United States of America et al v. Bluewave Healthcare Consultants Inc et al

Filing 613

ORDER AND OPINION granting 582 the Government's Motion to Extend the scheduling order to name Mr. Pace. The Government is hereby ordered to work diligently with Defendants to arrange for Mr. Pace's deposition immediately. AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 8/24/2017.(sshe, )

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA

United States of America, et al.,
Plaintiffs,
ex rel. Scarlett Lutz, et al.,

Plaintiffs-Relators,
V.

Berkeley Heartlab, Inc., et al.,
Defendants.

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Civil Action No. 9:14-cv-00230-RMG
(Consolidated with 9:11-cv-1593-RMG and
9: 15-cv-2458-RMG)

ORDER and OPINION

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This matter is before the Court on a motion filed by the United States of America
pursuant to Rule 6(b) of the Federal Rules of Civil Procedure and Local Rule 6.01 seeking an
order amending the scheduling order for the sole purpose of extending the deadline to name
witnesses to allow the United States to disclose Nicholas Pace as a witness the United States
intends to call at trial. (Dkt. No. 582.) Latonya Mallory has filed a motion in opposition. (Dkt.
No. 590.) Blue Wave Healthcare Consultants, Inc., Floyd Calhoun Dent, III, and Robert Bradford
Johnson (collectively, "the BlueWave Defendants") have likewise filed a motion in opposition.
(Dkt. No. 592). The Government has filed a reply, and the BlueWave Defendants have filed a
sur-reply. (Dkt. Nos. 594, 599). For good cause shown, as set forth below, the Government's
motion to extend the discovery period to name Nicholas Pace as a witness is granted. The
Government is hereby ordered to work diligently with Defendants to arrange for Mr. Pace's
deposition immediately.

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I.

Background

The Government has filed a complaint in intervention against the Blue Wave Defendants
and Latonya Mallory alleging violations of the Anti-Kickback Statute ("AKS"), 42 U.S.C. §
1320a-7b(b), and the False Claims Act ("FCA"), 42 U.S.C. § 3729. (Dkt. No. 75.) The alleged
FCA violations arise from BlueWave's marketing of laboratory tests for two laboratory
companies, Health Diagnostic Laboratory, Inc. ("HDL") and Singulex, Inc. ("Singulex"),
between 2010 and 2015. The Government has alleged that Defendants violated the FCA when
they engaged in multiple kickback schemes to induce physicians to refer blood samples to HDL
and Singulex for panels of blood tests, many of which were medically unnecessary. For example,
the Government alleges that Defendants offered and facilitated the payment of processing and
handling ("P&H") fees to physicians to induce referrals in violation of the AKS and FCA.
II.

Facts

The Government alleges that Pace was hired by HDL in 2013 and has "unique, crucial,
and first-hand insight into Defendants' actions and mental state as they continued with the
alleged conduct even after Defendants' attorneys advised Defendants to stop the kickback
schemes." (Dkt. No. 582-1 at 2.) The Government alleges that Pace cautioned HDL about his
compliance concerns with their practices and left HDL in late 2013 due to frustrations with the
company's progress in making changes. (Id. at 3.)
The Government alleges that despite Mr. Pace's connections to this litigation, Defendants
failed to disclose Mr. Pace in their initial Rule 26(a) disclosures or list Mr. Pace as an individual
with knowledge relevant to their advice of counsel and good faith affirmative defenses. (Id.) The
United States claims it only learned of Mr. Pace during the deposition of Derek Kung on May
22, 2017 and did not have the opportunity search for documents related to Mr. Pace until just
before defendant Mallory's deposition on June 1, 2017 because of the issues with production
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related to the HDL bankruptcy estate. Discovery closed on June 2, 2017. The Government
represents that it began coordinating to interview Mr. Pace shortly after the close of discovery
and notified Defendants of its intent to call Mr. Pace as a witness on July 26, 2017. (Id. at 4.)
III.

Legal Standard
A.

Rule 6(b)

The standard for a motion to amend a scheduling order to extend the deadline to identify
witnesses when that deadline has already expired is as follows:
While the court agrees that it can enlarge time contained in a Pretrial Order for
good cause as provided by Rule 16 [it appears that] the more specific
requirements of Rule 6(b)(l)(B) apply where, as here, a deadline has already run."
Anderson v. Caldwell County Sheriff's Office, No. 1:09cv423, 2011 WL 198085,
at* 1 (W.D.N.C. Jan. 20, 2011); see Colony Apartments v. Abacus Project Mgmt.,
197 F. App'x. 217 (4th Cir. 2006). Rule 6(b)(l)(B) of the Federal Rules of Civil
Procedure provides in pertinent part: "When an act may or must be done within a
specified time, the court may,for good cause, extend the time ... on motion made
after the time has expired if the party failed to act because of excusable neglect."
Fed. R. Civ. P. 6(b)(l)(B) (emphasis added). In determining whether a party has
shown excusable neglect, a court will consider: ( 1) the danger of prejudice to the
non-moving party; (2) the length of delay and its potential impact on judicial
proceedings; (3) the reason for the delay; and (4) whether the movant acted in
good faith. Colony 197 F. App'x at 223 (citing Thompson v. E.I DuPont de
Nemours & Co., 76 F.3d 530, 534 (4th Cir. 1997)). Merely establishing these
elements does not entitle a party to relief; rather, 'whether to grant an enlargement
of time still remains committed to the discretion of the district court." Id.
Johnson v. Murphy, No. 4:10-cv-01494, 2011 WL 3099874 at *4 (D.S.C. July 22, 2011).

IV.

Discussion

The United States argues that it has shown excusable neglect because naming Mr. Pace as
a witness at this time: (1) would not prejudice Defendants; (2) need not impact the judicial
proceedings; (3) was a result of a reasonable delay due to Defendants' failure to disclose Mr.
Pace during discovery. The Government claims that it acted in good faith by moving quickly to

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investigate Mr. Pace's role in the alleged conduct and notifying Defendants shortly thereafter of
the United States' intention to call Mr. Pace as a witness.
Defendant Mallory does not object to the Government calling Mr. Pace as a witness but
contests its contention that she failed to disclose Pace. (Dkt. No. 590 at 1.) Mallory argues, for
example, that in February 2017, James Leventis and Special Agent Corbett interviewed Anna
McKean, a former employee of HDL, who told the government that HDL hired Pace to look at
alternatives to P&H. (Id. at 6.)
In their opposition brief, the Blue Wave Defendants argue that the Government cannot
show excusable neglect under Rule 6(b) because the Government is to blame for its own failure
to discover Mr. Pace until the last few weeks of discovery. (Dkt. No. 592 at 5.) The Blue Wave
defendants argue that (1) BlueWave produced 110 emails with Nick Pace as early as June 2016;
(2) BlueWave named other HDL compliance employees in its initial disclosures in December
2016; and (3) the Government's delayed receipt of documents identifying Mr. Pace within the
purview of the HDL bankruptcy estate was primarily the result of the Government's own failure
to obtain internal approval for the waiver agreement that made it possible for those documents to
be produced. The BlueWave Defendants argue that they will be prejudiced by an order allowing
the Government to name Mr. Pace as a witness because even if they have the opportunity to
depose Mr. Pace before trial, they do not have the opportunity at this late date to identify a
counter witness, add exhibits, or designate additional depositions to protect themselves. (Dkt.
No. 592 at 9.)1

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The Blue Wave Defendants made some of these arguments to support their position that the
Government has not met the requirements of Federal Rule of Civil Procedure 37(c)(l) which
provides that if a party fails to provide information or identify a witness as required by Rule
26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a
motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.

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The Court has considered the following factors to determine whether the Government has
shown excusable neglect.

A.

Danger of Prejudice and Length of Delay

Allowing the Government to name Mr. Pace as a witness at this time will prejudice the
BlueWave defendants because they will have to depose Mr. Pace in the twenty-six (26) days
remaining before trial is scheduled to begin on September 18, 2017. Any prejudice is tempered
substantially by the fact that Mr. Pace was an employee of HDL (a co-defendant in this matter)
during the relevant time period to address compliance issues with P&H fees, the very conduct at
issue in this litigation. The Court finds that twenty-six (26) days is a sufficient period of time for
the BlueWave Defendants to depose Mr. Pace. Further, the BlueWave defendants have known
that the Government intended to call Mr. Pace as a witness since July 26, 2017, seven (7) weeks
and five (5) days before trial is scheduled to begin in this case.

B.

Reason for the Delay

Defendants claim that the Government would have acquired documents mentioning Mr.
Pace sooner had the Government more expeditiously pursued the waiver agreement required for
production of certain privileged HDL documents under the control of the HDL bankruptcy
estate. It may be the case that the Government would have discovered Mr. Pace's role sooner had
it obtained internal approval for the waiver agreement at an earlier date, but the Government had
no way of knowing that those documents would alert them to the identity of Mr. Pace and his
role in the litigation. Defendants' failure to name Mr. Pace in their disclosures was a substantial
oversight given Mr. Pace's compliance position at HDL in 2013. Although Mallory and the
Blue Wave defendants list several informational exchanges that may have alerted the
Government to Mr. Pace's role (e.g., a privilege log), Defendants are primarily responsible for
the Government's late identification of Mr. Pace as a witness it intends to call at trial. Had
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Defendants disclosed Mr. Pace in their initial Rule 26(a) disclosures or listed Mr. Pace as a
person with knowledge relevant to their advice of counsel and good faith affirmative defenses in
their answers to the Government's interrogatories, the Government would undoubtedly have
named Mr. Pace as a witness.

C.

Good Faith

The Court finds that the Government acted in good faith by notifying Defendants
promptly of its intent to call Mr. Pace as a witness after becoming aware of Mr. Pace's role in
May 2017.
The Court has balanced all of these concerns and determined that the risk of prejudice to
the Blue Wave Defendants is mitigated substantially by the fact that Mr. Pace was an employee
of their co-defendant HDL during the relevant period and had knowledge that is directly relevant
to the issues at hand. This is not a situation in which a party is attempting name a third-party
witness or a witness previously unknown to the opposing side on the eve of trial. Defendants
cannot, under these circumstances, claim that they will be unfairly prejudiced by the
Government's identification of a witness employed by HDL to consult on the very practices at
issue in this litigation.

V.

Conclusion
For the reasons set forth above, the Government's motion to extend the scheduling order

to name Mr. Pace is granted. The Government is hereby ordered to work diligently with
Defendants to arrange for Mr. Pace's deposition immediately.
AND IT IS SO ORDERED.

United States District Court Judge
August~' 2017
Charleston, South Carolina
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