Connecticut General v. New Images

• Citation: 482 F.3d 1091
• Decision Date: 30 March 2007
• Docket Number: No. 04-55859.,04-55859.
• Parties: CONNECTICUT GENERAL LIFE INSURANCE COMPANY; Equitable Life Assurance Society of the United States; Cigna Employee Benefits Services Inc.; Aetna U.S. Healthcare, Inc.; United Healthcare Corporation, fka United HealthGroup Incorporated dba UnitedHealth Group; Humana, Inc.; Aetna Life Insurance Company, Plaintiffs-Appellees, v. NEW IMAGES OF BEVERLY HILLS, Defendant, and Providence Ambulatory Surgery Center, Inc., dba Providence Ambulatory Surgery Center; Harrell Robinson, M.D., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

482 F.3d 1091

CONNECTICUT GENERAL LIFE INSURANCE COMPANY; Equitable Life Assurance Society of the United States; Cigna Employee Benefits Services Inc.; Aetna U.S. Healthcare, Inc.; United Healthcare Corporation, fka United HealthGroup Incorporated dba UnitedHealth Group; Humana, Inc.; Aetna Life Insurance Company, Plaintiffs-Appellees, v. NEW IMAGES OF BEVERLY HILLS, Defendant, and Providence Ambulatory Surgery Center, Inc., dba Providence Ambulatory Surgery Center; Harrell Robinson, M.D., Defendants-Appellants.

No. 04-55859.

United States Court of Appeals, Ninth Circuit.

Submitted May 3, 2006.

Filed March 30, 2007.

Roy C. Dickson (briefed), Dickson & Associates, Yorba Linda, CA, for the appellants.

Lawrence C. Fox (briefed), Kornstein, Veisz, Wexler & Pollard, LLP, New York, NY, for the appellees.

Appeal from the United States District Court for the Central District of California; Terry J. Hatter, Chief District Judge, and J. Spencer Letts, District Judge, Presiding. D.C. No. CV-99-08197-TJH.

Before: O'SCANNLAIN,^* KLEINFELD, and SILVERMAN, Circuit Judges.

KLEINFELD, Circuit Judge:

The only issue raised in this case is the appropriateness of a discovery sanction that terminated the case and imposed judgment.

Facts

Harrell Robinson, M.D., and Providence Ambulatory Surgery Center, Inc. were part of a huge, lucrative, fraudulent scheme to solicit patients, perform surgeries, and submit fraudulent billings to insurance companies. We described the scheme in a related appeal:

The background of this case is long and colorful. Plaintiffs—branches of four major medical insurance companies— filed a complaint in 1999 against dozens of individuals involved in an alleged insurance fraud scheme at ten outpatient surgery clinics in Southern California. The alleged scheme involved surgeons who would perform elective cosmetic surgeries and then submit fraudulent bills and medical records to plaintiffs, assigning bogus diagnoses and misrepresenting the surgeries performed. For example, various facial cosmetic surgeries were documented and billed as procedures to correct deviated septums; breast implants were billed as biopsies; tummy tucks became hernia or gynecological surgeries. The fraud was aided by patient recruiters who sought patients, primarily Asian-American women from all over the country and were paid a fee per patient.¹

After the insurance companies sued him, Dr. Robinson filed for bankruptcy. In another disposition, we affirmed the district court's sanctions against Dr. Robinson and his attorney, Roy Dickson, for misconduct and bad faith in connection with the filing and prosecution of the bankruptcy petition.² Dr. Robinson had "failed to disclose his ownership of real property, incorrectly reported the value for his residential property, and failed to include Cigna as a creditor in its schedules," and both Robinson and Dickson "knowingly deceived the court and acted in bad faith" by submitting "perjured declarations, fabricated evidence and frivolous pleadings."³ This appeal is a continuation of that pattern.

The insurance companies who are plaintiffs and appellees brought this case as a RICO action against numerous Southern California surgeons and surgery clinics. The complaint alleged that the surgeons and surgery clinics operated a fraudulent billing scheme.⁴ The case never got to trial, because after years of evasion of discovery obligations by Robinson and his clinic, Providence Ambulatory Surgery Center, the district court entered a default judgment for $2,034,954.51. Robinson and Providence appeal the case dispositive sanction.

Analysis

The appellants' brief argues that the order requiring discovery did not apply to Robinson, because he was in bankruptcy proceedings (and protected by the automatic stay) when it was issued. And it argues the order did not apply to Providence, because Providence was in default at that time, and the order excluded parties in default. It also argues that the sanction was excessive, because Robinson and Providence's noncompliance was inadvertent.

The core of the appellants' argument is yet another fraud on the court. The appellants' brief states that "Dr. Robinson was in Bankruptcy until July of 2000." This is important because a bankruptcy stay would prevent the April 2000 order compelling discovery from applying to Dr. Robinson when it was issued. The appellants's brief states as a fact that the order granting relief from the stay and permitting litigation against Dr. Robinson to proceed, "was not operative until July 10, 2000."

To support this critical factual assertion, appellants cite to their excerpts of record, where the docket sheet is reproduced. The docket sheet as reproduced in the appellants' excerpts of record shows the date for the order granting relief from the bankruptcy stay as "7/00." That looks as though it means July 2000, supporting the brief.

But that is false. In fact, the order was entered March 17, 2000. Appellants made March look like July by photocopying the docket sheet so that part of the left side did not copy. Thus, "03/17/00" became "7/00."

Appellees pointed this out in their brief. Yet when it was called to appellants' attention in the opposition brief in this appeal, they did not confess error. They did not file a reply brief. Instead, a year and a half later, after the case was submitted for decision without oral argument, appellants sent the court a "notice of errata" stating that the correct date was April, rather than July as they had claimed, and making a new argument.⁵

When Robinson and Providence finally responded to the order compelling discovery, their response approached contumaciousness. Defendants' discovery responses appear calculated to prevent plaintiffs from learning and proving the truth. Robinson refused to answer some questions and provide some documents, such as those asking whether he paid people to recruit patients (a crime in California⁶), on the ground that his answers might tend to incriminate him. Robinson and Providence claimed that patient charts and records had been "misplaced or lost" and that they were "unable to locate said charts."

Besides obtaining patient records, plaintiffs needed to find former staff, who could be compelled to testify under oath about what went on. The interrogatories asked for the names, last known addresses, and phone numbers of former employees, and answers were required by court order. But defendants did not provide them. Dr. Robinson and Providence hid the identities and locations of former employees by providing no addresses or phone numbers, and listing some only by first name or nickname. For example, they "identified" former employees as "Jenny—Surgical Consultant," "`Duke'—Office Admistrator [sic]," "`Lisa'—Biller / Collection / Surgery / Scheduling," "`Chalon'—Billing / Collections," "Patty—Office Manager," "Maritza—Office Manager," "Bob—Office Administrator," and "`Bud' Altman—Surgical Techinician [sic]." The practical effect, as any lawyer would anticipate, was to frustrate effective discovery that would expose fraudulent billing by preventing the insurance companies from finding employees who could testify to it. These responses and others amounted to avoidance, not compliance, with discovery obligations.

The district court warned defendants in July that it would "entertain a motion for terminating sanctions by plaintiffs against any defendant who does not fully comply" with the order compelling discovery. After another year and a half of evasion and noncompliance, Connecticut General filed a motion for terminating sanctions against Dr. Robinson and Providence. Dr. Robinson and Providence filed no opposition. The district court examined the motion, found it meritorious on its face, and ordered "terminating sanctions" against Dr. Robinson and Providence, by which it meant default judgment under Rule 37.⁷

After the order was issued, Dr. Robinson and Providence filed an opposition to the motion, claiming they had mailed it earlier (but on the date it was supposed to have been filed, so it would still have been late). Despite the untimeliness of the opposition, the district court reconsidered its order in light of the opposition, and ordered a response. After considering these filings, the district court again imposed a terminating sanction, judgment by default. Judgment was entered against Robinson and Providence on the complaint for $2,034,954.51.

Because it was predicated on a lie, Dr. Robinson's argument that the bankruptcy stay protected him from the order to compel fails. The stay had been dissolved. Likewise, Robinson and Providence's argument that they were not warned relies on a false premise. They were warned, in the language quoted above. Their argument that the order compelling responses was not timely served is also false in fact, and depends on the tricky photocopying of the docket sheet that hid the first few characters. Providence argues that the order to compel did not apply to it, because it was in default and the order did not apply to parties in default. But Providence succeeded in getting the default set aside. And after it did, the district court expressly stated that, "All defendants are cautioned that the court will entertain a motion for terminating sanctions by plaintiffs against any defendant who does not fully comply" with all discovery obligations, including but not limited to the order entered before Providence got its default set aside.

A terminating sanction, whether default judgment against a defendant or dismissal of a plaintiff's action, is very severe. We review discovery sanctions for abuse of discretion.⁸ Only "willfulness, bad faith, and fault" justify terminating sanctions.⁹

We have constructed a five-part test, with three subparts to the fifth part, to determine whether a case-dispositive sanction under Rule 37(b)(2) is just: "(1) the public's interest in expeditious resolution of litigation; (2) the court's...