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Wachtel v. Health Net, Inc. 239 F.R.D. 81 District of New Jersey - 2006

Wachtel v. Health Net, Inc. 239 F.R.D. 81 District of New Jersey - 2006. Parties. Plaintiffs Beneficiaries suing Health Net, Inc (“HN”).

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Wachtel v. Health Net, Inc. 239 F.R.D. 81 District of New Jersey - 2006

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  1. Wachtel v. Health Net, Inc.239 F.R.D. 81 District of New Jersey - 2006

  2. Parties • Plaintiffs • Beneficiaries suing Health Net, Inc (“HN”). • Suing under ERISA, 29 U.S.C. § 1001 et seq. for breach of fiduciary duty and other wrongs connected to the way in which HN reimburses out-of-network claims. • Defendant – HN • Healthcare insurance provider

  3. Facts (the Highlights) • HD’s small group employer plans in NJ subject to state regulation • Required to use most recent data in calculating “usual, customary, and reasonable” (“UCR”) charge for medical procedures. • HN bases UCR determinations on a national database (Health Insurance Assoc. of America) • HN did not use the database in its updated form for several years at issue in this case. Thus, old costs were used to calculate current reimbursements. • HN limited the scope of disclosures to the New Jersey Department of Banking and Insurance Scheindlin & Capra pgs. 461-62

  4. Facts (cont.) • HN never produced relevant and responsive documents during 3 year discovery period. • HN didn’t even look for many documents until trial was near and Rule 37 integrity hearing was held. • Court stated: “such a vast amount of discovery now needs to be redone that the task is virtually impossible.” Scheindlin & Capra pg. 462

  5. Rule Effected – Rule 37Failure to Make Disclosures or to Cooperate in Discovery; Sanctions • Rule 37 Integrity Hearing Held • Findings: • Non-Production of Documents • Over 12,000 pages of documents never-produced in discovery were offered in support of HN’s motions for summary judgment; 8,000 pages never-produced documents designated as trial exhibits. • These 20,000 pages of documents were within scope of plaintiff’s document demands. Scheindlin & Capra pg. 463

  6. Rule Effected – Rule 37Failure to Make Disclosures or to Cooperate in Discovery; Sanctions • HN’s Process for Responding to Discovery Requests was Inadequate • Relied on paralegal responsible for 60 other cases • No notice to employees who may have possessed responsive documents Scheindlin & Capra pg. 463

  7. Rule Effected – Rule 37Failure to Make Disclosures or to Cooperate in Discovery; Sanctions • HN’s “burdensome objections didn’t excuse obligations to produce e-mails within their possession.” • HN rationalized that if judge did not specifically rule on objections, it could ignore discovery order and continue to withhold documents. • Court found that this argument lacked good faith Scheindlin & Capra pgs. 463-64

  8. Rule Effected – Rule 37Failure to Make Disclosures or to Cooperate in Discovery; Sanctions • Court Found that Meet and Confer Process was Compromised by HN • Willful failure to identify to the plaintiffs the full range of documents responsive to plaintiffs’ document requests. • As a result, plaintiffs could not effectively reduce the scope of the documents requested without knowing the total number of documents that existed. Scheindlin & Capra pg. 464

  9. Rule Effected – Rule 37Failure to Preserve and Search E-mails • HN Never Disclosed that it Utilized E-mail Retention Policy • E-mails older than 90 days were never searched • E-mails that an employee deleted within 30 days of receipt were lost permanently • Pattern of spoliation was recognized by court! Scheindlin & Capra pgs. 464-65

  10. Issue – Did HN Violate the Integrity of Court? • YES! • Ignoring Judge’s orders • Disingenuously claiming it didn’t understand orders • Failure to notify that e-mails older than 90 days were not searched • Permitting spoliation of electronic discovery • Keeping its own outside counsel unaware of e-mail procedures Scheindlin & Capra pgs. 466-67

  11. Court’s Remedy • Deeming Facts Admitted Under Rule 37(b)(2)(A) • HN’s knowing and willful use of outdated data • HN’s actions to hide full scope of conduct from New Jersey Department of Banking and Insurance Scheindlin & Capra pgs. 467-68

  12. Court’s Remedy • Precluding Evidence under Rule 37(c)(1) and Rule 37(b)(2)(B) • HN not permitted to use as evidence documents it didn’t produce during discovery Scheindlin & Capra pgs. 468-69

  13. Court’s Remedy • Monetary Sanctions • HN required to pay the Plaintiffs’ reasonable attorneys’ fees and expenses incurred in connection with the Rule 37 integrity hearing • HN required to pay for attorneys’ fees related to motions Plaintiffs brought to invoke discovery compliance • HN fined for actions Scheindlin & Capra pgs. 468-69

  14. Court’s Remedy • Discovery Monitor • Court put in place a Special Master to monitor HN’s discovery compliance • HN must pay all Special Master fees Scheindlin & Capra pgs. 470

  15. Questions • (1) Should the Court have taken stronger action against HN? For instance, was a default judgment against HN warranted here? • (2) Should HN’s lawyers be sanctioned?

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