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United States v. Rite Aid Corp.

United States District Court, E.D. California

May 29, 2018

UNITED STATES OF AMERICA, et al., ex rel. LOYD F. SCHMUCKLEY, JR., Plaintiffs,
v.
RITE AID CORPORATION, Defendants.

          STATUS (PRETRIAL SCHEDULING) ORDER

         An initial scheduling conference was held in this case on March 23, 2018. Wm. Paul Lawrence and Charles Siegel appeared for plaintiff Loyd F. Schmuckley; Emmanuel Salazar, Vincent DiCarlo and Bernice Yew appeared for Intervenor Plaintiff State of California; Eric Sitarchuk and Tera Heintz appeared for defendant.

         Having reviewed the parties' Joint Status Report filed on March 16, 2018, and discussed a schedule for the case with counsel at the hearing, the court makes the following orders:

         I. SERVICE OF PROCESS

         The defendant has waived service of summons for the complaints of both plaintiffs. Service of any amended complaints or responsive pleadings shall comply with the applicable Federal Rules of Civil Procedure.

         II. ADDITIONAL PARTIES/AMENDMENTS/PLEADINGS

         Upon the court's ruling on defendant's pending motion to dismiss, plaintiffs may file amended complaints. In its order on the motion to dismiss the court will provide further direction regarding the timing of such filings. As a general rule, the Federal Rules of Civil Procedure will govern the filing of pleadings and any amendments to pleadings.

         III. JURISDICTION/VENUE

         Jurisdiction is predicated upon 28 U.S.C. § 1367 and 31 U.S.C. § 3732(B). Jurisdiction and venue are not disputed.

         IV. DISCOVERY

         A. Rite Aid has moved to stay discovery as to plaintiff until the court resolves the pending motion to dismiss plaintiff's fraud-based claims. Stay Mot., ECF No. 112; Dismissal Mot., ECF No. 100.

         Plaintiff's fraud-based allegations are that Rite Aid submitted false reimbursement claims for “Code 1” drug prescriptions. First Am. Compl. (“FAC”), ECF No. 101, ¶¶ 3, 21. Specifically, plaintiff alleges Rite Aid violated California regulations that “explicitly state that the pharmacist must have documentation of the patient's diagnosis, in order for Medi-Cal to reimburse the prescription.” Id. ¶ 24. The State of California has intervened under the California False Claims Act and alleged that Rite Aid failed to comply with “Code 1 restrictions.” Complaint-in-Intervention, ECF No. 101, ¶¶ 4, 6. Plaintiff has incorporated by reference California's allegations. FAC ¶¶ 2, 37, 40, 43, 47, 50. After Rite Aid filed its motion to stay, Rite Aid and California filed a stipulation to stay discovery. ECF No. 108. Plaintiff, however, opposes the stay. Stay Opp'n, ECF No. 118. Plaintiff also confirmed at hearing that he would not join the stipulation. See Tr., ECF No. 126, 32-33.

         District courts have broad discretion to grant or deny requests to stay discovery to avoid “annoyance, embarrassment, oppression, or undue burden or expense” pending dispositive motions. See Fed. R. Civ. P. 26(c); see, e.g., Jarvis v. Regan, 833 F.2d 149, 155 (9th Cir. 1987). Rite Aid argues courts “in California and across the country have consistently ruled” to stay discovery by relators until those relators can sufficiently plead a False Claims Act claim under Federal Rule of Civil Procedure 9(b). Stay Mot. at 8. In exercising this broad discretion, however, courts must weigh the possible damage that could result from granting a stay against the hardship or inequity a party may suffer in being required to go forward. See CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962) (citing Landis v. N. Am. Co., 299 U.S. 248, 254-255 (1936)). “[I]f there is even a fair possibility that the stay for which he prays will work damage to someone else, ” the moving party “must make out a clear case of hardship or inequity in being required to go forward.” Landis, 299 U.S. at 255 (verbatim quote). “The proponent of a stay bears the burden of establishing its need.” Clinton v. Jones, 520 U.S. 681, 708 (1997) (citing Landis, 299 U.S. at 255).

         Here, the possible damage a stay may cause outweighs the hardship or inequity Rite Aid may suffer if required to go forward. Specifically, as discussed at hearing, the court is concerned about data preservation during the proposed stay, which may affect third parties. See Tr. at 35-37. Counsel for California noted at hearing that according to its investigation, providers already are beginning to destroy relevant documents because providers' duty to preserve ends after seven years from the date of service. See Tr. at 36-37. This potential preservation issue constitutes a “fair possibility” that the stay could be damaging in a way that undermines the interests of justice. Rite Aid has not met its burden to state “a clear case of hardship or inequity in being required to go forward.” Landis, 299 U.S. at 255l; Clinton, 520 U.S. at 708 (proponent of a stay must establish its need). This is particularly true considering plaintiff's discovery request to date is limited to a seven-paragraph request for production seeking “basic documents.” Tr. at 31.

         Accordingly, the balancing of interests here weighs against a stay. The court DENIES both the motion and the proposed stipulation that would otherwise effect a stay of discovery. This resolves ECF Nos. 108 and 112.

         B. Phased Discovery

         The court adopts the parties' request to conduct discovery in phases as set forth below.

         1. First Stage of Discovery - ...


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