The district court granted the defendants’ motion for sanctions against the government for violating discovery and schedule orders. The government identified thousands of additional kickbacks and claims in supplemental filings and expert reports submitted after the close of discovery. The district court found these submissions violated the discovery and schedule orders and were prejudicial to the defendants, who did not have time to analyze the additional claims. The government argued that it had dropped many other claims in the same reports, but the court noted this was the point of discovery and that the defendants were prejudiced by being required to review claims that had no merit. The court also agreed that some of the plaintiffs’ expert witnesses were not fully prepared to address areas of the defendants’ questioning. As sanctions, the court excluded all alleged false claims and kickbacks identified after the close of discovery and barred the government from introducing new testimony that could have been provided by the expert witnesses. The court also levied sanctions against the defendants, finding they had failed to take reasonable steps to preserve electronic communications stored on employees’ personal devices, despite being on notice.
In these proceedings, the parties brought four motions before the fact-discovery deadline. The defendants sought sanctions for what they alleged were the plaintiffs’ violations of various orders and failure to adequately prepare certain 30(b)(6) designees, as well as sanctions for the purported spoliation of information in a complaint hotline file maintained by the Department of Health and Human Services’ Office of Inspector General. The plaintiffs sought sanctions for the alleged spoliation of text messages, emails, and a file of restaurant receipts. The plaintiffs also asked the court to compel the defendants to review and produce certain records that are the source for information memorialized in Precision Lens’s general ledger.
In the underlying qui tam case, the government alleged that Cameron-Ehlen Group dba Precision Lens and its owner Paul Ehlen provided expensive meals, trips, and other improper remuneration to physicians to induce them to use Precision Lens products in their surgeries. Because the physicians billed Medicare after using these products, the improper remuneration implicated both the Anti-Kickback Statute and False Claims Act.
The court addressed each motion in turn, starting with the defendant’s motion for sanctions. First, contrary to court order, the government identified thousands of new allegedly false claims after the close of discovery and in conjunction with its expert report on December 30, 2019. Because these new claims were served in in violation of the court’s orders and prejudice the defendants, the court directed they be excluded.
The court noted the issue was subject to some contention. The defendants asked the government to identify all the alleged false claims and all alleged instances of kickbacks. The government initially objected to the request, arguing that the information was not fact discovery, but the province of expert reports, and later appealed the court’s order to comply with the request. During its appeal, the government nonetheless provided a working list of kickbacks and identified the period of tainted claims it contended stemmed from each kickback.
Prior to the fact discovery deadline, the government also identified the Medicare claims it contended were false. However, the government also stated that it might identify additional claims to be added or removed as discovery continued. The government also sought to extend the fact discovery deadline. Eventually, the government identified 27,316 new claims and additional kickbacks on November 7, 2019. In December, the government again served an updated list of kickbacks and altered the timeframe of the alleged period of tainted claims. The government also provided an expert report that discussed claims that were not previously identified.
In August 2019, the defendants identified several topics for potential questioning in one of the government’s organizational depositions, including how the government matched each alleged false claim to the defendants and how the government determined how each false claim derived from an alleged kickback. After the parties failed to reach an accord on the issue, the court ordered the government to produce a witness on two topics, and ordered the defendants to provide a list of 25 representative claims for the designees to address. Nonetheless, the parties continued to disagree on the proper scope of the depositions.
The deposition of witness Ian Dew on the topic of matching the claims to the defendants occurred on October 8, 2019, before the government identified the additional 27,000 claims, so the defendants were unable to question Dew on the topic. The court then ordered a supplemental deposition, for which the government provided a new witness who addressed the additional 27,000 claims. However, while this witness adequately answered questions about the 25 representative claims, she answered only general questions about the 27,000 additional claims. The witness could not answer questions about many relevant topics and in some instances was instructed by the government not to answer.
The government also designated as expert witnesses several employees from CMS contractors, who were asked to address how CMS receives and stores claims data and how it determines claims are eligible for payment. These witnesses also answered questions with varying degrees of specificity, depending on the topic. While they could answer questions about the 25 representative claims and the general claims process, they could not address questions about data storage, other contractors’ processes, or Medicare Part B claims.
The court agreed the government violated its order by disclosing new claims and kickbacks with their December 2019 expert report, two months after the deadline. The court found the plaintiffs violated the scheduling order and the discovery order. The court was not convinced by the government’s argument that identifying the additional claims was in concert with the duty to supplement. That duty requires a party to supplement a response they find it incomplete or incorrect, the court explained. It does not bestow an unfettered freedom to rely on supplements after a court-imposed deadline.
The court noted the government had begun investigating the alleged fraud in 2013 and that its claims stopped accruing in 2015. Therefore, an October 31, 2019, deadline for the government to identify its claims was reasonable, and the court held its failure to do so would not prejudice the defendants. Further, while the government asserted that some claims arose from discovery, most were the product of the ongoing investigation. The plaintiffs also did not differentiate which claims they attributed to discovery production.
The court also found the violation of the scheduling and discovery orders prejudiced the defendants. The addition of new claims and expansion of the fraud timeline limited the defendants’ ability to assess the alleged kickbacks and claims. Further, the government added nearly $1 million in alleged false claims involving an unnamed physician, significantly adding to the potential liability. The government argued “that’s just how litigation works,” but the court explained that discovery is intended to narrow issues, eliminate surprise, and achieve justice.
The government argued the defendants were not prejudiced because the December 2019 expert report eliminated some alleged false claims that had been included on the initial list. However, the court held the government could not take credit for dropping claims that were not demonstrably false when that result was precisely the point of fact discovery. Further, the defendants still face new liability on claims they had no chance to analyze, when instead they spent time investigating claims the government had no reason to bring. As sanctions, the defendants asked the court to exclude all alleged false claims and kickbacks identified after November 7, 2019. While harsh, the court agreed this sanction was appropriate.
The defendants also argued the plaintiffs should be sanctioned for failing to provide adequate expert witnesses, arguing that their inadequate preparation was tantamount to a failure to appear. After reviewing the transcripts, the court found the responses were not so inadequate as to be meaningless, as even the best prepared witness may not be able to answer every question with specificity. However, the court found the designees were unable to answer questions in two particular areas, which demonstrated inadequate preparation. First, the government’s designee for the supplemental deposition regarding the 27,000 claims was wholly unprepared to answer general questions about the claims matching process. Second, neither contractor designee could meaningfully answer questions about how Medicare claims are reviewed for medical necessity, beyond coding observations.
The defendants sought two sanctions: 1) the exclusion of evidence regarding any alleged false claims and kickbacks identified after September 3, 2019, and 2) the exclusion of any testimony or evidence at trial regarding certain topics that were part of the contractor depositions beyond what the designees testified to.
The court found those sanctions too harsh, given its conclusion that all three designees were generally prepared and made good faith attempts to answer the defendants’ questions. Instead, the court directed that: 1) the plaintiffs are bound by the government designees’ answers regarding the claims matching process for the approximately 27,000 claims identified on November 7, 2019, and 2) they may not introduce new testimony or evidence to contest medical necessity for allegedly false claims submitted to CMS.
Next, both sides sought sanctions for the other’s purported spoliation of evidence. First, the defendants claimed the government failed to preserve certain records that should have been in a digital file maintained by the Office of Inspector General. However, the court found the defendants failed to show that the government destroyed, or even failed to retain, the alleged records at issue. The defendants alleged that records of relevant hotline complaints did not contain information and documents they expected to find. However, without further evidence, the court could not assume the documents existed in the first place or that the plaintiffs destroyed them or allowed them to be destroyed.
In their spoliation motion, the plaintiffs accused the defendants of destroying or failing to preserve three sources of potential evidence: 1) text messages to and from Precision Lens employees; 2) Paul Ehlen’s personal Comcast email account; and 3) a file of receipts from a restaurant. The court considered each in turn.
The court found the defendants had not preserved the text messages among Precision Lens employees, despite a litigation hold notice to six record custodians in 2013. The notice directed the defendants to preserve all records, including electronic materials. In 2014, an administrative subpoena followed, which specifically called out communications stored on phones or other personal devices.
Nonetheless, the defendants did not take steps to preserve all communications, specifically text messages on employee cell phones, despite knowing the government’s complaint involved the Anti-Kickback Statute and that the communications of and between Ehlen and key physicians were likely to be queried. While Precision Lens did not provide phones to their employees, it reimbursed those who used personal devices for work, and the defendants engaged in regular communications by text. Notably, the text messages on Precision Lens owner Paul Ehlen’s phone were lost when his phone was damaged and had to be replaced.
The defendants argued they took steps to preserve digital records generally and asserted as a mitigating factor the sheer amount of time that passed between the start of the investigation and the government’s intervention. However, the court noted they did not take simple, inexpensive steps, such as asking individual employees to preserve their messages or remind employees to keep their old devices when upgrading. Further, the court noted the lengthy gaps between the litigation holds issued by the defendants.
Because many of the communications were sent via personal devices, the court found most could not be recovered or restored. The court also found the government presented enough evidence to imply that at least some of the text messages were responsive and that the plaintiffs were prejudiced. However, the court did not find the defendants intentionally destroyed or failed to preserve the documents. The court did not find a deliberate act, such as wiping or discarding phones. At most, the court found negligence or carelessness.
As sanctions, the court entered a judicial finding that the defendants failed to take reasonable steps to preserve text messages, and that responsive messages were lost as a result. Second, the court ordered the defendants to produce all text messages they have or can obtain from employees or contractors that are relevant to the current litigation, irrespective of time period or custodian. Although these messages cannot directly demonstrate the defendants’ behavior during the relevant time period for this litigation, the court reasoned they may help the plaintiffs fill in gaps and are a reasonable, though imperfect, replacement. The court declined to award attorneys fees.
The government also sought sanctions for a failure to preserve communications in Ehlen’s personal email account. Although the government had accessed some emails in this account, Ehlen maintained that he used the account rarely and that it had been deactivated in 2015. When Ehlen contacted the service provider, he was told the account’s contents were not recoverable. The court found the government had not shown the defendants’ actions were unreasonable or that the discontinuation of the email account was intentional. The court also noted the government had not shown that emails sent from the account could not be found elsewhere, in the senders’ or recipients’ accounts, including Precision Lens accounts. Absent a showing of prejudice, the court declined to award sanctions.
The government also alleged the defendants failed to preserve receipts from a local restaurant, where the defendants met to discuss business. However, the court found the government had not shown that any file existed in which the defendants maintained these receipts or that the loss of these receipts prejudiced the plaintiffs. Further, the court again found the government had not shown any prejudice from a failure to preserve these documents. The court noted the defendants provided a general ledger documenting all expenditure at the restaurant and that the restaurant had provided receipts for some of the meals. The government argued that the receipts given to the defendants would show additional details, but the court found that information about specific meal orders was not so compelling that the government could not do without it.
The government argued that the receipts could show who attended the dinners, but the court found it more likely the government would find this information in the defendants’ calendars. Because the court found no prejudice to the plaintiffs, it also denied to levy sanctions here.
Finally, the court considered the plaintiffs’ motion to compel employee expense reports and other source documents, such as credit card statements. During discovery, the sought any documents regarding remunerations to physicians and other referral sources, including any supporting documentation from the defendants’ tax returns and financial statements relating in any way to the treatment of any remuneration provided to any physician or other referral source.
The court noted the defendants had already produced more than 90,000 documents over the course of six years, with the court’s input regarding appropriate search terms.
The court found the plaintiffs showed the defendants had missed at least some responsive documents in their production, but had not shown this imperfect production is so great that the defendants had fallen short of their discovery obligations. The court noted it had already weighed in on the process and that it was satisfied the process was proportional to the plaintiffs’ needs in the case. The court found this request extremely burdensome on the defendants while offering only a limited benefit, particularly where some documents may simply not exist.
