Court Sanctions DOJ and Defendants For Discovery Violations In False Claims Act Case

On July 10, 2020, a federal magistrate judge in the District of Minnesota issued a 39-page decision sanctioning DOJ (and the defendants) for various discovery violations in an FCA case based on alleged violations of the Anti-Kickback Statute.

As previously reported here, the Defendants Paul Ehlen (“Ehlen”), the majority owner of Precision Lens, and Cameron-Ehlen Group (conducting business as Precision Lens) (collectively, the “defendants”) are involved in the distribution of intraocular lenses and other products for ophthalmic surgeries.  DOJ alleges that the defendants provided physicians with expensive trips, meals, and other in-kind remunerations at no cost or below fair market value.  DOJ further alleges that, in exchange, these physicians purchased the Defendants’ products and used them during surgeries, which were subsequently billed to Medicare, in violation of the Anti-Kickback Statute and the False Claims Act.  DOJ and the defendants filed motions seeking sanctions against the other in connection with inadequate preparation of 30(b)(6) designees and potential spoliation of information, documents, and electronically stored information.  DOJ also filed a motion to compel the production of additional potentially relevant documents.

The court first addressed the defendants’ request for sanctions in connection with DOJ’s alleged violations of the court’s discovery order.  The defendants argued that DOJ failed to comply with a court order requiring it to disclose any new alleged false claims before the close of discovery.  In February 2019, the defendants moved to compel DOJ to respond to interrogatories requesting the identification of all alleged false claims and kickbacks.  The judge granted the request, and DOJ subsequently appealed, requesting that it “be permitted to complete fact discovery and provide the actual false claims during expert discovery.”  Order at 3.  The District Court affirmed the Order.  Although in April, DOJ provided a “working list” of kickbacks and supplemented its responses in June and August, in September, DOJ identified additional alleged false claims and stated that “consistent with the Federal Rules and the Court’s Order, Plaintiffs may identify additional claims to be added or claims to be removed as discover in this matter continues…”  Order at 4.  After requesting an extension of the discovery deadlines, including fact discovery, and following a courtesy one-week extension of the claims-identification deadline, two months later, DOJ identified 27,316 new claims and identified new alleged kickbacks.  Then, in December, DOJ identified additional new kickbacks and new claims.  Because DOJ disclosed new claims and kickbacks two months after the Court’s deadline and willfully violated the Court’s orders, the magistrate judge concluded, sanctions against the government were appropriate and that the alleged false claims and kickbacks identified after the discovery deadline would be excluded.

The defendants also argued that DOJ failed to adequately prepare its 30(b)(6) designee for the deposition.  Specifically, the government’s designee was unprepared to answer general questions regarding the claims matching process for the 27,000 claims, which were within the scope of the deposition, and was unable to answer questions related to the method in which Medicare claims are reviewed for medical necessity.  Despite the designee being generally prepared for the deposition, the magistrate judge held that DOJ will be bound by the responses of its designee relating to the claim matching process and would be prohibited from introducing any new testimony or evidence to contest medical necessity for claims submitted to CMS.

The court next addressed the parties’ request for spoliation sanctions. The defendants argued that the government failed to preserve a digital file maintained by the Office of Inspector General.  This was based primarily on deposition testimony from a 30(b)(6) designee and information contained in an attorney declaration.  Because the defendants failed to establish that the government destroyed evidence and that the evidence actually existed, the court denied the defendants’ request for sanctions.  DOJ, in its motion, asserted that the defendants destroyed or failed to preserve potential evidence, including text messages, a file of receipts, and Ehlen’s personal email account. The court concluded that the defendants failed to take reasonable steps to preserve discoverable text messages, leaving the government with gaps in communications between the defendants and physicians. As a remedy, the court agreed to “enter a judicial finding that defendants failed to take reasonable steps to preserve text messages and that responsive messages were lost as a result.” Order at 31.  The court also ordered the defendants to produce all text messages from employees or contractors that are relevant to the current litigation – regardless of time period or custodian – but denied DOJ’s request for attorneys’ fees.  However, as it relates to DOJ’s claim that the defendants failed to preserve Ehlen’s personal email account and a physical file with purportedly relevant receipts, the court held that the government failed to demonstrate that the communications could not be found through another source, that the requested material existed, or that the government was in some way prejudiced.

Lastly, the court considered DOJ’s motion to compel the production of tax returns, missing information from the Precision Lens’s general ledger, and expense reports and other “source” documents that became entries in the general ledger.  During oral argument, the government conceded that the defendants had produced all responsive information in their possession relating to the tax returns and the company’s general ledger.  Despite showing that the defendants may have missed some responsive documents in their production, the court concluded that the government failed to show that the defendants substantially fell below their discovery obligations and subsequently denied the motion to compel.  The court noted that because it had weighed in on the process leading to the production of “source” documents, it was satisfied that the process was “proportional to [the Government’s] needs in the case” and that the defendants had already expended significant financial expense producing tens of thousands of relevant and responsive documents.  Order at 37.

A copy of the Court’s ruling can be found here.