaconference.org. Absent agreement among the parties, then, the responding party is entitled to select the custodians most likely to possess responsive information and to search the files of those individuals. [Mortgage Resolution Servicing, LLC v. JP Morgan Chase Bank, N.A., No. 15-0293, 2017 WL 2305398, at *2 (S.D.N.Y. May 18, 2017).]

*8 As is the case here, when a moving party seeks to compel searches of additional custodians, our courts have stressed “the requesting party is second-guessing the responding party's representation that it conducted a reasonable inquiry for responsive information, and in either case [searching for ESI or paper documents], the burden appropriately lies with the requesting party to show that the responding party's search was inadequate.” Enslin, 2016 WL 7013508 at *3 (citing Scott C. v. Bethlehem Area Sch. Dist., No. 00-642, 2002 WL 32349817, at *1 (E.D. Pa. July 23, 2002)).

While significant deference is given to a responding party's choice of records custodians, there is nevertheless a window open to the requesting party to compel the designation of additional custodians and additional searches. While courts normally play no role in the search design, search tools, search terms or designation of custodians, court intervention may be appropriate when it is demonstrated that the choices of those items are “manifestly unreasonable” or when the requesting party “demonstrates that the resulting production is deficient.” See Mortgage Resolution Servicing, LLC, 2017 WL 2305398 at *2. The requesting party must show that the responding party “either withheld relevant documents or failed to conduct a reasonable search.” Winn-Dixie Stores, 2020 WL 3498161 at *2. Additionally, the requesting party must be able to articulate a basis for a court to find that ESI in the possession of these additional or newly designated custodians would be different from and not simply duplicative of, information that the responding party has already produced. Enslin, 2016 WL 7013508 at *1.

To summarize, as our courts have held, a party claiming that an adversary's custodial designations are inadequate or incomplete must overcome a presumption that the responding party is in the best position to choose its custodians and thereafter conduct searches of those custodians’ repositories. However, if the requesting party can meet its burden of showing that there was a serious deficiency in the choice of custodians, the search methods, or the resulting production, a court may step in and compel changes in the responding party's search mechanisms, including custodial designations.

VII. Analysis and Findings

While perhaps not a “smoking gun,” the creation and existence of LifeScan's “PBM project team” compels a re-evaluation of this issue. As the litigants are well-aware, and as is evident from reviewing other motions which have been filed in this matter, it certainly appears as if LifeScan has had a substantial, longstanding concern with DTS product diversion – not just by Alliance, but by other similarly-situated entities or, as Defendants describe in their opposition “test strip diversion and adjudication fraud [were] problems faced by LifeScan.” Certainly, LifeScan employees’ communications with PBMs as to this topic is broadly relevant to the issues in this lawsuit and LifeScan effectively concedes that this is the case. Despite this, LifeScan takes the position here that the presentation at issue fails to demonstrate that the company and its employees had been engaged in significant, ongoing communications with PBMs about this issue prior to June 2017, meaning several months after Alliance filed for bankruptcy in April of that year.

Nevertheless, the Special Master finds that Zions has made a convincing argument that the existence of the PBM project team and the contents of the PowerPoint presentation has significance that cannot be overlooked. At a minimum, Zions has demonstrated that LifeScan's “search strategy” may have been notably flawed. The Special Master also finds that to a certain degree, the parties’ June 2017 “cutoff” date is artificial as it relates to this issue. That is, a fair reading of the materials contained in the PowerPoint presentation does suggest that the LifeScan employees who had been assigned to the PBM project team, collected from different departments in the company, had been investigating this issue (meaning LifeScan's concerns with product diversion including diversion by Alliance) for some period of time prior to that date. Hence, Zions has made a meritorious, cogent argument that there is a legitimate likelihood that some of the newly identified project team members may possess relevant communications relating to PBMs and to Alliance.

*9 As set forth in Section V of this Order and Opinion, and as stressed by Zions in its supporting papers, the project team and its considerable number of members, certainly seems to have been in existence at and prior to June 2017. The team did not arise sua sponte in June 2017 and indeed it stands to reason that creating such an important team was a corporate exercise which took time to complete. Moreover, and as Zions also points out, the language employed in the presentation is not merely framed in terms of anticipated future actions and goals, but to a certain degree, framed in the past tense most notably the existence of terms such as “completed tasks,” “[c]ontinuous discussions,” [o]ngoing process” and “update.” Furthermore, the presence in the document of a listing of Alliance-related pharmacies from which claims were submitted and rebates paid over five years does demonstrate that this particular entity and its business practices were indeed ongoing problems for LifeScan and an exemplar of possible product diversion as to which LifeScan was concerned.

In summary, the Special Master concludes that Zions has made a sufficient showing that LifeScan's previous production is deficient and has articulated a basis for this court to find that there may exist ESI in the possession of additional custodians that is “unique,” meaning distinctly different from and not simply duplicative of information LifeScan has already produced. See Enslin, 2016 WL 7013508 at *1. While the resultant search may prove to be unfruitful, Zions has met its burden to compel such a search and to explore whether additional, relevant documentation in fact exists.

With this said, however, the discovery Zions seeks is not unlimited. The Special Master needs to take into consideration how time-consuming, costly and burdensome additional discovery would be to LifeScan. And as the parties undoubtedly know, when it comes to ESI discovery, it is difficult for a third party, such as this court, to gauge the time, costs and efforts that may be incurred as a result of a newly set of searches from a new set of designated custodians. However, Zions itself has put forth a rational proposition that the search could be initially limited to the eight “core” individuals identified in the presentation documents, a proposal that theoretically cuts the search process in half. The Special Master finds that this proposal is reasonable and it will be implemented here.

With that said, the Special Master hereby ORDERS the following relief:

1. LifeScan is directed to designate the eight (8) “core” individuals requested by Zions as additional document custodians;

2. LifeScan is directed to search the repositories of these custodians for all discoverable, non-privileged documents, communications and information, in accordance with the ESI protocol employed by the parties in this matter;

3. If such documents are found, they must be produced; and

4. Upon completion of this task and the production (if any) of these documents, communications and information, LifeScan shall submit a new discovery certification setting forth its search efforts as to the new custodians.

VIII. Conclusion

For the reasons and within the parameters set forth above, Defendant Zions’ motion to compel PBM discovery from LifeScan is GRANTED.

Footnotes

[1]

This was Johnson & Johnson's Brand Protection Team. When this suit was initiated, LifeScan was a division of Johnson & Johnson.

[2]

“Gray Market” is a term used to describe the existence of distribution channels not authorized by drug manufacturers.

[3]

The interrogatories cited by LifeScan inquire as to Zions’ knowledge of criminal investigations into Alliance. Each answer includes an objection which reads, in pertinent part, that the interrogatory “seeks information which exceeds the scope of discovery sought by LifeScan's prior requests, which contained an end-date selected by LifeScan (April 7, 2017), and reliance upon and in response to which Zions...searched for, retrieved, and produced all responsive non-privileged documents in its possession....”