Correctional Medical Services, Inc. v. John Doe
MEMORANDUM AND ORDER: For the reasons stated above, IT IS HEREBY ORDERED that the motion of defendant Wexford Health Sources, Inc. to strike plaintiff Corizon, Inc.s claim for punitive damages, considered by the court a motion to dismiss under F.R.C iv.P. 12(b)(6), (Doc. 71) is sustained as to plaintiffs claim under the Lanham Act, but denied as to plaintiffs common law claim. IT IS FURTHER ORDERED that the motion of plaintiff Corizon, Inc. to compel production of documents in response to Coriz ons First Requests for Production 8 and 9 and to compel production of information in response to Corizons First Set of Interrogatories 17 and 18 (Doc. 67) is sustained. Unless otherwise ordered or agreed to by the parties, defendant shall provide the requested information within 14 days of this date. IT IS FURTHER ORDERED that the motion of plaintiff Corizon, Inc. to compel production of documents in response to Corizons Third Requests for Production, to Corizons Third Set of Interrogatorie s, and related deposition (Doc. 67) is sustained, upon condition that the information provided remain confidential except to the counsel of the parties. Unless otherwise ordered or agreed to by the parties, defendant shall provide the requested information within 14 days of this date. Signed by Magistrate Judge David D. Noce on 3/4/2013. (KMS)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
WEXFORD HEALTH SOURCES, INC.,
No. 4:10 CV 2430 DDN
MEMORANDUM AND ORDER
This action is before the court on the motion of defendant Wexford Health Sources,
Inc. to strike plaintiff Corizon, Inc.’s prayer for punitive damages (Doc. 71) and on the
motion of plaintiff Corizon, Inc. to compel production of information and documents. (Doc.
67.) The court heard oral arguments on January 15, 2013.
On December 23, 2010, plaintiff Corizon, Inc. commenced this action against
defendant Wexford Health Sources, Inc.
On June 12, 2012, plaintiff filed its fourth
amended complaint. (Doc. 62.) Both parties are in the business of providing healthcare
services for correctional facilities and often compete with one another over such contracts.
(Id. at ¶ 19, Doc. 93, at ¶ 19.)
According to the fourth amended complaint, the following occurred. On November
12, 2010, defendant directed its public relations firm CHT Group to create the website
http://www.cmsdoesnotcare.com (Website). (Doc. 62, at ¶¶ 6-7.) Defendant dictated the
content of the Website, which included information relating to the bidding process for
contracts to provide healthcare services for correctional facilities.
(Id. at ¶¶ 9-10.)
Defendant also included numerous false statements on the Website, many of which
purported to be from a “CMS insider” who criticized plaintiff’s business practices and
ethics. (Id. at ¶ 12.)
Plaintiff alleges two claims against defendant: (1) false advertising
and unfair competition under 15 U.S.C. § 1125(a); and (2) common law unfair competition.
(Id. at ¶ 1.)
Plaintiff seeks compensatory damages for corrective advertising costs,
attorneys’ fees, and investigative fees spent to identify the creator of the Website; an award
of defendant’s profits, defendant’s unjust enrichment from its conduct, injunctive relief,
and punitive damages. (Id. at 6.)
RULE 12 MOTION
Defendant invokes Federal Rule of Civil Procedure 12(f) to have the court strike
plaintiff’s prayer for punitive damages, arguing that the Lanham Act does not allow
recovery of punitive damages.
Defendant further argues that Maryland law applies to the
common law unfair competition claim, and that plaintiff does not seek compensatory
damages necessary under Maryland law to support an award of punitive damages.
Additionally, defendant asserts it would be prejudiced by plaintiff’s request for punitive
damages. (Doc. 71.)
Plaintiff responds that defendant’s motion is untimely and that, because Missouri
law applies, punitive damages are recoverable in this action. Plaintiff also contends that
the relief sought includes compensatory damages and thus a claim for punitive damages
can stand even under Maryland law. Finally, plaintiff argues its punitive damages claim
would not prejudice defendant. (Doc. 79.)
The relief defendant seeks by this motion is properly considered as challenging the
legal sufficiency of plaintiff’s complaint to support a claim for punitive damages. This is
more properly considered under the aegis of Rule 12(b)(6), to determine whether plaintiff
has stated a claim for such relief.
A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the
complaint. See Carton v. General Motor Acceptance Corp., 611 F.3d 451, 454 (8th Cir
2010); Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001).
To survive a
motion to dismiss, the complaint must include “enough facts to state a claim to relief that
is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). To
meet the plausibility standard, the complaint must contain “more than labels and
conclusions.” Id. at 555. Rather, the complaint must contain “factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
A. Choice of Law
Before considering whether plaintiff sufficiently states a claim for punitive damages
for the common law unfair competition claim, the court must first determine which state
law supplies the rule of decision in this case.
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Defendant argues that Maryland law
controls the common law unfair competition claim.
Plaintiff responds that Missouri
provides the applicable law.
A federal court must look at the forum state’s choice of law rules when hearing a
case under diversity jurisdiction. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487,
496 (1941); Nesladek v. Ford Motor Co., 46 F.3d 734, 736 (8th Cir. 1995).
courts apply Missouri law to procedural issues and the substantive law of whatever state
applies. Hansen v. Sears, Roebuck & Co., 574 F.Supp. 641, 643 (E.D.Mo. 1983) (citing
Kennedy v. Dixon, 439 S.W.2d 173, 180 (Mo. banc 1969)).
Missouri courts also use
Missouri law to distinguish between procedural and substantive issues. Id. For choice of
law purposes, punitive damages under Missouri law are substantive. Reis v. Peabody Coal
Co., 997 S.W.2d 49, 70-71 (Mo. Ct. App. 1999).
For determinations regarding the appropriate choice of law on substantive issues,
Missouri has adopted the conflict of laws analysis as set forth by the Restatement (Second)
on Conflict of Laws, § 145 (1971). Hansen, 574 F.Supp. at 643. The Restatement’s “most
significant relationship” test provides factors for courts to consider when identifying the
state with the most significant relationship: (1) the place where the injury occurred; (2) the
place where the conduct occurred that caused such injury; (3) the parties’ domicile,
residence, nationality, state of incorporation, and place of business; and (4) the state
where the parties’ relationship is centered, if such a relationship exists.
(Second) of Conflict of Laws § 145(2) (1971). “Where two states have significant contacts
and legitimate state interests in the choice of law, we must apply the law of the state
whose interest would be more impaired if its policy were subordinated to the policy of the
other state.” Gilmore v. Attebery, 899 S.W.2d 164, 167 (Mo. Ct. App. 1995).
Because Missouri has expressly adopted the conflict analysis of the Restatement,
the court finds its comments particularly instructive. Kennedy v. Dixon, 439 S.W.2d 173,
184 (Mo. 1969) (“We have concluded that we should abandon the inflexible lex loci delicti
rule in favor of the rule set forth in s 145 of the Proposed Official Draft of Restatement
(Second) on Conflict of Laws.”).
Further, Missouri courts commonly look to the
Restatement commentary to resolve conflict of law issues. See e.g., Accurso v. Amco Ins.
Co., 295 S.W.3d 548, 553 (Mo. Ct. App. 2009); Rheem Mfg. Co. v. Progressive Wholesale
Supply Co., 28 S.W.3d 333, 344 (Mo. Ct. App. 2000); Superior Equip. Co., Inc. v. Maryland
Cas. Co., 986 S.W.2d 477, 481 (Mo. Ct. App. 1998).
Regarding the first factor, the Restatement elaborates on the difficulty of identifying
the place of injury in unfair competition cases.
Succinctly, the injury is the loss of
business, but the effect of the loss is normally most severe at plaintiffs’ headquarters or
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principal place of business.
Restatement (Second) of Conflict of Laws § 145 cmt. f.
Because of this ambiguity, the Restatement instructs that the place of injury is less
significant in unfair competition cases.
Nevertheless, in similarly difficult cases,
courts have “focused on the plaintiff's location as the place where an economic injury
occurs because it is where the economic impact is felt.” Am. Guarantee & Liab. Ins. Co. v.
U.S. Fid. & Guar. Co., 668 F.3d 991, 997 (8th Cir. 2012) (bad faith failure-to-settle-claim);
Birnstill v. Home Sav. of Am., 907 F.2d 795, 797 (8th Cir.1990) (intentional infliction of
emotional distress and tortious breach of covenant of good faith and fair dealing). The
parties do not dispute that Missouri is plaintiff’s principal place of business and state of
incorporation. (Doc. 62 at ¶ 3.) Thus, the first factor weighs in favor of Missouri law.
The Restatement advises that in unfair competition cases, the principle location of
the conduct causing the injury, the second factor, should usually be given the greatest
weight. Id. However, no showing of the location of conduct has been made. (See Doc. 62;
Doc. 72 at 8.)
The third factor concerns the location of the parties.
The Restatement provides
specific guidance regarding this factor in cases when publication of a matter in several
states injures a plaintiff’s reputation or causes financial injury, stating that:
Determination of the state of the applicable law is more difficult when the
defamer's act or acts of communication are done in a state other than that of
the plaintiff's domicil and when the matter complained of is published in the
state of the plaintiff's domicil and in one or more other states to which the
plaintiff has a substantial relationship. In this last situation, the local law of
the state of the plaintiff's domicil will be applied unless, with respect to the
particular issue, one of the other states has a more significant relationship
to the occurrence and the parties.
Restatement (Second) of Conflict of Laws § 150 cmt. f. Although the commentary refers to
defamation, the Restatement section on injurious falsehood incorporates the defamation
Restatement (Second) of Conflict of Laws § 151.
Plaintiff’s unfair competition
claim is sufficiently analogous to those torts for purposes of this choice of law analysis.
Here, Missouri is plaintiff’s principal place of business and state of incorporation. (Doc. 62
at ¶ 3.) The record contains no indication that defendant’s acts took place in Missouri.
Defendant published the Website, which made it available for viewing in Missouri and all
other states. (Id. at ¶ 6.) Thus, the third factors weighs in favor of Missouri law.
Finally, the fourth factor for consideration, the location where the parties’
relationship is centered, must be examined. “When there is a relationship between the
plaintiff and the defendant and when the injury was caused by an act done in the course
of the relationship, the place where the relationship is centered is another contact to be
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considered.” Restatement (Second) of Conflict of Laws § 145 cmt. e. The parties share a
competitive business relationship, and defendant arguably posted the Website in
furtherance of that relationship. (Doc. 72 at 11.) However, the center of the relationship
cannot be readily ascertained; the parties compete for business in several states. (Id.)
After considering the relevant factors, the court concludes that Missouri is the state
with the most significant relationship to this action. Accordingly, Missouri law supplies
the substantive rules of decision in this case. 28 U.S.C. § 1652.
B. Punitive damages under Missouri common law
Defendant argues that plaintiff’s claim for punitive damages should be stricken
because an award of punitive damages requires an underlying award of actual damages,
which plaintiff does not seek. Plaintiff argues that the attorney fees, investigative costs,
and corrective advertising costs it seeks constitute actual damages.
“Under Missouri law, a plaintiff is entitled to punitive damages if the plaintiff proves
by clear and convincing evidence that the defendant's conduct was outrageous because of
the defendant's evil motive or reckless indifference to the rights of others.” Gilliland v.
Missouri Athletic Club, 273 S.W.3d 516, 520 (Mo. banc 2009).
“Missouri follows the
general rule that no punitive damages can be awarded absent an award of actual or
nominal damages.” Compton v. Williams Bros. Pipeline Co., 499 S.W.2d 795, 797 (Mo.
Missouri defines actual damages as compensatory in nature and measured by the
loss of injury sustained.1
Stiffelman v. Abrams, 655 S.W.2d 522, 531 (Mo. 1983).
Corrective advertising costs are compensatory and “intended to make the plaintiff whole.”
Adray v. Adry-Mart, Inc., 76 F.3d 984, 988 (9th Cir. 1995). Further, corrective advertising
costs are commonly characterized as compensatory damages. See Adray, 76 F.3d at 988
(9th Cir. 1995); Zazu Designs v. L'Oreal, S.A., 979 F.2d 499, 506 (7th Cir. 1992); Punch
Clock, Inc. v. Smart Software Dev., 553 F. Supp. 2d 1353, 1359 (S.D. Fla. 2008).
1 Although the court determines that Missouri law controls, Maryland law would similarly
permit punitive damages for plaintiff’s common law unfair competition claim. See Rite Aid
Corp. v. Lake Shore Investors, 471 A.2d 735, 743 (1984) (requiring an award of
compensatory damages to recover punitive damages); Jones v. Malinowski, 473 A.2d 429,
435 (1984) (stating that tort plaintiffs may recover “damages that are affirmatively proved
with reasonable certainty to have resulted as the natural, proximate and direct effect of
the tortious misconduct”).
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In its complaint, plaintiff seeks an award of corrective advertising costs. (Doc. 62 at
Defendant argues that Corizon waived its right to actual damages in a letter from
plaintiff’s counsel, dated July 5, 2012, which states:
As we discussed during our June 29 phone call, Corizon is not seeking
damages in the form of lost profits, goodwill or reputation in this action.
Rather, as reflected in the WHEREFORE clause of the Corizon’s Fourth
Amended Complaint, Corizon is seeking damages in the form of the
attorney’s fees and costs it expended in identifying Wexford as the creator of
the sham Website, costs for corrective advertising and/or an order directing
Wexford to engage in corrective advertising, permanent injunctive relief
barring Wexford from creating false, misleading and deceptive Websites
about Corizon and making false statements about Corizon, an award of
treble damages, punitive damages, prejudgment interest, and costs and
reasonably attorney’s fees expended in this action, and such other and
further relief as the Court deems just and proper.
The letter expressly reserves the right to seek corrective action costs. Accordingly,
the court finds that plaintiff’s claim for compensatory damages for common law unfair
competition is sufficient to support its claim for punitive damages.
C. Punitive damages under the Lanham Act
Plaintiff seeks punitive damages for defendant’s alleged violation of the Lanham Act,
15 U.S.C. § 1125(a).2 Defendant contends the Lanham Act does not allow any award for
The Eighth Circuit has determined that the Lanham Act provides equitable relief,
such as an injunction, and not a remedy at law, like punitive damages. Minnesota Pet
Breeders, Inc. v. Schell & Kampeter, Inc., 41 F.3d 1242, 1247 (8th Cir. 1994); Metric &
Multistandard Components Corp. v. Metric's, Inc., 635 F.2d 710, 715 (8th Cir.1980).
Accordingly, defendant’s motion to dismiss plaintiff’s claim for punitive damages
under the Lanham Act is sustained.
MOTION TO COMPEL
Plaintiff seeks to compel production of information about internet activity other
than the website alleged as defamatory in its Fourth Amended Complaint and to
defendant’s financial information. (Doc. 67.)
2 In its response memorandum regarding defendant’s motion to strike, plaintiff does not
address defendant’s arguments concerning the punitive damages claim under the Lanham
Act. (Doc. 79.)
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A. Internet activity
Defendant objects to plaintiff’s discovery requests regarding internet activity in
addition to the Website, arguing that evidence of other internet activity is irrelevant.
Plaintiff argues that its requests are within the parameters of relevance as defined by the
federal rules that apply to civil actions.
Plaintiff argues that CHT created another website for defendant concerning a
merger between plaintiff and PHS Correctional Healthcare, Inc. as indicated by the
depositions of Marlin Collingwood, the president of CHT.
Collingwood testified that
defendant asked CHT to create another website regarding the merger, which was
established but taken down after the merger’s completion and that defendant provided the
content and came up with the idea. (Doc. 68-2.) He later testified that he did not believe
the website was publicly posted. (Doc. 74-6 at 33.) Plaintiff also deposed three Wexford
officers: Mark Hale, CEO; Dan Conn, COO, and Darius Holmes, Senior VP of Strategic
Development. When questioned regarding the merger website, Conn responded that he
had no knowledge, and Hale and Holmes were uncertain about whether the website was
ever publicly posted. (Docs. 74-2, 74-3, 74-4.)
Plaintiff further argues that three comments on plaintiff’s Yahoo Finance webpage
were posted under the username “jgelfield”.
The postings originated from an IP address
used from a Hampton Inn located in Pennsylvania.
(Doc. 74-6 at 20.)
The first two
postings concerned the merger, and the third posting contained solely a link to the
(Id. at 18-20.)
Collingwood could not recall whether he
created the postings, but he testified that he had used the IP address at the particular
hotel. (Id. at 17-21.) He further testified about discussion between CHT and defendant
concerning generating traffic to the Website and that posting website links where they are
likely to be seen is common practice in his business. (Id. at 17, 27.)
Plaintiff also argues that an article on the Baltimore Sun website referred to the
Maryland Department of Corrections and its contract for health services with a link to the
cmsdoesnotcare.com website. Collingwood could not recall whether CHT linked the article
to the Website but declined to testify that CHT did not. (Id. at 25-26.) Conn, Hale, and
Holmes denied any knowledge regarding any of the postings. (Docs. 74-2, 74-3, 74-4.)
Regarding the aforementioned internet activity, plaintiff seeks to compel production
of documents in response to interrogatories Nos. 8 and 9 and requests for production Nos.
17 and 18. These discovery requests are:
Interrogatory 8: Identify any other website besides the Website at issue in
this case that you have created, authored, or maintained regarding,
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mentioning, or related to [plaintiff]. For each website identified, please
identify the URL of the website, the dates that the website has been or was
active, and the person or entity that maintains or maintained the website.
Interrogatory 9: Identify any postings or statements you have created or
authored on any internet website, forum, message board, or blog,
commenting section, or other similar internet interactive communication
website during the Relevant Time Period regarding [plaintiff]. For each
posting or statement, identify the specific internet interactive
communication website, the person that made the post or statement, and
the date and full text of the posting or statement.”
Request for Production 17: All documents during the Relevant Time Period
relating to any other website besides the Website at issue in this case that
[defendant has] created, authored, or maintained regarding [plaintiff].
Request for Production 18: All documents during the Relevant Time Period
relating to any postings or statements you have created or authored on any
internet website, message boards, or blogs during the Relevant Time Period
(Doc. 68-8.) Defendant objected to these requests. (Doc. 97-10 at 12-13.)
Defendant argues that the only relevant internet activity is the Website, stating that
plaintiff failed to allege additional internet activity in its complaint and that discovery
should not be used to develop new claims.
Fed R. Civ. P. 26(b)(1) sets forth the scope of discovery, stating that “parties may
obtain discovery regarding any matter, not privileged, that is relevant to the claim or
defense of any party, including the claim or defense of any party.” Fed. R. Evid. 404(b)
prohibits the admission of evidence of criminal activity or other wrongdoing “to prove a
person's character in order to show that on a particular occasion the person acted in
accordance with the character” but permits the admission of such evidence for other
According to the complaint, plaintiff seeks, among other forms of relief, punitive
damages and permanent injunctive relief. (Doc. 62 at 6.) As stated above, for an award of
punitive damages under Missouri law, plaintiffs must demonstrate that “the defendant's
conduct was outrageous because of the defendant's evil motive or reckless indifference to
the rights of others.” Gilliland v. Missouri Athletic Club, 273 S.W.3d 516, 520 (Mo. banc
2009). “To show entitlement to injunctive relief, a petition must plead facts that show (1)
the plaintiff has no adequate remedy at law, and (2) irreparable harm will result if the
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relief is not granted . . . Irreparable harm is established if monetary remedies cannot
provide adequate compensation for improper conduct.” Glenn v. City of Grant City, 69
S.W.3d 126, 130 (Mo. Ct. App. 2002).
The court finds that evidence for conduct similar to the posting of the Website is
relevant for purposes other than demonstrating propensity, including pursuing punitive
damages and injunctive relief.
See Menefee v. ChoicePoint, Inc., 2009 WL 174134, *4
(E.D. Pa. 2009) (stating that evidence showing whether the conduct involved repeated
actions or was an isolated incident is relevant to punitive damages claims); Bose Corp. v.
Silonsonnic Corp., 413 F. Supp. 2d 339, 346 (S.D.N.Y. 2006) (relying on admissions of
similar conduct to award injunctive relief); see also State Farm Mut. Auto. Ins. Co. v.
Campbell, 538 U.S. 408, 419 (2003) (“[T]he most important indicium of the reasonableness
of a punitive damages award is the degree of reprehensibility of the defendant's conduct.”).
Therefore, plaintiff’s discovery requests regarding additional internet activity comply with
Fed. R. Civ. P. 26(b)(1) and Fed. R. Evid. 404(b).
Defendant also argues that information related to the alleged second website is
irrelevant because it was not publicly posted and cannot be actionable. The fact that the
website was not publicly posted may prevent plaintiff from bringing a separate unfair
competition claim regarding the website. However, the lack of publicly posting the website
does not make defendant’s planning and creation of that website irrelevant to prove
defendant’s otherwise actionable activities, and for purposes of punitive damages and
Accordingly, plaintiff’s motion to compel production of documents in response to
interrogatories Nos. 8 and 9 and production of information in response to requests Nos. 17
and 18 is sustained.
B. Financial Information
Plaintiff claims entitlement to punitive damages and seeks evidence of defendant’s
financial worth relating to that claim. Plaintiff seeks to compel one deposition and further
seeks to compel production of documents in response to Corizon’s Third Requests for
Production of Documents and production of information in response to Corizon’s Third Set
of Interrogatories. These discovery requests are:
Deposition: A representative or representatives of [defendant] having the
most knowledge regarding . . . [t]he current net worth and the current value
of the total assets of [defendant], as well as the year-end net worth and total
assets of [defendant] for 2011.
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Request for Production 1: All documents identified, referred to, or utilized to
answers Plaintiff’s Third Set of Interrogatories directed to you.
Request for Production 2: All documents reflecting or relating to your
financial condition, including but not limited to, balance sheets, profit and
loss statements, income statements and tax returns.
Request for Production 3: All documents reflecting or relating to your net
worth, including but not limited to net worth statements.
Request for Production 4: All documents reflecting or relating to your assets
Interrogatory 1: State your current net worth, as well as year-end net worth
Interrogatory 2: State the current value of your total assets and liabilities, as
well as the year-end value of your total assets and liabilities for 2011.”
(Doc. 68-17.) Defendant objected to these requests. (Doc. 68-18.)
Defendant argues that because plaintiff is not entitled to seek punitive damages,
plaintiff seeks merely to harass and that producing the requested discovery would allow
plaintiff access to confidential business information, which it would use for a competitive
advantage. However, as stated above, plaintiff may seek punitive damages.
During oral arguments, both parties agreed to limit the availability of the requested
information to the counsel of plaintiff and defendant. Accordingly, an order reflecting this
agreement is hereby entered.
For the reasons stated above,
IT IS HEREBY ORDERED that the motion of defendant Wexford Health Sources,
Inc. to strike plaintiff Corizon, Inc.’s claim for punitive damages, considered by the court a
motion to dismiss under F.R.Civ.P. 12(b)(6), (Doc. 71) is sustained as to plaintiff’s claim
under the Lanham Act, but denied as to plaintiff’s common law claim.
IT IS FURTHER ORDERED that the motion of plaintiff Corizon, Inc. to compel
production of documents in response to Corizon’s First Requests for Production 8 and 9
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and to compel production of information in response to Corizon’s First Set of
Interrogatories 17 and 18 (Doc. 67) is sustained. Unless otherwise ordered or agreed to by
the parties, defendant shall provide the requested information within 14 days of this date.
IT IS FURTHER ORDERED that the motion of plaintiff Corizon, Inc. to compel
production of documents in response to Corizon’s Third Requests for Production, to
Corizon’s Third Set of Interrogatories, and related deposition (Doc. 67) is sustained, upon
condition that the information provided remain confidential except to the counsel of the
parties. Unless otherwise ordered or agreed to by the parties, defendant shall provide the
requested information within 14 days of this date.
/S/ David D. Noce______________
UNITED STATES MAGISTRATE JUDGE
Signed on March 4, 2013.
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