IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA (ATLANTA DIVISION)

Transcription

1 Case 1:10-cv AT Document Filed 03/20/14 Page 1 of 19 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA (ATLANTA DIVISION) UNITED STATES OF AMERICA, ex rel. SALDIVAR : Plaintiff, : v. : Civil Action No. 1:10-cv AT FRESENIUS MEDICAL CARE : HOLDINGS, INC. : Defendant....oOo... PLAINTIFF/RELATOR S MEMORANDUM IN SUPPORT OF MOTION FOR SANCTIONS The Plaintiff/Relator respectfully requests that the Court award sanctions against the Defendant under Federal Rule of Civil Procedure 26(g)(1) for failing to produce discovery as required by that rule, and in support thereof, states as follows: STATEMENT OF FACTS On August 17, 2012, the Relator served its Second Request for Production of Documents on the Defendant. Request No. 1 sought all documents referring to the method for calculating the Average Sales Price for dialysis drugs. See Defendant s Responses to Relator s Second Request for Production of Documents, dated September 17, 2012, attached hereto as Exhibit 1 at p. 3. On September 17,

2 Case 1:10-cv AT Document Filed 03/20/14 Page 2 of , the Defendant responded to that request certifying that it had already produced all relevant documents. Id. Based upon these assurances, the Relator conducted depositions of Ronald Castle, Fresenius Deputy General Counsel, Robert McGorty, Fresenius Senior Vice President for Finance, and Todd Kerr, Fresenius former Chief Compliance Officer, among others, in September and October, Each of these witnesses denied having any knowledge of how Average Sales Price was calculated. Fresenius Deputy Counsel Ronald Castle testified that I don t know that I knew or that we [Fresenius] knew exactly [how ASP was calculated] but I believe it includes information from manufacturers. Castle Dep., October 24, 2012, at pp , see also pp , attached hereto as Exhibit 2. Similarly, Robert McGorty, Fresenius Senior Vice President for Finance at Fresenius, said flatly that I really don t know how the government calculates ASP. McGorty Dep., October 24, 2012 at pp. 11; 50, attached hereto as Exhibit 3. Todd Kerr, Fresenius former Chief Compliance Officer testified that he did not recall ever having been asked to consider questions relating to ASP as a compliance issue. Kerr Dep., September 27, 2012 at pp ; 34, attached hereto as Exhibit 4. On October 3, 2012, the Court issued an order staying discovery in this case pending preliminary motions for partial summary judgment addressing the 2

3 Case 1:10-cv AT Document Filed 03/20/14 Page 3 of 19 threshold issue whether Medicare prohibited billing for overfill. On December 4, 2012, the Relator filed a Motion for Partial Summary Judgment on that issue. (Docket No. 93) On January 7, 2013 Fresenius filed a Motion for Summary Judgement on all of the issues in the case, including intent. (Docket No. 100). The Relator s Motion for Partial Summary Judgment was granted on September 17, Fresenius Motion for Summary Judgment was denied. (Docket No. 144). On June 21, 2013, while the motions for summary judgment were pending, undersigned counsel entered her appearance in U.S. ex rel. George v. Fresenius Medical Care (Case No. 2:12-cv-877-AKK N.D.Ala.). In that case, Fresenius is charged, inter alia, with submitting false claims for Venofer wastage that was actually administered to other patients, that is, billing Medicare for the same drug twice. During research for that case, Relator s counsel learned that Fresenius actually had ASP reporting responsibilities for Venofer, an ESRD drug. Fresenius assumed those responsibilities in July 2008 when it acquired the U.S. license to distribute that drug. See In the Matter of Fresenius Medical Care AG & Co., KgaA and Daiichi Sankyo Company Ltd, Decision and Order of the Federal Trade Commission attached hereto as Exhibit 5. On August 8, 2012 immediately after undersigned counsel learned that 3

4 Case 1:10-cv AT Document Filed 03/20/14 Page 4 of 19 Fresenius had reporting responsibilities with respect to Venofer, she ed Fresenius lead counsel, James Bennett, Esq. to find out why documents relating to Fresenius ASP reporting for Venofer had not been produced in the instant case, and requesting that they be produced. See August 8, from Jamie M. Bennett, Esq. to James Bennett, Esq., attached hereto as Exhibit 6. Mr. Bennett responded on August 13, 2013 that the documents were irrelevant because they involved a different drug, and refused to produce the documents in any case because discovery in this case was stayed. Letter from James Bennett, Esq. to Jamie Bennett, Esq., dated August 13, 2013, attached hereto as Exhibit 7. 1 The Relator brought Fresenius deficient production to the Court s attention promptly, filing a motion to lift the stay to permit production of these documents on August 13, (Docket No. 139) Relator s counsel believed the fact that Fresenius not only fully understood how CMS calculated ASP, but itself calculated ASP, would have considerably aided the Court s determination of the issue before it on the summary judgement motions. Fresenius finally produced the documents relating to ASP in November, 2013 after the Court lifted the stay of discovery in October, 2013 and only after 1 Mr. Bennett also, oddly, blamed the fact that the documents had not been produced on Relator s counsel s failure to find out in a more timely manner that Fresenius had failed to produce the documents. 4

5 Case 1:10-cv AT Document Filed 03/20/14 Page 5 of 19 the Relator s counsel threatened to seek court intervention. Those documents clearly show that Fresenius witnesses lied when they denied knowing how ASP was calculated. For example, a May 8, that circulated both to Bob McGorty and David Kembel, forwarded an HHS OIG report entitled Calculation of Volume Weighted Average Sales Price for Medicare Part B Prescription Drugs, which had appeared in February, That references an [a]ttached is a pdf from HHS OIG regarding what they deem the correct way to calculate the ASP dated May 8, 2006 from Marc Moreau to Robert McGorty, et al., attached hereto as Exhibit 8. The documents further revealed that Mr. McGorty Fresenius Senior Vice President for Finance the same Bob McGorty who had denied knowing how ASP was calculated in his October 2012 deposition authored an in 2008 describing, in detail, how his calculations of Fresenius cost for drugs differed from how CMS calculated ASP. The July from McGorty makes clear that McGorty s calculations of drug costs includes discounts and rebates earned [on drug purchases] based on the accounting period that they were earned, which differs from how the government calculates ASP, where they look at rebates 2 The attached report says clearly that ASP is calculated based upon units sold, and that the unit of a drug is the labeled amount of the drug represented by each NDC [National Drug Code], excluding overfill. 5

6 Case 1:10-cv AT Document Filed 03/20/14 Page 6 of 19 based on the period paid, not earned. (emphasis added) McGorty notes that his calculations are based on units purchased in the quarter [which] is simply the number of vials purchased times the number of units in the vial, as reported on the vial label, the exact same methodology used by CMS in calculating ASP. dated July 17, 2008 from Robert McGorty to Ellen Rice, attached hereto as Exhibit 9. The documents also revealed, of course, that since 2008, Fresenius itself has reported ASP for the separately billable ESRD drug Venofer, and that data excluded overfill. Fresenius internal ASP Compliance Policy, which was adopted in 2008, recognizes that [t]he ASP calculation is performed at the package level, characterized by an 11-digit NDC number... Fresenius ASP Compliance Policy, attached hereto as Exhibit 10. The NDC number refers to the labeled amount of drugs in a vial or package. Id. Fresenius internal policy thus tracks the statute and regulations as well as this Court s decision, excluding overfill as a part of the cost of the drug to the provider. Id. This Compliance Policy was adopted while Todd Kerr who denied having ever considered ASP as a compliance matter in his September, 2012 deposition was Chief Compliance Officer at Fresenius, and the policy bears his name. Not only that, but on November 11, 2005 Mr. Kerr was copied on an from David Kembel forwarding advice from Fresenius 6

7 Case 1:10-cv AT Document Filed 03/20/14 Page 7 of 19 outside counsel cautioning Fresenius that Trailblazers, a major Medicare contractor, believed overfill billing was prohibited because overfill was excluded from calculations of Average Sales Price. dated November 1, 2005 from David Kembel to Todd Kerr, et al., attached hereto as Exhibit 11. Relator s counsel was, of course, unable to cross-examine Fresenius witnesses at their depositions with the documents mentioned above because the Defendant declined to produce documents relating to its knowledge of how ASP was calculated despite an explicit request from the Relator to do so in August All of the evidence supports a conclusion that Fresenius failure to disclose these documents was willful. A review of Fresenius production as of October 2012, when the depositions described above were taken, makes clear that Fresenius simply chose to only produce documents that addressed overfill billing prior to the implementation of ASP reimbursement in CY Fresenius production effectively ends on the date that ASP was implemented, with the exception of documents that Fresenius believes are exculpatory. Fresenius deliberately allowed the depositions and summary judgment motions to go forward on an incomplete record, hiding its knowledge about how ASP was calculated from the Court. Fresenius deliberate failure to produce relevant documents merits sanctions. 7

8 Case 1:10-cv AT Document Filed 03/20/14 Page 8 of 19 ARGUMENT By failing to produce documents in response to a direct request, Fresenius unequivocally violated Rule 26(g)(1). Pursuant to that rule a signing attorney certifies that discovery responses are complete and correct to the best of his knowledge, information and belief after a reasonable inquiry. There are only two explanations for Fresenius failure to produce these documents. One is that Fresenius counsel, Mr. Bennett, failed to take reasonable steps to comply with this obligation by making the appropriate inquiries, ensuring that all discoverable information would be produced. The other is that Fresenius deliberately concealed unquestionably relevant information from Mr. Bennett. In either case sanctions are appropriate under Rule 26(g)(1). Sanctions are clearly warranted against Fresenius itself, for willfully withholding documents. There is no question that Fresenius witnesses deliberately tried to conceal from the Relator evidence that Fresenius knew exactly how ASP was calculated and, accordingly, also knew what those calculations meant in terms of whether overfill billing was permitted. Rule 26(g)(1) requires an attorney of record to sign every discovery request, response or objection. By signing, an attorney certifies that to the best of his knowledge, information and belief formed after a reasonable inquiry that a 8

9 Case 1:10-cv AT Document Filed 03/20/14 Page 9 of 19 discovery request, response or objection is: (i) consistent with these rules and warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law; (ii) not interposed by any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and (iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at state in the action. FED.R.CIV.P. 26(g)(1)(B). The comments to subsection (g)(1) clarify that Rule 26(g) broadly imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37. FED.R.CIV.P. 26(g) advisory committee s note. This broad duty is satisfied when an attorney makes a reasonable inquiry into the factual basis of his response, request, or objection. Id. Specifically, the attorney s investigation and conclusions drawn therefrom must be reasonable under the circumstances. Id. E.g. In re Delta/Airtran Baggage Fee Antitrust Litigation, 846 F.Supp. 2d 1335, (N.D.Ga. 2012) With respect to the type of sanctions, subsection (g)(3) provides that If a certification violates this rule without substantial justification, the court, on motion or on its own, must impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both. The sanction may include an order to pay the reasonable expenses, including attorney s fees, 9

10 Case 1:10-cv AT Document Filed 03/20/14 Page 10 of 19 caused by the violation. Through this subsection, Rule 26(g) curb[s] discovery abuse by explicitly encouraging the imposition of sanctions. Malautea v. Suzuki Motor Co., 987 F.2d 1536, 1545 (11 th Cir. 1993) (quoting FED.R.CIV.P. 26(g) advisory committee s note). As the Eleventh Circuit held in Malautea: Rule 26(g) makes the imposition of an appropriate sanction mandatory if a discovery request, response, or objection is interposed for an improper purpose. In this case, the defendant s discovery responses and objections were interposed for the improper purposes of caus[ing] unnecessary delay, [increasing] the cost of litigation for the Plaintiff, and [causing] the time for discovery to end before the Plaintiff had obtained the discovery material that she needed to litigate this case. Rule 26(g) requires the judge to sanction the defendants, the attorneys who signed their discovery responses and objections, or both. Sanctions are also appropriate under the court s inherent power to control the proceedings before it. [D]eeply rooted in the common law tradition is the power of any court to manage its affairs [which] necessarily includes the authority to impose reasonable and appropriate sanctions upon errant lawyers practicing before it. Carlucci v. Piper Aircraft Corp., 775 F.2d. 1440, 1447 (11 th Cir. 1985) (citation omitted). Court s inherent power also extends to parties to litigation. Chambers v. NASCO, Inc., 501 U.S. 32, ----, 111 S.Ct. 2123, 2133, 115 L.Ed.2d 27 (1991). A court may appropriately sanction a party or attorney who shows bad 10

11 Case 1:10-cv AT Document Filed 03/20/14 Page 11 of 19 faith by delaying or disrupting the litigation or by hampering enforcement of a court order. Hutto v. Finney, 437 U.S. 678, 689 n. 14, 98 S.Ct.2565, 2573 n. 14, 57 L.Ed.2d 522 (1978). However, because a court s inherent powers are so potent, they must be exercised with restraint and discretion. Chambers, 501 U.S. at ----, 111 S.Ct. at As the Court noted in SCADIF, S.A. v. First Union Nat l Bank, 208 F.Supp. 2d 1352, (S.D. Fla. 2002), aff d 344 F.3d 1123 (11 th Cir. 2003) failure to timely produce known, requested and discoverable documents is a serious procedural and ethical violation, one that cannot be dismissed lightly, even where the failure is the result of mere carelessness. But Fresenius did not act merely carelessly - it acted deliberately, hoping that the Court would dismiss the case on premature summary judgment motions so that no one would ever learn that its essential defense to this case that it believed that overfill billing was legal because CMS took overfill into account in setting reimbursement was a lie. Fresenius counsel could not have conducted a reasonable inquiry or else these documents would have been located or produced, unless of course Fresenius deliberately concealed the existence of these documents from him. In any event, although Relator s counsel has repeatedly sought an explanation of Fresenius conduct in this matter, none has been provided at all, much less one that 11

12 Case 1:10-cv AT Document Filed 03/20/14 Page 12 of 19 substantially justifies the failure to produce. Mr. Bennett s explanation that the documents relating to Venofer ASP reporting were not relevant because they involve a different drug simply does not justify withholding those documents given the ASP is reported the exact same way for all drugs. But even if it did, Fresenius did not just withhold documents relating to Venofer ASP reporting. It withheld all documents that showed that Fresenius was generally aware of how ASP was calculated for the purposes of setting reimbursement for separately billable drugs. Not only did Fresenius refuse to offer an explanation of its conduct that might mitigate sanctions, but Mr. Bennett asserted wrongly that no sanctions were even available to address this conduct. See letter from James Bennett, Esq. to Jamie Bennett, Esq. dated December 2, 2013, at p. 3, attached hereto as Exhibit 12. The fact that Fresenius believes that discovery is a sanction free zone is troubling. Mr. Bennett s December letter is particularly disingenuous as he attempts to excuse his failure to produce all ASP documents in response to the Relator s Third Request for Production of Documents by asserting that the Relator failed to specifically ask for documents relating to Venofer. The Relator did not have to specifically ask for documents relating to Venofer because he had already asked for documents relating to how ASP was calculated, a request which subsumes the 12

13 Case 1:10-cv AT Document Filed 03/20/14 Page 13 of 19 sub-category of Venofer ASP documents. Mr. Bennett appears to contend that Fresenius was unaware that ASP was even relevant to this case, despite the clear language of the Relator s Second RFD and the questions asked of Fresenius witnesses at depositions on this topic. Further, on September 17, 2012 undersigned counsel specifically raised the issue of Fresenius incomplete production with him, noting the fact that the Defendant had not produced documents relating to its understanding of how ASP was calculated. That letter said that if the Company never carefully considered the question whether its overfill billing was appropriate, even when Medicare reimbursement for separately billable drugs changed from the estimated acquisition cost to ASP, this is evidence of reckless disregard... under the FCA. Letter from Jamie Bennett, Esq. to James Bennett, dated September 17, 2012, attached hereto as Exhibit 13 at p That letter also specifically stated that [a]ll of the communications Fresenius has produced to date involve disclosures to OCIG about billing for overfill before the January 1, 2006 change to ASP reimbursement... [a]ny approval Fresenius may have received... could not, in any event, survive the advent of a new reimbursement paradigm. Id. at p.5 n.6. All the evidence points to the inevitable conclusion that Fresenius was keenly aware of the relevance of ASP reimbursement to this case, and tried to hide relevant evidence from the Relator. 13

14 Case 1:10-cv AT Document Filed 03/20/14 Page 14 of 19 Due to this conduct, this case has been unnecessarily delayed. The Relator did not have a full record to present to the Court on Fresenius knowledge that ASP excluded overfill, in connection with the motions for partial summary judgment filed in December, As noted, the Relator believes that these motions could have been decided more expeditiously on a full record. But even if that were not the case, Fresenius withholding of documents, combined with its counsel s unwillingness to set the record straight so that the Court could decide whether these documents were relevant, was completely improper. There is no question that the costs in this case have been unnecessarily increased as the Relator has wasted resources on depositions in which Fresenius witnesses denied knowledge of facts they actually knew. The fact that Fresenius belatedly complied with its discovery obligations is not a mitigating factor. See Kipperman v. Onex Corp., 260 F.R.D. 682, 698 (N.D.Ga., 2009)(imposing sanctions under Rule 26(g) for defendant s misrepresentations about its e-discovery and rejecting defendant s arguments it had finally complied with discovery orders and plaintiff was not prejudiced); R & R Sails Inc. v. Ins. Co. Of State of Pa., 251 F.R.D. 520, )S.D.Cal.2008) (imposing Rule 26(g) sanctions where defendant without substantial justification belatedly produced electronic information despite certifications to court and 14

15 Case 1:10-cv AT Document Filed 03/20/14 Page 15 of 19 plaintiff that its discovery production was complete); see also 8A Charles Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure 2052 (3d ed. 2010) (collecting cases where parties asserted opponent neglected to produce all electronically stored information and sanctions appropriate under Rule 26(g)). Sanctions are clearly appropriate. The Relator respectfully seeks its attorneys fees and costs for the preparation and attendance at the depositions described above, and the attorneys fees associated with preparing motions for summary judgment on an incomplete record be assessed against Fresenius. The Relator also believes that Mr. Castle (as Fresenius certifying officer with respect to discovery in this case) should be separately sanctioned, along with the other deponents who denied knowledge of how ASP with fines of $5,000 each to be paid to the Clerk s Office. Respectfully submitted, this 20th day of March, By: /s/ Jamie M. Bennett Jamie M. Bennett, Esq. Nathan M. Peak, Esq. ASHCRAFT & GEREL, LLP 4301 Garden City Drive Suite 301 Landover, MD Telephone: (301) Fax: (301) jbennett@ashcraftlaw.com npeak@ashcraftlaw.com 15

16 Case 1:10-cv AT Document Filed 03/20/14 Page 16 of 19 Andrea Solomon Hirsch Georgia Bar No. HERMAN GEREL, LLP 230 Peachtree Street, NW Suite 2260 Atlanta, GA Telephone: (404) Fax: (404) Attorneys for Relator Chester Saldivar 16

17 Case 1:10-cv AT Document Filed 03/20/14 Page 17 of 19 CERTIFICATE OF COUNSEL REGARDING DISCOVERY DISPUTE Pursuant to Fed. R. Civ. P. 37(a)(2)(B), the undersigned hereby certifies that she has, in good faith, conferred with counsel for Defendant in an effort to secure the information and material described herein without court action. This 20th day of March, /s/ Jamie M. Bennett 17

18 Case 1:10-cv AT Document Filed 03/20/14 Page 18 of 19 CERTIFICATE OF COUNSEL REGARDING FONT SIZE Pursuant to Local Rule 7.1(D), the undersigned hereby certifies that this pleading has been prepared with a Times New Roman 14 point font, as approved by the Court in Local Rule 5.1(B). This 20th day of March, /s/ Jamie M. Bennett 18

19 Case 1:10-cv AT Document Filed 03/20/14 Page 19 of 19 CERTIFICATE OF SERVICE I hereby certify that on this 20 th day of March, 2014, I electronically filed the foregoing document with the Clerk of Court using the CM/ECF system, which sent notification of the filing to all counsel of record. /s/ Jamie M. Bennett 19