Lackey v. Dement, et al
Filing
94
ORDER GRANTING IN PART AND DENYING IN PART 73 Motion for Protective Order; GRANTING IN PART AND DENYING IN PART 78 Motion to Enforce Order. Signed by Judge Elizabeth S. Chestney. (aej)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
AUSTEN LACKEY,
Plaintiff,
vs.
AUSTIN DEMENT, CRST
EXPEDITED, INC.,
Defendants.
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SA-17-CV-00514-FB
ORDER
Before the Court in the above-styled cause of action are Non-Party AD Hospital East,
LLC’s Motion to Quash and Motion for Protection [#73] and Defendants’ Motion to Enforce
Order on Defendants’ Motion to Exclude or Limit Testimony of Dr. Henry Small [#78]. In
reviewing the motions, the Court has also considered Defendants’ Response to AD Hospital
East, LLC’s Motion to Quash and Motion for Protection [#75], Plaintiff’s Combined Response to
Defendants’ Motion to Enforce Order on Defendants’ Motion to Exclude or Limit Testimony of
Dr. Henry Small and Motion to Clarify Pursuant to Fed. R. Civ. P. 60(a) [#83], Defendants’
Response to Motion to Clarify Pursuant to Fed. R. Civ. P. 60(a) [#84], the Joint Advisory
Regarding Non-Party AD Hospital East, LLC’s Motion to Quash and Motion for Protection
[#86], and Defendants’ Position Statement Regarding Defendants’ Motion to Enforce Order and
Plaintiff’s Motion to Clarify [#87]. The Court held a hearing on the motions on June 20, 2019, at
which Plaintiff, Defendants, and Non-Party AD Hospital East, LLC (“ADHE”) were present
through counsel. After the hearing, Defendants and ADHE each filed a Supplemental Brief
[#91, #92]. The Court also reviewed these filings in evaluating ADHE’s motion.
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After considering the motions, responses, and replies, the relevant portions of the record
in this case, the governing law, and the arguments of counsel at the hearing, the Court orally
granted Defendants’ Motion to Enforce Order, which asked the Court to issue an order
compelling Plaintiff to pay all fees associated with the reopening of Dr. Small’s deposition. The
Court took ADHE’s motion to quash under advisement. The Court now memorializes its oral
ruling with respect to Defendants’ motion and issues a substantive order granting ADHE’s
motion to quash.
This case was referred to the undersigned for all pretrial proceedings pursuant to Rules
CV-72 and 1(c) of Appendix C of the Local Rules of the United States District Court for the
Western District of Texas. The Court has authority to issue this Order pursuant to 28 U.S.C. §
636(b)(1)(A).
I. Background
This personal-injury action arises out of a motor-vehicle collision between a vehicle
operated by Plaintiff Austin Lackey and a semi-trailer truck operated by Defendant Austin
Dement and owned by Defendant CRST Expedited, Inc. Plaintiff originally filed this action in
state court, and Defendants removed the Original Petition based on diversity jurisdiction. The
Original Petition remains the live pleading before the Court [#1-1] and alleges various theories of
negligence under Texas law against Defendants.
In January 2019, Plaintiff served affidavits concerning medical billing in his
supplemental discovery responses, which included a billing-records affidavit from Tarik Tewary,
custodian of records for ADHE [#50-2]. Defendants subsequently served deposition notices for
both Tewary and ADHE’s records custodian [#48-1, #48-2]. Plaintiff moved to quash the
notices [#48], and the Court granted the motion in part, allowing Defendants to depose ADHE’s
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records custodian in addition to Plaintiff’s previously noticed Rule 30(b)(6) corporate
representative deposition [#52].
Defendants subsequently served their cross-notice of intention to take the oral and
videotaped deposition of the corporation representative for ADHE. The cross-notice lists the
following as one of the deposition topics:
3. Reimbursement rates for Medicare, Medicaid, Blue Cross Blue Shield,
Cigna PPO, MultiPlan, United Healthcare, Aetna, Humana Healthcare
Molina Obama Healthcare for services this healthcare provider
performed, or products this health care provider provided, to Austen
Lackey from March 29, 2012 to the present, regardless of whether any
such reimbursement rates would have applied to the charges for or
products and services provided to Austen Lackey.
(Cross-Notice [#73-1] at 8.) Defendants’ cross-notice further demands that ADHE produce the
following records at the deposition:
2. Any and all records . . . concerning, but not limited to reimbursement
rates for Medicare, Medicaid, Blue Cross Blue Shield, Cigna PPO,
MultiPlan, United Healthcare, Aetna, Humana Healthcare Molina
Obama Healthcare, services this healthcare provider performed,
regardless of whether any such reimbursement rates would have
applied to the charges for or products and services provided to Austen
Lackey, DOB: January 25, 1996, SSN: XXX-XX-1109;
(Subpoena Duces Tecum [#73-1] at 11.)
ADHE now moves to quash Topic 3 and Document Request 2 on the basis that ADHE’s
reimbursement rates are confidential, privileged trade secrets that ADHE is contractually
prohibited from providing to third parties.
ADHE also asks the Court to enter an order
protecting ADHE from discovery of the same.1 At the hearing, Defendants orally revised their
request as to the reimbursement rates, limiting the discovery sought to the reimbursement rates
ADHE’s motion originally challenged other designated topics and production requests
contained in Defendants’ cross-notice, but the parties resolved these additional disputes prior to
the Court’s June 20, 2019 hearing. (See Joint Advisory [#86].)
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for the specific procedure codes applicable to the services provided to Plaintiff.
ADHE
maintains its objection to this discovery. For the reasons that follow, the Court will grant
ADHE’s motion and quash Topic 3 and Document Request 2, as written in Defendants’ crossnotice or as modified by Defendants at the hearing.
II. Analysis
ADHE moves to quash Defendants’ cross-notice of the deposition of ADHE’s corporate
representative with respect to its request for testimony and documentation of the reimbursement
rates that have been contractually negotiated between ADHE and various insurers.
It is
undisputed that Plaintiff is not insured by any insurance company and these rates do not govern
the services ADHE provided to Plaintiff. The motion is granted.
Rule 26 generally limits discovery to “any nonprivileged matter that is relevant to any
party’s claim or defense and proportional to the needs of the case.” Fed. R. Civ. P. 26(b)(1).
ADHE brings its motion to quash pursuant to Rule 45, which governs subpoenas served on
nonparties. Courts apply the same relevance and proportionality limitations encompassed by
Rule 26 to motions to quash in the context of Rule 45 so as to avoid imposing any undue burden
or expense on the person or entity subject to the subpoena. See, e.g., MetroPCS v. Thomas, No.
3:18-MC-29-K-BN, 2018 WL 2933673, at *9 (N.D. Tex. June 12, 2018); Whitley v. Pinnacle
Entm’t, Inc., No. CV 15-595-BAJ-RLB, 2016 WL 6154938, at *2 (M.D. La. Oct. 21, 2016).
The parties’ dispute centers on the interpretation and application of a recent case issued
by the Texas Supreme Court, which held that a trial court did not abuse its discretion by
permitting discovery of the reimbursement rates of insurers and government payors in a dispute
regarding the enforceability of a hospital lien against an uninsured patient. See In re N. Cypress
Med. Ctr. Operating Co., Ltd., 559 S.W.3d 128, 137 (Tex. 2018). ADHE contends that North
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Cypress does not apply in the context of a personal-injury action and with respect to discovery
sought from non-parties, as here, and that its reimbursement rates are confidential trade secrets
that it cannot be compelled to produce. Defendants argue that North Cypress applies to this case,
the discovery should be permitted, and a standard confidentiality and protective order could be
issued to protect any proprietary information.
The Court agrees with ADHE that North Cypress does not govern the discovery issue
before the Court and the information sought is neither relevant nor proportional to the needs of
the case. Moreover, even if Defendants could establish relevance and proportionality as to the
disputed discovery, ADHE has established that the reimbursement rates are trade secrets and
should not be disclosed and Defendants have failed to satisfy their burden to demonstrate that the
discovery of the reimbursement rates are nonetheless necessary to the fair adjudication of this
case.
A.
North Cypress is not controlling in this context—a personal-injury diversity action in
federal court.
Defendants have not convinced the Court that the Texas Supreme Court’s North Cypress
holding should affect the Court’s relevance and proportionality analysis in the discovery dispute
before the Court. The North Cypress case involved a dispute in a Texas court between an
uninsured patient and a hospital over the reasonableness of a hospital lien following emergencyroom treatment.
559 S.W.3d at 129–130.
The patient sued the hospital in a declaratory
judgment action, arguing that the hospital’s charges were unreasonable and the lien was invalid
to the extent it exceeded a “reasonable and regular rate” for the services rendered. Id. The Texas
Supreme Court held that the amounts the hospital accepts for the services rendered to the
plaintiff from other patients who received the same services—including amounts charged to
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patients covered by private insurance and government benefits—were relevant to the
reasonableness of the challenged hospital lien and therefore discoverable. Id. at 134–37.
The North Cypress court’s reasonableness analysis centered on Texas’s hospital-lien
statute, which provides hospitals with “an additional method of securing payment from accident
victims, encouraging their prompt and adequate treatment.” Id. at 131; see also Tex. Prop. Code
§ 55.001, et seq. The statute contains language that a hospital is to recover the full amount of its
lien, subject only to the right to question “the reasonableness of the charges comprising the lien.”
N. Cypress, 559 S.W.3d at 131 (quoting Bashara v. Baptist Mem’l Hosp. Sys., 685 S.W.2d 307,
309 (Tex. 1985)); see also Daughters of Charity Health Servs. v. Linnstaedter, 226 S.W.3d 409,
411 (Tex. 2007) (noting that the amount of a hospital lien may not exceed “a reasonable and
regular rate”).
Based on the language of Texas’s hospital-lien statute, the Court determined that the
“central issue in a case challenging such a lien is what a reasonable and regular rate would be.”
N. Cypress, 559 S.W.3d at 133. The Court reasoned that the amount actually charged to a
patient, whether insured or insured, is not dispositive of what constitutes a reasonable rate for
purposes of enforcement of a hospital lien. Id. Ultimately, the Court held that here is a
“potential connection between reimbursement rates and the reasonableness of billed charges,”
despite the many factors that affect the negotiated rate with a particular insurer. Id. at 135.
Defendants ask this Court to extend North Cypress to the context of personal-injury
litigation and therefore to find that the contractual reimbursement rates between an insurer and a
medical provider are relevant and proportional as to an uninsured plaintiff’s damages claim for
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past medical expenses. No Texas court has yet extended North Cypress to this situation.2 In
support of its argument, Defendants direct the Court to a decision by a federal court from this
district, however, which permitted similar discovery in the personal-injury context. See Eyer v.
Rivera, No. SA-17-CV-01212-OLG, 2019 WL 626140, at *1 (W.D. Tex. Jan. 7, 2019) (granting
motion to compel answer to deposition by written questions and production of document with
respect to reimbursement rates for various services performed). See also Ochoa v. Mercer
Transp. Co., No. 5:17-CV-1005-OLG, 2018 WL 6220155, at *1–2 (W.D. Tex. June 8, 2018)
(denying motion to quash with respect to reimbursement rates from private insurers).
In applying the reasoning of North Cypress to the personal-injury context, these cases
both relied on the requirement in Texas law that a claim for past medical expenses be supported
by evidence that such expenses were reasonable and necessary. See Hamburger v. State Farm
At the Court’s hearing, Defendants represented to the Court that a Texas intermediate
court of appeals had extended North Cypress to the personal-injury context and would submit the
case to the Court for its consideration. Defendants’ supplemental brief cites to a case from the
Houston Court of Appeals, in which the court reversed a trial court’s judgment on past medical
expenses in a personal-injury action due to the improper exclusion of a portion of the deposition
testimony of the former director of the business office of the medical provider at issue. See
Primoris Energy Servs. Corp. v. Myers, 569 S.W.3d 745, 763–64 (Tex. App.—Houston [1st
Dist.] 2018, no pet.). Primoris Energy did not concern a discovery dispute over an attempt to
obtain insurance contracts and reimbursement rates, did not implicate the North Cypress
decision, and involves unique facts not applicable here. The evidence at trial in Primoris Energy
established that the plaintiff’s bill for $200,000 of medical services had been assigned to
MedFin, a third-party “factoring” company that purchases the right to collect money before the
bill is paid, thereby reducing the delay between the time of sale and the receipt of payment. Id.
at 763. The excluded deposition testimony would have established that the hospital had
negotiated the acceptance of only $80,000 for plaintiff’s bill in exchange for the assignment of
the bill to MedFin and had a regular practice of marking up bills by 400% and accepting only 2540% of the amount charged. Id. at 763–64. The appellate court therefore held that the jury
should have been permitted to consider this testimony in evaluating the reasonableness of the
plaintiff’s claimed medical expenses. Id. Accordingly, MedFin, though not an insurer,
functioned somewhat like one in that it provided payment to the hospital for the specific bill at
issue. There is no evidence of any relationship with an insurer or a third-party factoring
company like MedFin in this case.
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Mut. Auto. Ins. Co., 361 F.3d 875, 886 (5th Cir. 2004) (collecting Texas cases on reasonableness
requirement for recovering past medical expenses). A plaintiff must prove reasonableness and
necessity by expert testimony or affidavit; proffering a medical bill as evidence of damages is
not enough. Hong v. Bennett, 209 S.W.3d 795, 801 (Tex. App.—Fort Worth 2006, no pet.);
Cowboys Concert Hall-Arlington, Inc. v. Jones, No. 02-12-00518-CV, 2014 WL 1713472, at *18
(Tex. App.—Fort Worth May 1, 2014, no pet.); see also Tex. Civ. Prac. & Rem. Code § 18.001.
In light of this requirement, the court in Ochoa concluded that the reimbursement rates at issue
could lead to the discovery of evidence regarding charges paid by other patients for services
provided to plaintiff—evidence that would be admissible to show the reasonableness of the
health care expenses that the plaintiff paid. 2018 WL 6220155, at *1.3
This Court is not persuaded that the Texas Supreme Court would conclude the same, nor
that this is the correct result under Fifth Circuit law as to the relevance and proportionality of the
discovery. Texas tort law limits the recovery of medical or health care expenses “to the amount
actually paid or incurred by or on behalf of the claimant.” Tex. Civ. Prac. & Rem. Code §
41.0105.
Moreover, Texas’s collateral-source rule, which is a rule of both evidence and
damages, bars a wrongdoer from offsetting his liability by benefits received by the plaintiff from
a third party. Mid-Century Ins. Co. of Texas v. Kidd, 997 S.W.2d 265, 274 n.48 (Tex. 1999).
Accordingly, in the context of an uninsured patient, the Fifth Circuit (interpreting Texas law) has
stated that the reduced prices that an uninsured plaintiff “may have received had he participated
in health benefits or insurance programs for which he may have been eligible are irrelevant.”
Guzman v. Jones, 804 F.3d 707, 712–13 (5th Cir. 2015). Stated another way, the bill received by
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Importantly, the motion to compel that was filed in Eyer was unopposed and therefore
there was no argument developed before the Court regarding the status of the requested
reimbursement rates as trade secrets, as ADHE argues here. The motion to quash field in Ocho
also did not raise the trade-secret argument at the center of ADHE’s motion.
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an uninsured patient is the primary evidence of the amount of past medical damages “because
[the patient] received the medical care, was billed for it, has provided no payments to cover it,
and could be subject to suit for non-payment in the full amount billed.” Id. at 711. “The amount
[a patient] might have owed under different circumstances has no bearing on what [the patient]
actually owes now.” Id. at 711–12. This reasoning applies with equal force here. What
Plaintiff’s medical provider charges insured patients for the procedures Plaintiff received “has no
bearing” on what Plaintiff owes to his medical provider. As that information is not relevant, the
tortfeasor defendant should not be allowed to discover it from Plaintiff’s non-party medical
providers.
B.
The requested discovery is not proportional to the needs of this case.
Moreover, even if this information does have some attenuated relevance, permitting its
discovery is not proportional to the needs of the case under these circumstances. It is significant
that the discovery in North Cypress was sought from the hospital, who was the defendant in the
litigation, for the purposes of determining the dispositive legal question in the case—whether the
hospital could enforce a lien against the plaintiff patient for services provided. Essential to that
inquiry was a statutorily mandated evaluation of the reasonableness of the amount of the hospital
chose to bill the uninsured patient. The hospital, which had negotiated the reimbursement rates,
bore the burden of proving the reasonableness of the lien at issue. (Notably, the discovery
inquiry in North Cypress was also governed by the Texas Rules of Civil Procedure, not the
Federal Rules of Civil Procedure, which require proportionality and not merely a demonstration
the information sought in discovery is relevant to the subject matter of the pending action and if
not itself admissible at least reasonably calculated to lead to the discovery of admissible
evidence. See Tex. R. Civ. P. 192.3(a).)
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In contrast, the discovery sought here is from a non-party medical provider—ADHE—for
the purpose of challenging the uninsured Plaintiff’s claimed damages in the form of past medical
expenses and potentially reducing the liability of Defendants—the alleged tortfeasors. The
Plaintiff bears the burden of proving the reasonableness of his past medical expenses.
Defendants seek information from a non-party for purposes of cross examination.
In this
context, the Court is not convinced that the requested discovery is proportional to the needs of
this case. It places a burden on the third party to provide information that only tangentially
relates to an issue in the case.
C.
ADHE has established that its reimbursement rates are trade secrets, which are
therefore protected from discovery in this case.
Finally, even if Defendants could demonstrate that the reimbursement rates are relevant
to Plaintiffs’ claims and proportional to the needs of this case, the Court would still decline to
permit the requested discovery because ADHE has sufficiently established that the
reimbursement rates are trade secrets protected from discovery under Texas law. ADHE argues
that the requested reimbursement rates are confidential trade secrets in the form of ADHE’s
billing practices and pricing arrangements and payment terms with insurance companies and
others.
The Texas Uniform Trade Secrets Act (“TUTSA”) requires that courts preserve the
secrecy of an alleged trade secret by reasonable means.
Tex. Civ. Prac. & Rem. Code §
134A.006. A trade secret . . .
means all forms and types of information, including business, scientific,
technical, economic, or engineering information, and any formula, design,
prototype, pattern, plan, compilation, program device, program, code,
device, method, technique, process, procedure, financial data, or list of
actual or potential customers or suppliers, whether tangible or intangible
and whether or how stored, compiled, or memorialized physically,
electronically, graphically, photographically, or in writing if:
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(A) the owner of the trade secret has taken reasonable measures under the
circumstances to keep the information secret; and
(B) the information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable through proper means by, another person who can obtain
economic value from the disclosure or use of the information.
Tex. Civ. Prac. & Rem. Code § 134A.002(6). When trade secret privilege is asserted as the basis
for resisting production, “the party resisting discovery must establish that the information sought
is indeed a trade secret and that disclosure would be harmful.” In re Continental General Tire,
Inc., 979 S.W.2d 609, 612 (Tex. 1998). The burden then shifts to the requesting party to
establish that the information is relevant and necessary for a fair adjudication of the party’s
claims or defenses. Id. at 612–13. “If the trial court orders disclosure, it should enter an
appropriate protective order.” Id. at 612.
To determine whether a trade secret exists, the Texas Supreme Court applies the
Restatement of Torts’ six-factor test:
(1) the extent to which the information is known outside of his business;
(2) the extent to which it is known by employees and others involved in
his business; (3) the extent of the measures taken by him to guard the
secrecy of the information; (4) the value of the information to him and to
his competitors; (5) the amount of effort or money expended by him in
developing the information; (6) the ease or difficulty with which the
information could be properly acquired or duplicated by others.
In re Bass, 113 S.W.3d 735, 739 (Tex. 2003). A party claiming a trade secret is not required to
satisfy all six factors but instead courts must weigh all six factors, as well as any other relevant
factor, in the context of the surrounding circumstances to determine whether the information at
issue constitutes a trade secret. Id. at 740. Although this Texas Supreme Court decision predates TUTSA, the case’s trade secret analysis is not inconsistent with the TUTSA definition, and
there is nothing else in TUTSA that is in tension with the applicable reasoning of Bass.
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ADHE has submitted to the Court the sworn declaration of Christopher Harkey, in-house
counsel for ADHE, which states that the requested reimbursement rates are trade secrets in the
form of ADHE’s billing practices, payment arrangements, and payment terms with insurance
companies and others. (Harkey Decl. [#73-1] at 16, ¶ 8.) Harkey represents to the Court that
ADHE takes measures to keep its reimbursement rates secret; does not make the rates generally
available even to its employees; and discloses the information only to a select few employees
who are instructed to keep the information confidential. (Id. at 16, ¶ 9.) Additionally, the
insurance-provider contracts containing the rates contain confidentiality provisions that obligate
ADHE and the insurance company to keep the terms confidential. (Id. at 17, ¶ 10; see also, e.g.,
Hospital Services Agreement [#73-1] at 21–28.) According to Harkey, this proprietary pricing
information “derives independent economic benefit from not being generally known to, and not
being readily ascertainable” to others and the disclosure thereof could result in a significant
competitive disadvantage when negotiating future contracts. (Id. at 17–18, ¶ 11.)
Defendants do not respond to ADHE’s trade-secret argument or present the Court with
any counter-evidence to Harkey’s declaration.
The Court therefore finds that ADHE’s
negotiated reimbursement rates are trade secrets because Harkey’s declaration establishes that
the rates are not known outside of their business or by the majority of employees; the rates are
contractually protected from disclosure; and the rates are of great value both to ADHE and
competing insurers and health care providers. See Tex. Civ. Prac. & Rem. Code § 134A.002(6);
In re Bass, 113 S.W.3d at 739. Accordingly, Defendants bear the burden to show the necessity
of the requested materials. In re Continental, 979 S.W.2d at 612. Defendants have failed to do
so.
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For trade secret discovery to be “necessary for a fair adjudication” of a claim, the
production must be “material and necessary to the litigation.” Id. at 615. If Defendants need to
determine the reasonableness of Plaintiff’s medical expenses, there are other means of evaluating
and comparing the actual and billed prices for various procedures, as the averages of this
information is made publicly available by the Texas Department of Insurance. (Harkey Decl.
[#73-1] at 19, ¶ 14; see also Texas Healthcare Costs, available at www.texashealthcarecosts.org
(last visited June 26, 2019).) Additionally, the Medicare and Medicaid reimbursement rates
sought by Defendants are publicly available.
Finally, Defendants’ agreement to a protective order as a means of protecting against the
disclosure of ADHE’s trade secrets “does not dispense with the requesting party’s burden to
establish the necessity for the discovery of the trade secret information to fairly adjudicate a
claim or defense.” In re Hewlett Packard, 212 S.W.3d 356, 364 (Tex. App.—Austin 2006, no
pet.) Because Defendants have not established the necessity of discovering ADHE’s trade
secrets—the contractually negotiated insurance rates with various insurers—in order to fairly
adjudicate a claim or defense in this case, Defendants are not entitled to discover the information
regardless of whether a protective order is entered by the court. See id.
IT IS THEREFORE ORDERED that Non-Party AD Hospital East, LLC’s Motion to
Quash and Motion for Protection [#73] is GRANTED as to Topic 3 and Document Request 2 in
Defendants’ cross notice of ADHE’s corporate representative deposition. ADHE’s corporate
representative is not required to testify on the requested reimbursement rates nor is ADHE
required to produce documents containing same.
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IT IS FURTHER ORDERED that Defendants’ Motion to Enforce Order on
Defendants’ Motion to Exclude or Limit Testimony of Dr. Henry Small [#78] is GRANTED as
follows:
Defendants are ordered to re-notice the deposition of Dr. Small with a time limit of two
hours. Any fee charged by Dr. Small for the deposition is to be borne by Plaintiff. However, if
the fee is exorbitant and Dr. Small refuses to appear but for payment, Dr. Small must file a
motion to quash the deposition notice and identify the basis for his refusal to comply with a
subpoena to appear for a deposition as a non-retained expert witness.
IT IS FINALLY ORDERED that in all other respects the motions are DENIED.
SIGNED this 18th day of July, 2019.
ELIZABETH S. ("BETSY") CHESTNEY
UNITED STATES MAGISTRATE JUDGE
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