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United States Ex Rel. Daugherty v. Bostwick Laboratories

United States District Court, Sixth Circuit

June 26, 2013

BOSTWICK LABORATORIES, et al., Defendants.


KAREN L. LITKOVITZ, Magistrate Judge.

Plaintiff Michael Daugherty (relator) brings this qui tam action alleging that defendants Bostwick Laboratories and David Bostwick, M.D., violated the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), the Stark Laws, 42 U.S.C. § 1395nn, and the False Claims Act, 31 U.S.C. §§ 3729-3733 by: (1) submitting false claims to Medicare, Medicaid, and other federally-funded programs for non-allowable lab services done without a physician's order; and (2) billing federally-funded healthcare programs for lab services unlawfully referred to defendants. (Doc. 34). This matter is before the Court on the parties' dispute over the appropriateness of an "Attorneys' Eyes Only" provision in the proposed protective order.[1], [2]

I. Background

Relator is the president of LabMD, an Atlanta-based urology and uropathology laboratory. (Doc. 34). Defendant David Bostwick is the founder of defendant Bostwick Laboratories, which provides laboratory and pathology services. The bulk of Bostwick Laboratories' revenue comes from its urology business. Id. Relator filed this action in May 2008 on behalf of the United States of America (Government). (Doc. 1). In June 2011, the Government filed its Notice of Election to Decline Intervention. (Doc. 18). The District Judge subsequently entered an Order unsealing the complaint and permitting relator to serve defendants. (Doc. 19). Relator filed an amended complaint in February 2012. (Doc. 34). Defendants filed separate motions to dismiss (Docs. 39, 56) and a joint motion to change venue (Doc. 82); these motions were denied. (Docs. 70, 92). The litigation is currently in the beginning stages of discovery.

Relator and defendants agree that a protective order is appropriate in this matter as the documents to be exchanged in discovery will include, among other things, confidential medical records of non-party individuals and defendants' pricing agreements with non-party entities. The parties dispute, however, whether the proposed protective order should include an "Attorneys' Eyes Only" (AEO) designation for specific categories of documents. Defendants assert that an AEO designation is appropriate for discrete categories of documents as relator and defendants are direct competitors in the laboratory services industry and permitting relator access to defendants' pricing schedules and other proprietary information will competitively harm defendants. In contrast, relator contends that an AEO designation is unnecessary as: (1) the parties are not direct competitors; (2) a standard protective order will sufficiently protect defendants' interests; and (3) relator would not be able to use defendants' pricing and proprietary information because, according to his allegations, their practices are illegal. Relator further claims that including an AEO designation would hinder the prosecution of this matter as relator's counsel intends to rely on relator's experience and expertise in the laboratory services industry to analyze defendants' pricing schedules to prove relator's claims.

The undersigned Magistrate Judge has conferred with the parties on several occasions in order to narrow the scope of this dispute. At the Court's request, the parties have submitted several informal briefings outlining their respective positions, as well as a sampling of documents for in camera review that defendants assert should be AEO designated. Most recently, the parties submitted letter briefs supported by affidavits and other evidence. The issue of the scope of the proposed protective order is now ripe for resolution.

II. Standard of Law

Federal Rule of Civil Procedure 26 provides that "[t]he court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." Fed.R.Civ.P. 26(c). The entry of a protective order rests with the sound discretion of the Court. Procter & Gamble Co. v. Bankers Trust Co., 78 F.3d 219, 27 (6th Cir. 1996). Nevertheless, the Court is mindful that its discretion to issue protective orders is "limited by the careful dictates of [Rule] 26 and is circumscribed by a long-established legal tradition' which values public access to court proceedings." Id. (citing Brown & Williamson Tobacco Corp. v. Fed. Trad Comm'n., 710 F.2d 1165, 1177 (6th Cir. 1983)).

"In general, courts utilize attorneys' eyes only' protective orders when especially sensitive information is at issue or the information is to be provided to a competitor." Westbrook v. Charlie Sciara & Son Produce Co., Inc., No. 07-2657, 2008 WL 839745, at *4 (W.D. Tenn. Mar. 27, 2008) (citing cases). See also Arvco Container Corp. v. Weyerhaeuser Co., No. 1:08-CV-548, 2009 WL 311125, at *5 (W.D. Mich. Feb. 9, 2009) ("To be sure, courts in many circumstances have found that a specific showing of competitive harm justifies a restriction of confidential or trade secret information to attorney's eyes only.'"). The party moving for the restrictive AEO designation must detail the alleged harm it is likely to suffer absent the requested protection "with a particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements." Nemir v. Mitsubishi Motors, Corp., 381 F.3d 540, 550 (6th Cir. 2004) (quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n.16 (1981)). In determining whether good cause exists for an AEO designation, courts must balance "the difficulties imposed upon plaintiff against the need to protect information from abuse by competitors." Arvco Container, 2009 WL 311125, at *6.

III. Discussion

Defendants assert that AEO designation is appropriate for discrete types of discoverable documents to protect sensitive competitive information. Defendants seek to designate the following categories of documents as AEO documents: (1) trade secrets; (2) sensitive confidential business or financial information, including pricing offered to actual or prospective customers or pricing obtained from suppliers and partners; (3) competitive technical information, including technical analyses or comparisons of competitor's products or services; (4) competitive business information, including marketing analyses or comparisons of competitors' products or services and strategic planning; and (5) confidential health information.[3]

At the Court's request, defendants submitted a representative sampling of documents for in camera review. These documents were shared with relator's counsel and, subsequently, an informal discovery conference was held on May 22, 2013. During this conference, the undersigned determined that documents falling under the umbrella of category (5) above, regarding confidential health information, i.e., patient records which are protected under HIPPA, [4] would be sufficiently protected by a protective order and would not be subject to an AEO designation.[5] Consequently, the instant determination is limited to categories (1) through (4) as identified by defendants.

A. Category 1: Trade Secrets[6]

Defendants submitted only one document exemplar (Exhibit 15) of trade secrets they contend should be AEO designated: a copy of Bostwick Laboratories' standard operating procedure (SOP) for UroVysion FISH (fluorescence in situ hybridization) testing equipment.[7] Defendants assert that relator could use this and similar SOPs to enhance his own laboratory processes. Defendants appear to assert that the SOP includes proprietary information regarding specific methods designed and employed by Bostwick Laboratories in using FISH testing equipment. Relator disputes this assertion and claims that the manufacturer of the FISH testing equipment sets the SOPs and it is unclear how defendants' procedures are proprietary as there is no evidence that they substantially deviate from the manufacturer's. Relator ...

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