ACHERON MEDICAL SUPPLY, LLC v. COOK MEDICAL INCORPORATED et al
Filing
49
ORDER granting in part and denying in part Plaintiff's 40 Motion to Compel. Signed by Magistrate Judge Denise K. LaRue on 9/29/2016. (CBU)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
ACHERON MEDICAL SUPPLY, LLC,
Plaintiff,
vs.
COOK MEDICAL INCORPORATED, et
al.,
Defendants.
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No. 1:15-cv-1510-WTL-DKL
Entry on Plaintiff’s Motion to Compel [doc. 40]
Acheron Medical Supply, LLC brought this action for damages for breach of
contract against Cook Medical Incorporated and Cook Medical LLC (together “Cook
Medical” or “Cook”). In July 2014 Acheron and Cook Medical, LLC entered into a fiveyear Distribution Agreement (Agreement) pursuant to which Acheron was to be the
exclusive distributor to the Veterans Administration (VA) and Department of Defense
(DOD) Medical Centers of endoscopy medical products manufactured by Cook and a
non-exclusive distributor of other Cook products. The Agreement provided that Acheron
would obtain a Federal Supply Schedule (FSS) contract and use it to sell the products.
Acheron claims that Cook breached the Agreement by refusing to use Acheron to
distribute products to the DOD until Acheron acquired an FSS with the VA, that Cook’s
refusal triggered an audit in the FSS process, and that Cook refused to cooperate with an
audit of Cook Medical’s Customer Pricing Records requested by the VA’s Office of
Inspector General (OIG) as part of the FSS application process. As a result, Acheron
alleges that it was unable to obtain an FSS, which Cook cited as its reason for terminating
the Agreement.
Plaintiff’s Motion to Compel as limited by agreement of the parties following
informal discovery conferences held on August 19 and 22, 2016, concerns: information
the VA’s OIG had requested of Cook Medical as a condition of acting on Acheron’s
application for an FSS, which is the subject of Interrogatory No. 22 of Plaintiff’s Second Set
of Interrogatories, and other information regarding Cook Medical’s discount pricing,
which is Interrogatory No. 23 of Plaintiff’s Second Set of Interrogatories. Corresponding
documents are sought in Request for Production Nos. 19 and 20, respectively. The discovery
at issue was served on Defendants’ counsel by mail on June 24, 2016.
More specifically, the interrogatories state:
22. Provide all information that was requested by the Department
of Veterans Affairs Office of Inspector General in its letter to Ron Walters
of Cook Medical dated August 14, 2014 (“OIG Letter”) as listed in Enclosure
A to that letter in the suggested record layout set forth in Enclosure B to
that letter.
23. To the extent not expressly requested in Enclosure A to the OIG
Letter, or not already included in your response to Enclosure A, also
provide the following information:
● Discounts Cook Medical gives to commercial end-user customers
● Discounts given to Valued Added Resellers
● Discounts given to Dealers/Distributors/Re-sellers. If there are
tiers of discounts based on different classes provide those as well
and indicate within which category Acheron fell
● Discounts given to national accounts
● Discounts for state and/or local governments
● Discounts given to any educational institutions
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● Discounts given to prime vendors/syndicated buying
organizations
● Information describing any tiered discount plans
● A summary of non-standard discounting practices, including the
types of discounts given and a description of the circumstances
under which they are given.
● Any incentives, rebate programs, or other non-discount based
inducements Cook offers to any or all customer classes, including
extended payment periods, extended warranties, etc.
[Pl.’s Mot. Compel, Ex. F, Pl.’s Second Set Interrogs., doc 40-6. at 4-5.] The OIG Letter states
that it “is performing a pre-award review of the proposal submitted by Acheron” [id. at
8] and refers to “a list of preliminary information (Enclosure A) needed to start our
review.” [Id.] Although the letter initially refers to the proposal submitted by Acheron
and the “proposed items” and latter references a “sample of your specific data for all
items included in the proposal,” [id. at 8-9], it also states: “We have … determined we
need electronic transactional sales data from both Cook and Acheron to conduct our
review. This data should include all domestic sales transactions, FSS and non-FSS … from
February 1, 2014, through July 31, 2014.” [Id. at 8.] Further, Enclosure A to the OIG Letter,
titled “Preliminary Review Materials Requested, requires: “Sales data as explained in the
letter …. Please ensure line item detail for all items and do not limit the data to only items
included in Acheron’s offer.” [OIG Letter, Enclosure A, doc. 40-6, at 10.]
Request for Production No. 19 seeks: “All documents responsive to the request for
information” by the OIG Letter. [Pl.’s Mot. Compel, Ex. H, Pl.’s Second Set Reqs. Produc.,
doc. 40-8 at 5.] Request for Production No. 20 seeks, to the extent not included in the
production responsive to Request No. 19, all documents containing information regarding
Cook Medical’s discount information specified in Interrogatory No. 23.
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[Id. at 5-6.]
Defendants served their responses to the Second Set of Interrogatories on Acheron’s
counsel on August 1, 2016. They made general objections based on, among other things,
relevance and proportionality limits on discovery under Federal Rule of Civil Procedure
26(b)(1). Cook specifically objected to Interrogatory No. 22 on the ground that it attempted
“to require Cook Medical to create and/or assemble information for purposes of this
litigation that Cook Medical previously determined was too burdensome to create
and/or assemble and too financially sensitive to disseminate when such information was
requested by the OIG.” [Pl.’s Mot. Compel, Ex. G, Cook Medical’s Resp. Pl.’s Second Set
Interrogs., doc. 40-7 at 3.] Cook also objected on the grounds of undue burden and the
proportionality limits on discovery, estimating that “assembling this information would
require the equivalent of dedicating a full time employee to the task for a period of 37 to
52 days.”
[Id. at 4.]
Similarly, Cook objected to Interrogatory No. 23 “as unduly
burdensome and failing to comply with the proportionality limits on discovery….” [Id.at
5.] Cook’s objection to Interrogatory No. 23 continued:
Responding to this request would require Cook Medical to review the
pricing terms of thousands and thousands of customers, and then to review
the contracts underlying those relationships to determine whether
disclosure of this information would breach any of the contracts. Moreover,
disclosure of this information would place Cook Medical at a competitive
disadvantage insofar as the principals of Acheron continue to operate as
potential competitors of Cook Medical. The Interrogatory is further
objectionable because is not reasonably calculated to lead to the discovery
of admissible evidence, and is not limited in time and scope to the matters
at issue in this case.
[Id.] However, noting that it was not waiving its objections, Cook produced some
documents containing more limited information it agreed to assemble and produce in
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order to offer a compromise. Cook made like objections to Request for Production Nos. 19
and 20. [Pl.’s Mot. Compel, Ex. I, Cook Medical’s Resp. Pl.’s Second Set Reqs. Produc., doc. 409 at 6-8.]
In its Motion to Compel Acheron argues that its purpose in Interrogatory No. 19 “is
to replicate as nearly as possible what Cook Medical was required to do as part of the FSS
application process.” Acheron asserts that the information is “highly relevant because it
enhances the ability of an expert to attest to how the VA more likely than not would have
responded in terms of acting on the application and what prices would have been
considered ‘fair and reasonable.’” [Pl.’s Mot. Compel, doc. 40, at 7 ¶ 17.] Acheron argues
that Cook overstates its burden in producing the information, citing the General Services
Administrations’ surveys on the amount of time it takes to produce the pre-award
disclosures in offers for FSS contracts. GSA concluded that it took on average 32.41 hours
for “light lift” situations and 41.9 hours for “heavy lift” situations. [Id., at 8 ¶ 18.]
Furthermore, Acheron argues that the proportionality standard of Rule 26 is satisfied
“given the centrality of the issue of the audit and what would have ensued had Cook
Medical cooperated[.]” [Id. ¶ 19.] Acheron estimates its potential damages are in the
millions of dollars range. [Id.]
Regarding Interrogatory No. 23, Acheron contends that it seeks “information that
very likely would have been sought by the VA in the negotiation process in determining
a ‘fair and reasonable price’ for the FSS had Cook Medical cooperated with the OIG audit
request. [Id. ¶ 20.] Again, Acheron asserts that the information is needed for an expert
to determine how the VA more likely than not would have responded to the FSS
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application and what price levels would have been considered “fair and reasonable.” [id.,
at 8-9, ¶ 20.] Acheron submits that Cook Medical would not have to review the pricing
terms of thousands of customers, but would only need to reveal its structured pricing
arrangements, which it claims are “something that any substantial manufacturer like
Cook … would have.” [Id., at 10, ¶ 24.] Also, Acheron says that Cook’s claims of a
competitive disadvantage ring hollow since Acheron is “essentially non-operational as a
consequence of Cook Medical’s termination of the Agreement.” [Id.]
Cook Medical responds that Interrogatory Nos. 22 and 23 “purport to require [it] to
engage in an internal audit of records and extensive research to compile data to respond
to each interrogatory.” [Resp. Mot. Compel, doc. 45, at 8.] Cook Medical submitted the
Affidavit of Kelly Fischer, the Director of Global Reporting & Accounting Operations for
Cook Group, Inc., who assisted with preparing Cook’s responses to the discovery at issue.
[Fischer Aff., doc. 45-1 ¶ 2.] (During one of the telephonic discovery conferences with the
Court Cook indicated that it thought an evidentiary hearing would be necessary; Acheron
disagreed. The Court proceeds on the basis of the evidence before it.) Fischer and Jeff
Lasiter, Pricing Manager for Cook Group, Inc., tried to make a reasonable estimate of the
amount of time that would be needed to assemble the information response to
Interrogatory No. 22. [Id. ¶ 5.] Fischer states that the OIG Letter request “pertains to all of
Cook Medical LLC’s thousands of customers across all products, not just the endoscopy
products that were proposed to be listed on the Federal Supply Schedules,” meaning that
it “covers thousands of customers and approximately 16,000 products.” [Id. ¶ 6.] And
“[m]any individual customers have multiple contracts that cover different products,
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locations and circumstances.” [Id.] In addition, “much of the information requested does
not readily exist and would have to be created by piecing together information from
multiple sources.” [Id. ¶ 7.] For example, “Cook Medical LLC does not have existing
written pricing policies and procedures.” [Id. ¶ 11.] Nor does Cook Medical have an
organizational chart showing the persons responsible for preparing the CSP [Commercial
Sales Practices].” [Id.]
Fischer explained that in order to provide much of the information requested,
someone would have “to pull each individual contract [or contracts] for thousands of
customers across several product lines and to perform calculations” and/or compile
information. [Id. ¶ 9; see also id. ¶¶ 10, 11 (indicating that Cook Medical LLC does not
have existing written pricing policies and procedures”).] Fischer stated that the process
for responding to other items “may be simple,” for example, responding to Item 9, which
is “[r]econciliation of sales data to your general ledger or your financial statements.” [Id.
¶ 12; see doc. 40-6.] She estimated that it would take 37 to 52 full-time employee days to
compile the information in the Preliminary Review Materials Requested in the OIG Letter
and likewise in Interrogatory No. 22. [Fischer Aff., doc. 45-1 ¶ 13.] Historically, when Cook
makes similar estimates about how much time it takes to assemble information, it has
taken longer than projected; Fischer is concerned that the actual time it may take to
respond to the interrogatories may be longer than she has estimated. [Id. ¶¶ 5, 13.]
Cook Medical also challenges the relevance of the requested information. As
noted, Acheron asserts that its expert needs the information to attest to how the VA more
likely than not would have responded to the FSS application and what prices it would
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have found fair and reasonable. Cook responds that the information requested was only
preliminary and additional, follow-up information would be required; as a result the
expert could only speculate about what might have happened. Cook also raise a concern
over protecting the confidentiality of the information if it is substantively relied on by a
party in summary judgment or at trial. (It acknowledges, however, that the parties can
protect the information under a Protective Order during the discovery process. [Resp.
Mot. Compel, doc. 45, at 12.])
In reply, Acheron maintains that the information sought in the OIG Letter and
Interrogatory Nos. 22 and 23 relate only to the products on the proposed FSS schedule, that
is, Endoscopy products. It asserts that the information is not sought for all 16,000 of Cook
Medical’s products across all ten of its business units, but rather only for sales and pricing
information related to the 1,384 Endoscopy products on the FSS solicitation. [See, e.g.,
Pl.’s Reply Support Mot. Compel, doc. 46, at 2, 6.]
Discussion
Under the Federal Rules of Civil Procedure, unless otherwise limited by the Court,
the scope of discovery is broad:
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.
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Fed. R. Civ. P. 26(b)(1). The Court may limit the extent of discovery if it finds that the
proposed discovery falls outside the scope permitted by Rule 26. Fed. R. Civ. P. 26(b)(2).
Rule 33 of the Federal Rules of Civil Procedure, which governs written
interrogatories, a party to serve on any other party “no more than 25 written
interrogatories, including all discrete subparts.” Fed. R. Civ. P. 33(a)(1). An interrogatory
may relate to any matter that is nonprivileged, relevant, and discoverable under Rule
26(b). Fed. R. Civ. P. 33(a)(2). Thus the proportionality discovery rule applies to
interrogatories and an interrogatory must be “proportional to the needs of the case,”
considering among other things, “whether the burden or expense of the proposed
discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Rule 33 requires that the
responding party serve its answers and objections within 30 days after being served with
the interrogatories, unless otherwise agreed upon by the parties or ordered by the court.
Fed. R. Civ. P. 33(b)(2).
Rule 34, which governs discovery requests for the production of documents,
allows a party to request another party to produce documents or electronically stored
information “in the responding party’s possession, custody, or control.” Fed. R. Civ. P.
34(a)(1)(A). The Rule “only requires a party to produce documents that exist at the time
of the request; a party cannot be compelled to create a document for its production.”
Williams v. City of Hartford, No. 3:15CV00933(AWT), 2016 WL 1732719, at *17 (D. Conn.
May 2, 2016); see also Turner v. Rataczak, No. 13-CV-48-BBC, 2014 WL 834721, at *3 (W.D.
Wis. Mar. 4, 2014) (citing cases). Responses to requests for production should be made
“within 30 days after” the responding party is served. Fed. R. Civ. P. 34(b)(2)(A).
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Rule 37 authorizes motions to compel discovery. The Rule requires that such a
motion “include a certification that the movant has in good faith conferred or attempted
to confer with …the party failing to make … discovery in an effort to obtain it without
court action.” Fed. R. Civ. P. 37(a)(1). Similarly, Local Rule 37-1 requires parties to confer
in a good faith effort to resolve a discovery dispute before filing a motion to compel. S.D.
Ind. L.R. 37-1(a)-(b). An incomplete discovery response is treated as a failure to respond.
Fed. R. Civ. P. 37(a)(4). If the court grants a motion to compel in part and denies it in
part, it may issue a protective order authorized under Rule 26(c) and may, but is not
required to “apportion the reasonable expenses for the motion.”
Fed. R. Civ. P.
37(a)(5)(C). Rule 26(c) authorizes protective orders that, among others, limit the scope of
discovery and require that commercial information “be revealed only in a specified
way[.]” Fed. R. Civ. P. 26(c)(D), (G).
To begin with, Cook Medical argues that Acheron’s motion is premature because
it was filed without compliance with Local Rule 37-1 and the Court’s order requiring the
parties to seek an informal resolution of a discovery dispute with the Magistrate Judge
before filing a motion to compel. That may be true, but after the motion was filed, the
Court held two informal conferences with the parties in an effort to resolve the issues
raised by the Motion to Compel. It is also true that the motion does not contain a statement
of Acheron’s good faith efforts to resolve the dispute, but this omission does not require
that the motion be denied. The purposes of these requirements seem to have been
fulfilled—the parties have worked together with the Court in an effort to resolve the
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discovery dispute and the parties have reached a compromise on some of the discovery
at issue, narrowing the present discovery dispute considerably.
In addition, Cook Medical’s response brief suggests that Acheron has gone beyond
the number of interrogatories allowed by Rule 33. However, its initial responses to the
interrogatories did not raise this objection, so it is deemed forfeited. See, e.g., Allen v. MillTel, Inc., 283 F.R.D. 631, 633–34 (D. Kan. 2012).
Moving on, Acheron argues that Cook Medical misreads the OIG Letter and points
out that the letter seeks information related to the “proposed items.” Yet the letter
requests “all domestic sales transactions.” In fact, Enclosure A to the letter requests “sales
data” and expressly advises “do not limit the data to only items included in Acheron’s offer.”
[OIG Letter, Enclosure A, doc. 40-6 at 10.] At best, the OIG Letter is ambiguous as to the
breadth of sales information requested. And Cook Medical’s reading of the letter as
requesting sales information across all products, not just Endoscopy products, is not
unreasonable. Given this reasonable reading and based on Fischer’s affidavit, which is
unrefuted, the OIG Letter would cover thousands of Cook Medical’s customers and
approximately 16,000 products. Furthermore, Cook has offered evidence that responding
to the OIG Letter would require the work of a full time employee for 37 to 52 days. This
evidence has not been refuted by Acheron either.
Instead, Acheron relies on a survey conducted by the GSA of FSS offerors and
reported in the Federal Register regarding the amount of time it takes to make pre-award
disclosures for FSS proposals. The survey indicates that it takes on average 32.41 hours
for “light lift” situations and 41.8 hours for “heavy lift” situations. [See Resp. Opp’n Mot.
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Compel, Ex. 2, doc. 45-2 at 10.] But the average hours reported in the Federal Register’s
“disclosure burden estimates” from over three thousand offers do not refute the specific
evidence submitted by Cook, which concerns the actual amount of time it would take
Cook Medical to assemble its own information in this specific instance.
The time
estimated by Cook Medical for responding to discovery requests at issue seems to
establish undue burden. It also suggests that the requested discovery goes beyond what
would be proportional to the needs of the case. See, e.g., Kleen Prod. LLC v. Packaging Corp.
of Am., No. 10 C 5711, 2012 WL 4498465, at *9 (N.D. Ill. Sept. 28, 2012) (“Rule
26(b)(2)(C)(iii) empowers a court to limit the frequency or extent of discovery if it
determines that the burden or expense of the proposed discovery outweighs its likely
benefit or that it is unreasonably cumulative or duplicative.”) (quotation and citation
omitted), objections overruled by 2013 WL 120240 (N.D. Ill. Jan. 9, 2013).
Regardless, Acheron also argues that had Cook Medical engaged in an interactive
process, it would have discovered that the VA was only interested in the sales
information requested as related to the items listed in the FSS proposal. Assuming that
was in fact the case, then the VA was seeking information relating to only 1,384
Endoscopy products, not all 16,000 Cook products. The December 28, 2014, “No Award”
letter from the VA to Acheron tends to support Acheron’s view that the VA was seeking
information regarding only Endoscopy products. [See Pl.’s Reply Support Mot. Compel,
doc. 46-4 at 1 (stating that Acheron was proposing 1,384 products).] Not to mention, the
fact that the OIG Letter gave Cook Medical only three weeks to assemble the information
also supports this conclusion. In addition, in mid-January 2015 Cook Medical’s Ron
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Walters emailed a superior at Cook, indicating that because of the OIG involvement,
Cook “will need to provide the OIG access to all Cook Endoscopy pricing for their review
and determination of what is fair and reasonable.” [See Reply, Ex. 5, doc. 46-5.] This
suggests that Cook understood that it was being requested to produce sales information
only for its Endoscopy products. Nonetheless, the fact remains that the OIG Letter is
reasonably read as requiring information relating to all of Cook Medical’s products, not
just Endoscopy products. As a result, the discovery at issue requests this breadth of
information as well.
In any event, Acheron submits in its reply brief that “it does not matter whose
interpretation of the VA OIG Letter is correct, because Acheron is only seeking the
information requested relating to Endoscopy products on the proposed schedule and not
any other cook medical products.” [Pl.’s Reply, doc. 46 at 10.] Acheron states that this
amounts to 10% or less of what Cook maintains was requested in the OIG Letter. As a
consequence, the amount of employee time required for Cook to comply would be about
10% of what it asserted, that is, 10% of 37 to 52 days (or 296 to 416 hours, assuming 8 hour
work days), which equals 29.6 to 41.6 hours, making it similar to the averages reported
in the GSA Report in the Federal Register (32.41 hours and 41.8 hours). For this reason,
Acheron submits that compliance is not unduly burdensome or disproportional to the
needs of the case. The Court agrees that limiting the information sought to Endoscopy
products significantly decreases the burden on Cook. The Court acknowledges that the
GSA estimates are only averages and that certain factors such as the size of the business
and high sales volume can increase the amount of time required to respond to the OIG
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request. Even so, it does not appear that the burden on Cook would be undue or
disproportional to the likely benefit from the discovery.
Besides, it seems that the information sought is relevant to Acheron’s claims,
including its damages. While the OIG Letter is a preliminary request for information,
and additional information might have been requested in the audit process, Acheron has
offered evidence that the requested information gives some indication of how the VA
may have responded to its FSS application. [See Declaration of Larry Allen, doc. 46-1 at 1,
¶¶ 12-13 (stating that in order to render an opinion as to whether Acheron’s FSS
solicitation would have been accepted by the VA, and if so, at what prices or range of
prices, he would need to review the information that the VA requested and would have
reviewed).] Any opinion as to what might have happened does not appear to be based
on “pure speculation,” despite what Cook claims.
Cook expresses concern over the disclosure of highly confidential and proprietary
customer, pricing, and other business information. But as Cook itself notes, the parties
can protect the information during discovery with an appropriate Protective Order.
Cook’s fears of substantial prejudice in the event one party relies on the information at
summary judgment or at trial, is premature at this point. The case could be resolved short
of summary judgment or trial. And if the need for greater protections arises down the
road, the Court can address matters at the appropriate time.
Therefore, the Court finds that the Motion to Compel should be granted in part and
denied in part. To the extent that Interrogatory Nos. 22 and 23 and Requests for Production
Nos. 19 and 20 seek information regarding Cook’s Endoscopy products, the information
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is relevant and needed for Acheron’s expert to render an informed opinion. That said,
these discovery requests should be, and hereby are, limited to Endoscopy products only and
Interrogatory No. 23 and Request No. 20 are further limited to the six-month time period
from February 1, 2014 through July 31, 2014. (This time period was already applicable to
Interrogatory No. 22 and Request No. 19 as limited by the OIG Letter.) Furthermore, to the
extent the discovery seeks documents that do not exist—Cook asserts that it has no
written pricing policies and procedures as requested in Item 8 of the Preliminary Review
Materials Requested (Enclosure A to the OIG Letter) or the specific organizational
requested (Item 3 of the Preliminary Review Materials Requested)—Cook Medical will not
be ordered to produce documents that do not exist. Given these understandings, Cook
shall answer Interrogatory Nos. 22 and 23 and produce the documents responsive to
Request for Production Nos. 19 and 20. To the extent the parties have otherwise reached
agreement as to the discovery disputes raised by the Motion to Compel, the motion is
denied. The Court finds that it would be inappropriate to award attorney’s fees to any
party in this instance and therefore declines to make any award.
Conclusion
Accordingly, the Motion to Compel [doc. 40] is denied in part and granted in part.
SO ORDERED: 09/29/2016
Distribution to counsel of record
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