Plumbers Local No. 98 Defined Benefit Pension Fund v. Conventry Health Care Inc. et al

Filing 96

MEMORANDUM OPINION. Signed by Magistrate Judge Jillyn K Schulze on 3/21/2013. Associated Cases: 8:09-cv-02661-AW et al.(kns, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN RE COVENTRY HEALTHCARE, INC.:
ERISA LITIGATION
v.
THIS DOCUMENT RELATES TO:
ALL ACTIONS

*
*
*
*
*
*
*
*

Civil No. AW 09-2661

MEMORANDUM OPINION
Presently pending is Plaintiffs’ motion to compel Defendants’ compliance with discovery
requests. ECF No. 50-2. In accordance with Local Rule 104.7, counsel for all parties held
multiple telephonic conferences concerning the production of documents for the class period
alleged in this action (February 9, 2007 to October 22, 2008), but could not agree on the scope of
the discovery time period. Id.
I.

Background
Plaintiffs, Loretta Boyd, Christopher Sawney, Karen A. Milner, Jack J. Nelson and Karen

Billig filed this class action against Defendants, Coventry Health Care, Inc. (Coventry) and
certain fiduciaries of the Coventry Retirement Savings Plan (the Plan), alleging violations of the
Employee Retirement Income Security Act of 1974 (ERISA).1 Plaintiffs set forth four counts in
their Amended Complaint. ECF No. 17. Count I asserts a claim for failing to prudently and
loyally manage the Plan and assets of the Plan; Count II asserts a claim for failing to monitor

1

ERISA governs employee benefit plans, including retirement plans. DiFelice v. U.S. Airways, Inc., 497 F.3d 410,
417 (4th Cir. 2007). “Under ERISA, plan fiduciaries are assigned a number of detailed duties and responsibilities,
which include the proper management, administration and investment of plan assets, the maintenance of proper
records, the disclosure of specific information, and the avoidance of conflicts of interest.” Id. Fiduciaries must act
“with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with
like aims.” 29 U.S.C. § 1104(a)(1)(B) (2000).

fiduciaries; Count III asserts a claim for failing to avoid conflicts of interest; and Count IV
asserts a claim for co-fiduciary liability. On August 12, 2010, Defendants’ Motion to Dismiss
the Amended Complaint was denied as to Counts I, III, and IV, and granted as to Count II. ECF
No. 29.
In the present motion, Plaintiffs seek information relating to Coventry’s Medicare
Advantage Private Fee for Service (PFFS) program during the relevant class period of February
9, 2007 to October 22, 2008. Defendants claim that the court should limit the discovery
timeframe to January 1, 2008 through June 30, 2008, arguing that the requested timeframe is
overbroad in light of rulings in the companion Securities Litigation and would impose an undue
burden on Defendants. ECF No. 50-4 at 1.
II.

Standard of Review
Typically, “[p]arties may obtain discovery regarding any nonprivileged matter that is

relevant to any party’s claim or defense.” FED.R.CIV.P. 26(b)(1). “The relevance standard
addresses ‘concerns about the overbreadth and expense of discovery,’ and, thus, ‘restricts the
scope of discovery to unprivileged facts relevant to the claim or defense of any party . . . .’”
EEOC v. Freeman, 2012 U.S. Dist. LEXIS 114408, *2-3 (D. Md. Aug. 14, 2012) (quoting
Thompson v. Dep't of Hous. & Urban Dev., 199 F.R.D. 168, 171 (D. Md. 2001)). However,
where good cause is shown, “discovery of any matter relevant to the subject matter involved in
the action” may be ordered. Id. “Relevant information need not be admissible at the trial if the
discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Id.;
Maxtena, Inc. v. Marks, 2012 U.S. Dist. LEXIS 174994, *9 (D. Md. Dec. 11, 2012).

2

III.

Discussion
A. The Scope of the Discoverable Time Period
Plaintiffs argue that the discovery time period should run from February 9, 2007 to

October 22, 2008.2 ECF No. 50-6 at 6. Defendants seek to limit the discovery time period to
January 1, 2008 to June 30, 2008.
Defendants rely on this court’s decision in the companion “Securities Litigation,” In re
Coventry Healthcare Sec. Litig., No. 8:09-cv-2337, 2011 U.S. Dist. LEXIS 97246 (D. Md. Aug.
30, 2011). In that case, Plaintiffs allege securities fraud, claiming that Coventry misled investors
about the success of the PFFS program. In the Securities Litigation, the court found that
Plaintiffs had adequately alleged that only two of Coventry’s statements—issued on April 25,
2008 and May 21, 2008—were materially misleading, and accordingly narrowed the Securities
Litigation class period to April 25, 2008 to June 18, 2008. The court held that Plaintiffs failed to
show how any of the Defendants’ statements made after June 18, 2008 could be materially
misleading and thus actionable under securities laws.3
Defendants point out that the court has noted in this case that the ERISA claims and the
Securities Litigation claims are based on the same set of operative facts. In the words of the
court: “From the Amended Complaint filed in the instant case, it appears that the Plaintiffs rely
on the same public statements made by Coventry that the Court assessed in 09-2337-AW [the
Securities Litigation] as the basis for the ERISA claim.” ECF No. 29 at 3. Thus, according to
Defendants, “[g]iven the factual overlap between the Securities Litigation and this case—which
2

Plaintiffs originally asked for documents from January 1, 2007 to December 31, 2008 “to capture the relevant pre
and post-mortem documents relating to the claims raised during the Class Period,” but have since narrowed the
scope of their requests. ECF No. 50-6 at 5-6.
3

In the case of a securities fraud action, “a proposed class should close when the facts which underlie the gravamen
of the plaintiff’s complaint [no longer] represent a reasonable basis on which an individual purchaser or the market
would rely.” In re Alstom SA Sec. Litig., 253 F.R.D. 266, 291 (S.D.N.Y. 2008) (citation and quotation marks
omitted).

3

the Court has acknowledged—the rulings in the Securities Litigation regarding the scope of the
class period are highly persuasive, if not controlling here.” ECF No. 50-4 at 4.
In Lively v. Dynegy, Inc., 2007 U.S. Dist. LEXIS 14794, *19-21 (S.D. Ill. Mar. 2, 2007),
the defendants made a similar argument, asserting that the proposed class period in an ERISA
action “must run only to the date Defendants made curative disclosures with respect to the value
of [the] stock.” Id. The Court disagreed, stating that:
While it is the case that in class actions under the federal securities laws alleging
misrepresentation as to the value of shares the class period generally is determined
by the time when curative information is publicly announced or otherwise
effectively disseminated, see, e.g., In re Sunrise Sec. Litig., MDL No. 655, 1987
WL 19343, at **1-2 (E.D. Pa. July 7, 1987), this case is brought under ERISA . . .
not the securities laws. See In re CMS Energy ERISA Litig., 312 F. Supp. 2d 898,
914-15 (E.D. Mich. 2004) (rejecting defendants’ attempts to import rules derived
from securities law into ERISA fiduciary litigation); In re Xcel Energy, Inc., Sec.,
Derivative & "ERISA" Litig., 312 F. Supp. 2d 1165, 1181-82 (D. Minn. 2004)
(same); In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511,
565-66 (S.D. Tex. 2003) (the duties imposed by federal securities laws do not,
absent express congressional intent, prevent the imposition of additional duties
under ERISA); In re WorldCom, Inc., 263 F. Supp. 2d 745, 767 (S.D.N.Y. 2003)
(same).
ERISA imposes on plan fiduciaries a duty to use prudence “in
investigating, evaluating and making [a plan] investment,” as well as a “duty to
monitor performance [of the investment] with reasonable diligence and to
withdraw the investment if it bec[omes] clear or should have become clear that
the investment was no longer proper for the Plan.” Boeckman, 461 F. Supp. 2d at
814. Accordingly, the proper termination date of the proposed class period is
the date when [the] stock ceased to be, as Plaintiffs allege, an imprudent
investment for the Plan.
Thus, unlike the Securities Litigation, in which the focus is primarily on misleading
statements, the focus in this ERISA action is also on Defendants’ conduct, as fiduciaries, in
offering Coventry Stock as an investment option when they allegedly knew it was overvalued.4
The class period for an ERISA prudence claim covers the period of time during which the
4

Partly because of this difference, only three Defendants remain in the misrepresentation claim—Shawn M. Guertin
(an officer at Coventry), Dale B. Wolf (a director at Coventry), and Coventry (the corporate entity)—whereas all
original Defendants remain in all other aspects of Count I. ECF No. 47.

4

investment is imprudent. See In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 603 (3d
Cir. 2009); see also Lively v. Dynegy, Inc., 2007 WL 685861 at *6 (S.D. Ill. Mar. 2, 2007)
(“Accordingly, the proper termination date of the proposed class period is the date when Dynegy
stock ceased to be, as Plaintiffs allege, an imprudent investment for the Plan.”). As a result, the
ERISA class period, and the scope of discovery that relates to that class period, may be different
from that of the securities class period. See e.g., Harris v. Koenig, 722 F. Supp. 2d 44, 52-53
(D.D.C. 2010) (“[A]lthough the two sets of claims are obviously similar, they differ in
significant ways. The ERISA action alleges a longer Class Period than that alleged by the Illinois
plaintiffs in their securities case: the ERISA action’s Class Period dates back to January 1, 1990,
while the Illinois Litigation’s Class Period dated back only to November 3, 1994.”).
Here, Plaintiffs allege that Defendants breached their ERISA fiduciary duties as early as
February 9, 2007, by imprudently investing Plan funds in Coventry stock. Plaintiffs contend that
Defendants knew or should have known that Coventry’s PFFS program (which was launched on
January 1, 2007) would fail because, inter alia, it lacked proper internal controls to measure,
monitor and process the provider claims. ECF No. 17 at 79-80. Plaintiffs allege that the Plan
continued to suffer losses at least until October 22, 2008, and that Defendants could have
prevented or minimized these losses if they had acted prudently. Accordingly, the court will not
limit discovery to the Securities Litigation class period.
B. The Burden of Discovery on Defendants
Defendants also assert that the burden of producing the electronically stored information
(ESI) within the class period outweighs any potential benefit to the Plaintiffs. ECF No. 50-4 at
7-8. Rule 26(b)(2)(C)(iii) requires a court to limit discovery if “the burden or expense of the
proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in

5

controversy, the parties’ resources, the importance of the issues at stake in the action, and the
importance of the discovery in resolving the issues.” While the court may restrict the scope of a
production request, it “must be careful not to deprive a party of discovery that is reasonably
necessary to afford a fair opportunity to develop and prepare the case.” FED. R. CIV. P. 26
advisory committee’s note. Here, Plaintiffs are entitled to discover information potentially
relevant to their prudence claim during the identified class period. Rules 26(b)(2) and (c)
provide abundant resources to tailor discovery requests to avoid unfair burden or expense and yet
assure fair disclosure of important information.5 “[I]t is clear that, ordinarily, the presumption is
that the producing party should bear the cost of responding to properly initiated discovery
requests.” Thompson v. U.S. Dept. of Hous. & Urban Dev., 219 F.R.D. 93, 97 (D. Md. 2003).
The party seeking to lessen the burden of responding to electronic records discovery “bears the
burden of particularly demonstrating that burden and of providing suggested alternatives that
reasonably accommodate the requesting party’s legitimate discovery needs.” Hopson v. Mayor
& City Council of Baltimore, 232 F.R.D. 228, 245 (D. Md. 2005).
Defendants claim that they applied Plaintiffs’ proposed search terms to the ESI of

5

As stated in Thompson v. U.S. Dept. of Hous. & Urban Dev., 219 F.R.D. 93, 98-99 (D. Md. 2003):
The options available are limited only by the court’s own imagination and the quality and
quantity of the factual information provided by the parties to be used by the court in evaluating
the Rule 26(b)(2) factors. The court can, for example, shift the cost, in whole or part, of
burdensome and expensive Rule 34 discovery to the requesting party; it can limit the number
of hours required by the producing party to search for electronic records; or it can restrict the
sources that must be checked. It can delay production of electronic records in response to a
Rule 34 request until after the deposition of information and technology personnel of the
producing party, who can testify in detail as to the systems in place, as well as to the storage
and retention of electronic records, enabling more focused and less costly discovery. A court
also can require the parties to identify experts to assist in structuring a search for existing and
deleted electronic data and retain such an expert on behalf of the court. But it can do none of
these things in a factual vacuum, and ipse dixit assertions by counsel that requested discovery
of electronic records is overbroad, burdensome or prohibitively expensive provide no help at
all to the court.

6

selected Coventry custodians for the period January 1, 2007 to December 31, 2008, and “hit”
approximately 200,000 documents. ECF No. 50-5 at 3 (Declaration of Simon J. Torres in
Support of Defendants’ Opposition to Plaintiffs’ Motion to Compel). Defendants argue that it
will cost approximately $388,000 to process, host, and review the data for responsiveness and
privilege. Id. at 3-4. Defendants, however, have not suggested any alternative measures that
could reasonably accommodate Plaintiffs’ discovery needs other than negotiating more refined
search terms.
Plaintiffs reply that they have been collaborating with Defendants to develop appropriate
searches for ESI by limiting the searches to certain designated custodians.6 Plaintiffs also note
that they agreed to shorten the discovery period to February 9, 2007 through October 22, 2008 to
help alleviate Defendants’ burden.
In Adair v. EQT Prod. Co., 2012 WL 1965880 (W.D. Va. May 31, 2012), the issue
before the court was whether production of accessible documents should not be ordered
because of the high cost of reviewing those documents for privileged or responsive
information. Id. at *4. The court stated: “As [then] Magistrate Judge Grimm noted in Hopson
[v. Mayor & City Council of Baltimore, 232 F.R.D. 228 (D. Md. 2005)], the more practical
approach is to avoid the necessity of an expensive and time-consuming privilege review by
entry of a court order with a clawback provision that protects against a claim of waiver by
production of a privileged document.”7 Id. The Adair court entered an order that specifically
stated that any production made without a privilege review “shall not be deemed to have
6

Time period issues aside, the parties have already agreed on a protocol that will govern discovery of ESI in this
case. See ECF No. 49.

7

In Hopson, the court contemplated an order “that include[d] language that compliance with the approved
[discovery] procedures will not result in the waiver of any privilege or work product claim for any inadvertently
produced privileged material.” Id. at 246. The court reasoned that “the issuance of such an order is essential to
protecting against subject matter waiver of attorney-client privileged or work product protected information.” Id.

7

waived any privilege . . . .” Id. at 5. The court emphasized that the defendant had the
capability to “filter the emails by custodian, by date and by combination of one or more search
terms or keyword searches.” Id. The court noted that “if the court orders [defendant] to turn
over the emails retrieved by one or more of the filtered or keyword searches suggested by the
parties, plaintiff’s counsel would then bear the burden of review to inform the court whether
the ESI produced was over-inclusive or under-inclusive.” Id. The court recognized that “[i]f
necessary, the court, with input from the parties, could order additional production based on
further refined or broadened searches.” Id.
In this case, Defendants’ claimed cost to review the requested ESI for responsiveness and
privilege will be somewhat reduced now that Plaintiffs have narrowed the discovery time period
by approximately three months. More importantly, however, a clawback order can protect
Defendants against a claim of waiver, such that Defendants need no longer bear the cost of
reviewing the ESI for responsiveness and privilege.8 To further reduce any undue burden,
Plaintiffs may need to refine their proposed search terms to narrow the pool of potentially
relevant documents.9 In light of these options, Defendants have not shown that producing the
requested ESI will be unduly burdensome.

8

A similar clawback order regarding confidentiality is already in place in this case. See ECF No. 44. On November
17, 2011, the court granted a stipulation regarding confidentiality of discovery material. Subsection (k) of section 1
of the stipulation states that:
The inadvertent or unintentional disclosure by any party of Confidential Material, regardless of
whether the information was so designated at the time of the disclosure, shall not be deemed a waiver
in whole or in part of a party’s claim of confidentiality, either as to the specific information disclosed
or as to any other information disclosed or as to any other information relating thereto on the same or
related subject matter. This clawback provision shall be governed by Fed. R. Evid. 502(d).
9

Defendants “have numerous concerns about Plaintiffs’ proposed terms and will attempt to confer with Plaintiffs to
try to reach an agreement on appropriate search terms to be applied to ESI.” ECF 50-4 at 9 n.5.

8

IV.

Conclusion
Plaintiffs’ motion to compel will be granted as to the time period between
February 9, 2007 and October 22, 2008. If Defendants choose to seek a clawback order,
they may confer with Plaintiffs and submit one for court approval.

Date: March 21, 2013

9

__________/s/_____________                  

JILLYN K. SCHULZE
United States Magistrate Judge