Fung-Schwartz v. Cerner Corporation

Background

Jennifer Fung-Schwartz and her wholly owned podiatry practice, Jennifer Fung-Schwartz, DPM, LLC, sued Cerner Healthcare Solutions, Inc. and Cerner Corporation. The plaintiffs’ claims arise largely from a contract under which Cerner Healthcare Solutions processed insurance claims, including Medicare claims, and billed patients for uncovered balances. The plaintiffs allege that Cerner made fraudulent statements about its system and services and improperly processed billing and insurance claims. They seek damages including more than $200,000 for medical billing that they allege Cerner failed to submit or collect, as well as damages to the value of the practice.

After earlier motion practice, the court was managing discovery. The parties submitted a joint letter raising disputes about written discovery, but neither side proposed a deposition schedule. This order memorialized the rulings made at the May 11, 2020 discovery conference and reset the discovery deadlines.

Financial Statements and Tax Returns

The plaintiffs had produced revenue information for the practice but had not produced comparable information about expenses, profits or losses, or standard financial statements. Cerner requested tax records, tax returns, profit-and-loss statements, and balance sheets from 2012 through 2020. The plaintiffs agreed that Cerner could obtain financial information from before and after the contract period but sought to limit the period to 2013 through 2018.

The court agreed that 2013 through 2018 was sufficient for comparing the practice’s performance. It rejected the plaintiffs’ position that they could limit discovery to revenue because their damages theory focused on lost revenue. The court held that Cerner was entitled to discovery about related expenses and about the practice’s profits or losses, including information relevant to the claim that Dr. Fung-Schwartz had to borrow money to cover expenses and to the claim that the practice’s overall value was damaged.

The court also found a compelling need for the relevant Schedule C or Schedule C-EZ forms attached to Dr. Fung-Schwartz’s personal tax returns because the practice was a pass-through entity and those schedules were the only contemporaneously prepared documents presenting the relevant financial information. The plaintiffs were ordered to produce the schedules, with attachments, schedules, and exhibits, for 2013 through 2018. Those tax documents were designated for attorneys’ eyes only and could not be further disclosed except to the parties’ experts under agreed terms or under a further court order. The court stated that the plaintiffs could prepare new financial statements, but Cerner was not required to accept them instead of the contemporaneous tax records.

Third-Party Contractors and Electronic Information

Under Local Civil Rule 26.3(3), the court required Cerner to supplement answers to the plaintiffs’ interrogatories identifying people and entities. For corporations or other businesses, the information had to include the full name and present or last known address. For natural persons, it also had to include the present or last known place of employment. Cerner also had to identify, for each listed contractor providing modules or services, the name, title, and contact information of the natural person responsible for that entity’s relationship with Cerner.

The plaintiffs also sought electronically stored information held by third-party contractors. The court ruled that the plaintiffs had not made an adequate showing that the information was within Cerner’s possession, custody, or control. Cerner therefore was not required to obtain those documents for production. The plaintiffs could seek the documents through subpoenas under Federal Rule of Civil Procedure 45.

Discovery Related to the Fraud Claim

The plaintiffs sought broad discovery about complaints made by Cerner’s customers, patients, and insurers. The court found that request too broad. For the plaintiffs’ request concerning complaints from individual physicians or private medical practices, Cerner was required to produce documents about complaints regarding Cerner Healthcare Solutions’ BOS products and services made during the three years ending when Dr. Fung-Schwartz’s contract was executed.

For the request concerning patient complaints, Cerner was required to produce complaints received from Dr. Fung-Schwartz’s patients, but not complaints from patients of Cerner’s other customers. Cerner was not required to produce documents responding to the request for complaints from insurers.

Other Orders and Schedule

The party withholding responsive documents on the basis of privilege was required to promptly provide a privilege log under Local Civil Rule 26.2. The parties were required to meet and confer in good faith about unresolved discovery disputes and submit a joint letter identifying any remaining issues and requested relief.

The court scheduled another discovery conference for May 27, 2020. It extended the deadline for completing fact discovery, including depositions, to July 31, 2020, and the deadline for completing expert discovery to September 30, 2020. The parties were reminded to comply with the court’s orders and page limits, and the court warned that further violations could result in sanctions.