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Central Valley Ag Cooperative v. Leonard

United States District Court, D. Nebraska

January 12, 2019

CENTRAL VALLEY AG COOPERATIVE, for itself and as Fiduciary of the Central Valley Ag Cooperative Health Care Plan; and CENTRAL VALLEY AG COOPERATIVE HEALTH CARE PLAN, Plaintiffs,
v.
DANIEL K. LEONARD, SUSAN LEONARD, THE BENEFIT GROUP, INC., ANASAZI MEDICAL PAYMENT SOLUTIONS, INC., CLAIMS DELEGATE SERVICES, LLC, LINUS G. HUMPAL, and GMS BENEFITS, INC., Defendants.

          MEMORANDUM AND ORDER

          CHERYL R. ZWART UNITED STATES MAGISTRATE JUDGE

         Pending before me is Plaintiff's motion to continue the court-ordered case progression deadlines; specifically, the expert witness disclosure deadline and trial setting. (Filing No. 133). For the reasons stated below, the motion will be granted in part.

         STANDARD OF REVIEW

         Pursuant to Rule 16(b)(4), a case management order “may be modified only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). The movant's level of diligence and the degree of prejudice to the parties are both factors to consider when assessing if good cause warrants extending a case management deadline, with the movant's diligence being the first consideration and the extent of prejudice to either party considered only after the movant makes a showing of due diligence. Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 716-17 (8th Cir. 2008); Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 759 (8th Cir. 2006).

         STATEMENT OF FACTS

         The Plan at issue has spawned multiple lawsuits, only one of which is pending in this forum. Others include “the Methodist Hospital litigation, ” a malpractice case, and a defamation lawsuit filed against Central Valley Ag Cooperative (“CVA”) by some or all the defendants in this litigation. In addition, CVA's attorney has questioned the ethics of one of the opposing attorneys, and The Benefit Group, Inc. (“TBG”) has sent several Rule 11 letters to CVA[1]. The resulting undercurrent of acrimony has frequently threatened to drown the orderly case progression of this federal lawsuit.[2] So far, at the parties' request, the undersigned magistrate judge has held six case conferences[3]-totaling over five hours-attempting to understand and rule on the parties' ongoing discovery and case progression disputes. From that background, and after reviewing the case filings and evidence of record, the undersigned magistrate judge provides the following summary of facts relevant to the pending motion.

         CVA's counsel has represented CVA regarding alleged improprieties in the Central Valley Ag Cooperative Health Care Plan (“the Plan”) and its claims handling since at least 2016. On October 10, 2017, CVA retained an accounting firm, BKD, to: 1) “audit the financial statements” of the Plan for 2014 through 2016; and 2) “express an opinion on whether supplemental schedule(s) required [under ERISA] were fairly stated, in all material respects, in relation to the financial statements as a whole, ” as required under ERISA reporting requirements. (Filing No. 142-3).

         The following day, October 11, 2017, CVA filed its verified complaint and a motion for temporary restraining order. These initial filings were signed by CVA's current attorney of record. The TRO motion alleged “the ongoing harm caused by Defendants' multiple breaches of fiduciary duties will result in immediate and irreparable injury, loss, and continued harm to CVA and the Plan if injunctive relief is not granted . . . .” (Filing No. 3, at CM/ECF p. 2). Among other things, CVA asked the court to order expedited discovery and an immediate forensic audit of the Plan by Bill Kenedy and Taylor Pugh of the Lutz accounting firm at Defendants' cost and with their full cooperation. (Filing No. 3, at CM/ECF pp. 2-3). As to discovery, CVA argued:

Plan assets, participant claims files, and other records of the Plan are needed in order to pay participant claims, ascertain the amount of stop loss insurance proceeds to which the Plan is entitled, and to assure protection of Plan assets. Expedited discovery will facilitate the ability of CVA and its auditors and attorneys to put the affairs of the Plan in order for the protection of the participants.

(Filing No. 3-1, at CM/ECF p. 18). CVA argued that the court must act immediately because the Defendants' actions were causing harm to the Plan, with health claims left unpaid and Plan participants facing creditor collection and being denied access to health care. (Filing No. 3-1, at CM/ECF p. 10-11; Filing No. 101, at CM/ECF p. 12).

         The TRO hearing was held before Judge Smith Camp on October 17, 2017. (Filing No. 101). During that hearing, CVA counsel stated CVA had retained experts, Kenedy and Pugh from the Lutz accounting firm, to perform a forensic audit and to evaluate claims against the Plan and make sure the proper amounts were being paid. (Filing No. 101, at CM/ECF pp. 9, 12). CVA's counsel explained:

[I]f money is being diverted from this plan, if claims are being paid in a way that they shouldn't, if health care providers are being strong-armed, then this is an urgent situation.
And the forensic audit and the expedited forensic audit is necessary for the client and the plan to know where the money is, who has been paid the money, in what amount, and for what reason.

(Filing No. 101, at CM/ECF pp. 51-52).

         CVA's motion for a TRO was denied on October 26, 2017. (Filing No. 33). The following day, CVA served a Notice of Request to Audit on Defendant TBG. (Filing No. 142-4).

         During the last quarter of 2017, Defendant TBG responded to requests for documentation made by CVA's retained accountants. (Filing Nos. 142-5, 142-6). As explained by TBG's counsel,

On November 27, 2017, The Benefit Group provided CVA's auditors with searchable Excel spreadsheets in native format bates labeled TBGAudit905, 906, 907 and 908. These spreadsheets were The Benefit Group's claims detail history from January 1, 2013 through December 31, 2017. These reports contain hundreds of thousands of lines of data regarding claims. For example, TBGAudit907 consisted of approximately 78, 000 rows of data with each row having dozens of columns identifying the name of the claimant, the claim number, the date the claim was received, the date the claim was processed, the date the claim was paid, the name of the service provider, a description of the service, total charges, allowable charges, not covered amount, PPO savings, amount paid by other insurance, coinsurance, deductible, amount paid, and check number for the payment among other information.

(Filing No. 142-1, at CM/ECF p. 2, ¶ 11).

         CVA's demand doubled from $3, 000, 000 to $6, 000, 000 on November 15, 2017. (Filing No. 142-10). In addition to accounting firms BKD and Lutz, CVA retained Beau Reid, Division Leader for Holmes Murphy and Associates, as a consulting expert in December 2017, (Filing No. 104). So, by the end of 2017, Plaintiffs had retained three experts for assistance with auditing the Plan and/or deciphering the claims, payments made to medical providers, and the amounts received by Defendants. During November or December of 2017, CVA became aware of previously undisclosed documents possessed by TBG and Anasazi Medical Payment Solutions, Inc. (“AMPS”). These documents, referred to hereafter as AMPS invoices, included information CVA and its experts believed was crucial in understanding how claims were handled and money was spent by the Plan. (Filing No. 150). CVA claims it demanded this documentation in late 2017 and again in February 2018, but TBG and AMPS did not provide it. (Filing No. 150).

         CVA filed an amended complaint on October 31, 2017, (Filing No. 34), and a second amended complaint (without leave of the court) on November 15, 2017. (Filing No. 35). On December 18, 2017, Defendants filed motions to dismiss. (Filing Nos. 36, 38, 40). CVA did not respond to the motions to dismiss. Instead, it used the arguments raised in Defendants' briefs to add allegations to a proposed third amended complaint and it moved for leave to file that version complaint on January 4, 2018. (Filing No. 43).

         This flurry of motion practice was fully submitted on January 25, 2018. The undersigned magistrate judge dissected CVA's proposed 79-page third amended complaint and issued findings and recommendations on the pending motions on March 29, 2018. No. objections were filed to those findings and recommendations, and they were wholly adopted by Judge Smith Camp on May 1, 2018. (Filing Nos. 58 and 59). On May 7, 2018, CVA filed its third amended complaint, modified consistent with the court's order to remove, among other claims, CVA's claim for recovery under RICO. (Filing No. 60) The Defendants' answers were filed on or before May 22, 2018. (Filing Nos. 61, 62, 63, 64).

         While the motions to dismiss and CVA's motion to amend were pending, CVA pursued a complaint before the Nebraska Department of Insurance, (Filing No. 142-11); met with the Lutz accounting firm to review the case, (Filing No. 142-12); and secured Kenedy's affidavit regarding his investigation and verifications of the financial aspects of the administrative services provided to the Plan by TBG and other service providers from 2014 through 2017 (Filing No. 142-13). CVA requested and TBG provided additional documents and information for the audit being conducted by Lutz. (Filing No. 142-7, 142-8; 142-23), and TBG provided to BKD the check register information and documents for a sampling of 152 claims. (Filing No. 142-1, at CM/ECF p. 2-3, ¶ 12, 18; 142-9).

         CVA states it again requested the AMPS invoices in February of 2018. It also asserts that it requested bank records during the audit and was led to believe only one bank account existed, the records for which were provided to CVA by TBG. However, in April of 2018, CVA realized through its experts that additional bank accounts existed and the documentation from those accounts was missing. (Filing No. 150). TBG states it told CVA in late 2017 that the bank accounts contain information for several clients, and those records cannot be released absent a protective order. (Filing No. 150, at 32:20-32:55).

         On June 4, 2018, the court entered a scheduling order which required the parties to meet, confer, and jointly complete a Rule 26(f) Report. (Filing No. 65). The parties convened a Rule 26(f) conference, and they attempted to draft the joint report, (Filing No. 135, at CM/ECF p. 4), but they could not agree on case scheduling deadlines. Defendants asked that CVA's expert reports be served on or before November 30, 2018; CVA requested a May 15, 2019 expert report deadline. (Filing No. 135, at CM/ECF p. 22). Defendants requested an August 2019 trial date; CVA requested an April 2020 trial date. (Filing No. 135, at CM/ECF p. 135).

         The court convened a scheduling conference. At that conference, CVA's counsel explained that collectively from all Defendants, they had received nearly 1300 discovery requests. See Filing No. 146, at CM/ECF p. 9. Defendants explained that they needed to use discovery to flush out CVA's contentions as to each Defendant. The court noted that several defendants were sued, the operative complaint is extensive, and CVA engaged in group pleading, with defendants as a group allegedly responsible for most of the actions or inactions underlying CVA's claims. After hearing the parties' arguments, [4] the court did not strike or limit Defendants' discovery as CVA requested. Instead it ordered:

To promote the goals outlined in Rule 1 of the Federal Rules of Civil Procedure, the parties shall promptly confer in good faith to streamline both the allegations within the complaint and the corresponding discovery requests, thereby avoiding global allegations which, in turn, prompt global discovery served on or received from each named defendant.

(Filing No. 77, at CM/ECF p. 1-2, ¶ 3).

         During the scheduling conference, Defendants expressed concern with any delayed resolution of this case, and the court was aware of CVA's arguments in support of its request for a TRO. As such, trial was set to commence on August 13, 2019, with counsel ordered to “govern their case preparation accordingly.”[5] (Filing No. 77, at CM/ECF p. 1, ¶ 1) (emphasis in original).

         Within a week after this order was entered, CVA's counsel requested a discovery dispute conference. That conference was held on July 19, 2018. (Filing No. 80). CVA's counsel explained that CVA needed 60 days to respond to Defendants' discovery, with an August 24, 2018 due date-a request the defendants did not oppose. However, TBG and AMPS demanded that any objections to their interrogatories still be made within the 30-day limit set by the Federal Rules. In addition, TBG asked for guidance on whether the court interpreted TBG's interrogatories as exceeding the 50-question limit to which the parties agreed. After discussing the pending discovery, reviewing the interrogatories at issue, and hearing the parties' respective positions, the court concluded TBG's interrogatories did not exceed the limit of 50, and that objections to interrogatories should be served within the deadline set by Rule 33(b)(2), or that CVA provide an explanation, by interrogatory, as to why objections could not be made within 30 days. (Filing No. 80).

         While responding to Defendants' discovery in June and July of 2018, CVA realized documents referred to as “Reports of Recommendations” existed and those documents had not been fully disclosed in the auditing process. (Filing No. 150).

         CVA's mandatory disclosures were served on July 23, 2018. Those disclosures did not include a damage calculation. (Filing No. 142-18). Defendants requested supplementation, (Filing No. 142-19), and received further damage disclosures on August 1, 2018. (Filing No. 142-20). But CVA has not answered Defendant Claims Delegate Services, LLC's (“CDS”) interrogatory asking for “all facts supporting your contention that the compensation you identified was ‘excess compensation, '” (Filing No. 143-3, at CM/ECF p. 3, Interrogatory 3); AMPS' interrogatory requesting the method of computing Plaintiff's damage claims, (Filing No. 143-2, at CM/ECF p. 5, Interrogatory 18); or TBG's interrogatory requesting “a current and complete itemization of the special damages claimed, including but not limited to an explanation of how the Plan ‘suffered damages in excess of $6 million' as a result of The Benefit Group's alleged actions.” (Filing No. 142-21, at CM/ECF p. 2, Interrogatory 21). CVA has not stated the amount of "undisclosed" compensation allegedly received by Defendant GMS Benefits, Inc. (“GMS”) or Defendants Daniel K. and Susan Leonard, nor has it explained with specificity the facts supporting that damage claim. (Filing No. 144-3, at CM/ECF p. 4, Interrogatories 2-5).

         Another discovery dispute arose in September of 2018, and a conference on that dispute was held on September 14, 2018. (Filing No. 103). TBG had served a records subpoena on Holmes Murphy and Associates (Beau Reid's firm), and CVA objected to portions of the subpoena as requesting work product. After discussing the circumstances, the court concluded Reid was both a fact witness and a CVA consulting expert. With the parties' consent, the court entered an order which limited TBG's records subpoena and explained when and to what extent a privilege log is necessary. (Filing No. 104).

         CVA did not begin serving its own written discovery until September 20, 2018. On that date, it served discovery on GMS, followed by TBG on October 5, 2018, and AMPS on October 29, 2018. (Filing No. 124, at 21134).

         A case management and discovery dispute conference was held on October 26, 2018. By the time of this call, CVA had conducted two audits of the Plan. During that conference, Defendants expressed concern that although the case is a year old, CVA had yet to explain with specificity how its $6 million damage claim was calculated. (Filing No. 150). CVA explained it cannot disclose its expert reports until all fact discovery is complete. CVA explained that the AMPS invoices-known by CVA to be missing from ...


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