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declining to consider movant's argument in reply brief that exceeds scope of motion to dismiss, as such an argument is not properly before the court
Summary of this case from Pigott v. Sanibel Development, Llc.Opinion
No. 99-0366-CB-L.
December 11, 2000
ORDER ON MOTION TO DISMISS AND MOTIONS FOR LEAVE TO AMEND
This matter is before the Court on the defendants' motion to dismiss, (Doc. 9), and the plaintiffs two motions for leave to amend the complaint. (Docs. 15, 43). The parties have filed numerous briefs in support of and in opposition to the various motions. (Docs. 10, 14, 21, 22, 29, 30, 44, 45). After careful consideration of the parties' arguments as set forth in their motions and briefs, the allegations of the first amended complaint and of the proposed second amended complaint, and all other relevant materials in the file, the Court concludes that the plaintiffs' motions for leave to amend are due to be granted and the defendants' motion to dismiss is due to be granted in part and denied in part.
BACKGROUND
The following allegations have not been challenged by the defendants:
The defendant Gericare Medical Supply, Inc. ("Gericare") is a wholesale medical supplier. Defendant Larry Keefer is the general manager of Gericare, in which he owns stock. Defendant Crowne Investments, Inc. ("Crowne") owns and operates numerous nursing home facilities in Alabama. Defendant Joseph W. Jones is president and chief executive officer of Crowne, an officer of Gericare, and a shareholder in both.
All other defendants have been voluntarily dismissed by the plaintiff pursuant to Federal Rule of Civil Procedure 41(a)(1)(i).
Gericare is the primary supplier of medical supplies used by Crowne. Among the supplies provided by Gericare are enteral feeding supply kits ("enteral feeding kits"), which are used for patients that must be fed and/or medicated through nasal or stomach tubes. The enteral feeding kits come with all equipment needed to irrigate the feeding tubes. Enteral feeding kits are used at the rate of one kit per day per patient.
The Secretary of the Department of Health and Human Services administers the plaintiffs Medicare program through the Health Care Financing Administration ("HCFA"). The program allows for reimbursement of a percentage of the cost of certain services and supplies. Reimbursement for enteral feeding kits is made through Medicare's Parenteral and Enteral Nutrition ("PEN") program.
Gericare, as the supplier of the enteral feeding kits, submitted monthly claims under Medicare procedure code B4035 for reimbursement for enteral feeding kits supplied to Crowne, utilizing HCFA's standard billing document, Form 1500. Such forms were submitted by Gericare to Blue Cross and Blue Shield of South Carolina, the Medicare carrier responsible for payment of claims under the PEN program. Gericare routinely received reimbursement pursuant to these requests.
A separate supply item is the ostomy flush kit, which is used to irrigate a surgically created opening for the evacuation of bodily waste. Ostomy flush kits are used at the rate of three to four per day. The billed cost, and the reimbursement, for a patient's monthly supply of ostomy flush kits is typically more than ten times greater than that for enteral feeding kits. Ostomy flush kits may be eligible for reimbursement under the HCFA's procedure code A4400.
ALLEGED SCHEME
According to the first amended complaint, as amplified by the proposed second amended complaint, Gericare received reimbursement from the plaintiff for enteral feeding kits sold to Crowne. Gericare additionally sold to Crowne ostomy flush kits for the same patients. Gericare sought reimbursement for the ostomy flush kits, which was denied.
Ben Carroll was co-owner of Car-Med, a provider of medical equipment and supplies, including ostomy flush kits. Keefer facilitated Carroll's entry into the Crowne nursing home market for ostomy flush kits. Crowne began placing orders for ostomy flush kits for patients already receiving enteral feeding kits, and Carroll filled these orders with ostomy flush kits from Gericare. In approximately February or March 1993, Keefer, acting on behalf of Gericare, agreed with Carroll to pretend to sell Car-Med the ostomy flush kits being provided to Crowne. They consummated the agreement, creating and exchanging sham purchase orders and invoices. Gericare acquired the ostomy flush kits for approximately $2 per kit, and Car-Med paid Gericare approximately $10 per kit, resulting in a profit to Gericare of approximately $8 per kit. The agreement extended to the ostomy flush kits that Gericare had previously provided to Crowne and as to which reimbursement had previously been denied.
Carroll billed Medicare approximately $35 for each ostomy flush kit. He caused Form 1500s to be submitted to three Medicare carriers (Blue Cross and Blue Shield of South Carolina, Kansas and Alabama) in the name of three providers, none of which was Car-Med. Medicare reimbursed approximately 80% of the billed cost. Crowne was aware that its providers were seeking reimbursement for both ostomy flush kits and enteral feeding kits for the same patients.
Medicare reimburses only for services and supplies that are medically necessary. Ostomy flush kits are not medically necessary with respect to patients that have feeding tubes but not ostomies, because the irrigation function of the ostomy flush kit is already accomplished by the irrigation supplies included in the enteral feeding kits. The plaintiff reimbursed for the ostomy flush kits unaware that they were for patients as to whom reimbursement was being provided for enteral feeding kits.
Keefer, as a shareholder of Gericare, and Jones, as a shareholder of Gericare and Crowne, profited from the scheme.
CAUSES OF ACTION
The plaintiff asserts three claims under the False Claims Act ("FCA"), 31 U.S.C. § 3729-31, as well as two common law claims:
• Count One: that all defendants knowingly caused a false or fraudulent claim to be presented for payment or approval, in violation of 31 U.S.C. § 3729 (a)(1);
• Count Two: that all defendants knowingly caused to be made or used a false record or statement to get a false or fraudulent claim paid or approved, in violation of 31 U.S.C. § 3729 (a)(2);
• Count Three: that all defendants conspired to defraud the plaintiff by getting a false or fraudulent claim allowed or paid, in violation of 31 U.S.C. § 3729 (a)(3);
• Count Four: that all defendants received monies to which they are not entitled based on the plaintiffs mistake of fact that all applicable requirements for reimbursement had been met;
• Count Five: that all defendants received monies to which they are not entitled and have been unjustly enriched.
PROCEDURAL HISTORY
On October 11, 1996, Carroll pleaded guilty to a one-count information in the Middle District of Florida accusing him of conspiracy to commit mail fraud, arising out of conduct concerning Medicare reimbursement but not connected with the allegations of the present lawsuit. (Doc. 10, Exhibits 1, 2).On September 5, 1997, the United States, on the relation of Terri D. Carroll, Carroll's wife, filed a qui tam action in the Southern District of Alabama. The complaint named Gericare and Crowne as defendants, as well as two other corporations, but did not name Keefer or Jones. (Doc. 22, Ex. 2). In March 1999, the plaintiff filed a concurrence in dismissal without prejudice, pursuant to which the Court dismissed the qui tam action on March 26, 1999. (Doc. 10, Exhibits 4, 5).
The complaint in this action was then filed on April 9, 1999. (Doc. 1). On April 29, 1999, the plaintiff filed a first amended complaint, pursuant to Federal Rule of Civil Procedure 15(a), that made only minor changes. (Doc. 5). The defendants filed the presently pending motion to dismiss on June 29, 1999, (Doc. 9), in response to which the plaintiff filed, on August 4, 1999, a motion for leave to file a second amended complaint. (Doc. 15).
The proposed second amended complaint varies from the first amended complaint by: stating that patients receiving enteral feeding kits are not eligible for reimbursement for ostomy flush kits, (Proposed Second Amended Complaint at 5, 10); identifying Jones' position with Crowne as president and chief executive officer, ( Id. at 2, 6); stating that the offices of Crowne and of Gericare are in the same building, ( Id. at 6); stating that the alleged scheme inured to the financial benefit of shareholders such as Jones and Keefer, ( Id. at 6-7); stating that Crowne prepared orders for ostomy flush kits and was aware both that they were being ordered for patients already receiving enteral flush kits and that reimbursement from Medicare was being sought for both the enteral feeding kits and the ostomy flush kits, ( Id. at 7); stating that Carroll's entry into the nursing homes was facilitated by Keefer, ( id.); stating that all challenged claims for ostomy flush kits were submitted (or resubmitted) on or after April 9, 1993 and were paid on or after April 23, 1993, ( Id. at 10); adding Jones as a defendant under Counts One and Three and adding Jones to the prayer for relief under Counts One, Two and Three, ( Id. at 11, 13, 15); and stating that the plaintiff first learned of the defendants' roles in the alleged conspiracy on January 21, 1997. ( Id. at 13).
On August 19, 1999, the defendants served requests for production of the Form 1500s at issue and other documents submitted with or accompanying each allegedly false claim. (Doc. 32 at 4). The plaintiff resisted production absent entry of a protective order governing, inter alia, the identity of the patients at issue. ( Id. at 4-5). When the parties could not agree to the language of a stipulated protective order, the defendants filed a motion to compel production on December 20, 1999. (Doc. 32). After briefing, Magistrate Judge Lee heard oral argument on February 15, 2000 and the next day adopted the protective order proposed by the plaintiff. (Docs. 40, 41). The original and first amended complaints included an Exhibit A that provided, in chart form, certain information concerning the allegedly false claims but not the names of the patients at issue. Pursuant to Judge Lee's protective order, the plaintiffs on March 1, 2000 filed a motion for leave to amend the complaint so as to substitute an amended Exhibit A providing such information. (Doc. 43).
DEFENDANTS' CONTENTIONS
The defendants' motion to dismiss raises three grounds for dismissal:
• with respect to all defendants, the complaint fails to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b);
• with respect to the individual defendants, the complaint fails to state a claim upon which relief may be granted;
• with respect to all defendants, the claims asserted are barred by the applicable statutes of limitations.
(Doc. 9).
ANALYSIS
I. Motions for Leave to Amend.
A plaintiff may amend its complaint "once as a matter of course at any time before a responsive pleading is served." Fed.R.Civ.P. 15(a). The defendants' motion to dismiss is not a responsive pleading. Brewer-Giorgic v. Producers Video, Inc., 216 F.3d 1281, 1284 (11th Cir. 2000). However, because the plaintiff previously filed an amended complaint, (Doc. 5), it may amend the complaint again "only by leave of court or by written consent of the adverse party." Fed.R.Civ.P. 15 (a); accord Glaros v. Perse, 628 F.2d 679, 686 (1St Cir. 1980).
Leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). However, leave "may be denied on 'numerous grounds' such as 'undue delay, undue prejudice to the defendants, and futility of the amendment.'" Brewer-Giorgio v. Producers Video, 216 F.3d at 1284 (quoting Abramson v. Gonzalez, 949 F.2d 1567, 1581 (11th Cir. 1992)).
The defendants' only ground for challenging the proposed second amended complaint is that "further amendment is futile." (Doc. 22 at 2). They identify, the "principal flaw" of the proposed amendment as its failure to plead fraud with particularity. ( Id. at 4). However, as discussed below in Part II, the second amended complaint does in fact dispose of several of the defendants' Rule 9(b) objections and therefore is not futile.
The defendants nevertheless assert that the demise of the prior qui tam lawsuit demonstrates the futility of the plaintiffs case. (Doc. 22 at 18-22). The argument borders on the frivolous. Without belaboring the point, while the qui tam action included allegations against Crowne and Gericare of causing false or fraudulent claims for ostomy flush kits to be presented, it alleged the defendants did so in conjunction with entities other than Carroll and Car-Med and during a time period completely separate from that made the subject of the instant action. The qui tam action also asserted many bases of liability not asserted in this action. The defendants' tortured reading of the pleadings notwithstanding, the plaintiff did not in the qui tam action make any statement conceding or even remotely suggesting that its quite different claims in this action are unsustainable.
In response to the plaintiffs motion for leave to file a substituted Exhibit A identifying patients by name and HIC number, (Doc. 43), the defendants identify objections of undue delay, undue prejudice and futility. (Doc. 44).
With respect to delay, the defendants acknowledge that "the cases denying leave to amend typically involve longer delays." (Doc. 44 at 2). Moreover, the defendants' refusal to honor the confidentiality of the patients' identity — an interest recognized by Judge Lee in a ruling the defendants did not appeal — caused most of the delay. The defendants' prejudice argument founders on the same shoals, as any prejudice is of their own making for refusing to respect the patients' privacy rights, and any prejudice therefore cannot be undue. Moreover, the defendants peg their prejudice to the shortness of the time between identification of the patients and the discovery deadline, but Judge Lee has extended that deadline by six months since the defendants' opposition was filed. (Docs. 47, 58, 90). Finally, the defendants' futility argument is itself futile.
In summary, the plaintiffs' two pending motions for leave to amend are due to be granted.
II. Motion to Dismiss.
A motion to dismiss should not be granted "unless the plaintiff can prove no set of facts which would entitle him to relief." Martinez v. American Airlines, Inc., 74 F.3d 247, 248 (1st Cir. 1996) (quoting Peterson v. Atlanta Housing Authority, 998 F.2d 904, 912 (11th Cir. 1992)). In making this determination, the Court must "take all the allegations in the complaint as true, and view the complaint in the light most favorable to the plaintiff." Id.
A. Particularity.
"In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9 (b). Rule 9(b) applies to actions asserting substantive violations of the FCA. Cooper v. Blue Cross and Blue Shield, Inc., 19 F.3d 562, 568 (11th Cir. 1994).
"The particularity rule serves an important purpose in fraud actions by alerting defendants to the 'precise misconduct with which they are charged' and protecting defendants 'against spurious charges of immoral and fraudulent behavior.'" Durham v. Business Management Associates, 847 F.2d 1505, 1511 (1st Cir. 1988) (quoting Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3rd Cir. 1984), cert. denied, 469 U.S. 1211 (1985)); see also Friedlander v. Nims, 755 F.2d 810, 813 n. 3 (1st Cir. 1985) (Rule 9(b)'s "clear intent is to eliminate fraud actions when all facts are learned through discovery after the complaint is filed."). Rule 9(b) challenges must be gauged in light of the purposes the rule is designed to fulfill and not simply by an abstract fastidiousness. Moreover, "[t]he application of the rule must not abrogate the concept of notice pleading." Durham v. Business Management Associates, 847 F.2d at 1511; accord Friedlander v. Nims, 755 F.2d at 813 n. 3 ("[A] court considering a motion to dismiss for failure to plead fraud with particularity should always be careful to harmonize the directives of rule 9(b) with the broader policy of notice pleading.").
The defendants argue that the plaintiff must provide "even greater detail" than is generally required by Rule 9(b), because: (1) the plaintiff accuses them of "causing" Carroll to submit false claims and prepare false records rather than accusing them of submitting the claims and preparing the records themselves; (2) Carroll is incarcerated and not readily available to the defendants; and (3) the claims are stale. (Doc. 10 at 11). The defendants' only authority for their position merely acknowledges that fraud claims are subject to Rule 9(b) and that FCA claims are governed by its requirements; it does not embrace or even suggest the possibility of a heightened particularity requirement in certain circumstances. See United States v. Hangar One, Inc., 406 F. Supp. 60, 83 n. 42 (N.D. Ala. 1975), rev'd on other grounds, 563 F.2d 1155 (5th Cir. 1977). Nor is it necessary, to accomplish the informational and screening objectives of Rule 9(b), to require "particularity plus" simply because the defendant allegedly defrauded the plaintiff through an intermediary rather than face-to-face, because discovery from a key witness will have to occur in a prison setting, or because the fraud occurred several years ago.
The defendants identify the standard imposed by Rule 9(b) as follows:
[U]nder Rule 9(b), the Plaintiffs must allege (1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the Plaintiffs; and (4) what the defendants gained by the alleged fraud.Brooks v. Blue Cross and Blue Shield, 116 F.3d 1364, 1380-81 (11th Cir. 1997). However, "alternative means are also available to satisfy the rule." Durham v. Business Management Associates, 847 F.2d at 1511. Indeed, the sole case relied on by the Brooks Court made precisely this point. Fitch v. Radnor Industries, Ltd., 1990 WL 150110 at 2 (E.D. Pa. 1990) ("In essence, a plaintiff is free to use whatever means necessary to state the case as long as the allegations are precise and substantial.").
1. Count One — Causing a False or Fraudulent Claim to Be Presented.
The defendants identify four deficiencies with the plaintiffs pleading of a claim under Count One: (1) failure to identify the entities through whom Carroll caused false claims to be submitted for reimbursement; (2) failure to identify the precise claims at issue, by (a) the identification of each patient; (b) the number of ostomy flush kits used by each patient; (c) when the kits were used; and (d) the date each claim was submitted; (3) failure to explain how each ostomy flush kit was medically unnecessary; and (4) failure to identify how each defendant caused Carroll to submit false claims. (Doc. 10 at 11-15).
Contrary to the defendants' assertion, the first and second amended complaints expressly identify the entities Carroll used to submit false claims.
The defendants correctly note that the first amended complaint does not identify each patient with respect to whom false claims were submitted, but they fail to establish that such identification — while certainly important for discovery and trial preparation — is necessary to accomplish the pleading objectives of Rule 9(b). Nor does the complaint leave the defendants as rudderless as they suggest; the complaint restricts the patients at issue to those with feeding tubes, and Exhibit A identifies the particular nursing homes and the particular dates of service for each patient. Moreover, identification of the patients was delayed only so long as necessary to obtain an appropriate order protecting the statutorily bestowed privacy rights of these patients, and the defendants' refusal to recognize these rights resulted in the delay. Finally, the Court has granted the plaintiffs' second motion for leave to amend, which amendment identifies the patients at issue and moots the defendants' objection.
The defendants offer no support for the remarkable proposition that a complaint failing to quantify the number of ostomy flush kits used by each patient and the dates of use fatally violates Rule 9(b), and such minutiae is unnecessary to fulfill the purposes of the rule. Moreover, Exhibit A in fact has at all times stated the number of ostomy flush kits billed for each patient each month. Any suggestion that the complaint must specify, not simply now many ostomy flush kits were billed to Medicare for each patient in a given period but how many were actually "used" by each patient, merits no response.
Nor have the defendants explained why the exact date on which each allegedly false claim was submitted is necessary to satisfy Rule 9(b). Contrary to the defendants' representation, (Doc. 21 at 7), the Eleventh Circuit has not held that such specificity is required. See Brooks v. Blue Cross and Blue Shield, 116 F.3d at 1380-81. Indeed, the defendants' argument has been rejected by one of the authorities on which they rely. United States ex rel. Johnson v. Shell Oil Co., 183 F.R.D. 204, 207 (E.D. Tex. 1998). At any rate, the first amended complaint alleges that Keefer and Carroll's agreement was entered in approximately February or March 1993, and that Carroll submitted false claims monthly. Exhibit A reflects that Medicare was billed for ostomy flush kits supplied for the period December 1, 1992 to June 30, 1993. This information provides a sufficiently precise period during which false claims were submitted. Moreover, the second amended complaint clarifies that the first false claims were submitted on or after April 9, 1993.
The defendants argue that two district courts have found claims lacking under Rule 9(b) due to pleading deficiencies similar to those in this case. The facts of the cited cases, however, are egregious and wholly inapposite. In United States v. Crescent City E.M.S., Inc., 151 F.R.D. 288 (E.D. La. 1993), the complaint did not even identify who had made false representations. Id. at 290. In United States v. Hangar One, the complaint failed to narrow down which of approximately one million inspections were at issue or which of several hundred of the defendant's employees were involved. 406 F. Supp. at 83-84.
Citing a Fifth Circuit case, the defendants next argue that Rule 9(b) requires the plaintiff to plead a "factual basis" for the conclusion that the ostomy flush kits were not medically necessary. In fact, the only particularity required by the Court in United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997), was the identity of the claims and of the submitting physicians. Id. at 903. At any rate, he plaintiff has pleaded a factual basis for the allegation that the ostomy flush kits were medically unnecessary: it alleges that a feeding tube patient receiving an enteral feeding kit has no need of an ostomy flush kit (unless he or she also has an ostomy) because the irrigation function of the ostomy flush kit (its only function) is accomplished by the supplies included in the enteral feeding kit. Rule 9 (b) does not require more detail or greater support for a non-technical argument of redundancy.
In a related vein, the defendants argue that the complaint fails to provide sufficient information concerning each patient and any documentation of medical necessity submitted to Medicare in connection with each claim. Again, however, the defendants confuse the information useful to defend a case at trial with that needed to satisfy the pleading requirements of Rule 9(b).
Finally, the defendants argue that the complaint does not indicate how they caused the submission of false claims. As set forth previously, however, the second amended complaint alleges that Crowne placed orders for ostomy flush kits for feeding tube patients it knew were already receiving enteral feeding kits and that it knew that Medicare was being billed for both. These allegations adequately set forth the plaintiffs contention as to how Crowne caused the submission of false claims.
While fraud must be alleged with particularity, knowledge "may be averred generally." Fed.R.Civ.P. 9(b).
Whether such conduct by Crowne, if proved, would constitute "cause" under the FCA, is a separate question not presented on the defendants' motion to dismiss and as to which the Court expresses no opinion.
The allegations concerning Gericare and Keefer are, if anything, even more clear. The first amended complaint alleges that, after Gericare was unable to obtain reimbursement for ostomy flush kits it supplied to Crowne's feeding tube patients, Gericare facilitated Carroll's entry into Crowne's ostomy flush kit market, allowing Carroll to seek reimbursement for such kits. Rather than simply stepping aside, Gericare entered and consummated an agreement with Carroll allowing it to obtain a cut of Carroll's handsome profit on each false claim. Indeed, the first amended complaint accuses Gericare of having Carroll resubmit past claims for ostomy flush kits that Gericare itself had already submitted and had rejected. In facilitating Carroll's entry in to the market and in reaching its agreement with Carroll, Gericare acted through its general manager, Keefer.
The allegations against Jones, however, stand on different footing. Even under the second amended complaint, the only allegations against Jones are as follows: (1) he is a shareholder in and president and chief executive officer of Crowne; (2) he is a shareholder in and officer of Gericare; (3) as a shareholder, he received financial benefit from the alleged scheme; and (4) he knew or should have known that false claims were being presented. (Proposed Second Amended Complaint at 2, 6-7, 11). While the plaintiff argues that the second amended complaint alleges that Jones was an "active participan[t] in the scheme to defraud," (Doc. 14 at 2), it patently does not do so.
The complaint must satisfy Rule 9(b) with respect to each defendant, and some allegation as to each defendant's role in the fraud is part of this requirement. Brooks v. Blue Cross and Blue Shield, 116 F.3d at 1381. Because even the second amended complaint contains no such allegation concerning Jones, it fails to pass muster under Rule 9(b) as against Jones.
In their later briefs, the defendants raise additional arguments. First, they argue that, as a matter of law, the defendants could not "cause" Carroll to submit false claims unless they "had the ability to direct or control" Carroll. (Doc. 22 at 10). This argument is not one of particularity but of failure to state a claim and therefore is not within the grounds asserted by the defendants in their motion to dismiss. (Doc. 9). At any rate, the defendants offer no authority for this proposition.
Second, the defendants argue that the first and second amended complaints do not indicate the defendants knew that Carroll was submitting Medicare claims at all, that the claims he submitted were false, or that the defendants' actions would cause Carroll to submit false claims. ( Id. at 8-9; Doc. 21 at 4). Knowledge, however, may be pleaded generally, Fed.R.Civ.P. 9(b), and the first and second amended complaints adequately allege the requisite knowledge. 2. Count Two — Causing a False Record or Statement to Be Made or Used.
The defendants' reliance on Novak v. Kasaks, 76 F. Supp.2d 658 (S.D.N.Y. 1998), is misguided. The Novak Court analyzed a securities fraud complaint governed by 15 U.S.C. § 78u-4(b)(2), which explicitly requires that such complaints "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind."
The defendants identify several deficiencies with the plaintiffs pleading of a claim under Count Two, in addition to those addressed under Count One: (1) failure to identify who prepared the forms; (2) when they were prepared or submitted; (3) how the forms were false; and (4) how the defendants caused their preparation or use. (Doc. 10 at 11-15).
The false records or statements at issue are the Form 1500s submitted for reimbursement of ostomy flush kits. The first and second amended complaints allege these forms were false because they represented the ostomy flush kits were medically necessary. As noted, the time frame at issue is adequately bracketed by Exhibit A. While the complaint does not allege the specific individual(s) that physically completed the forms, it does make plain that it was someone acting at Carroll's behest, and the defendants have not shown any need, at the pleading stage, to know what particular subordinate(s) of Carroll physically completed the forms. See also United States ex rel. Johnson v. Shell Oil Co., 183 F.R.D. 204, 207-08 (E.D. Tex. 1998) ("A plaintiff cannot be expected to have personal knowledge of the details of corporate internal affairs," including who physically completed the false forms).
As noted, the complaint adequately explains the role of Crowne, Gericare and Keefer. The allegations against Jones, set forth in the discussion of Count One, are equally incapable of satisfying Rule 9(b) with respect to Count Two.
3. Count Three — Conspiracy to Defraud.
The defendants assert that Rule 9(b) applies to conspiracies under the FCA as well as to substantive violations. (Doc. 10 at 17). This appears to be the majority view. See, e.g., Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 790 (4th Cir. 1999); Hayduk v. Lanna, 775 F.2d 441, 442-44 (1st Cir. 1985); United States ex rel. Capella v. Norden Systems, Inc., 2000 WL 1336487 at 11 (D. Conn. 2000); Palladino ex rel. United States v. VNA, Inc., 68 F. Supp.2d 455, 462 (D.N.J. 1999). See generally Friedlander v. Nims, 755 F.2d at 812 (applying Rule 9(b) to an allegation of conspiracy to defraud).
The defendants object that the complaints violate Rule 9(b) because they do not "allege the specific nature of the alleged conspiracy or each participant's alleged role in the conspiracy." (Doc. 10 at 18-19). This argument is controlled by the preceding analysis of Counts One and Two.
The defendants also object that the conspiracy count refers to "others, known and unknown" without identifying them. (Doc. 10 at 19). Again, it is not the office of Rule 9(b) to provide the defendants all information they may find useful to defend the lawsuit, and the complaints plainly identify each of the defendants, as well as Carroll, as conspirators.
The defendants' only problem with this allegation is that it leaves them unable to determine if they may avoid liability under the intracorporate conspiracy doctrine. ( Id.) Since each defendant is plainly accused of conspiring with each other and with Carroll, it is difficult to perceive how the defendants could believe themselves entitled to application of this doctrine.
In a reply brief, the defendants inject a new argument: that a count alleging conspiracy under the FCA must allege intent to defraud. (Doc. 21 at 8). While intent to defraud apparently is an element of a conspiracy claim under the FCA, intent is a mental state that may be pleaded generally, Fed.R.Civ.P. 9(b), and the allegations of the first and second amended complaints suffice to "raise an inference of fraudulent intent." United States ex rel. Johnson v. Shell Oil, 183 F.R.D. at 206.
4. Counts Four and Five — Mistake of Fact and Unjust Enrichment.
The defendants assert that Rule 9(b) applies to these claims. By its terms, Rule 9(b) extends to assertions of "mistake," but its applicability to claims of unjust enrichment is less clear. It appears to be the rule that a claim for unjust enrichment is subject to Rule 9(b) only if it is "premised on fraud." Daly v. Castro Llanes, 30 F. Supp.2d 407, 414 (S.D.N.Y. 1998); accord Ramapo Land Co. v. Consolidated Rail Corp., 918 F. Supp. 123, 128 (S.D.N.Y. 1996); Krieger v. Gast, 2000 WL 288442 at 6 (W.D. Mich. 2000). While the plaintiff may establish unjust enrichment if the defendants obtained monies by fraud, it presumably may establish unjust enrichment even if the defendants obtained such monies innocently. See, e.g., United States v. Mead, 426 F.2d 118, 125 n. 6 (9th Cir. 1970) ("Knowledge of falsity is not a requisite for recovery under the mistake doctrine.").
At any rate, assuming that Rule 9(b) applies to the plaintiffs common law claims, the preceding discussion concerning the FCA counts governs the common law counts as well.
In a reply brief, the defendants raise as a new argument the assertion that the common law claims fail to state a claim on which relief may be granted, because the defendants are not alleged to have received monies directly from the plaintiff but only indirectly through Carroll. (Doc. 21 at 9). As this argument exceeds the scope of the defendants' motion to dismiss, (Doc. 9), it is not properly before the Court. At any rate, the defendants offer no authority for this proposition, and it appears to defy settled law. See infra Part ll.B.1.
5. Summary.
The second amended complaint pleads fraud with the requisite particularity with respect to all defendants except Jones.
B. Individual Liability.
1. Shareholder Liability.
The defendants argue that Keefer and Jones may not be held liable simply because they are shareholders. (Doc. 10 at 20-22). They recognize that such liability is possible if the corporate veil is pierced, but argue the complaint alleges no factual basis for such piercing. (Doc. 10 at 21-22). See, e.g., Jackam v. Hospital Corporation of America Mideast, Ltd., 800 F.2d 1577, 1579-80 (11th Cir. 1986) (The issue [on a motion to dismiss] is not whether [the plaintiffs] may ultimately prevail on the "piercing the corporate veil" theory, but whether the allegations are sufficient to allow them to conduct discovery in an attempt to prove their allegations.); Kingston Square Tenants Association v. Tuskegee Gardens, Ltd., 792 F. Supp. 1566, 1576 n. 7 (S.D. Fla. 1992) (finding that complaint satisfied the Florida standard for piercing the corporate veil).
The plaintiff does not seek to defend shareholder liability under the ECA, and it may not be used to resuscitate the plaintiffs FCA claims against Jones. As to Keefer, however, the plaintiff relies on Keefer's own alleged misconduct, and reliance on a shareholder liability theory is unnecessary.
With respect to the common law claims, the plaintiff argues that it may recover monies in the hands of any third party that "participated in and benefitted from the tainted transaction," regardless of the piercing the corporate veil doctrine. (Doc. 14 at 20-21 (quoting LTV Education Systems, Inc. v. Bell, 862 F.2d 1168, 1175 (5th Cir. 1989)); accord United States v. Mead, 426 F.2d 118, 124-25 (9th Cir. 1970). While this is a satisfactory response as to Keefer, it misses the mark with respect to Jones for, as noted previously, the second amended complaint is devoid of any allegation that Jones participated in the underlying transaction. Under the very authorities relied upon by the plaintiff, Jones' mere receipt of benefits of the tainted transaction is insufficient to support recovery against him under the plaintiffs' common law theories.
2. Officer Liability.
The defendants argue that the complaint fails to state a claim against Jones either for his own misconduct or as an officer of Crowne and Gericare. (Doc. 10 at 22-24). As noted, the second amended complaint fails to identify any wrongful act or omission by Jones and therefore fails to accuse him of any personal wrongdoing.
While a corporate officer may be liable for the corporation's wrongs, such liability must be based on the officer's "personal participation . . . in the wrongful activities of [the] corporation." Delong Equipment Co. v. Washington Mills Abrasive Co., 840 F.2d 843, 851 (11th Cir. 1988), cert. denied, 494 U.S. 1081 (1990). The plaintiff does not dispute this legal standard and merely asserts, incorrectly, that the second amended complaint does in fact show that Jones was an "active participan[t] in the scheme to defraud." (Doc. 14 at 20).
3. Summary.
The second amended complaint fails to state a claim against Jones upon which relief may be granted. The defendants have failed to show that the second amended complaint does not state a claim against Keefer under each count.
C. Statutes of Limitations.
1. False Claims Act.
The statute of limitations under the FCA is generally six years from the date of the violation. 31 U.S.C. § 3731 (b)(1). However, a tolling provision allows suit to be brought within three years "after the date when facts material to the right of action are known or reasonably should have been known," but no later than ten years after the violation. Id. § 3731(b)(2).
The complaint was filed on April 9, 1999. The second amended complaint alleges that all claims at issue were submitted or resubmitted on or after April 9, 1993 and paid on or after April 23, 1993. The plaintiff asserts that the six-year limitations period is triggered by one or the other of these events. (Doc. 14 at 22-23). The defendants challenge the plaintiffs legal premise. (Doc. 21 at 12-13).
It is unnecessary to consider the timeliness of the FCA counts under the six-year statute of limitations, because the second amended complaint also invokes the FCA's tolling provision which, according to the plaintiff, allowed the plaintiff three years from January 21, 1997 in which to file suit. (Doc. 14 at 21-22). The defendants question whether the tolling provision in fact was triggered at some earlier point, (Doc. 21 at 11-12), but on this motion to dismiss the Court cannot evaluate factual disputes.
The defendants also suggest the complaint must set forth the facts the plaintiff must prove to successfully toll the statute of limitations. (Doc. 21 at 11-12). However, knowledge or other mental state may be pleaded generally, Fed.R.Civ.P. 9(b), and the second amended complaint alleges the plaintiffs lack of knowledge of the defendants' role prior to January 21, 1997.
2. Common Law Claims.
Claims by the United States based on contract must be filed "within six years after the right of action accrues," 28 U.S.C. § 2415 (a), while claims grounded in tort must be filed within three years. Id. § 2415(b). The defendants argue that the plaintiffs common law claims sound in tort and are therefore barred. (Doc. 10 at 27-29).
Whether the plaintiffs claims sound in contract or in tort, the applicable limitations period excludes "all periods during which . . . facts material to the right of action are not known and reasonably could not be known." 28 U.S.C. § 2416 (c). The second amended complaint invokes this tolling provision, and any factual dispute concerning its applicability may not be determined on this motion to dismiss.
3. Summary.
The defendants' motion to dismiss fails to establish as a matter of law that the plaintiffs claims are barred by the statute of limitations.
CONCLUSION
The plaintiffs two motions for leave to amend are granted. The defendants' motion to dismiss is granted with respect to defendant Joseph W. Jones. In all other respects, the motion to dismiss is denied.
It is so ORDERED.
ORDER ON APPEAL OF MAGISTRATE JUDGE'S ORDER
This matter is before the Court on the defendants' appeal of a discovery ruling by Magistrate Judge Lee. (Doc. 82). The parties have filed briefs and evidentiary materials in support of their respective positions, (Docs. 83, 94, 99), and the appeal is now ripe for decision. After careful consideration of the parties' arguments as expressed in their appellate briefs, their evidentiary filings, their submissions before Magistrate Judge Lee, and all other relevant materials in the file, the Court concludes that the order is neither clearly erroneous nor contrary to law and is therefore due to be affirmed.
The defendants seek discovery of notes and summaries of pre-litigation interviews of the individual defendants and of unidentified agents of the corporate defendants that were conducted by Special Agents Metheney and Holland. The defendants raise three arguments: (1) that the plaintiff failed to establish the elements for work product protection under Federal Rule of Civil Procedure 26(b)(3); (2) that the plaintiff failed to provide adequate information concerning the documents at issue pursuant to Federal Rule of Civil Procedure 26(b)(5); and (3) that the plaintiff abandoned — any claim of protection. (Doc. 83 at 1, 6-9).
A. Applicability of Rule 26(b)(3) .
The plaintiff bears the burden of establishing the elements of Rule 26 (b)(3). The defendants identify two elements they claim the plaintiff failed to establish: (1) that the documents at issue "were prepared at the direction of an attorney"; and (2) that the documents "were prepared with the 'primary purpose' of pursuing litigation." (Doc. 83 at 12).
1. Direction of an attorney.
The work product rule applies to documents prepared in anticipation of litigation "by or for another party" or "by or for the other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer or agent)." Fed.R.Civ.P. 26(b)(3). The plaintiff does not assert that the special agents themselves are representatives of the plaintiff; rather, it asserts that the special agents acted "by or for" the plaintiffs representatives, that is, its attorneys. (Doc. 94 at 9-10).
The defendants argue that the notes and summaries cannot be protected unless the attorneys "expressly directed" the creation of those specific documents. (Doc. 83 at 10-11). The defendants rely on several authorities that do not in fact support such a proposition. The only one that does was decided in 1965, five years before the promulgation of Rule 26 (b)(3), and it relies on an analysis inapposite to Rule 26(b)(3). See United States v. American Optical Co., 37 F.R.D. 233 (E.D. Wis. 1965). In short, no explicit instruction to prepare the specific document at issue is required by Rule 26(b)(3).
Assuming that the documents must have been "prepared by . . . persons under the direction of the attorneys in anticipation of litigation," Chilivis v. Securities Exchange Commission, 673 F.2d 1205, 1211 (11th Cir. 1982), the record amply supports Magistrate Judge Lee's finding that the interview notes and summaries were so prepared. Special Agent Metheney testified that she conferred with Richard Moore and other Assistant United States Attorneys ("AUSAs"), that they discussed her investigative plan, which included the interviews at issue, and that Moore was in concurrence. After the interviews, Metheney transmitted to the AUSA memoranda relating to the interviews. (Doc. 83 at 7; Doc. 94, Exhibit A; Id. Exhibit H at 26-28). While the defendants complain that Metheney's testimony is conclusory, they offer no suggestions as to what more precise information should have been provided. Nor did defense counsel, who cross-examined Metheney at oral argument, make any serious effort to demonstrate that Metheney's "conclusory" testimony lacked factual underpinnings.
Chilivis, relied on by the defendants, in fact interpreted the Freedom of Information Act, not Rule 26(b)(3).
In their reply brief; the defendants seek to inject information from Metheney's deposition and a "Special Agent Handbook." (Doc. 99 at 3-5, 11-12 Exhibits 1-2). Because this evidence was not placed before the Magistrate Judge, it may not be considered on appeal to this Court. See Local Rule 72.3(d)("There shall be no additional evidentiary material submitted unless ordered in matters of detention."). While the plaintiffs motion for leave to file a response to this argument, (Doc. 103), is therefore moot, were the defendants' argument properly before the Court it would be rejected for the reasons set forth in the plaintiffs proposed response.
In summary, Magistrate Judge Lee's finding that the Special Agents acted under the direction of an attorney, (Doc. 82 at 4), is not clearly erroneous or contrary to law.
2. Purpose.
The defendants, relying on United States v. Davis, 636 F.2d 1028 (5th Cir.), cert. denied, 454 U.S. 862 (1981), next argue that documents are not prepared in anticipation of litigation, and therefore are not subject to work product protection, unless they were prepared for the "primary purpose" of pursuing litigation. (Doc. 83 at 12).
It is admittedly difficult to reduce to a neat general formula the relationship between preparation of a document and possible litigation necessary to trigger the protection of the work product doctrine. [citations omitted] We conclude that litigation need not necessarily be imminent, as some courts have suggested, [citations omitted], as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation.636 F.2d at 1040.
Because the documents at issue in Davis were prepared in connection with the preparation of a tax return and "there was no showing whatsoever of anticipation of litigation," Davis has been characterized as "dictum, or in any event a statement going far beyond the issues raised in the case." United States v. Adlman, 134 F.3d 1194, 1198 (2nd Cir. 1998). The Adlman Court rejected a "primary purpose" test as palpably inconsistent with the language and purposes of Rule 26(b)(3). Id. at 1198-1202.
Davis is also in tension with Hoover v. United States Department of Interior, 611 F.2d 1132 (5th Cir. 1980). In Hoover, the Court noted that governmental appraisals of private property are "clear[ly]" prepared in anticipation of litigation because the government must assume that negotiations will fail and that condemnation will be required. "Appraisals are therefore obtained both for the purpose of providing a basis for an offer and to support a claim of just compensation at a subsequent condemnation suit." Id. at 1139 n. 8. Because negotiations are required in every case and litigation only in those in which negotiations fail, Hoover appears inconsistent with a requirement that the "primary purpose" of preparing the document must be to aid in litigation.
Even assuming that the primary purpose standard obtains, the record amply supports Magistrate Judge Lee's finding that the disputed documents were prepared in anticipation of litigation. The defendants seize on the plaintiffs statement that "[t]he investigation was conducted with the purpose of assisting the Government in evaluating the possible fraudulent actions of the defendants and deciding whether to initiate criminal and/or civil proceedings against the defendants." (Doc. 69 at 13). While this statement reflects that litigation was not a certainty at the time the documents were created, the very authorities urged by the defendants acknowledge that litigation need not be certain but only "possible." E.g., United States v. Davis, 636 F.2d at 1040; Hugley v. Art Institute, 981 F. Supp. 1123, 11128 (N.D. Ill. 1997).
Nor will the plaintiffs statement support the defendants' conclusion that the investigation "is a routine function performed by the OIG in the ordinary course of business," such that its primary purpose was only to "collec[t] information." (Doc. 83 at 13). When the interviews began in 1997, Ben Carroll had already pleaded guilty to conspiracy to commit mail fraud in connection with a Medicare scam in Florida. (Doc. 10, Exhibits, 1, 2). In January 1997, Carroll implicated the defendants in another scheme to defraud Medicare in which Carroll was also involved. These facts give rise to a strong probability that litigation would result. Metheney's investigation was not, as suggested by the defendants, a routine examination conducted with no thought as to whether litigation might eventuate. Unlike in the cases on which they rely, the investigation was not undertaken simply because the investigating organization was obligated to investigate all third party complaints, regardless of apparent merit, but because a convicted Medicare scam artist had implicated the defendants in another of his Medicare scams.
See Sanders v. Alabama State Bar, 161 F.R.D. 470, 473 (M.D. Ala. 1995) (routine investigation of every complaint of attorney misconduct received from a third party); Miller v. Pancucci; 141 F.R.D. 292, 303 (C.D. Cal. 1992) (routine investigation of all citizen complaints of police officer misconduct); Hugley v. Art Institute, 981 F. Supp. 1123, 1128-29 (N.D. Ill. 1997) (routine investigation of all employee complaints of job discrimination).
In their reply brief; the defendants suggest that an interview cannot be undertaken in anticipation of litigation until after the investigator has already determined that a statutory violation has occurred. (Doc. 99 at 13-14). The cases on which the defendants rely announced no general rule of law but were based on evidence of the agencies' policies to delay consideration of litigation until after investigation had revealed a violation. See Culinary Foods, Inc. v. Raychem Corp., 150 F.R.D. 122, 130 (N.D. Ill. 1993); Martin v. Albany Business Journal, Inc., 780 F. Supp. 927, 941-42 (N.D.N.Y. 1992). The defendants have identified no such policy in this case.
Finally, the defendants suggest the time lag between Carroll's January 1997 implication of the defendants and the April 1999 filing of this lawsuit reflects that the interviews were not conducted to aid in future litigation. (Doc. 83 at 12-13). In addition to the foregoing, however, the defendants overlook that litigation was in fact initiated against the two corporate defendants concerning a similar but separate scheme to defraud Medicare as early as September 1997. (Doc. 22, Exhibit 2). Nor does the mere passage of time while a party prepares its case retroactively eliminate an anticipation of litigation that existed when the documents were created.
In summary, Magistrate Judge Lee's ruling that the notes and summaries were prepared in anticipation of litigation, and that they are subject to work product protection, is neither clearly erroneous nor contrary to law. B. Privilege Log.
The defendants have not asserted that, even if work product protection exists, they are entitled to discovery, under one of the exceptions embedded in Rule 26(b)(3).
When a party claims work product protection, it "shall describe the nature of the documents . . . in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the privilege or protection." Fed.R.Civ.P. 26(b)(5). The plaintiff provided a privilege log by category rather than by individual document. (Doc. 83, Exhibit 10). The defendants complain that a categorical log is inappropriate and that, in any event, the plaintiff should have disclosed the recipient(s) of the notes and summaries. (Doc. 83 at 15-18).
A document-by-document privilege log would have revealed the identity of each person interviewed, information that itself would reveal the plaintiffs strategy and mental processes. Because Rule 26(b)(5) does not require a party to sacrifice work product protection in order to assert it, a category-by-category log was appropriate. E.g., Seebeck v. General Motors Corp., 1996 WL 742914 at 3 (N.D. Ga. 1996) (categorical privilege log appropriate where the identification of interviewed witnesses would broach the attorney's mental processes).
Moreover, the very case cited by the defendants notes that the Court has discretion to limit the extent of disclosures, especially if "the additional information to be gleaned from a more detailed log would be of no material benefit to the discovering party in assessing whether the privilege claim is well grounded." Securities Exchange Commission v. Thrasher, 1996 WL 125661 at 2 (S.D.N.Y. 1996). The defendants have not explained how a categorical privilege log impaired their ability to test the plaintiffs claim of work product protection, which rises or falls as a unit.
Similarly, the defendants have not attempted to show that disclosure of the recipient(s) of the documents at issue was necessary to "enable [them] to assess the applicability of the . . . protection." Had this appeal concerned the attorney-client privilege, this information might well have been important, because the privilege may be lost if the communications are distributed too broadly, but the defendants have not shown that a similar significance attaches to work product protection. While the defendants claim that disclosure to Ben Carroll would destroy work product protection, (Doc. 99 at 5), "[m]ost cases have . . . held . . . that disclosure of a document to third parties does not waive the work-product immunity unless it has substantially increased the opportunities for potential adversaries to obtain the information." 8 C. Wright, A. Miller R. Marcus, Federal Practice Procedure § 2024 at 369 (2nd ed. 1994). The defendants have made no effort to show that disclosure to Carroll — who is incarcerated and apparently cooperating with the plaintiff against the defendants — would satisfy this standard. At any rate, Metheney's affidavit, served on the defendants several weeks after the privilege log and several weeks prior to oral argument, addresses distribution of the challenged documents with all the specificity the defendants have demanded. (Doc. 69, Exhibit A).
In the case on which the defendants rely for the proposition that a privilege log should identify the recipient, the party resisting discovery asserted attorney-client privilege as well as work product protection. Securities Exchange Commission v. Thrasher, 1996 WL 125611 at 2.
In summary, Magistrate Judge Lee's ruling that the privilege log was adequate, (Doc. 82 at 5), is neither clearly erroneous nor contrary to law.
C. Abandonment.
The defendants identify three bases for finding the plaintiff abandoned any claim of work product protection: (1) verbal and written representations; (2) failure to timely produce a privilege log; and (3) reliance on information from the interviews in interrogatory responses. (Doc. 83 at 18-23).
1. Representations of counsel.
In August 1999, the defendants propounded the following request for production:
All documents relating to statements made by any Defendant or any agent of Defendants during Plaintiffs investigation of Defendants.
(Doc. 83 at 2).
In October 1999, the plaintiff responded as follows:
The United States has no statements from any of the Defendants or their agents. It does have a number of summaries of interviews of the Defendants and their agents which were conducted by its investigators, but such summaries are not discoverable under the work product doctrine.
( Id. at 3).
In November 1999, defense counsel sought production of a privilege log covering the plaintiffs response to several requests for production, including the foregoing. (Doc. 83, Exhibit-1). Two AUSAs responded in writing that, "[a]lthough Plaintiff raised objections to these document requests, to the best of Plaintiffs knowledge, no documents have been withheld." ( Id., Exhibit 2 at 3). Defense counsel, dissatisfied with this response and with a telephone conversation with an AUSA, in January 2000 complained that the plaintiff had failed to confirm in writing that the plaintiff "was not withholding any of the requested documents on the basis of a privilege claim"; counsel requested his counterpart "to clarify the status of your privilege claim before we file a motion to compel." ( Id., Exhibit 3). In March 2000, the AUSA verbally confirmed that the plaintiff "was not currently withholding any documents under a claim of privilege." ( Id., Exhibit 4.) No written confirmation by the plaintiff was ever made.
A June 2000 letter from a Department of Justice attorney prompted defense counsel to inquire whether the plaintiff was withholding "any documents regarding statements allegedly made by defendant or their agents." (Doc. 83, Exhibit 6 at 1). Her July 2000 reply confirmed that the plaintiff "has in fact withheld certain documents on the basis of . . . the work product doctrine." ( Id., Exhibit 7 at 1). At this point, defense counsel asserted that the plaintiff had waived work product protection. ( Id., Exhibit 8 at 1).
Under these facts, the defendants' abandonment argument will not bear its own weight. In its formal discovery responses, the plaintiff explicitly informed the defendants that the plaintiff "ha[s] a number of summaries of interviews of the Defendants and their agents which were conducted by its investigators" and that it was withholding these documents "under the work product doctrine." This formal invocation of the work product doctrine was never retracted by the plaintiff. The defendants suggest that the plaintiffs formal discovery response was informally amended by letter and oral communications, but they cite no authority for this proposition. The defendants clearly doubted the efficacy of the informal statements, as defense counsel repeatedly requested their written confirmation.
Assuming the informal communications somehow served to modify the formal discovery responses, the defendants now describe the informal statements as "disavow[ing] any intent to use a privilege claim to bar discovery in [sic] written and oral communications with defendants." (Doc. 83 at 20). However, it is evident that the defendants, like the Court, clearly — and correctly — understood the plaintiffs informal comment that "no documents have been withheld" as a denial of the existence of any requested documents, not as a confirmation that such documents existed accompanied by a withdrawal of any claim of protection from discovery. Indeed, had the defendants believed the latter, they would not have offered to forego efforts to obtain production in exchange for a written confirmation but would have demanded immediate production of the existing, non-protected documents.
In summary, while the plaintiff informally altered its formal position that it had responsive documents, it never withdrew its original, formal position that any such documents are subject to work product protection.
2. Delay in producing a privilege log.
The defendants represent that the failure to provide a privilege log along with initial discovery responses works a waiver of any privilege. (Doc. 83 at 21). Their only authority for this absolute sanction in fact simply quoted a secondary source for the proposition that "[s]ome courts" take this position. First Savings Bank v. First Bank System, Inc., 902 F. Supp. 1356, 1360 (D. Kan. 1995) (quoting 8 C. Wright, A. Miller R. Marcus, Federal Practice Procedure § 2016.1 at 230-31 (2nd ed. 1994)), rev'd on other grounds, 101 F.3d 645 (10th Cir. 1996). The First Savings Bank Court itself ruled that waiver was too harsh a sanction under the circumstances. Id. at 1363-66. Moreover, the Advisory Committee Notes to Rule 26(b)(5) mention waiver of the privilege or protection as a sanction only for failure to expressly assert the privilege, not for failure to produce a privilege log.
The defendants also rely on Rural Water Systems Insurance Benefit Trust v. Group Insurance Administrators, Inc., 160 F.R.D. 605 (D. Kan. 1995). In that case, however, the privilege log was provided almost a year after the objecting party recognized that it possessed responsive documents and after the Court had denied a motion for protective order. Id. at 607. Hurst v. F.W. Woolworth Co., 1997 WL 61051 (S.D.N.Y. 1997), belatedly cited by the defendants in their reply brief, is similar. In A.I.A. Holdings v. Lehman Brothers, Inc., 2000 WL 1538003 (S.D.N.Y. 2000), the withholding party refused to provide any information other than that it was withholding a tape recording. Here, in contrast, the plaintiff provided a privilege log, identified as notes, memoranda and witness interview summaries prepared by Special Agents Metheney and Holland, promptly after realizing it was holding documents with respect to which its previously asserted claim of work product protection applied.
The defendants do not question that mere inadvertence explains the informal comments of plaintiffs counsel. (Doc. 83 at 20). Nor do they assert any prejudice other than delay, which repeated extensions of deadlines in the case render moot. Finally, the defendants share responsibility for the confusion, both for ignoring their personal knowledge that the special agents took notes during their interviews and for failing to press the plaintiff for a definitive response despite their expressed uncertainty as to the plaintiffs position.
In summary, the facts presented cannot justify imposing the rare and harsh sanction of waiver.
3. Interrogatory Responses.
The defendants served contention interrogatories on the plaintiff; seeking to discover the factual basis for certain of the plaintiffs allegations. The plaintiff, unsurprisingly, included in its responses information gleaned from the interviews at issue. The defendants argue that the plaintiffs interrogatory responses constitute an abandonment of work product protection. (Doc. 83 at 21-22).
The defendants' position is baseless. Rule 26(b)(3) protects from discovery only "documents and tangible things," not information. Fed.R.Civ.P. 26(b)(3). Because the protection afforded by Rule 26(b)(3) extends only to documents, the plaintiff could not have lost this protection by providing unprotected, non-documentary information.
Finally, the defendants complain that it is "especially egregious" for the plaintiff to use information from witnesses "in crafting its legal theory" without providing the special agents' notes and summaries. (Doc. 83 at 21). The defendants' stridency does not compensate for their lack of legal authority for this novel proposition.
In summary, Magistrate Judge Lee's ruling that the plaintiff did not waive work product protection is neither clearly erroneous nor contrary to law.
CONCLUSION
For the reasons set forth above, Magistrate Judge Lee's order denying the defendants' motion to compel production of witness statements, (Doc. 63), is affirmed.
It is so ORDERED.