SIMPSON v. BAYER PHARMACEUTICAL CORP. et al

Filing 394

OPINION and ORDER denying 378 APPEAL OF MAGISTRATE JUDGE DECISION to District Court by UNITED STATES OF AMERICA, etc. Signed by Judge John Michael Vazquez on 2/2/2021. (lag, )

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Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

UNITED STATES OF AMERICA, ex rel.,
LAURIE SIMPSON

Civil Action No. 05-3895

Plaintiff,
OPINION & ORDER

v.
BAYER A.G., et al.
Defendants,

John Michael Vazquez, U.S.D.J.
This matter comes before the Court on an appeal from the ruling of Special Master Dennis
M. Cavanaugh, U.S.D.J. (Ret.) denying the motion of non-party United States (the “Government”)
to shift the costs and expenses that the Centers for Medicare and Medicaid Services (“CMS”)
incurred because of Defendants’ subpoena (the “Subpoena”). The Court reviewed the parties’
submissions, D.E. 378 (“Br.”), D.E. 382 (“Opp.”), D.E. 383 (“Reply”) and decided the motion
without oral argument pursuant to Fed. R. Civ. P. 78(b) and L. Civ. R. 78.1(b). For the reasons
stated below, the Government’s appeal is denied.
I.

BACKGROUND
This case arises under the False Claims Act. See e.g., D.E. 213 ¶ 4; see 31 U.S.C. § 3729

et seq. The Tenth Amended Complaint is the operative pleading. See D.E. 213. Relator seeks to
recover for false claims and statements that Defendants allegedly made in connection with their
“unlawful marketing, including off-label marketing and payment of kickbacks, . . . to increase the
market shares of its prescription drugs Trasylol and Avelox.” See e.g., id. ¶ 9. The Government
declined to intervene on February 10, 2010. D.E. 16. Now before the Court is the Government’s

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appeal of the Special Master’s ruling denying the Government’s motion to shift costs under Fed.
R. Civ. P. 45. D.E. 377.
On March 13, 2019, Defendants served the Subpoena on CMS. D.E. 363-2. On October
3, 2019, the Government moved to quash or modify the Subpoena as to the portions of document
request numbers one, eight, nine, fourteen, and fifteen. The Government contends that those
requests would have required CMS to produce, in effect, “230 million pages of aged Medicare
paper records dating from 1996 through 1999, contained in over 91,000 boxes dispersed at several
government storage sites around the country that were scheduled for disposal,” (the “aged paper
records”). See D.E. 363 at 1; see also D.E. 363-1 (“Klots Decl.”) at 8, ¶ 19. On March 26, 2020,
the Special Master granted the Government’s motion to quash the Subpoena. See D.E. 378-12.
As to the aged paper records, the Special Master found that Defendants failed to meet their
burden “to demonstrate that the boxes containing the aged paper records are relevant.” Id. at 10.
The Special Master reasoned that “the vast majority of the [aged paper records] are outside the
discovery period germane to this case” because the “[Tenth Amended Complaint] clearly only
alleges that the Causes of Action are based on fraudulent claims for Trasylol on or after August 5,
1999 and fraudulent claims for Avelox on or after July 24, 2000.” Id. at 10. The Special Master
concluded that “the boxes containing paper records from 1996, 1997, and 1998 are outside the
discovery period and not relevant[.]” Id. at 11. The Special Master also found that Defendants
failed to demonstrate that the boxes that could contain aged paper records for Trasylol in 1999
held information that could not be obtained from other sources. Id. Relying on the Government’s
declaration, see Klots Decl. at 4-5, ¶¶ 13-14, the Special Master explained that the data contained
on the face of the aged paper records was available through the “National Claims History data base
at the CMS data center” and that Defendants failed to explain how that database was “inadequate

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and why the paper records themselves must be provided.” D.E. 378-12 at 11. The Special Master
further questioned the relevance of the aged paper records given that they “do not include the
information related to payment decisions on the claims.” Id.; see also Klots Decl. at 5 ¶ 14. The
Special Master opined that it would be “difficult to ascertain how [Defendants] could ‘learn
whether the Government consistently refuses to pay claims in the mine of run cases based on
noncompliance with the two legal requirements at issue’ when payment decisions are not included
with the aged paper records.” D.E. 378-12 at 11. The Special Master found that, “at most,”
Defendants had argued that the aged paper records might contain “potentially relevant
information” to their defense, which did not meet the discovery standard under Fed. R. Civ. P. 26.
Id. (internal quotation marks omitted). The Special Master therefore quashed the Subpoena “to
the extent it applie[d] to the aged Medicare paper records dating from 1996 through 1999.” Id. at
12. The Special Master also denied Defendants’ motion for reconsideration. D.E. 376.
The Government then moved to shift costs under Fed. R. Civ. P. 45 for CMS’s loss of
appropriated funds and storage expenses incurred because of its compliance with the Subpoena.
D.E. 373 at 8-10; D.E. 374 at 2-7. 1 The Government contended that cost shifting was appropriate
under Fed. R. Civ. P. 45(d)(1) and Fed. R. Civ. P. 45(d)(2)(B).

1

It appears that the Government first raised the issue of cost shifting in its opposition to
Defendants’ motion to reconsider. See Br. at 12-13; see also D.E. 373 at 8-10; D.E. 374 at 2-7.
Defendants objected. See D.E. 377 at 2 (“Bayer argues that an opposition to a motion for
reconsideration is not an appropriate forum to raise new cost-shifting issues.”); see also Opp. at
11 n. 5 (arguing the Government’s claim for costs “was forfeited because an opposition to a
reconsideration motion is too late . . . to raise new arguments and issues . . . [and because] the
Government never gave ‘notice of its intention to seek costs, or conditioned its compliance on
reimbursement’ until its opposition to Bayer’s motion for reconsideration.” (citing See P.
Schoenfeld Asset Mgmt. LLC v. Cendant Corp., 161 F. Supp. 2d 349, 352 (D.N.J. 2001), Lee v.
Va. State Bd. of Elections, No. 3:15CV357, 2016 WL 6915308, at *3 (E.D. Va. Sept. 2, 2016))).
However, the Government acknowledges the Special Master did not ultimately rule on this
argument, Opp. at 11 n. 5, and Defendants have not appealed the Special Master’s decision not to
do so.
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The Special Master denied the Government’s motion as to Rule 45(d)(2)(B). D.E. 377 at
4. That rule provides as follows:
A person commanded to produce documents or tangible things or to
permit inspection may serve on the party or attorney designated in
the subpoena a written objection . . . . If an objection [to a subpoena]
is made, the following rules apply:
(i) At any time, on notice to the commanded person, the serving
party may move the court for the district where compliance is
required for an order compelling production or inspection.
(ii) These acts may be required only as directed in the order, and
the order must protect a person who is neither a party nor a
party’s officer from significant expense resulting from
compliance.
Fed. R. Civ. P. 45(d)(2)(B). Applying a “plain reading of Rule 45 and courts’ subsequent
interpretations” the Special Master found that “Rule 45(d)(2)(B)(ii) applies only where a court has
issued an order compelling production in response to a motion by the party seeking discovery.”
D.E. 377 at 4 (citing McCabe v. Ernst & Young, LLP, 221 F.R.D. 423, 425 (D.N.J. 2004)). The
Special Master thus concluded that because he had not issued an order compelling CMS to comply
with the Subpoena, Rule 45(d)(2)(B) was inapplicable. Id.
The Special Master also denied the Government’s motion as to Rule 45(d)(1). D.E. 377 at
6. The rule provides as follows:
A party or attorney responsible for issuing and serving a subpoena
must take reasonable steps to avoid imposing undue burden or
expense on a person subject to the subpoena. The court for the
district where compliance is required must enforce this duty and
impose an appropriate sanction--which may include lost earnings
and reasonable attorney’s fees--on a party or attorney who fails to
comply.
Fed. R. Civ. P. 45(d)(1). The Special Master first found that sanctions under Rule 45(d)(1) are
“more discretionary in nature.” D.E. 377 at 4. The Special Master explained that his previous

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finding that the Subpoena should be quashed as to the aged paper products did not necessarily
mean that cost shifting was appropriate. D.E. 377 at 6 (citing See Havens v. Mar. Commc’ns/Land
Mobile, LLC, No. CIV. 11-993 KSH CLW, 2014 WL 2094035, at *5 (D.N.J. May 20, 2014)).
Instead, the Special Master said that sanctions “are generally awarded only in the most egregious
of circumstances, such as when a party has clearly breached Rule 45.” D.E. 377 at 5. The Special
Master then found that the Subpoena was not issued in bad faith or for an improper purpose. Id.
at 6. The Special Master further reasoned that although he found that Defendants failed to establish
relevancy as to the aged paper products “such overbreadth may sometimes result from normal
advocacy and does not necessarily give rise to sanctions.” Id. at 5-6. As a second basis for denying
sanctions, the Special Master reasoned that “CMS was not required to undertake the task of
collecting, analyzing, copying, or producing th[e] aged paper products” and that the Government
had failed to adduce authority supporting the proposition that “the costs and expenses the
Government seeks to shift to [Defendants] are cognizable under Rule 45(d)(1), particularly when
no documents were actually produced[.]” Id. at 6. Accordingly, the Special Master denied the
Government’s motion as to Rule 45(d)(1). Id.
The current appeal followed.
II.

STANDARD OF REVIEW
Pursuant to this Court’s Order, D.E. 328, appointing the Special Master, the Special Master

exercises “authority . . . coextensive with those of a Magistrate Judge in the District of New
Jersey.” D.E. 328 at 4. This Court further ordered that “any appeal of any action or decision made
by the special master shall be filed with the Court pursuant to Local Civil Rule 72.1(c).” Id.
Accordingly, the Court applies the same standard here as it would in reviewing an appeal from a
decision by a magistrate judge.

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A magistrate judge may decide any non-dispositive pretrial matter pursuant to 28 U.S.C. §
636(b)(1)(A). The parties agree that the Special Master’s ruling resolved a non-dispositive matter.
Br. at 16; Opp. at 10. A district court may only reverse a magistrate’s decision on these matters if
it is “clearly erroneous or contrary to law.” 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a); L.
Civ. R. 72.1(c)(1)(A). “[A] finding is ‘clearly erroneous’ when although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573
(1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948) (internal
quotation omitted)). Under this standard, a district court “will not reverse the magistrate judge’s
determination even if the court might have decided the matter differently.” Bowen v. Parking
Auth. of City of Camden, No. 00-5765, 2002 WL 1754493, at *3 (D.N.J. July 30, 2002). The
district court will, however, “conduct a de novo review of a magistrate judge’s legal conclusions.”
Cooper Hosp./Univ. Med. Ctr. v. Sullivan, 183 F.R.D. 119, 127 (D.N.J. 1998). “Where the appeal
seeks review of a matter within the exclusive authority of the Magistrate Judge, such as a discovery
dispute, an even more deferential standard, the abuse of discretion standard, may be applied.”
Miller v. P.G. Lewis & Assocs., Inc., No. 05-5641, 2006 WL 2770980, at *1 (D.N.J. Sept. 22,
2006).

An abuse of discretion occurs “when the judicial action is arbitrary, fanciful or

unreasonable, which is another way of saying that discretion is abused only where no reasonable
[person] would take the view adopted by the trial court.” Ebert v. Twp. of Hamilton, No. 15-7331,
2016 WL 6778217, at *2 (D.N.J. Nov. 15, 2016).

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III.

ANALYSIS
A. Fed. R. Civ. P. 45(d)(1) 2
The Government appeals the Special Master’s determination that Defendants’ conduct did

not rise to the level of egregiousness necessary for sanctions under Rule 45(d)(1). Br. at 18-27.
The Government first argues that the Special Master improperly disregarded the breadth and
burden of Defendant’s subpoena to CMS and Defendant’s failure to address CMS’s concerns
regarding costs. See Br. at 20-22. The Government next argues that the Special Master incorrectly
found that Defendants’ subpoena was the product of normal advocacy. Br. at 22-23. The
Government points to Defendants’ refusal to review a sample of the aged paper records in question
to ascertain their relevance. Id. at 23. In addition, the Government states that the Special Master
erred by failing to address Defendants’ failure to take steps to avoid imposing an undue burden or
expense on CMS. Id. at 24-25. The Government surmises that the Special Master erroneously
overlooked Defendants’ failures based on the improper reason that the “subpoena was quashed as
to the aged paper records and CMS was not required to undertake the task of collecting, analyzing,
copying, or producing those aged paper records.” Id. at 25. The Government concludes that,
because Defendants failed to make efforts to reduce the expense and burden on CMS, the Special
Master was obligated to shift costs under Rule 45(d)(1). Br. at 26-27.
Defendants counter that they made good faith attempts to reduce the burden on CMS by
(1) engaging in meet-and-confers and exchanging multiple letters and communications with CMS
to “narrow and guide the Government’s search efforts,” (2) asking the Relator if “she was willing
to agree to the Government’s proposed temporal restriction,” (3) offering to sample documents at

2

After the 2013 amendments to the Federal Rules of Civil Procedure, “[s]ubdivision (d) [of Rule
45] contains the provisions formerly in subdivision (c).” See Fed. R. Civ. P 45, ADVISORY
COMMITTEE NOTES (2013 amend.).
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its own costs, and (4) proposing a “reasonable stipulation.” Opp. at 13. Defendants further contend
that the Special Master’s decision was correct because CMS did not have to produce any of the
documents and because the Government has failed to provide authority for the proposition that it
may recover its storage costs for such information.
As noted, Rule 45(d)(1) provides in relevant part that a party responsible for issuing a
subpoena “must take reasonable steps to avoid imposing undue burden or expense on a person
subject to the subpoena” and that a court “must enforce this duty and impose an appropriate
sanction--which may include lost earnings and reasonable attorney’s fees--on a party or attorney
who fails to comply.” Fed. R. Civ. P. 45(d)(1). The question is whether Defendants took
“reasonable steps to avoid imposing undue burden or expense” on CMS. Id. However, “[i]t does
not automatically follow that because the [Special Master] quashed the [S]ubpoena[], [Defendants]
acted unreasonably in issuing or relying on them.” See Havens v. Mar. Commc’ns/Land Mobile,
LLC, No. CIV. 11-993 KSH CLW, 2014 WL 2094035, at *5 (D.N.J. May 20, 2014).
The Special Master’s denial of sanctions under Rule 45(d)(1) was not clearly erroneous.
This Court accepts the Special Master’s finding that the Subpoena was “not issued in bad faith or
for an improper purpose” because the Special Master was intimately familiar with the
Government’s motion to quash. See D.E. 378-12. Additional evidence supports the Special
Master’s ruling. Defendants’ letter enclosing the Subpoena explained that the Subpoena’s purpose
was to “understand in detail CMS’s process for receiving, reviewing, and deciding whether to pay
Medicare claims” and that its “production requests are chiefly directed to these questions[.]” D.E.
373-8 at 2. This stated purpose supports a legitimate objective and undercuts the argument that
the Subpoena was issued to harass CMS. In addition, the email chain attached as Exhibit 6 to the
Government’s appeal shows that, after at least one meet-and-confer, Defendants significantly

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narrowed the scope of many of their document requests. D.E. 387-7, Ex. 6 at 7-9. Evidence also
indicates that Defendants and CMS engaged in at least another meet-and-confer specific to the
aged paper records. D.E. 378-8, Ex. 7 at 3 (“We had a meet-and-confer on July 18, 2019 to discuss
the memorandum.”).

Further, to alleviate CMS’s burden, Defendants offered a potential

stipulation as “an alternative to preserving and reviewing the documents,” id. at 4, and offered to
“review a meaningful sample” of the aged paper records to “avoid burdening the Court.” D.E.
378-9, Ex. 8 at 3-6. The stipulation was unacceptable to CMS, see Br. at 9, but it does reflect an
effort by Defendants to reduce the burden on CMS. Defendants’ offer to review the aged paper
records came after the Government moved to quash the Subpoena, but that does not automatically
mean that this effort cannot be considered as a “reasonable step[]” under the Rule 45(d) analysis.
It appears Defendant’s offer to review a sample of the aged paper records was an effort to resolve
– and avoid the costs of further litigating – the Government’s motion to quash.
The evidence also supports the Special Master’s finding that the Government failed to
prove the Subpoena imposed an undue burden. See D.E. 377 at 6. There is no dispute that CMS
was not obligated to “undertake the task of collecting, analyzing, copying, or producing th[e] aged
paper records.” Id.; see also Klots Decl. at 2, ¶ 5 (“[M]y Memorandum analyzed the nature and
scope of the burden imposed on CMS if the boxes of old . . . paper records were deemed to be
within the scope of the subpoena and required page by page review.” (emphasis added)). The
Government merely identified the location of the aged paper records and was not required to
undertake any further review – save the limited information gathering described in the Klots
Declaration, see e.g., Klots Decl. at 5-6, ¶¶ 16-18; see also D.E. 366 at 2, ¶ 8 – before the Subpoena
was quashed as to those documents. See generally Klots Decl. The Special Master was permitted
to rely on this fact in denying sanctions. SAJ Distributors, Inc. v. Sandoz, Inc., No. CIV.A.08-

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1866(JAP), 2008 WL 2668953, at *3 (D.N.J. June 27, 2008) (“Defendant may have been
inconvenienced by Plaintiff’s request, that alone is not enough to meet the undue burden standard
pursuant to Rule 45, particularly given the outcome, where Defendant has not even been required
to produce any documents[.]”)); Havens v. Mar. Commc’ns/Land Mobile, LLC, No. CIV. 11-993
KSH CLW, 2014 WL 2094035, at *5 (D.N.J. May 20, 2014) (denying sanctions based on, among
other things, the court’s finding that the individuals subject to the subpoenas had “not undertaken
the expense or inconvenience of compliance.”)). Based on this evidence and the Special Master’s
findings that the Subpoena was not issued in “bad faith or for an improper purpose” the Court
concludes that the Special Master’s denial of sanctions under Rule 45(d) was not clearly erroneous.
The Government’s appeal of the Special Master’s denial of sanctions under Rule 45(d)(1) is
denied.
B. Fed. R. Civ. P. 45(d)(2)(B)(ii)
The Government also argues that the Special Master erred by refusing to shift costs to
Defendant under Rule 45(d)(2)(B)(ii). Br. at 28-29. Specifically, the Government takes issue with
the Special Master’s conclusion that the rule did not apply because there was no court order
“compelling CMS to comply with the subpoena.” Id. at 28. The Government contends that there
is persuasive authority supporting the proposition that a lawyer-issued subpoena constitutes a court
order to preserve documents. Id. at 28-29. Defendants counter that the plain language of Rule
45(d)(2)(B) indicates that the rule is only operative when a court orders compliance with a
subpoena. Opp. at 19. Defendants further contend that, even assuming Rule 45(d)(2)(B)(ii)
applied, the Government failed to address factors that courts in this district typically address before
shifting costs under that rule. Id. at 20. Defendants say consideration of those factors supports the
conclusion that costs should not be shifted. Id. Because this aspect of the Government’s appeal

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centers on the Special Master’s legal conclusion that Rule 45(d)(2)(B)(ii) did not apply, the Court
applies a de novo review. Sullivan, 183 F.R.D. at 127.
The Court agrees with the Special Master’s conclusion that cost shifting under Rule
45(d)(2)(B)(ii) is inapplicable. In relevant part, the rule provides that a court must “protect a
person who is neither a party nor a party’s officer from significant expense resulting from
compliance” when issuing “an order compelling production or inspection” of documents upon
motion of “the serving party.” Fed. R. Civ. P. 45(d)(2)(B). A plain reading of the rule indicates
that the provision is inapplicable because “the serving party” – here Defendants – did not make a
motion, the Government did, and because the Special Master’s order did not “compel[] production
or inspection” but instead blocked production of the aged paper records.

See id.

The

Government’s argument that the Subpoena constitutes a court order within the meaning of Rule
45(d)(2)(B) is inconsistent with a plain reading of the rule. The rule contemplates a set of facts
the Government concedes are not present here – namely, a court order compelling the production
of documents in response to a motion to compel made by the party who served the subpoena which
was objected to. Id.
Other court decisions agree with this interpretation of Rule 45(d)(2)(B). See In re: Modern
Plastics Corp., 890 F.3d 244, 252 (6th Cir. 2018) (“Thus, if an objection is made and the court
orders the non-party to comply, the court must protect a non-party from significant expenses
resulting from compliance.” (emphasis added)); McCabe v. Ernst & Young, LLP, 221 F.R.D. 423,
425 (D.N.J. 2004) (“When a court compels document production, it must protect a non-party from
significant production expenses.

Absent an order, a non-party bears its own production

expenses.”); United States v. McGraw-Hill Companies, Inc., 302 F.R.D. 532, 534 (C.D. Cal. 2014)
(stating that a “court must shift ‘significant expenses resulting from compliance’ to the requesting

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party” when “a court orders a non-party to comply with a subpoena over that non-party’s
objection.” (emphasis added)).
The Government’s citations to the 1991 Advisory Committee Notes to Rule 45 and the
cases cited within are unavailing. See Br. at 28-29. Specifically, the note the Government cites to
falls under a discussion of the changes made to “Subdivision (a)” whereas the Advisory Note
discussing “Subdivision (c)” 3 provides, “[a] non-party required to produce documents or materials
is protected against significant expense resulting from involuntary assistance to the court.” See
Fed. R. Civ. P 45, ADVISORY COMMITTEE NOTES (1991 amend.). In addition, subsequent Advisory
Committee Notes make clear that it is not a subpoena that automatically triggers cost shifting under
Rule 45(d)(2)(B) – as the Government contends – but an order compelling compliance after
objection to the subpoena by the receiving party. See Fed. R. Civ. P 45, ADVISORY COMMITTEE
NOTES (2006 amend.) (“Rule 45(c)(2)(B) permits the person served with the subpoena to object to
it and directs that an order requiring compliance ‘shall protect a person who is neither a party nor
a party’s officer from significant expense resulting from’ compliance.” (emphasis added)).
Finally, none of the cases the Government cites analyze cost shifting under Rule
45(d)(2)(B) or earlier iterations of that rule, much less support the proposition that cost shifting is
appropriate under the rule absent a court order compelling compliance with a subpoena. See Waste
Conversion, Inc. v. Rollins Envtl. Servs. (NJ), Inc., 893 F.2d 605, 610 (3d Cir. 1990); U.S. S.E.C.
v. Hyatt, 621 F.3d 687, 693 (7th Cir. 2010); Fisher v. Marubeni Cotton Corp., 526 F.2d 1338,
1341 (8th Cir. 1975) (“The authority to take the action [the district court] took against the appellant
could only come from Rule 45(f).”)). In Hyatt’s limited discussion of Rule 45(c)(2)(B) – Rule

3

As discussed above at page 7, n. 3, prior to the 2013, Rule 45(d)’s language was codified under
subsection (c). See Fed. R. Civ. P 45, ADVISORY COMMITTEE NOTES (2013 amend.).
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45(d)(2)(B)’s predecessor – the Seventh Circuit distinguished that rule from Rule 45(e) and noted
the following:
Under Rule 45(c), intervening court involvement is required prior to
initiation of contempt proceedings if the recipient of the subpoena
serves a written objection on the party or attorney designated in the
subpoena . . . On receipt of such an objection, the party serving the
subpoena may move the issuing court for an order compelling
production or inspection and the production or inspection may be
required only as directed in the order.
Hyatt, 621 F.3d at 694. Hyatt’s discussion of the procedures under Rule 45(c)(2)(B) undercuts the
Government’s position here. The Government’s appeal of the Special Master’s denial of costs
under Rule 45(d)(2)(B) is denied.
IV.

CONCLUSION
For the reasons stated above, and for good cause shown,
IT IS on this 2nd day of February, 2021,
ORDERED that the Government’s appeal, D.E. 378, is DENIED.
.
__________________________
John Michael Vazquez, U.S.D.J.

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