Klay v. All Defendants

• Decision Date: 16 September 2005
• Docket Number: No. 04-13062.,04-13062.
• Citation: 425 F.3d 977
• Parties: Leonard J. KLAY, M.D., et al., Plaintiffs, v. ALL DEFENDANTS, et al., Defendants, Humana, Inc., Humana Insurance Company, Coventry Health Care of Georgia, Inc., f.k.a. Principal Health Care of Georgia, Inc., United Healthcare of Florida, Inc., Health Net, Inc., f.k.a. Foundation Health, et al., Defendants-Appellees, American Medical Association, Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

425 F.3d 977

Leonard J. KLAY, M.D., et al., Plaintiffs, v. ALL DEFENDANTS, et al., Defendants, Humana, Inc., Humana Insurance Company, Coventry Health Care of Georgia, Inc., f.k.a. Principal Health Care of Georgia, Inc., United Healthcare of Florida, Inc., Health Net, Inc., f.k.a. Foundation Health, et al., Defendants-Appellees, American Medical Association, Appellant.

No. 04-13062.

United States Court of Appeals, Eleventh Circuit.

September 16, 2005.

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Jack R. Bierig, Sidley, Austin, Brown & Wood, LLP, Chicago, IL, for Appellant.

K. Lee Blalack, II, Brian P. Brooks, Roger A. Fairfax, Jr., O'Melveny & Myers, LLP, Washington, DC, Nicholas J. Pappas, Weil, Gotshal & Manges, LLP, New York City, Edward Soto, Weil, Gotshal & Manges, LLP, Miami, FL, Gregory S. Coleman, Weil, Gotshal & Manges, Austin, TX, for Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, PRYOR and ALARCÓN^*, Circuit Judges.

PRYOR, Circuit Judge:

This appeal presents an issue of first impression: whether the requirement of reasonable compensation in Federal Rule of Civil Procedure 45(c)(3)(B) obliges a party that has compelled, by subpoena, the production of confidential data to pay a license fee for the data, even though the district court, by protective order, limited the use of the data to litigation purposes, avoided any diminution of the value of the data, and required the payment of the production costs of the data. The American Medical Association, a nonparty, was commanded to produce its annual reports regarding physicians' income and medical practices and the underlying data for those reports. The defendants, including many of the largest managed health care providers in the nation, sought that material to defend against the plaintiffs' complaint, which relied in part upon the AMA data. The AMA contends that it was entitled to the license fee it ordinarily charges for its reports. We conclude that the district court did not abuse its discretion when it required the managed care providers to pay the AMA only its production costs, because the AMA did not suffer a loss in the value of its property.

I. BACKGROUND

In the class action that led to this appeal, numerous physicians and independent physicians' associations sued many of the nation's largest managed care providers and alleged that the managed care providers systematically underpaid for health care services rendered by the plaintiffs. See Klay v. Humana, Inc., 382 F.3d 1241, 1246 (11th Cir.2004). During discovery, the managed care providers served the physicians with an interrogatory that required the physicians to identify all evidence supporting their allegations of a racketeering conspiracy by the managed care providers. In their answer to that interrogatory, the physicians identified reports of statistics compiled by the AMA that purported to show that physicians' income declined during the class period as a result of actions of the managed care providers.

The reports, for which the physicians paid a license fee, were outlines of survey data compiled during "large scale socio-economic surveys of physicians" conducted by the AMA over fifteen years. From 1986 to 2000, the AMA referred to the surveys as the "Socioeconomic Monitoring System Core Surveys," and from 2002 to the present, the AMA entitled the surveys the "Patient Care Physician Survey." The reports of those surveys, referred to as the "Product Release Data," include information regarding physicians' net income from medical practice, expenses, working hours, and the type and number of managed care contracts.

The AMA uses the data for internal purposes and licenses the data to any person or corporation willing to pay the license fee. The AMA charges for-profit entities $13,000 per year and non-profit entities $6500 per year for the Product Release Data, and the AMA requires licensees to sign an agreement "that the data cannot be disseminated to or used by persons other than the licensee without the consent of the AMA." If the AMA did not protect its confidentiality, the data would lose its commercial value.

After the physicians identified the Product Release Data, the managed care providers served a subpoena on the AMA for both the Product Release Data and the "Non-Aggregated Raw Data" that underlay the reports. The AMA objected to the subpoena, under Rule 45(c)(3)(B), on the ground that the managed care providers did not show a "substantial need" for the data. The AMA also stated that the confidential nature of the data was threatened by the subpoena, particularly because the managed care providers sought not only the Product Release Data, but the Non-Aggregated Raw Data, which the AMA stated had never been released outside of the AMA. The AMA argued alternatively that, if the subpoena was enforced, the managed care companies should pay the ordinary license fee paid by for-profit entities for all years of the Product Release Data listed in the subpoena, for a total of $195,000.

The district court referred the dispute to a Special Master, who recommended that the subpoena be enforced, because the managed care providers had established, as required by Rule 45(c)(3)(B), a substantial need for the data that could not be otherwise met without undue hardship. The Special Master also recommended that the AMA "be reimbursed for expenses incurred in its efforts to comply with the subpoena," but that the demand of the AMA for the license fee be denied. The Special Master explained that it was unreasonable to expect "a litigant who has no profit motive whatsoever in possessing the information" to pay the license fee. Over the objection of the AMA, the district court adopted the report and recommendation of the Special Master.

Under the "Amended Protective Order Governing Protected Material Other Than Confidential Health Information," which had been entered by the district court in the underlying managed care litigation, the AMA designated the data as "highly confidential," which could be disclosed only to the managed care providers' outside counsel, independent retained experts, and other litigation personnel. Officials of the managed care providers were not allowed to view the material in any manner. In addition, the attorneys and experts for the managed care providers were not permitted to use the material "for any purpose other than the prosecution or defense of this litigation." With these significant restrictions in place, the AMA produced the data.

II. STANDARD OF REVIEW

A district court is "entitled to broad discretion in managing pretrial discovery matters." Perez v. Miami-Dade County, 297 F.3d 1255, 1263 (11th Cir.2002). Although the court has substantial discretion in the allocation of costs in discovery, see Tilton v. Capital Cities/ABC, Inc., 115 F.3d 1471, 1475 (10th Cir.1997), the interpretation of the term "reasonable compensation" in Rule 45(c)(3)(B) is a question of law that we review de novo. Silvious v. Pharaon, 54 F.3d 697, 700 (11th Cir.1995) (per curiam). So long as the interpretation of Rule 45(c)(3)(B) was correct and the record contains evidence upon which the district court "rationally could have based its decision," Ariel v. Jones, 693 F.2d 1058, 1060 (11th Cir.1982) (per curiam), the ruling of the district court must be affirmed.

III. DISCUSSION

The AMA and the managed care companies present arguments in stark opposition regarding the meaning of Rule 45(c)(3)(B). The AMA contends that the "language and syntax" of Rule 45(c)(3)(B) requires that the AMA be "fairly compensated" for the value of the intellectual property subject to the subpoena, in addition to the costs of production. The AMA argues that Rule 45(c)(3)(B) is broader than Rule 45(c)(2)(B), which requires a party seeking to enforce a subpoena to pay the costs of producing the material. The AMA also argues that the Advisory Committee Notes to the 1991 Amendments, which added subdivision (c) to the current Rule 45, show that Rule 45(c)(3)(B) prohibits the "taking of intellectual property" in litigation through the use of the subpoena power.

The managed care providers contend that Rule 45 is intended to protect the confidentiality of intellectual property and avoid undue costs and burdens from compliance with a subpoena. The managed care providers contend that the district court protected both of those interests through its stringent protective order and requirement that the managed care providers bear the costs of producing the data subject to the subpoena. The managed care providers also contend that nothing in the language, structure, or purpose of Rule 45 supports the position of the AMA.

This discussion is divided into three parts. We begin with an examination of the text of Rule 45(c)(3)(B) to determine whether the enforcement of a subpoena for confidential data requires the payment of reasonable compensation. We then examine the meaning of the term "reasonable compensation" in Rule 45(c)(3)(B). Finally, we examine whether the district court abused its discretion when it limited the compensation owed the AMA to the costs of producing the data.

A. Rule 45(c)(3)(B)(i) Requires Reasonable Compensation for the Production of Confidential Material.

We begin, as we must, with the text of the Rule. Federal Rule of Civil Procedure 45 governs the manner in which parties may obtain evidence by subpoena. Entitled "Protection of Persons Subject to Subpoenas," Rule 45(c) is intended to prevent abuse of the subpoena power and requires that a district court protect the property rights of the person subject to the subpoena:

If a subpoena

(i) requires disclosure of a trade secret or other confidential research, development, or commercial information, or

(ii) requires disclosure of an unretained expert's opinion or information not describing specific events or occurrences in dispute and resulting from the expert's study made...