Millennium Laboratories, Inc. v. Allied World Assurance Company (U.S.), Inc., No. 3:2012cv02280 - Document 235 (S.D. Cal. 2016)
Court Description: ORDER granting Defendant's 219 Motion for Reconsideration; granting Defendant's 161 Motion for Summary Judgment; denying Plaintiff's 156 Motion for Summary Judgment. Clerk ordered to enter judgment in favor of Defendant Allied World and against Plaintiff Millennium. Court denies as moot 218 Joint Ex Parte Motion to Reset Pretrial and Trial dates. Signed by Judge Cynthia Bashant on 2/25/2016. (jah)
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Millennium Laboratories, Inc. v. Allied World Assurance Company (U.S.), Inc. Doc. 235 1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 MILLENNIUM LABORATORIES, INC., 13 14 Case No. 12-cv-2280-BAS(KSC) ORDER GRANTING DEFENDANT’S MOTION FOR RECONSIDERATION Plaintiff, 15 v. 16 [ECF No. 219] ALLIED WORLD ASSURANCE COMPANY (U.S.), INC., 17 Defendant. 18 19 20 Based on purportedly newly available evidence regarding allegations 21 investigated by the U.S. Department of Justice, Defendant Allied World Assurance 22 Company (U.S.), Inc. (“Allied World”) now moves for reconsideration of the Court’s 23 September 30, 2015 Summary Judgment Order. Plaintiff Millennium Laboratories, 24 Inc. (“Millennium”) opposes. 25 The Court heard argument from the parties on February 17, 2016. See Civ. 26 L.R. 7.1(d)(1). For the following reasons, the Court GRANTS Allied World’s 27 motion for reconsideration. 28 // –1– 12cv2280 Dockets.Justia.com 1 I. INTRODUCTION 2 Back in 2012, when Millennium bought the insurance Policy at issue in this 3 case,1 it was facing problems. Several competitors had filed private lawsuits and 4 several whistle-blowers had filed qui tam actions against Millennium. These lawsuits 5 alleged that Millennium engaged in unlawful business practices, that it encouraged 6 health care providers to submit false and/or fraudulent claims to health insurers and 7 that it provided unlawful kickbacks to those health care providers. 8 Millennium understandably wanted insurance that would pay for any such 9 lawsuits filed in the future. Allied World, the insurance company that provided 10 coverage in 2012, wanted to make sure it was not covering the proverbial burning 11 building. The result was the Policy, negotiated by top-notch lawyers, all trying to 12 make sure their respective clients were protected. Millennium wanted protection 13 from future lawsuits. Allied World wanted to exclude actions that had culminated in 14 lawsuits already filed. 15 Along came the U.S. Department of Justice (“DOJ”), eager to jump on the 16 illegal-activities allegations made in past lawsuits and interested in ferretting out any 17 illegal activities—past and present—by Millennium. 18 subpoenas, asking for a wide range of documents and listing a wide range of potential 19 offenses. Millennium turned to Allied World and asked for coverage in responding 20 to these requests. The DOJ issued broad 21 On September 30, 2015, this Court issued an Order Granting Millennium’s and 22 Denying Allied World’s Motions for Summary Judgment. (ECF No. 217.) At that 23 point in time, since the DOJ investigation was shrouded in Grand Jury investigation 24 secrecy, it was impossible to determine whether the investigation or allegations being 25 investigated arose out of, were based upon, or were attributable to prior actions or to 26 27 The Forcefield Healthcare Organizations Directors and Officers Liability Policy No. 03071511 issued by Allied World to Millennium for the policy period of December 1, 2011 to December 1, 2012 (“Policy”). 1 28 –2– 12cv2280 1 wholly new conduct. 2 On October 28, 2015, Allied World filed a Motion for Reconsideration based 3 on newly discovered evidence. (ECF No. 219.) Allied World bases the motion on 4 the Complaint filed by the DOJ against Millennium, which has now been unsealed, 5 and the Settlement Agreement reached between Millennium and the DOJ, which was 6 made public in mid-October 2015.2 7 8 II. THE SETTLEMENT AGREEMENT3 9 The DOJ reached a settlement with Millennium and various Relators, 10 including Robert Cunningham (“Settlement Agreement”). (Def.’s RJN Ex. 2, ECF 11 No. 219-4.) Among other actions, the Settlement Agreement settled the qui tam 12 action of United States ex rel. Cunningham v. Millennium, No. 09-12209 (D. Mass. 13 Dec. 29, 2009). (Id.) 14 In the Recitals of the Settlement Agreement, “[t]he United States contends that 15 it has certain civil claims against Millennium arising from the submission of claims 16 to the Federal Health Care Programs from January 1, 2008 through May 20, 2015 for 17 . . . (1) excessive and unnecessary UDT [Urine Drug Testing] ordered by physicians 18 without an individualized assessment of patient need . . . [and] (2) UDT referred by 19 physicians who received free point-of-care drug testing supplies [illegal kickbacks].” 20 (Def.’s RJN Ex. 2, ECF No. 219-4.) 21 // 22 // 23 24 Allied World requests that this Court take judicial notice (“RJN”) of a wide variety of materials associated with this Settlement Agreement, including the unsealed Complaints, Settlement Agreements, and press releases issued by the Department of Justice. (ECF Nos. 219-3, 219-4.) Millennium does not oppose this request. The Court will take judicial notice of the Settlement Agreements and the unsealed Complaints. Fed. R. Evid. 201. 3 This Court adopts and incorporates by reference the “Background” detailed in its September 30, 2015 Summary Judgment Order (ECF No. 217) and only outlines here the information newly revealed in mid-October 2015. 2 25 26 27 28 –3– 12cv2280 1 III. LEGAL STANDARD 2 Rule 59(e) of the Federal Rules of Civil Procedure permits a district court to 3 reconsider and amend a previous judgment based on newly discovered evidence. 4 Dixon v. Wallowa Cnty., 336 F.3d 1013, 1022 (9th Cir. 2003). To justify an 5 amendment because of newly discovered evidence, Allied World must show: (1) the 6 evidence was discovered after the court’s judgment was issued: (2) that even with 7 due diligence the evidence could not have been discovered earlier; and (3) “that the 8 newly discovered evidence is of such a magnitude that had the court known of it 9 earlier, the outcome would likely have been different.” Id. 10 Reconsideration is an “extraordinary remedy to be used sparingly in the 11 interests of finality and conservation of judicial resources.” Kona Enters., Inc. v. 12 Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (internal quotation marks 13 omitted). It should not be used as an opportunity to raise arguments that should have 14 been raised earlier. Id. 15 16 IV. DISCUSSION 17 A. Allied World Has Proven the Specific Claims Exclusion Applies. 18 Allied World has clearly established that the unsealed Settlement Agreement 19 and Complaint were not discovered until mid-October, after the Court issued its 20 Order at the end of September. It has further shown that, despite its attempts to learn 21 of the contents of the Settlement Agreement earlier, it was unsuccessful. Thus, the 22 only issue is whether, had the Court known of this information, the outcome would 23 have been different. Because the evidence is newly discovered, the Court will 24 consider the Motions for Summary Judgment de novo and will not require Allied 25 World to show “clear error” in the Court’s original order. See McDowell v. Calderon, 26 197 F.3d 1253, 1254-55 (9th Cir. 1999). 27 The “Specific Claims Exclusion” in the Policy provides that “[n]o coverage 28 will be available for Loss from any Claim based upon, arising out of, directly or –4– 12cv2280 1 indirectly resulting from, in consequence of, or in any way involving” the Ameritox 2 Action, the Aegis Action, and the Robert Cunningham Action. (Wiygul Decl. Ex. 3 17, Endorsement 7, ECF No. 161-2 (emphasis added).) 4 A quick review of the three Actions listed in the Specific Claims Exclusion 5 and a comparison of the Settlement Agreement makes it clear that this exclusion 6 applies. Ameritox v. Millennium, No. 11-775 (M.D. Fla. Apr. 18, 2011) and Ameritox 7 v. Millennium, No. 11-866 (S.D. Cla. Apr. 22, 2011) (collectively, “Ameritox 8 Action”) were lawsuits filed by a Millennium competitor alleging that “Millennium 9 formed a business plan to increase its market share . . . through an improper and 10 illegal scheme” including illegal kick-backs and encouraging false billings to 11 Medicare.4 (Def.’s MSJ RJN Ex. 5 ¶¶ 10-11, ECF No. 161-3; Def.’s MSJ RJN Ex. 12 11, ECF No. 161-4.) These are exactly the same allegations listed in the Complaint 13 filed by the DOJ against Millennium and Settlement Agreement entered into between 14 the parties. 15 Aegis Sciences Corp. v. Millennium, No. 11-294 (M.D. Tenn. Mar. 29. 2011) 16 (“Aegis Action”) was an “action for injunctive relief, disgorgement of ill-gotten gains 17 and damages caused by Millennium’s numerous ongoing and constantly evolving 18 schemes to defraud the federal and state health care programs . . . and private payors 19 and insurers. Millennium’s panoply of schemes include illegal kickbacks, fee sharing 20 arrangements and fraudulent, unnecessary and duplicative testing and billing 21 practices.” (Def.’s MSJ RJN Ex. 7, Introduction, ECF No. 161-4.) Again, these 22 allegations are the same allegations referenced in the Settlement Agreement. 23 However, most telling is United States ex rel. Cunningham v. Millennium, No. 24 09-12209 (D. Mass. Dec. 29, 2009) (“Cunningham Action”), in which Robert 25 Cunningham alleged Millennium violated the Federal False Claims Act, 31 U.S.C. § 26 3729(a), by using a model that “encourage[d] physicians to submit false claims to 27 28 References to Allied World’s request for judicial notice related to its summary-judgment motion will be abbreviated as “MSJ RJN” for the purposes of this order. 4 –5– 12cv2280 1 government and private health insurance programs.” (Wiygul Decl. Ex. 2 ¶ 16, ECF 2 No. 161-2.) This is most telling because, now that the Settlement Agreement has 3 been unsealed, it is clear that the Department of Justice investigation and ensuing 4 subpoenas, involved, at least in some way, the Robert Cunningham Action because 5 it culminated in settlement of that Action. 6 Had the Court known of the Settlement Agreement at the time it issued its 7 Order regarding Summary Judgment Motions, its Order would have been different. 8 At the time the Order was issued, Allied World had failed to prove that the 9 Department of Justice investigation “in any way involved” any of the actions listed 10 in the specific claims exclusion. They have now done so. 11 12 B. No DOJ Allegations Fall Outside the Specific Claims Exclusion. 13 Millennium argues that, while the “Specific Claims Exclusion” might apply to 14 some aspects of the Department of Justice investigation, in fact the investigation and 15 the subpoenas were investigating far broader activities. Thus, argues Millennium, if 16 the Court finds the “Specific Claims Exclusion” applies to some of the documentary 17 evidence requested by the Department of Justice, it does not apply to all. 18 In support of this argument, Millennium points to examples of DOJ allegations 19 it claims fall outside of the “Specific Claims Exclusion” including allegations that: 20 (1) some Millennium employees had created fake custom profiles; (2) Millennium 21 had a requirement that physicians order a minimum number of drug tests with each 22 order; (3) Millennium had engaged in witness intimidation and destruction of 23 evidence; and (4) Millennium made false representations to doctors about the 24 efficacy of some of the testing and that they would be sued in legal actions because 25 they didn’t do enough testing. However, a closer look at all of these examples shows 26 how each is still involved, at least in some way, with the three specified excluded 27 actions. 28 // –6– 12cv2280 1 For example, in the DOJ Complaint, under the heading “Millennium Caused 2 Physicians to Order UDT That Was Not Reasonable and Necessary in Violation of 3 Medicare Requirements,” the DOJ alleges that Millennium had a plan to direct 4 physicians to establish protocols that required dozens of drug tests, regardless of each 5 patients’ individualized need or condition. (Def.’s RJN Ex. 1 ¶ 88, ECF No. 219-3.) 6 Millennium accomplished this plan in a variety of ways—by having the doctors fill 7 out standing order forms that required a minimum number of drug tests or creating 8 fake custom profiles for these doctors (id. Ex. 2 ¶¶ 89-99); by telling the doctors they 9 would be subject to regulatory action if they did not order more tests (id. Ex. 1 ¶ 118); 10 and by making false representations to the doctors about “false negative” rates (id. 11 Ex. 1 ¶¶ 120-21). Although Millennium’s counsel attempts to couch this as separate 12 wrongs being investigated by the DOJ, in fact, this is exactly the same conduct that 13 is alleged in the Ameritox Action (“Millennium formed a business plan to increase 14 its market share . . . through an improper and illegal scheme” including false billings 15 to Medicare); the Aegis Action (Millennium’s “ongoing and constantly evolving 16 schemes” to defraud federal health care programs by “unnecessary and duplicative 17 testing and billing practices”); and the Cunningham Action (Millennium violated the 18 Federal False Claims act by encouraging doctors to submit false claims). 19 Even the witness-intimidation allegations, which involved a Power Point 20 presentation given by the Millennium CEO showing Millennium’s competitors, 21 including Ameritox and Aegis, in body bags (Def.’s RJN Ex. 1 ¶ 181), were also 22 allegations made in the Ameritox Action.5 Finally, the allegations that Millennium 23 destroyed evidence had to do with emails Millennium instructed its sales 24 representatives to delete, again showing that it put pressure on sales representatives 25 to obtain and submit false drug testing. 26 // 27 28 In the Ameritox Action, Ameritox added claims based on this Power Point presentation and the depiction of Ameritox in body bags to its consolidated third amended complaint. 5 –7– 12cv2280 1 All of the DOJ allegations in the Complaint and the Settlement Agreement, 2 including those that Millennium’s counsel argues are completely unrelated, are based 3 upon, arising out of, directly or indirectly resulting from, in consequence of or are in 4 some way involving the Ameritox, the Aegis, or the Cunningham Actions. 5 Therefore, the Specific Claims Exclusion applies. 6 7 C. The Duty To Advance Costs Argument Has Already Been Resolved. 8 Finally, relying on Scottsdale Insurance Co. v. MV Transportation, 36 Cal. 4th 9 643 (2005), Millennium argues that, even if Allied World can prove today that the 10 Specific Claims Exclusion applies, because Allied World did not have the facts to 11 support this exclusion until the DOJ Complaint and Settlement Agreement became 12 public, any defense costs from 2011-2015 should have been advanced by Allied 13 World. 14 In Scottsdale, the court drew a distinction between a case where there is a duty 15 to defend because there is a potential for coverage with a case where there is not even 16 the potential for coverage. In a case where there is a duty to defend because there is 17 a potential for coverage, that duty is extinguished once it is shown that no claim can 18 in fact be covered. 19 prospectively and not retroactively. Id. at 655. In other words, an insurance company 20 may not recoup costs advanced under a duty to defend before it becomes clear that 21 the duty no longer exists. On the other hand, where there is not even the potential 22 for coverage because the claims do “not even possibly embrace any triggering harm 23 of the specified sort with the policy period caused by an included occurrence,” then 24 the insurance company does not have a duty to defend, and any costs advanced may 25 be recouped. Id. However, at that point, the duty to pay is extinguished 26 There is one large problem with the parallels Millennium draws with 27 Scottsdale. In this case, United States District Judge Marilyn L. Huff clearly found 28 that the “potential for coverage” does not apply and that Millennium must show that –8– 12cv2280 1 the DOJ investigation is actually covered by the Policy. (ECF No. 73.) Thus, Judge 2 Huff concluded, Allied World had no duty to defend, just the duty to reimburse 3 Millennium for defense costs incurred that Millennium demonstrates are actually 4 covered by the Policy. 5 Since Millennium has failed to show that any defense costs are actually 6 covered by the Policy, and the “potential for coverage” standard is inapplicable, 7 Scottsdale is similarly inapplicable. 8 9 V. CONCLUSION & ORDER 10 In light of the foregoing, the Court GRANTS Allied World’s motion for 11 reconsideration. (ECF No. 219.) Consequently, the Court GRANTS Allied World’s 12 Motion for Summary Judgment (ECF No. 161), DENIES Millennium’s Motion for 13 Summary Judgment (ECF No. 156), and ORDERS the Clerk of the Court to enter 14 judgment in favor of Defendant Allied World and against Plaintiff Millennium. The 15 Court also DENIES AS MOOT the parties’ Joint Ex Parte Application to Reset 16 Pretrial and Trial Dates. (ECF No. 218.) 17 IT IS SO ORDERED. 18 19 DATED: February 25, 2016 20 21 22 23 24 25 26 27 28 –9– 12cv2280
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