LIFESCAN, INC., et al., Plaintiffs, v. JEFFREY C. SMITH., et al., Defendants ROCHE DIAGNOSTICS CORPORATION, et al., Plaintiffs, v. JEFFREY C. SMITH., et al., Defendants Civil Action No. 17-5552 and , Civil Action No.19-8761 (CCC)(JSA) United States District Court, D. New Jersey Filed October 25, 2023 Counsel PETER C. HARVEY, PATTERSON, BELKNAP, WEBB & TYLER, LLP, NEW YORK, NY, for IRAM PAGAN VALENTIN, TIMOTHY MARK ORTOLANI, Kaufman Dolowich Voluck LLP, HACKENSACK, NJ, CLAUDIA A. COSTA, Gordon & Rees LLP, Florham Park, NJ, for Defendant. JEFFREY C. SMITH. MARION RAMSEY HARRIS, PRYOR CASHMAN LLP, NEW YORK, NY, for Defendant. STEVEN L. HADLOCK. JAMES S. RICHTER, MIDLIGE RICHTER LLC, BASKING RIDGE, NJ, ASHLEY BRYNE AKAPO, DENTONS US LLP, NEW YORK, NY, for Defendants. TRAVIS HUGHESToggle. BRIAN P. O'NEILL, BRITTANY A MANNA, JEFFREY SCOTT CHIESA, CHIESA SHAHINIAN & GIANTOMASI PC, ROSELAND, NJ, CHRISTOPHER J. BORCHERT, ALSTON & BIRD LLP, New York, NY, JOSEPH MARSICO, CEDAR GROVE, NJ, KYLE EDWARD VELLUTATO, O'TOOLE SCRIVO LLC, CEDAR GROVE, NJ, CLAUDIA A. COSTA, Gordon & Rees LLP, Florham Park, NJ, MARIE L. MATHEWS, CHIESA SHAHINIAN & GIANTOMASI PC, ROSELAND, NJ, RONALD LAWRENCE ISRAEL, CHIESA SHAHINIAN & GIANTOMASI PC, ROSELAND, NJ, for Defendants. ALISON WISTNER. PAUL A. CARBON, BERKELEY HEIGHTS, NJ, CLAUDIA A. COSTA, Gordon & Rees LLP, Florham Park, NJ, for Defendants. LEE H. ROSEBUSH. CHRISTOPHER MATTHEW HEMRICK, WALSH PIZZI O'REILLY FALANGA LLP, NEWARK, NJ, KATELYN O'REILLY, LAUREN RUTH MALAKOFF, LIZA M. WALSH, PETER JOSEPH PIZZI, STEPHEN V. FALANGA, WILLIAM T. WALSH, JR, WALSH PIZZI O'REILLY FALANGA LLP, NEWARK, NJ, CLAUDIA A. COSTA, Gordon & Rees LLP, Florham Park, NJ, for Defendants. LEE H. ROSEBUSH. Cavanaugh, Dennis, Special Master (Ret.) ORDER & OPINION OF THE SPECIAL MASTER JUDGE DENNIS CAVANAUGH, RET. AS TO THE MEDSOURCE ENTITIES’ MOTION TO COMPEL LIFESCAN TO PRODUCE NDC DOCUMENTS (RFPs 54, 65 and 66) *1 Defendants, the Medsource Entities and external director Travis Hughes (“the Medsource Entities” or “Defendants”)[1], have filed a motion which seeks to compel Plaintiff, LifeScan, Inc. (“LifeScan”) to produce responses to requests for production numbers 54, 65 and 66 (“RFPs”). Each of these RFPs concern communications relating to National Drug Code numbers, commonly referred to as NDCs, placed on drugs and medical products such as the diabetes test strips (“DTS”) manufactured by LifeScan. In reaching the findings set forth in this Order and Opinion, the Special Master has reviewed and considered the following items submitted by the parties: 1. The Medsource Entities letter brief in support of its motion to compel production with attached exhibits; 2. LifeScan's memorandum of law in opposition with attached exhibits; and 3. The Medsource Entities’ reply letter brief. Based upon the court's review of the materials cited above, it is the finding of the Special Master that the Medsource Entities’ motion is GRANTED. I. Procedural History and Factual Background Given that the parties are familiar with the procedural posture and the facts which form the basis of this litigation, the Special Master will only briefly describe the procedural and factual history pertinent to this motion. This motion arises from litigation regarding the distribution and sale of diabetic test strips (“DTS”) manufactured by Plaintiff. LifeScan contends that various defendants – officers, directors, lenders and investors in Alliance Medical Holdings, LLC (“Alliance”) – engaged in a scheme that defrauded the manufacturer. Specifically, Alliance improperly sought reimbursement for the sale of retail DTS through a covertly owned network of pharmacies. Significant to this motion, the crux of this scheme involved NDC “code switching” or “code swapping.” Plaintiff alleges that Alliance owned pharmacies changed the NDC on strips manufactured by LifeScan so as to be reimbursed by insurance carriers for higher priced retail strips, while selling lower priced not for retail strips (NFR), profiting from the difference to the manufacturer's detriment. The movant, the Medsource Entities, was one of those Alliance investors. LifeScan charges that the Medsource Entities were knowledgeable about the scheme and through its investment in the company, profited from the fraud engaged in by Alliance. In the course of discovery, the Medsource entities served certain RFPs on LifeScan, the responses to which are the subject matter of this motion. The production demands centered on Alliance's misuse of NDCs assigned to LifeScan's test strips. In pertinent part, the RFPs seek as follows: RFP No. 54. All...communications with any law enforcement or regulatory agency concerning Test Strips...for patients with diabetes. *2 RFP No. 65. All internal and third party communications involving...[NDCs] and Test Strips. RFP No. 66. Any communications with any consultant or third party on pricing or NDCs, including [the] Food and Drug Administration [regarding] NDC Codes for Test Strips. In October 2022, LifeScan produced approximately 333 documents in response to these RFPs. However, the Medsource Entities charge that these documents were largely irrelevant and failed to include communications that should undoubtedly exist between LifeScan and the Food and Drug Administration concerning labeling. II. The Medsource Entities’ Argument As noted, the Medsource Entities emphasize that LifeScan's allegations revolve around a claim that Alliance misused NDCs assigned to Plaintiff's test strips. The Medsource Entities note that an NDC is a unique numerical identifier required by the FDA. It consists of three codes – a labeler, a product and a package size and type. The FDA assigns codes for the labeler; the manufacturer assigns codes for product and package size and type. Furthermore, FDA regulations state that if any change occurs in product characteristics that clearly distinguish one product version from another, a registrant must assign a new NDC number to the new product version and submit that information to the FDA. Here, however, the Medsource Entities say as to the LifeScan DTS at issue, the same product and same quantity is found in three different boxes – only the price is different. That is, LifeScan's retail, DME (Durable Medical Equipment) and mail order strips are identical in materials, product name, quantity, and method of use. The only difference between LifeScan's “white” mail order, “gray” DME and “blue” retail test strips[2] is their respective market channels. Accordingly, the Medsource Entities argue that LifeScan effectively created a new product number for the same product – a practice not in keeping with FDA regulations. After receipt of the 333 documents, the Medsource Entities say they “expected” to see both internal communications as to why LifeScan assigned different NDC product codes and external communications with the FDA as to the initial registration of the test strips and thereafter notification by LifeScan about the assignment of different product codes for the same LifeScan test strips. However, LifeScan failed to provide any such documentation even though FDA regulations mandate such communications. The Medsource Entities emphasize that in this District, Fed. R. Civ. P. 26(b) is liberally construed to provide for a broad vista of discovery encompassing “any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case,” citing Tele-Radio Sys. Ltd. v. DeForest Elecs., Inc., 92 F.R.D. 371, 375 (D.N.J. 1981). The party seeking discovery bears the initial burden to show that the information is relevant to the claims or defenses. But once that party shows relevancy, the burden shifts to the resisting party when lodging an objection that a request is overly broad, burdensome, oppressive or irrelevant, citing Josephs v. Harris Corp., 67 F. 2d 985, 992 (3d Cir. 1982). The Medsource Entities maintain that NDC coding is a significant issue and, therefore, LifeScan is obligated to provide responsive documentation on that topic. *3 In support, the Medsource Entities point to the July 21, 2022 Order of the Special Master arising from a motion filed by Defendant Zions Bank, N.A. (“Zions”) to compel LifeScan to produce documents about NDCs. That Order stated, in part, that a significant element of Plaintiff's allegations as to the Alliance defendants “rely upon a claim that those NDC codes were disguised or manipulated. Accordingly, discovery as to how those codes were employed by Plaintiffs as diabetic test strip manufacturers is broadly relevant to the claims which underlie this lawsuit[.]” Finally, the Medsource Entities say that LifeScan cannot rest on a representation that it conducted a reasonable search since its search failed to capture documents that must exist if LifeScan complied with FDA regulations. Consequently, the Medsource Entities asks the Special Master to require LifeScan “to produce the documents, identify the parameters of its ‘reasonable search’ for these documents...and/or explain why those documents are no longer in its possession.” III. LifeScan's Opposition Essentially, LifeScan asserts that it has already produced the documents relating to NDC codes that the Medsource Entities seek here. LifeScan also points to the Special Master's Order of July 21, 2022 which resolved a motion filed by Zions to produce documents relating to the codes. LifeScan emphasizes that the Medsource Entities by their own admission recognized the document requests at issue were encompassed in Zions’ previous motion to compel. The Medsource Entities are also aware that LifeScan, after meeting and conferring with Zions as to search terms, produced responsive documents on October 19, 2022, copies of which were provided to the Medsource Entities. At no point did the Medsource Entities ask to be involved in the court-ordered negotiations regarding search strategy. In short, it is LifeScan's position that this issue has been resolved, the documents have been produced, and the Medsource Entities are belatedly re-arguing a settled issue. Therefore, the motion should be denied. IV. Medsource Entities’ Reply The Medsource Entities say LifeScan makes no argument that the documents sought are not relevant to this litigation since LifeScan's own pleadings highlight the significance of the NDC codes. Nor does LifeScan advance an argument that it would be unduly burdensome to search for these documents. The Medsource Entities maintain that communications with the FDA as to registering and re-registering the NDC for the test strips it sells constitute crucial company documents that would likely be kept in a centralized location with easy access. As to LifeScan's production made in October 2022, the Medsource Entities’ review of that production demonstrates that the materials did not contain the documents being sought here. For example, it is devoid of the form (FDA-2656) LifeScan would have submitted to register the strips, devoid of correspondence from the FDA establishing the product code and devoid of correspondence about the annual re-registration of the strips. According to the movant, the documents do not provide an answer to whether LifeScan registered and the FDA thereafter approved separate NDC product codes for each test strip by market channel. In short, the Medsource Entities argue that the information it seeks regarding the NDCs is indisputably relevant and should have been contained in LifeScan's previous production but was not. V. Analysis and Findings The primary subject matter of this motion – the use or, more correctly, misuse of NDCs – has been the subject of previous discovery disputes in this litigation. By Order dated July 21, 2022, the Special Master resolved a series of discovery disputes between Plaintiffs (LifeScan and Roche) and Zions, an Alliance lender and a defendant also charged with acquiescence in the scheme. Zions had served supplemental discovery demands concerning the NDCs as to which LifeScan took the position that it would not search for or produce documents related to the NDCs.[3] After the matter was briefed and argued, the Special Master granted Zions’ motion as to both Plaintiffs, finding that this NDC discovery was relevant to the issues in the lawsuit or could lead to the discovery of relevant evidence. Thereafter, the parties met and conferred, settled on search terms and appropriate custodians, then LifeScan produced the documents which were discovered during that search. *4 Significantly, the Medsource Entities say that despite the Special Master's prior Order and LifeScan's previous production, documents as to NDCs which would logically be found in such production, were not present, even though LifeScan and Zions settled on search terms and records custodians in advance of that production. LifeScan was apparently satisfied with the production that resulted, but the Medsource Entities are not, pointing out what appear to be deficiencies. On the other hand, LifeScan in its opposition does not directly address whether or not the company actually possesses these documents, nor does it explain why the production was devoid of documents regarding NDC registration between LifeScan and the FDA. Instead, LifeScan simply takes the position that having worked out this issue as a consequence of Zions’ motion, it has produced responsive documents, documents which were also supplied to the Medsource Entities. As the Special Master previously found, there is no dispute that documents regarding Alliance's uses of NDCs are central to this litigation and discovery relating to NDCs is certainly relevant. Additionally, the Medsource Entities make a cogent, logical argument that prior production may be incomplete. Put simply, given that FDA regulations require a medical device manufacturer, such as LifeScan, to register and re-register its products with an NDC code and given that a product change requires a corresponding code change, then certainly there should be some communications between the Federal agency and LifeScan regarding the test strips at issue. Yet, no documents of this nature were discovered when LifeScan made its production in October 2022. LifeScan does not take issue with the Medsource Entities’ assertion that Federal regulations require a manufacturer, such as LifeScan, to communicate with the agency for the purpose of assigning codes, a joint effort. See, 21 C.F.R. § 207.33(d); 21 C.F.R. § 207.35(b)(2)(i); and 21 C.F.R. § 207.35(b)(2)(ii). Nor does LifeScan take issue that the regulations required that if there is a change in product characteristics, a registrant needs to assign a new NDC to the new product version and submit this information to the FDA. See, 21 C.F.R. § 207.35(b)(4)(i). These requirements undoubtedly suggest that there should be some sort of paper trail between a manufacturer and the FDA when drugs or medical products, such as diabetic test strips, receive or change NDCs. Yet, the Medsource Entities assert that documents of this nature must exist but have not been produced while LifeScan does not directly address this assertion. LifeScan does make a reasonable argument that the Medsource Entities’ response to this deficiency is relatively long in coming. At the time the prior motion was argued and during the time frame after the Order was entered, then during the time Plaintiff and Zions worked out search parameters, and after the production took place, the Medsource Entities certainly had an opportunity to address any deficiencies as to NDC-related documents, but failed to do so. Some ten months or more after the production and more than a year after the dispute was argued, Defendants now file this motion. Nevertheless, the Special Master finds that the balance weighs in favor of the Medsource Entities. If these documents exist – documents specific to Alliance's alleged NDC swapping which is a substantial element of LifeScan's claim – the documents must be produced. If LifeScan asserts that the documents do not exist, or existed at one point but cannot now be located, Plaintiff bears the burden of explaining why the documents are no longer in its possession, and describing the search previously performed that resulted in the October 2022 production. Therefore, the Special Master orders that LifeScan produce any and all documents as to NDCs responsive to RFP numbers 54, 65 and 66. Should LifeScan assert that the documents do not exist, Plaintiff is required to provide a detailed certification stating this and explaining why the documents are no longer in its possession and describing the search performed when retrieving the documents LifeScan previously produced. LifeScan must take these steps within thirty (30) days of the date of this Order and Opinion. VI. Conclusion *5 For the reasons previously set forth above, the Medsource Entities’ motion to compel Lifescan to produce documents responsive to RFP numbers 54, 65 and 66 is GRANTED within the parameters set forth in this Order and Opinion. Footnotes [1] The Medsource Entities collectively refers to defendants HS Medsource Hold Co., LLC, Kesman Hughes & Company, LLC, and Hughes & Company and Hughes & Company Investment Partners, LLC (improperly pled as two different entities). [2] These colors appear on the packaging. [3] In the companion litigation, Zions had a substantially similar issue with Roche.