Edalati, et al v. Sabharwal, et al
Filing
71
MEMORANDUM AND ORDER granting in part and denying in part 46 Relators' Motion to Compel; denying without prejudice 51 Defendants' Cross-Motion for Protective Order. See Order for details. Signed by Magistrate Judge Gwynne E. Birzer on 6/15/2020. (rel)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
UNITED STATES ex rel. MONA SABET
EDALATI and DAVID EDALATI; and
MONA SABET EDALATI and DAVID
EDALATI, individually,
)
)
)
)
)
Plaintiffs/Relators,
)
)
v.
)
)
PARAMJEET SABHARWAL,
)
WANDA KANIEWSKI, KANSAS
)
INSTITUTE OF MEDICINE LLC,
)
KANSAS INSTITUTE OF MEDICINE,
)
INC., and MINIMALLY INVASIVE
)
SURGERY HOSPITAL, INC.,
)
)
Defendants.
)
_______________________________________)
Case No. 17-cv-02395-EFM-GEB
MEMORANDUM AND ORDER
On June 2, 2020, the Court conducted an evidentiary hearing regarding Relators’
Motion to Compel (ECF No. 46) and Defendants’ Cross-Motion for Protective Order
(ECF No. 51). Realtors appeared through counsel, Cory Nelson and Robert Tormohlen.
Defendants appeared through counsel, Scott Hunter, and Defendant Paramjeet Sabharwal
also appeared in person.
After considering the evidence presented at the hearing and reviewing the parties’
written briefs and all attached exhibits (ECF Nos. 46, 47, 48, 51, 52, 56, and 57) the Court
GRANTED IN PART AND DENIED IN PART Realtors’ Motion to Compel and
DENIED WITHOUT PREJUDICE Defendants’ Cross-Motion for Protective Order.
The previously-announced ruling of the Court is now memorialized below.
I.
Introduction
The Court held an evidentiary hearing on June 2, 2020 regarding the outstanding
issues contained in Relators’ Motion to Compel and Defendants’ Cross-Motion for
Protective Order. The Court previously conducted two status conferences regarding these
Motions whereby several issues were resolved as a result.1 However, issues regarding (1)
Relators’ request for production of Defendants’ financial documents; (2) Relators’ request
for expenses incurred in making their Motion to Compel; and (3) Defendants’ request for
Relators to pay its costs in gathering electronically stored information (ESI) relevant to
certain discovery requests remained. These issues were the subject of the June hearing.
The Court, after listening to the testimony of Defendant Sabharwal and considering
the other evidence presented, ruled on these issues at the hearing. The Court’s rulings,
along with a summary of the nature of the case as pertinent to the issues at hand, are
discussed below in Sections II, III and IV.
Also, at the June hearing, the Court, after
discussion with counsel, amended the Scheduling Order to better fit the litigation needs of
the parties as the case proceeds. The new deadlines are set forth in Section V of this Order.
II.
Nature of the Case2
This case primarily concerns claims brought by Relators on the United States
Government’s behalf3 against Defendants under the False Claims Act (“FCA”).4
1
See ECF Nos. 61, 62 and 67.
See ECF Nos. 23, 27, and 47 regarding the information cited in this Section. The information in
this Section should not be construed as judicial findings or factual determinations.
3
The United States declined to intervene in this matter, but 31 U.S.C. § 3730(b)(1) allows Relators
to maintain the action in the name of the United States (ECF No. 11).
4
31 U.S.C. § 3729, et seq.
2
Defendant Paramjeet Sabharwal is a medical doctor and the sole owner/principal of
Defendants Kansas Institute of Medicine, LLC (“KIM LLC”), Kansas Institute of
Medicine, Inc. (“KIM Inc”), and Minimally Invasive Surgery Hospital, Inc. (“MISH”).
Defendant Wanda Kaniewski is also a medical doctor and wife of Dr. Sabharwal. MISH
operates a for-profit hospital and the KIM Entities operate medical clinics. Relators were
formerly employed by the Defendant Entities as a primary care physician and manager of
the KIM medical clinics. While employed, Relators state they witnessed many unlawful
business practices by Dr. Sabharwal. Based on those practices, Relators have asserted five
counts of wrongdoing under the FCA against Defendants. The Court will discuss the two
counts relevant to the issues herein.
First, Relators allege violations of the Stark Law, which generally prohibits
healthcare entities from submitting claims to Medicare or Medicaid for services provided
pursuant to referrals from physicians with whom they have financial relationships.5
Relators claim that because Dr. Sabharwal owns MISH and the KIM Entities, all patient
referrals made by Dr. Sabharwal or Dr. Kaniewki to MISH or the KIM Entities doctors, as
well as all referrals made by the KIM Entities doctors at Dr. Sabharwal’s insistence and
direction, facially violate the Stark Law unless some exception or safe harbor applies.
Relators allege Dr. Sabharwal and Dr. Kaniewski made hundreds, if not thousands, of
patient referrals to MISH.
5
See 42 U.S.C. § 1395nn.
Second, Relators allege violations of the Anti-Kickback Statute (“AKS”), which
makes it a FCA violation to “knowingly and willfully” receive “any remuneration” in
return for “referring an individual to a person for the furnishing . . . of any item or service
for which payment may be made . . . under a Federal health care program.”6 Relators claim
both MISH and Dr. Sabharwal (as MISH’s sole owner) directly benefitted from the
substantial numbers of referrals Dr. Sabharwal and Dr. Kaniewski generated to MISH, as
well as from the substantial numbers of referrals made to MISH by Dr. Sabharwal’s
employee doctors at his insistence and direction.
III.
Rulings Regarding Relators’ Motion to Compel (ECF No. 46)
A.
Requests for Production of Financial Documents
Relators propounded several discovery requests to Defendants seeking financial
documents. The first set of requests at issue were directed to Defendants MISH, KIM Inc
and KIM LLC only (collectively referred to as “Defendant Entities”). The RFPs asked
each entity to produce all documents reflecting its “financial condition from January 1,
2011 to the present, including but not limited to, all income statements, balance sheets,
cash flow statements, audits, profit/loss statements, and tax returns.”7 The other set of
document requests at issue were propounded on all Defendants. These RFPs request
production of all documents from January 1, 2011 to the present “reflecting all distributions
6
7
42 U.S.C. § 1320a-7b.
ECF No. 47, p. 17.
of money or property” to Dr. Sabharwal and/or Dr. Kaniewski, as well as between MISH
and the KIM Entities.8
At the June 2, 2020 hearing, Defendants informed the Court they would produce the
requested tax returns for the Defendant Entities subject to the entry of an attorney-eyes
only protective order. Defendants, however, continued to object to production of all other
requested documents based on relevancy and confidentiality concerns.
Under Rule 26(b)(1), a party may receive discovery “regarding any non-privileged
matter that is relevant to any party’s claim or defense . . . .” Relevancy is to be “construed
broadly to encompass any matter that bears on, or that reasonably could lead to other
matter[s] that could bear on” any party’s claim or defense. 9 In other words, courts should
permit a request for discovery unless “it is clear that the information sought can have no
possible bearing” on a claim or defense.10 Information need not be admissible in evidence
to be discoverable, but the scope of discovery must be proportional to the needs of the
case.11 Relevancy determinations are generally made on a case-by-case basis.12
Relators argue the financial condition of each Defendant Entity is relevant to
establishing the “referral scheme” they allege violates the Stark Law and to proving the
“remuneration” element of their AKS claims against Defendants. Additionally, Relators
8
Id. at 20.
In re EpiPen, No. 17-MD-2785-DDC-TJJ, 2018 WL 1586426, at *2 (D. Kan. Apr. 2, 2018)
(quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)).
10
Gilbert v. Rare Moon Media, LLC, No. 15-MC-217-CM, 2016 WL 141635, at *4 (D. Kan. Jan.
12, 2016) (quoting Sheldon v. Vermonty, 204 F.R.D. 679, 689–90 (D. Kan. 2001) (emphasis in
original)).
11
Fed. R. Civ. P. 26(b)(1).
12
In re EpiPen, 2018 WL 1586426, at *2.
9
insist the information is relevant to whether Defendants qualify for certain exceptions or
safe harbors under the FCA and AKS upon which Defendants rely.
Relators further argue discovery reflecting distribution of property and money is
relevant to Defendants’ defenses regarding certain exceptions to the Stark Law. Also,
Relators claim evidence of MISH’s distributions of money or property to Dr. Sabharwal
and/or Dr. Kaniewski are directly relevant to Relators’ AKS claims. Relators state that to
the extent MISH provided inducements to Dr. Sabharwal and/or Dr. Kaniewski to generate
improper patient referrals—through distributions of money or property—such inducements
would provide prima facie proof of illegal kickbacks under the AKS.
Defendants argue the requested financial information is not relevant to FCA cases.
In support, Defendants cite Noaimi v. Zaid13 for the proposition that tax returns are
irrelevant and not discoverable. However, Noaimi is not an FCA case. Additionally, the
cited portion of the case concerned production of personal tax returns as opposed to the
production of business documents. Here, Relators’ requests primarily encompass business
documents, but Relators are also seeking Dr. Sabharwal’s and Dr. Kaniewski’s personal
tax returns.
The Court agrees with Defendants that personal tax returns invoke a higher degree
of confidentiality concerns. This is reflected by the District’s law surrounding production
of the same:
The Courts have developed a two-pronged test assure a balance between the
liberal scope of discovery and the policy favoring the confidentiality of tax
returns. First, the court must find that the returns are relevant to the subject
13
283 F.R.D. 639, 643-43 (D. Kan. 2012).
matter of the action. Second, the court must find that there is a compelling
need for the returns because the information contained therein is not
otherwise readily obtainable. The party seeking production has the burden of
showing relevancy, and once that burden is met, the burden shifts to the party
opposing production to show that other sources exist from which the
information is readily obtainable.14
Here, the Court finds that the requested financial documents are relevant not only
to Relators’ claims as stated above, but also to the safe harbor exceptions Defendants rely
on to deny wrongdoing. The Court, however, takes Dr. Sabharwal’s and Dr. Kaniewski’s
concerns regarding the confidentiality of their personal tax returns seriously. At the June
2, 2020 hearing, Dr. Sabharwal’s testimony established he and Dr. Kaniewski keep their
tax returns private and have only shared them with their accountants, banks for lending
purposes, and of course, the IRS.
And, as admitted by both parties at the hearing, the
Defendant Entities’ business documents should provide Relators with the information they
are seeking regarding distributions of property and money to Dr. Sabharwal and Dr.
Kaniewski.
The Court therefore orders that all requested documents from Defendants MISH,
KIM Inc. and KIM LLC be produced.
As discussed during the hearing, this shall
specifically include any document reflecting payment to any person or entity providing a
healthcare service, including but not limited to Dr. Sabharwal and Dr. Kaniewski.
However, at this time, Dr. Sabharwal and Dr. Kaniewski will not be ordered to produce
their personal tax returns or any other personal financial documents.
14
Neither will
Stephenson v. Young, No. 10-2197-KHV-KGG, 2010 WL 4961709, at *3 (D. Kan. Nov. 29,
2010) (quoting Hilt v. SFC Inc., 170 F.R.D. 182, 189 (D. Kan. 1997)).
Defendants be ordered to produce documents from any business entity other than MISH,
KIM Inc. and KIM LLC. If, after review of the above documents, Relators can show the
Court a need for further information, including personal financial documents or
documentation from other entities, the Court may allow supplemental production at that
time. However, as stated during the hearing, the need for such documentation must be
directly relevant to the issues in this case.
For the above reasons, Relators’ Motion to Compel regarding their requests for
production of financial documents is GRANTED IN PART AND DENIED WITHOUT
PREJUDICE IN PART. Within 30 days from the date of this Order, Defendants shall
supplement their discovery responses by producing the above-ordered financial documents
to Relators. Within 7 days of the date of this Order, the parties should submit an attorneyeyes only protective order to the Court regarding these financial documents as discussed
during the June 2, 2020 hearing.
2.
Discovery Requests Regarding Medicare Cost Reports and Gall
Bladder/ Bariatric Surgeries
Before the June 2, 2020 hearing, Defendants agreed to produce its Medicare Cost
Reports for the years 2014 to 2018.
An issue arose during the hearing regarding
Defendants’ certification of certain Cost Reports. As ordered by the Court during the
hearing, Defendants shall be allowed 30 days from the date of this Order to supplement
their responses to show certification.
Also, during the June 2, 2020 hearing, the parties came to an agreement regarding
Interrogatory Number 11 issued to Defendant MISH, which sought certain information
regarding gall bladder and bariatric surgeries performed within 6 months of each other.
Defendant MISH initially opposed production by arguing a response to the same would be
unduly burdensome because it did not keep such information in the ordinary course of
business. However, during the hearing, Dr. Sabhawaral stated MISH could produce its
Operating Room Logs, which would contain relevant information.
Relators stated this
would be acceptable. Thus, within 30 days from the date of this Order, MISH should
produce the referenced Operating Logs to Relators.
3.
Expenses under Fed. R. Civ. P. 37(a)(5)(A)
Relators, pursuant to Fed. R. Civ. P. 37(a)(5)(A), ask Defendants to pay for their
reasonable expenses incurred in making the Motion to Compel. Rule 37(a)(5)(A) provides:
If the motion [to compel] is granted, --or if the disclosure or requested
discovery is provided after the motion was filed--the court must, after giving
an opportunity to be heard, require the party whose conduct necessitated the
motion, the party or attorney advising that conduct, or both to pay the
movant’s reasonable expenses incurred in making the motion, including
attorney’s fees. But the court must not order this payment if: (i) the movant
filed the motion before attempting in good faith to obtain the disclosure or
discovery without court action; (ii) the opposing party's nondisclosure,
response, or objection was substantially justified; or (iii) other circumstances
make an award of expenses unjust.
Relators argue Defendants’ lengthy delay in producing discovery already agreed
upon and boilerplate objections to producing the other requested discovery have no
substantial justification. The Court, however, declines to award expenses in this instance.
While the Court does not condone Defendants’ delay in producing agreed-upon discovery,
it takes into consideration the voluminous and complex nature of the requests, which seek
information and documents spanning the last nine years. With that being said, the Court
expects Defendants to timelier respond to discovery as this case progresses, and if
deadlines cannot be met, Defendants should promptly confer with Relators regarding the
same. As explained during the June 2, 2020 hearing, such leniency will not be shown in
the future if the Court believes delay tactics are being employed by any party.
IV.
Defendants’ Cross-Motion for Protective Order (ECF No. 51)
In response to Relators’ Motion to Compel, Defendants requested a protective order
regarding the discovery requests outlined on pages 13-16, 23-25 and 25-26. While
Defendants do not object to producing the discovery as narrowed by Relators, they do ask
that Realtors bear the costs of producing the ESI related to these requests. In particular,
Defendants ask Relators to pay for the time it would take Defendants’ staff to locate and
gather the ESI. Accordingly, per Rule 26(c)(1)(B), Defendants ask for entry of a protective
order allocating the expenses of this discovery to Relators.
Pursuant to Rule 26(c)(1)(B) courts have broad discretion to protect a responding
party from “undue burden or expense” by conditioning discovery on the requesting party’s
payment of costs. Because of the presumption that the responding party should bear the
expense of complying with the requests, Defendants have the burden to establish the
discovery expense would be excessive enough to justify cost-shifting.15 In determining
whether to impose discovery costs upon Relators, courts should consider the factors set
forth in Rule 26(b)(1). These include “the importance of the issues at stake in the action,
the amount in controversy, the parties’ relative access to relevant information, the parties’
See Cooper Clinic, P.A. v. Pulse Sys., Inc., No. 14-1305-JAR-GLR, 2017 WL 396286, at *6-7
(D. Kan. Jan. 30, 2017).
15
resources, the importance of the discovery in resolving the issues, and whether the burden
or expense of the proposed discovery outweighs its likely benefit.”16
After listening to the testimony of Dr. Sabharwal and considering the other evidence
submitted at the June 2, 2020 hearing, the Court finds Defendants have not, at this time,
met their burden to shift costs. While Dr. Sabharawal’s testimony did establish some of
the ESI is not readily accessible and it would be time consuming to gather the requested
information, he did not provide any concrete evidence regarding Defendants’ resources, an
estimated total number of staff hours, or an estimated total cost for Defendants to comply
with the discovery requests. Without such information, it is difficult for the Court to truly
access undue burden and expense.17 Additionally, the Court finds the issues at stake in this
action to be important and the discovery requested necessary to resolving the issues.
With that being said, however, the Court does not want to be impervious to the
financial toll complying with the discovery requests will have on Defendants, not to
mention that staff time devoted to gathering documents is staff time away from caring for
patients. And, while Relators estimate the damages in this case to be millions of dollars,
the Court finds their discovery requests overly broad and burdensome. Thus, as discussed
during the hearing, the Court directs the parties to confer regarding the core information
Relators are really seeking and whether a sampling can be done to give Relators an idea of
16
Id.
See, e.g., id. (denying request for discovery costs where defendants failed to provide an estimated
cost for compliance); Schneider v. CitiMortgage, Inc., No. 13-4094-SAC, 2016 WL 11268866, at
*1 (D. Kan. Feb. 1, 2016) (“[T]he party seeking a protective order based on undue burden or
expense must submit affidavits or other detailed explanation as to the nature and extent of the
claimed burden or expense.”).
17
what this information contains.
The intent behind this order is to get Relators the
information they truly need to prosecute their case while lessening the burden on
Defendants.
Therefore, the Court will DENY WITHOUT PREJUDICE Defendants’ CrossMotion for a Protective Order. If, after engaging in meaningful conferral as contemplated
by the Court, the parties cannot find a way forward, Defendants may renew their request.
V.
Revised Scheduling Order
Prior to the June 2, 2020 hearing, the Court stayed all case deadlines. At the hearing,
and after consultation with counsel, the Court revised the Scheduling Order (ECF No. 34)
to proceed in phases to better comport with the discovery needs of the parties. In
accordance therewith, the parties shall shave until August 5, 2020 to complete written
discovery. The Court will conduct a status conference on August 7, 2020 at 10:00 am to
discuss the next phase of litigation, which will include mediation, depositions of fact
witnesses, and expert disclosures and depositions. The status conference will be conducted
by dial-in telephone conference unless the undersigned determines there are discovery
issues requiring counsel to appear in person. Counsel must dial 888-363-4749 and enter
Access Code 9686294 to join the status conference.
The Court reminds the parties and counsel they are strongly encouraged to contact
the undersigned magistrate judge with any discovery or scheduling concerns if issues
remain unresolved after the parties have complied with the District’s meet and confer
requirements.18
IT IS THEREFORE ORDERED that Relators’ Motion to Compel is GRANTED
IN PART AND DENIED IN PART and Defendants’ Cross-Motion for Protective Order
in DENIED WITHOUT PREJUDICE. Within 30 days from the date of this Order,
Defendants shall supplement their discovery responses as set forth in Section III above,
including submitting an attorney-eyes only protective order regarding Defendants’
financial documents within 7 days from the date of this Order.
IT IS SO ORDERED.
Dated at Wichita, Kansas this 15th day of June, 2020.
s/ Gwynne E. Birzer
GWYNNE E. BIRZER
United States Magistrate Judge
18
See D. Kan. Rule 37.2 (requiring counsel to in good faith talk with each about their issues rather
than exchanging emails or letters).
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