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United States ex rel. Lutz v. Berkeley Heartlab, Inc.

United States District Court, D. South Carolina, Charleston Division

April 5, 2017

United States of America, et al, Plaintiffs,
Berkeley Heartlab, Inc., et al, Defendants. ex rel Scarlett Lutz, et al., Plaintiffs-Relators,


          Richard Mark Gergel, United States District Court Judge

         This matter is before the Court on Plaintiff United States of America's motion to compel Defendants BlueWave Healthcare Consultants, Inc., Floyd Calhoun Dent, III, and Robert Bradford Johnson (collectively, the "BlueWave Defendants") to produce "all information in their custody and control relating to the communications they received from counsel regarding the conduct at issue in this case, including but not limited to all relevant information currently in the possession of the following lawyers and law firms: (1) Gene Sellers and other attorneys at the Law Offices of Gene Sellers; (2) John Galese and other attorneys at the Law Offices of Galese & Ingram, P.C.; (3) attorneys at Balch & Bingham LLP; and (4) attorneys at White Arnold & Dowd, P.C." (Dkt. No. 350 at 2.) For the reasons set forth below, the motion is GRANTED.

         I. Background

         The Government has filed a complaint in intervention against the BlueWave Defendants and Tonya Mallory alleging violations of the qui (am provisions of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33. (Dkt. No. 75.) The alleged FCA violations arise from Blue Wave's marketing of laboratory tests for two laboratory companies, Health Diagnostic Laboratory, Inc. ("HDL"), and Singulex, Inc. ("Singulex"), between 2010 and 2015. The Government has alleged that Defendants violated the FCA when they engaged in multiple kickback schemes to induce physicians to refer blood samples to HDL and Singulex for large panels of blood tests, many of which were medically unnecessary. The Government's allegations detail three illegal kickback schemes: (1) receiving kickbacks from HDL and Singulex in exchange for recommending and arranging for referrals of federal beneficiaries to HDL and Singulex for testing; (2) offering and facilitating processing and handling fees to referring physicians to induce referrals of federal beneficiaries to HDL and Singulex; and (3) waiving co-payments owed by TRICARE beneficiaries to induce those patients to be tested by HDL and Singulex. (Dkt. No. 75.) The Government alleges that the kickback schemes violated the Anti-Kickback Statute, resulted in false claims submitted to the Medicare and TRICARE programs, and caused the Government to pay HDL more than $330 million. Prior to this lawsuit, the United States issued a Civil Investigative Demand upon the Defendants in December 2013 in connection with an investigation by the Office of Inspector General ("OIG"). (Dkt. No. 366 at 6.)

         In their Amended Answer, the Blue Wave Defendants asserted several affirmative defenses, including good faith reliance on advice of counsel;

Defendants BlueWave, Dent, and Johnson acted in good faith reliance on counsel, including, but not limited to, the legal opinions/advice of attorney Gregory B. Root dated December 27, 2007 and January 2, 2008, the legal opinion/advice of attorney Michael F. Ruggio dated April 27, 2012 (said opinion attached hereto and incorporated herein by reference as Exhibit A), and the advice of attorney Gene Sellers with respect to BlueWave's contracts with HDL, Singulex and its independent contractors.

(Dkt. No. 267 at 25.) In March 2016, the Government served its First Set of Document Requests on the BlueWave Defendants, seeking information related to the advice and opinions that the BlueWave Defendants solicited and received from counsel regarding the kickback schemes outlined above while those schemes were ongoing. (Dkt. No. 350-1 at 6.) Specifically, the Government seeks documents and communications relevant to advice the BlueWave Defendants received from counsel from 2008 through July 2014 (for the processing and handling fee scheme) and from 2008 through January 2015 (for the sales contracts and waiver of copays and deductibles schemes). (Dkt. No. 372 at 3 n.l.) The Government is not seeking any discovery from the BlueWave Defendants' current trial counsel.

         The parties disagree about whether the BlueWave defendants have waived attorney-client privilege with regard to communications about the conduct at issue in this case for counsel who advised them during the OIG investigation that began in 2012. The Government contends that by asserting affirmative defenses based on good faith reliance on counsel, the BlueWave Defendants have "not only waived any claims of attorney-client privilege as to the advice upon which they plan to rely in defending this case, they also waived the protections afforded by the attorney-client privilege as to all information regarding: (1) the sales contracts BlueWave entered into with HDL and Singulex; (2) the P&H fees; and (3) the waiver of TRJCARE copays and deductibles." ((Dkt, No. 350-1 at 6-7) (emphasis in original)). The BlueWave Defendants argue that they have not waived their attorney-client privilege with regard to litigation-related documents and communications with former counsel who advised them during the OIG investigation. (Dkt. No. 366 at 13.)

         II. Scope of Discovery

         Rule 26(b)(1) outlines the scope of discovery:

[U]nless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Fed. R. Civ. P. 26(b)(1). A party may object that a document production request exceeds the scope of discovery permitted by Rule 26(b)(1); that it should be denied for the grounds stated in Rule 26(b)(2)(C); that it impermissibly requests privileged or work product material, see Fed. R. Civ. P. 26(b)(3); or that documents should not be produced without implementation of a protective order, see Fed. R. Civ. P. 26(c).

         Rule 37(a)(3)(B) provides that a party seeking discovery may move for an order compelling production or answers against another party when the latter has failed to produce documents requested under Federal Rule of Civil Procedure 34 or to answer interrogatories under Federal Rule of Civil Procedure 33. Fed.R.Civ.P. 37(a)(3)(B)(iii)-(iv). To the extent that the items at issue are relevant and properly discoverable, taking into consideration the proportionality factors under Rule 26(b)(2)(C), and to the extent that they have not been produced, a court should grant a motion to compel, but if the items are not relevant or discoverable, the motion should be denied. See Lynn v. Monarch Recovery Mgmt., Inc., 285 F.R.D. 350, 360 (D. Md. 2012). Whether or not to grant a motion to compel is at the discretion of the trial court. Commercial Union Insurance Co. v. Westrope, 730 F.2d 729, 731 (11th Cir. 1984).

         For discovery purposes, a party is generally considered to have possession and control over documents in the possession of its current or formal legal counsel. See Beach Mart, Inc. v. L & L Wings, Inc.,302 F.R.D. 396, 411 (E.D. N.C. 2014) (ruling that a party has control of documents where a party's attorney or former attorney has control, custody, or possession of those documents); see also Poole ex re. Elliott v. Textron,192 F.R.D. 494, 501 (D. Md. 2000) (holding that "documents in the possession, custody ...

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