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

2. Parties Plaintiffs Plaintiffs Beneficiaries suing Health Net, Inc (“HN”). 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. 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 Defendant – HN Healthcare insurance provider Healthcare insurance provider

3. Facts (the Highlights) HD’s small group employer plans in NJ subject to state regulation 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. 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 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 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 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 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. 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.” 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 37 Failure to Make Disclosures or to Cooperate in Discovery; Sanctions Rule 37 Integrity Hearing Held Rule 37 Integrity Hearing Held Findings: Findings: Non-Production of Documents 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. 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. These 20,000 pages of documents were within scope of plaintiff’s document demands. Scheindlin & Capra pg. 463

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

7. Rule Effected – Rule 37 Failure 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’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. 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 Court found that this argument lacked good faith Scheindlin & Capra pgs. 463-64

8. Rule Effected – Rule 37 Failure to Make Disclosures or to Cooperate in Discovery; Sanctions Court Found that Meet and Confer Process was Compromised by HN 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. 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. 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 37 Failure to Preserve and Search E-mails HN Never Disclosed that it Utilized E-mail Retention Policy HN Never Disclosed that it Utilized E-mail Retention Policy E-mails older than 90 days were never searched E-mails older than 90 days were never searched E-mails that an employee deleted within 30 days of receipt were lost permanently E-mails that an employee deleted within 30 days of receipt were lost permanently Pattern of spoliation was recognized by court! Pattern of spoliation was recognized by court! Scheindlin & Capra pgs. 464-65

10. Issue – Did HN Violate the Integrity of Court? YES! YES! Ignoring Judge’s orders Ignoring Judge’s orders Disingenuously claiming it didn’t understand orders Disingenuously claiming it didn’t understand orders Failure to notify that e-mails older than 90 days were not searched Failure to notify that e-mails older than 90 days were not searched Permitting spoliation of electronic discovery Permitting spoliation of electronic discovery Keeping its own outside counsel unaware of e-mail procedures 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) Deeming Facts Admitted Under Rule 37(b)(2)(A) HN’s knowing and willful use of outdated data 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 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) 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 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 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 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 required to pay for attorneys’ fees related to motions Plaintiffs brought to invoke discovery compliance HN fined for actions HN fined for actions Scheindlin & Capra pgs. 468-69

14. Court’s Remedy Discovery Monitor Discovery Monitor Court put in place a Special Master to monitor HN’s discovery compliance Court put in place a Special Master to monitor HN’s discovery compliance HN must pay all Special Master fees 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? (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? (2) Should HN’s lawyers be sanctioned?